Vol. 739 Wednesday No. 37 18 July 2012

PARLIAMENTARY DEBATES (HANSARD) HOUSE OF LORDS OFFICIAL REPORT

ORDER OF BUSINESS

Death of a Member: Lord Chilver Announcement Questions Flooding: Insurance Economy: Growth Schools: Children in Care Railways: Electrification Littering from Vehicles Bill [HL] First Reading Five Statutory Instruments Motions to Approve Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2012 Motion to Approve Financial Services Bill Committee (4th Day) NHS: Specialised Services Question for Short Debate Financial Services Bill Committee (4th Day) (Continued)

Grand Committee Northern Ireland Act 1998 (Devolution of Policing and Justice Functions) Order 2012 Rehabilitation of Offenders Act 1974 (Exceptions) (Amendment) (England and Wales) Order 2012 Data Protection (Processing of Sensitive Personal Data) Order 2012 Public Bodies (Abolition of Her Majesty’s Inspectorate of Courts Administration and the Public Guardian Board) Order 2012 Public Bodies (Abolition of Crown Court Rule Committee and Magistrates’ Courts Rule Committee) Order 2012 National Minimum Wage (Amendment) Regulations 2012 Community Interest Company (Amendment) Regulations 2012 Tribunals, Courts and Enforcement Act 2007 (Consequential Amendments) Order 2012 Considered in Grand Committee

Written Statements Written Answers For column numbers see back page

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© Parliamentary Copyright House of Lords 2012, this publication may be reproduced under the terms of the Parliamentary Click-Use Licence, available online through The National Archives website at www.nationalarchives.gov.uk/information-management/our-services/parliamentary-licence-information.htm Enquiries to The National Archives, Kew, Richmond, Surrey, TW9 4DU; email: [email protected] 223 Death of a Member: Lord Chilver[18 JULY 2012] Flooding: Insurance 224

Baroness Knight of Collingtree: My Lords, will my House of Lords noble friend the Minister bear in mind when dealing with this matter not just the terrible inconvenience of Wednesday, 18 July 2012. having one’s house flooded but the fact that no mortgage can be obtained if insurance is not available? It therefore 3pm becomes almost impossible to sell one’s house if the deal does not go through. Prayers—read by the Lord Bishop of Chester. Lord De Mauley: My Lords, that is a very important Death of a Member: Lord Chilver point. We recognise that there are concerns over the Announcement continued ability of existing and prospective mortgage- holders to find affordable insurance. We are working 3.06 pm with those involved to get a better understanding of what the impact on the mortgage market would be The Lord Speaker (Baroness D’Souza): My Lords, I of increased premiums and how lenders would choose regret to inform the House of the death of the noble to react. Lord, Lord Chilver, on 8 July. On behalf of the House, I extend our condolences to the noble Lord’s family and friends. Lord Gordon of Strathblane: My Lords, surely the answer is to ensure that planning permission is not given for building on the flood plain unless the developer Flooding: Insurance takes precautionary measures to ensure that the area Question cannot be flooded in future?

3.07 pm Lord De Mauley: My Lords, that is also an important Asked By Lord Dubs point, which the Government are fully apprised of.

To ask Her Majesty’s Government what discussions Lord Greaves: My Lords, the affordability of insurance they have had with insurance companies to ensure depends partly on the flood risk. I commend the that affordable flood insurance is available for Government and the insurance industry for all the householders in areas considered to be at risk. work that they are doing to find an internal solution within the industry to this, but it also depends on how Lord De Mauley: My Lords, Ministers have met much money the householder has and their resources. with a range of representatives from the insurance Last December, the excellent report published as the industry, including the Association of British Insurers. road map states: Together, we are looking to deliver a new approach “The Government will look at further ways to encourage take that genuinely addresses the availability of flood insurance up of insurance by low-income households, including the potential as well as securing its affordability for the first time. A of insurance-with-rent schemes for social housing”. number of options are being considered that would Are the Government taking this forward seriously, as allow policyholders in high flood-risk areas to continue it is one answer to the problem? Do the Government to secure affordable insurance without having an impact understand that the people really in difficulty when it on bills more generally. comes to insurance are often those in privately rented accommodation? Can insurance-with-rent schemes be Lord Dubs: My Lords, the Minister’s statement is promoted within that sector? welcome but is he aware that, given that thousands of homes have been devastated by floods in recent years, Lord De Mauley: Once again, my Lords, yes is the at present some insurance companies are imposing answer to my noble friend. swingeing increases on premiums in order to deter householders, some of whom have to go to other Lord Campbell-Savours: My Lords, it is not just a companies that then bear all the risk? The insurance question of the availability of insurance. Just as important industry needs to put its house in order. Will the is the question of excess. Will that very important Minister take all that into account in his negotiations component be on the agenda? with the industry?

Lord De Mauley: Yes, my Lords. Although this is Lord De Mauley: My Lords, I have first-hand not exactly a declaration of interest I ought to say that experience of that very point. I think that in a number my former home was flooded in 2007, so I have been of cases, premiums have been held relatively steady through the process of claiming on the insurance. We but the excesses have been put up. The noble Lord is recognise that the price of insurance is rising in areas absolutely right. of flood risk and has the potential to become unaffordable for some. This is precisely why the Government, working Lord Elton: My Lords, I understand that the closely with the industry, are considering an internal environment department has a complete set of maps industry levy which would allow policyholders in high of flood risk areas. Will my noble friend suggest that flood-risk areas to secure affordable insurance without the Secretary of State should call in all planning having an impact on bills more generally. applications that fall within those areas? 225 Flooding: Insurance[LORDS] Economy: Growth 226

Lord De Mauley: I will certainly pass that suggestion Lord De Mauley: My Lords, the Government have on. set out a comprehensive strategy to deal with the challenges we face. Fiscal, monetary, financial, tax and structural reform all play a role to deliver our Lord Knight of Weymouth: My Lords, a week last objective of lasting economic recovery and sustainable Saturday the River Wey rose and chose to flow through public finances. That strategy has reduced the deficit the ground floor of my house. I now know the scale of and helped to deliver near record low interest rates. difficulty that this is causing thousands of householders around the country. I take this opportunity to thank not only neighbours but staff in the Environment Lord Roberts of Conwy: I am grateful to my noble Agency and the insurance industry for their support. friend for that reply. I am sure that the entire House These people tell me in conversations that we will be would like to welcome the 65,000 fall in unemployment, lucky to end the summer with ground water at anything which was announced today. Welcome as that news is, other than normal winter levels. Is it not therefore we must face the fact that demand for goods and urgent that before Defra Ministers go on holiday, they services is slackening, if not falling, worldwide. It is must conclude a deal with insurers to incentivise reducing growth prospects in many countries, including householders to invest in flood resilience for householders’ our own. Does my noble friend agree that in these homes to be insurable and for their premiums to be circumstances the best that we can do is concentrate affordable? on those sectors of industry that have full order books, especially of exports, and on the key areas of housing and infrastructure at home where we can be sure of a Lord De Mauley: My Lords, there is a lot in that return in the longer term? Can we get on with it as question. I agree with the general thrust of what the soon as possible? noble Lord has said. Like him, I pay tribute to the Environment Agency staff who have worked tirelessly for 24 hours a day through the recent floods, the Lord De Mauley: I agree with my noble friend: each front-line emergency services, the Flood Forecasting of these is vital and we are taking important steps in Centre staff and the local authorities, all of whom these areas of exports, housing and infrastructure. have been working extremely hard. However, our strategy goes further. What we need to do is encourage the private sector through a competitive tax system; make the UK the best place to start, The Duke of Montrose: My Lords, does my noble finance and grow a business; encourage investment in friend the Minister have a scheme whereby if a levy is infrastructure; and improve the flexibility and skills of imposed on the industry, it can be got to agree to our workforce. As my noble friend will be aware, we absorb the cost of this? Will it not otherwise be passed have put in place a range of measures to achieve each on to the rest of the householders? of these.

Lord De Mauley: My Lords, although it is early Lord Barnett: Despite the excellent news that the days in the negotiations, there are certainly a number noble Lord is pleased to give, would he agree that of options as to which route could be followed. What growth at the moment is near zero? Although increases my noble friend says is a very valid point and will in capital expenditure would be excellent, especially certainly be taken into account. under some kind of loan guarantee scheme that was announced outside the House this morning, can he tell Lord Dubs: My Lords, perhaps I may feed in one us more about that loan guarantee scheme? How will further point for the negotiations. Does the Minister it work in practice? Will the Government be guaranteeing agree that postcodes in the country often cover very 100% of project? large areas, encompassing both high-risk and low-risk properties? Does he further agree that it would be Lord De Mauley: I cannot give the noble Lord the better if the insurance industry used Environment details that he asks for here because it would take too Agency maps to identify the risk for more specific long, but I will write to him. locations? Lord Clement-Jones: My Lords, we all want to see a Lord De Mauley: My Lords, I am very grateful for strong business and growth strategy legacy from the that point, which I will certainly take back. Olympics, particularly looking beyond the next few weeks, and we want to sell our capabilities internationally. However, does not the insistence by the IOC that some 75,000 of our businesses cannot associate themselves Economy: Growth as having been suppliers to the Olympics rather militate Question against that?

3.13 pm Lord De Mauley: My Lords, my noble friend raised Asked By Lord Roberts of Conwy this point in a debate the other day. The building of the Olympic park and other Games venues for London To ask Her Majesty’s Government what steps 2012 has been a great success story for the UK. In they are taking to encourage demand to promote order to secure over £1 billion of sponsorship, restrictions growth in the United Kingdom economy. on marketing rights have had to be put in place. 227 Economy: Growth[18 JULY 2012] Schools: Children in Care 228

The many thousands of suppliers for both the build Lord De Mauley: My Lords, my support for the and the staging of the Games have received a full Chancellor of the Exchequer is unstinting. On the commercial rate for their goods and services. However, subject of the IMF forecast that the noble Lord raised, the Government are committed to working with the I point out that the forecast for the eurozone, where British Olympic Association and others, and through 40% of our exports go, is a contraction of 0.3%. It is them the IOC, to find a way to ensure that contractors of course concerning but hardly surprising that our and subcontractors can seek a form of recognition of forecast has been affected, so it is all the more impressive their superb contribution to the Games. that the private sector jobs figures that I referred to earlier have outstripped so substantially the job losses Lord Foulkes of Cumnock: My Lords— in the public sector. Furthermore, as I said, manufacturing output is up, and exports to countries outside the EU are substantially up. All that must be good news, as is Lord Tomlinson: My Lords, does the Minister accept the news on inflation, which is good for both businesses that the nub of the Question asked by the noble Lord, and families. The director of the IMF’s fiscal affairs Lord Roberts, was about how to encourage demand department said, following the announcement, that and promote growth, and that those questions were we should not change course on deficit reduction. the very ones that he did not really address in his reply? Would he take note that there is serious concern, not only on both sides of this House but in the Lord Bates: My Lords, is my noble friend aware country, about the failure to do those two things and that the north-east of England is the only region of that that is manifested in today’s Ipsos MORI poll, the country that exports more than it imports? Is he which shows Labour on 44%, the highest since the last further aware that figures for the past quarter show general election, with the Government—the Conservatives that those exports are now at record levels? Is he —slumping to 31%? further aware that today unemployment in the north-east fell for the first time in two quarters? Does he recognise that this is a welcome progression, and will he ensure Lord De Mauley: I congratulate the noble Lord on that the Government continue to make sure that they his performance; we are more focused on the economy. back winners rather than pick winners? Of course growth is of concern but unemployment is falling. In the three months to May, the number of unemployed fell by 65,000 and 181,000 new jobs were Lord De Mauley: Yes, my Lords, I agree with my created. Since the coalition took office in May 2010, noble friend. The issue is one of confidence. I will tell more than 840,000 private sector jobs have been created, noble Lords who else thinks that we are doing the manufacturing output is up and exports of goods to right thing. Last month BMW announced a £250 million outside the EU are up by 35% quarter on quarter from investment to increase production of Minis, on top of the first quarter of 2010 to 2012. Noble Lords will also the £500 million investment it announced last June. know that inflation has fallen. Ford is putting £1.5 billion into R and D and manufacturing over the next five years. Nissan is building the electric Leaf car, with an associated battery factory, Lord Forsyth of Drumlean: Does my noble friend in Sunderland. Toyota is producing Europe’s first mass- agree that we will only get growth from businesses produced fully hybrid car and engine in the UK. being able to sell goods and services competitively throughout the globe? Would it be a good idea for the Secretary of State, Mr Cable, to spend his Summer Recess thinking of ways in which he can reduce the Schools: Children in Care cost of doing business for our firms throughout Question the country? That, not demand, is the key to getting further employment and further tax revenues for the 3.22 pm Treasury. Asked By Lord Lexden

Lord De Mauley: My Lords, my right honourable To ask Her Majesty’s Government whether they friend the Secretary of State for Business thinks of have plans to enable more children in care to secure little else. places at boarding schools in both the maintained and independent sectors. Lord Soley: My Lords— The Parliamentary Under-Secretary of State for Schools (Lord Hill of Oareford): My Lords, we believe Lord Foulkes of Cumnock: My Lords— that in the right circumstances, boarding school can be a very good option for children in care and vulnerable Lord Soley: Given that the IMF has downgraded children. Last month saw the launch of the Assisted our growth forecast from 0.8% to 0.2%—the lowest Boarding Network by RNCF and Buttle UK, and for any major economic power—will the Minister give also the National Foundation for Boarding Bursaries, his very full support to the Chancellor of the Exchequer, which involves independent and maintained boarding who would like to allow more private sector investment, schools. Both schemes aim to increase access to boarding specifically for the expansion of Heathrow? Will the for vulnerable and disadvantaged children. We very Minister confirm his support for the Chancellor on much support both initiatives and would urge local that issue? authorities to consider boarding as an option. 229 Schools: Children in Care[LORDS] Schools: Children in Care 230

Lord Lexden: I am extremely grateful to my noble Baroness Walmsley: My Lords, in 2008, under the friend, with whom I have worked on educational issues previous Government, we had the Boarding School in the past, for that reply—particularly as regards the Provision for Vulnerable Children pathfinder. Since new National Foundation for Boarding Bursaries and we should be in favour of evidence-based policy, can the Assisted Boarding Network. Will my noble friend my noble friend tell me whether that pathfinder has confirm that the state spends annually more than been evaluated, what the results were and whether the £37,000 on each looked-after child, while the average Government will take action along those lines? cost of a private boarding school place is now some £24,000, and that assisted boarders achieve significantly Lord Hill of Oareford: As I was saying, the numbers better examination results than look-after children? involved in the pathfinder under the previous Government While, as my noble friend said, boarding education were small—I think that only 76 children were considered will not be suitable for all children in care, is it not for places, 17 of whom were placed; and of those, extremely heartening that the Assisted Boarding Network, 11 stayed the course. So, the number was small. However, backed by highly successful charitable organisations, I do not think that that is a reason for us not to is planning a significant increase in numbers over the explore this further as a possibility, taking into account years ahead? It is sad that some local authorities have the fact that it clearly will not be the right option for in recent decades been firm opponents of assisted everyone and that we should consider the interests of boarding. The noble Lord, Lord Adonis, who has the child first and not look for a single solution. been so determined a proponent of it, recently called for an end to what he called outdated thinking. Lord Elystan-Morgan: Does the Minister accept that, in general, the tale of children who have been in Noble Lords: Question! care is a gloomy and miserable one; that they are overrepresented in all the categories of failure and underrepresented in the categories of achievement; Lord Lexden: Will the Government give local that the public school scheme seems to reverse that authorities their full support to assist the progress of trend completely; and that, therefore, it deserves the what the Princess Royal recently described as a really most practical and committed support on the part of key partnership? government?

Lord Hill of Oareford: Yes, my Lords, we would Lord Hill of Oareford: I agree with both parts of certainly encourage all local authorities to think carefully the noble Lord’s point. It is a gloomy tale, and therefore about boarding as an option. Local authorities such it is incumbent on us to look at everything that can as Norfolk are already doing it, and others are as well. make a contribution to making it better. As I said, boarding schools can play a role—I agree with my noble friend. I am grateful for the initiatives Baroness Jones of Whitchurch: My Lords, does the taken by RNCF/Buttle and by the independent and Minister agree that although, as has been said, boarding maintained schools. schools may be the answer for the minority of pupils in care, the much bigger challenge is to address the The Earl of Listowel: My Lords, can the Minister disproportionate number of children in care who attend give an indicative figure on the number of children in failing schools? What action are the Government prepared care, and the number of children on the edge of care, to take to ensure that these children are given greater who are currently benefitting from this policy each access to schools rated as outstanding by Ofsted? year? Have the Government commissioned research into this area? I detect considerable interest among my Lord Hill of Oareford: I agree with the noble Baroness’s Cross-Bench colleagues on the subject. Will the Minister basic point—that the contribution that independent consider a briefing for interested Members of the or maintained boarding schools are likely to make Lords and of the Commons on this interesting policy? will, proportionately, be a relatively modest one; and that, therefore, the Government’s reforms to try to Lord Hill of Oareford: I would very much welcome improve educational performance will play an important further discussion with the noble Earl and any other part. It is the case that looked-after children, obviously, Members of this House who are interested. I think have priority for admissions, and that includes admission that there is interest across the House in the potential to the kinds of schools the noble Baroness described. I of this initiative. As my noble friend mentioned, the hope that other initiatives that we are taking—such as noble Lord, Lord Adonis, was very keen on trying to bursary support after the age of 16, the pupil premium make progress in this area, and the previous Government and so on—will help. However, the key challenge for did some interesting trials. The numbers are currently us in all schools is to raise those standards, bearing in very low but I think that, properly handled, there mind that we need to focus on the particular group she should be potential for the numbers to increase. The described and shine a spotlight on their educational two initiatives which I have talked to perhaps have the achievement and the gaps that there are. potential to go up to, say, 1,000 places. That might involve children at the edge of care, in care or otherwise Lord Eden of Winton: My Lords, on a more general disadvantaged. However, I would very much welcome point, does my noble friend agree that there are the chance to discuss it further with the noble Earl and considerable educational advantages and benefits that anyone else who is interested. come from the closest possible working relationship 231 Schools: Children in Care[18 JULY 2012] Railways: Electrification 232 between the maintained and the independent sectors? It is also essential to understand that the west coast To that end, will he do all that he can in discussions main line will run out of capacity if we do nothing. It with interested parties on both sides and with teachers’ is only a matter of time. union to ensure that such developments flourish? Lord Wigley: My Lords, will the noble Earl accept Lord Hill of Oareford: My noble friend makes an my very great appreciation of the electrification of the extremely good point. The more that we can encourage line through to Swansea and the south Wales valley the independent and the maintained sectors to work lines? However, will he accept, in the context of the together and learn from each other, the better it will reply that he has just given, that the line from Crewe to be. I am certainly keen to do everything that I can to Chester and Holyhead also has very heavy needs, take that forward. particularly the need to offload freight going through Baroness Farrington of Ribbleton: My Lords, can to Ireland? Can he give an assurance that the recent the Minister tell us how many of the places identified announcement does not preclude progress on that line in the independent sector are allocated according to also? ability and entrance criteria and how many are awarded on the basis of need alone? Earl Attlee: My Lords, the CP5 is not the end of the electrification process. We have announced what we Lord Hill of Oareford: I do not have detailed will do in terms of electrification for CP5, but the information on all the schemes that are currently process will go on. running. The new scheme that I was talking about is being run by the independent schools and the maintained Lord Bradshaw: The announcement this week means schools together. They are expressly clear that selection that more than 800 miles of electrification are now and attainment are not part of what they want to do. likely. That is good news for consultants, good news They want to make it available to disadvantaged children for planners and good news for those seeking of all abilities. apprenticeships. Would the Minister care to speculate on what would have been done by the party opposite? Railways: Electrification Question Earl Attlee: My Lords, I would hope that the party opposite, if in power, would have carried on with the 3.30 pm process of giving us a railway system that is fit for Asked By Baroness Seccombe the people of the United Kingdom To ask Her Majesty’s Government what will be the economic and environmental benefits of the Lord Davies of Oldham: My Lords, the “party electrification of English and Welsh railways. opposite”, of course, produced the plans and had commitments for half the money which is to be expended Earl Attlee: My Lords, electrification is expected to on these proposals by this Government, expenditure lead to a number of benefits, including higher acceleration which did not take place immediately after the election and higher top speeds than diesel stock, greater capacity, because the Government themselves induced the delay. and lower costs of leasing, maintenance and operation. Of course, we welcome the Government’s intention to These savings can lead to reductions in the long-term make progress on electrification. Although the noble cost of the rail industry. Electric trains are more Lord referred in glowing terms to the HS2 project, we environmentally friendly than diesel trains and also note that there is no commitment in these proposals electrification should make rail freight more competitive to the expenditure for HS2 and we wonder whether in with road, reducing environmental damage and congestion. fact the Government are running a little scared of their Back-Benchers, as they have been recently in the Baroness Seccombe: My Lords, I thank my noble other House. friend for that Answer. I welcome the Statement on the electrification of the east Midlands and other lines most enthusiastically along with the upgrades to mainline Earl Attlee: My Lords, I can assure noble Lords stations and extensions to platforms. As the Prime that the Government are not running scared of their Minister said, Back-Benchers in respect of HS2. I would also remind the noble Lord that we are currently in CP4, which “this investment will mean faster journeys, more seats … greater … links and a truly world class rail network”. was devised by the previous Administration. The Does my noble friend agree with me that the specification announcement is for CP5. for any future project should ensure that it is for the benefit of the many and not the few? Lord Anderson of Swansea: My Lords, in the spirit of good will just before the Recess, may I say that the Earl Attlee: My Lords, my noble friend is quite Government deserve full-hearted congratulations on ingenious. I have a feeling that she really wants to talk the decision to extend electrification to Swansea and about HS2. I absolutely agree with her that future to the valleys? Does the Minister recognise that one of projects should be for the benefit of the many and not the major problems in Wales is the widening gap the few. However, HS2 is not predicated on a very between the relative prosperity of south-east Wales high-cost service for senior businessmen paid for by and that of west Wales and the valleys? This decision everyone—a sort of Concorde on tracks. HS2 passenger will go at least some way to contribute to a non-extension demand forecasting is based on the current fare structure. of that widening gap. 233 Railways: Electrification[LORDS] Business 234

Earl Attlee: My Lords, I agree with the noble Lord. Financial Services and Markets Act 2000 That is exactly why we have done it. I would also like (Regulated Activities) (Amendment) to pay tribute to the efforts of the noble Lord, Lord Touhig, who skilfully put pressure on the Government Order 2012 in respect of the Ebbw Vale electrification project. Motion to Approve Lord Shutt of Greetland: My Lords, I commend the 3.38 pm Government on pursuing these electrification schemes Moved By Lord Sassoon but it is quite clear that there are plenty of further candidates, whether they be Holyhead, Plymouth, Hull, That the draft order laid before the House on or indeed the Calder Valley. Is the Minister saying that 14 June be approved. he now sees a rolling programme going forward for Relevant document: 4th Report from the Joint electrification? That is what we want to see. We have Committee on Statutory Instruments, considered in had bust, and it seems that we have got a bit of boom, Grand Committee on 17 July. but is it going to be rolling forward? Motion agreed. Earl Attlee: My Lords, we want to avoid feast and famine for the civil engineering industry. We are saying now what we will do for CP5. I have already indicated Business to the noble Lord, Lord Wigley, that we will continue the process in CP6, but of course I cannot at this point 3.38 pm make any suggestion as to what will happen in CP6. Baroness Royall of Blaisdon: My Lords, forgive me. Noble Lords may recall that yesterday I asked the Littering from Vehicles Bill [HL] noble Lord the Leader of the House to ensure that First Reading while Parliament was sitting, Statements were announced to Parliament and not to the media. Lo and behold, I 3.37 pm woke up this morning to hear on the BBC an A Bill to make provision for a civil penalty for littering announcement about the £40 billion loan guarantee from vehicles and to require local authorities to publish scheme. I have no comments about the scheme, which details of contracts relating to litter clearance. I am sure is perfectly reasonable, but if this is a new announcement of new money being made available, it The Bill was introduced by Lord Marlesford, read a first should have been made to Parliament. If it is not new time and ordered to be printed. money, then the Government should tell us that it is recycled money. In any case, on the day on which an Safeguarding Vulnerable Groups Act 2006 announcement was made, the Minister standing at the (Controlled Activity and Prescribed Dispatch Box should have been able to give an answer to my noble friend Lord Barnett when he asked about it. Criteria) Regulations 2012 Baroness Anelay of St Johns: My Lords, it is Safeguarding Vulnerable Groups unfortunate that the noble Baroness, Lady Royall, did (Miscellaneous Amendments) Order 2012 not give us advance notice of this. She might have asked a question when my noble friend Lord Sassoon Police and Crime Commissioner Elections moved his Motion. We do not have business questions in this House as yet. I know my noble friend Lord (Functions of Returning Officers) Sassoon could have made a comment at that time. I Regulations 2012 am aware that he has put down a written Ministerial Statement on this matter. I am also aware that the Police and Crime Commissioner Elections noble Baroness was able to meet with the Leader of Order 2012 the House yesterday to discuss this matter. I suggest that those discussions continue.

Police and Crime Panels (Modification of Lord Foulkes of Cumnock: My Lords, another point Functions) Regulations 2012 arises from that. Although the noble Lord, Lord De Motions to Approve Mauley, answered the first two Questions immaculately, he is only a Whip and not a departmental Minister. 3.37 pm When these detailed Questions arise, sometimes the Moved By Lord Henley Whips do not seem to be able to answer them. That the draft regulations and orders laid before On the second Question in particular, where was the House on 14 and 15 May and on 11 June be the Minister of State for BIS—the Scarlet Pimpernel approved. of the House of Lords? Why do we never see the noble Relevant documents: 2nd and 3rd Reports from Lord, Lord Green of Hurstpierpoint? Why does he the Joint Committee on Statutory Instruments, 3rd Report not come to answer Questions? Why is he not here? He from the Secondary Legislation Scrutiny Committee, could have answered that Question properly and considered in Grand Committee on 13 June and 12 July. substantially from the Dispatch Box, but he is not here today. Is it because he is so embarrassed that he was Motions agreed. executive chairman of HSBC during the banking scandal? 235 Business[18 JULY 2012] Financial Services Bill 236

Financial Services Bill —although, having checked lots of codes of conduct, I find that surveyors have to, Committee (4th Day) (Continued) “always provide a high standard of service”, so perhaps we could have some trading up there. 3.41 pm So you have to act in the best interests of clients, provide a good standard of service to your clients and not behave in a way that is likely to diminish the trust Clause5:ThenewRegulators that the public places in you or the profession. If only bankers and the rest of the industry had signed up to that and it had been enforced by their professional Amendment 104ZB body or regulator. Sadly, we have learnt the hard way Moved by Baroness Hayter of Kentish Town that the culture and behavioural traits of those working in the financial services sector have not been sufficient 104ZB: Clause 5, page 16, line 7, at end insert— with regard to professionalism, integrity and competence. “( ) As part of the FCA’s consumer protection and integrity objectives, the FCA will raise standards of professionalism in financial services by mandating a training and competence regime 3.45 pm which must— (a) apply to all approved persons exercising controlled It is not just me. Hector Sants argued in 2010 that functions, regardless of financial sector, some of the causes of the financial crisis were deeply (b) specify minimum thresholds of competence including rooted in the behaviour and culture which resulted in integrity, and professional qualifications, continuous bad actions and decisions. Recent scandals, whether professional development and adherence to a recognised PPI, LIBOR, interest rate swaps, or endowment code of conduct, mortgages, should ensure that we make the Bill require (c) be evidenced by individuals holding an annual validation the FCA to get the sector to improve standards of of competence.” ethics, culture and behaviour. Redress and penalties are not sufficient, for the mischief is already done. While we endorse the amendment in the name of the Baroness Hayter of Kentish Town: My Lords, I am noble Baroness, Lady Kramer, and the noble Lord, impressed that I will be standing opposite an immaculate Lord Sharkey, I ask them why, when we had the Whip, which I am sure will make for a good day’s work opportunity of an independent review into the causes on the Bill. of all this mayhem and therefore the opportunity to The amendments in the first group— draw broader lessons about the causes and the means to avert future misbehaviour, they failed to support us in the Lobbies. Their intervention on LIBOR in this Baroness Anelay of St Johns: My Lords, I hesitate amendment, simply to ensure that the penalty falls on to interrupt the noble Baroness who is carefully moving the right half of the bank, although welcome, seems, I her amendment, but I remind noble Lords that a have to say, a rather timid response to a major scandal. substantial number of Peers wish to take part in the We wish the noble Baroness well on the Joint Committee Committee stage of the Bill. Will noble Lords please and we hope that her inquiring mind will fall on the leave the Chamber a little more quietly so that we can wider issues covered in this group, which I trust she hear the noble Baroness? will also support today. We know that the higher a practitioner’s commitment Baroness Hayter of Kentish Town: I thank the noble to professional standards, the lower is the likelihood Baroness for that assistance. of consumer harm and the higher is consumer trust and confidence. This is the case for the whole industry, The amendments would raise the standards of not just the retail sector. As the Chartered Institute of professionalism in the financial industry; partly by Securities and Investments has said: adding professional standards to the definition of “It cannot be tenable … for the wholesale sector to have integrity, partly by introducing a code of conduct and significantly lower standards than the retail market in terms of partly by mandating a training and competence regime. qualifications, CPD and ethics”. That is only what other professions expect: training, a The Minister may say that the varied nature of code, a qualification, CPD and proof of competence. financial services and different needs of customers Part of the reason that we trust lawyers and doctors, means that it is very hard to have a single qualification, architects and surveyors, is that they meet these but that is the case for doctors and lawyers. An ILEX requirements with proof of competence. That is why member does not have the same qualification as a we trust them with our wills, our conveyancing, our specialist family court QC, nor a GP the same as divorces and our lives. A code of conduct enables us to a cancer surgeon, but that does not mean that there know what is expected of them in terms of behaviour, cannot be mandatory qualifications for all, appropriate ethics and integrity, as well as in particular skills and to their responsibilities. Qualifications can easily keep standards. pace with the complexity of financial services to adapt Let me quote from just one such code—that for to the changing nature of consumers, of products and solicitors. It reads: of the external environment. If we are to restore trust “You must: …act with integrity ….act in the best interests of and confidence we must upskill the workforce, the each client … provide a proper standard of service to your profession, both in technical standards and in ethics. clients”— We need a new code of conduct for bankers. 237 Financial Services Bill[LORDS] Financial Services Bill 238

[BARONESS HAYTER OF KENTISH TOWN] As the Committee will know, two cases are already Stewardship banking relies on the idea that banking under way in the United States. One is in the Southern is a trusted profession, not a fly-by-night activity. If District of New York, which is a class action lawsuit we are serious about banking regaining the status of titled “In re LIBOR-Based Financial Instruments teaching, medicine and law, we must act. Those professions Antitrust Litigation”—the use of “antitrust” obviously have a code of conduct that lays down what is expected has significant consequences—and the second is in the of people. We need the same for banking. Anyone who northern California district court, filed by Charles Schwab breaks the rules should be struck off, whether for against a series of banks, including a number of UK manipulating markets or gaming indices, or deliberate banks. Charles Schwab claims in its complaint that mis-selling. People should not be able to work in “significant harm” has resulted from the mispricing of, banking again if they mis-sell a product. Confidence “tens of billions of dollars in LIBOR-based instruments”. will not return until we strike off those whose conduct Its complaint outlines the methodology of comparing lets us down. the banks’ LIBOR quotes with some market-based yields and CDS spreads. Some excellent work done by The second amendment in this group, in my name the securities analyst Cenkos estimates that the LIBOR and that of my noble friend Lord Eatwell, is driven by quotes were understated by 30 to 40 basis points in the same belief: that professional standards are key to some cases. Cenkos does a simple calculation to show good behaviour in a sector that displayed a notable that if LIBOR had been mis-stated by even five basis lack of integrity, standards and ethics. We cannot points over four years, on £1 trillion-worth of notional simply hope for change, we must work for change. contracts, the damages would be £2 billion. We are This amendment would add professional standards to therefore looking at multiples of billions of potential the definition of integrity and therefore to the FCA’s charges. operational objectives. It would force supervisors to examine the extent to which firms have demonstrated It struck us as we were looking at this and reading their commitment to such standards, making them a some of the stories about Barclays considering separating core part of the FCA’s work and remit. the bank into an investment bank and a retail bank—that is the direction in which we are going in this country As long ago as 2002 Howard Davies, then the FSA through ring-fencing, and I am very much in favour of chairman, admitted that despite the FSA’s principles it—that there might be scope for organisations to being based on ethical values, it was, decide that those liabilities generated by LIBOR “not clear that this ethos is fully understood or applied consistently manipulation could happily be sited in the retail part by everyone working in the industry”. of banks rather than the investment part. I am afraid Amendment 110ZB attempts to make amends for this that that view comes with some cynicism, as many of oversight. Professional standards need to be embedded us now would not put anything beyond the decision- in a firm’s ethos and this must be supervised by the making powers of some bank boards and directors. regulator. Left to themselves, too many firms simply We are seeking from the Government some stern do not pass muster. We need to enhance the integrity comments to the effect that we have got this entirely of our financial services sector in order to ensure good wrong and that safeguards are in place. If it is not the consumer outcomes and drive up standards. The FCA case, we hope that someone will quickly pay attention, must send clear signals to the firms it regulates about because the decisions that could set this process in the behaviours it expects and the professionalism that train could happen fairly quickly. I think that every must be evidenced. These amendments are part of one of us here and the public at large would be enabling that to happen. I beg to move. shattered if that was the conclusion to this aspect of the scandal. This is in no way meant to be a comprehensive response to the amendments; it is one particular issue Baroness Kramer: My Lords, I shall speak to that struck us as being in need of immediate comment. Amendment 110ZC, which stands in this group in my name and that of my noble friend Lord Sharkey. I thank the noble Baroness, Lady Hayter, for her kind Lord Peston: My Lords, I listened with enormous words. This amendment illustrates why I and, I suspect, interest to the noble Baroness, Lady Kramer, and am this House and the other place had a preference for a sympathetic to what she said, but I cannot see how the parliamentary committee, which will report by the end amendment fits into this section of the Bill. If I have of the year, over a judicial committee which will report read it correctly, new Section 1D(2)(b) states that the in a couple of years, because the issue addressed in it integrity of the financial system includes, would certainly have been resolved one way or the “its not being used for a purpose connected with financial crime”. other by that point and, I suspect, with damaging As I understand it, these people have engaged in effect. I hope that the Government will respond to the financial crime and been fined for it already. If the amendment by telling me that it is completely unnecessary, noble Lord, Lord Carlile, is to be believed, they will be but it arises out of deep concern following various brought before the courts to be examined some more. newspaper reports that have discussed the size of the What unfair allocation does the noble Baroness have liability that may fall on the banks involved in LIBOR in mind? If some American investors have lost a great manipulation. We are talking not just about the fines deal of money as a result of criminal activities by that come from the regulators—they are significant people connected with British banks, it would not be but small in the way of things for banks—but about unfair if those banks had to meet the cost of those the liabilities that may arise from the various actions criminal claims. Is she saying that that would be that are now under way and others which I am sure unfair, or have I totally misunderstood the purpose of will join them. the amendment? It is most likely to be the latter. 239 Financial Services Bill[18 JULY 2012] Financial Services Bill 240

Baroness Kramer: I would hesitate ever to say that judicial inquiry is the right approach give our very best the noble Lord, Lord Peston, had misunderstood any wishes to those who have taken on the important task issue. Perhaps I can clarify. This is a probing amendment, of carrying out the parliamentary inquiry. The credibility and I cannot pretend that it is drafted with skill or of Parliament is at stake here, as is that of our financial placed in the Bill where, ultimately, a sophisticated services industry, so it is enormously important that legal mind— or, perhaps, the noble Lord—would put people of the highest intellectual calibre and integrity it. We felt that it was an issue that needed to be raised have been selected. I know that the noble Baroness promptly. I fully accept that if courts decide that there falls under both those categories, as does my noble is liability, that liability will be met, but if the institutions friend Lord McFall, who is sitting behind me, and I are dividing themselves into separate pieces and there also delighted that he has been nominated for the is flexibility on where the liability is then allocated—into committee. That is very reassuring to us all. a retail entity or the investment banking entity—that is of acute interest. 4pm Lord Peston: This sounds a bit like tax avoidance in The noble Baroness raises a very important issue. a new version. If they separate the institution into two There are several possible costs which may emerge to parts, they will then claim that there is a part that is banks if they are found guilty of manipulating a not guilty. Is that the point of the amendment? market, in this case the LIBOR market. There are the regulatory fines, which—as the noble Baroness says—are Baroness Kramer: I think that this is an issue that I probably the least important in monetary terms, and will hand off to the Minister. some of which are already foreseen in the regulatory reports. There is then the prospect of substantial damages for successful antitrust suits that may be Lord Davies of Stamford: My Lords, I want to brought by the Department of Justice in the United intervene briefly on two amendments. One is that States or possibly the European Commission, or by moved by my noble friend, Amendment 104ZB. I other antitrust bodies in the future. Then there are the congratulate her on it and draw particular attention to damages that may be awarded by courts, which are paragraph (c), which is enormously important. Paragraphs much more likely to be awarded if there are criminal (a) and (b) stand by themselves and no one will want convictions in advance of the civil actions. to argue with them, but I particularly congratulate my noble friend on paragraph (c), which deals with the These damages can be enormous; one thinks need to ensure that all those involved in managing immediately of two categories of person or corporate money or advising retail investors should keep abreast that may be negatively impacted by the rigging of the with changes in financial markets, which, as we all market such as the LIBOR. First, there are the derivative know, have been great in the past 10 or 20 years, and in traders, who will have found that the product in which financial products. they are dealing, such as interest rate futures or derivatives The range of financial products available is enormously options based on interest rates, has been completely confusing. Inevitably, it totally confused retail investors. falsified so that when they come to their closing day It is enormously important that IFAs are kept abreast the price is quite different from what it otherwise of developments so that they can give good advice to would have been. That sort of loss could be easily their clients. Among the complex and dangerous quantified and there will be substantial suits from instruments that have emerged have been all sorts of derivative traders and dealers of that kind. Secondly, derivatives used both for hedging purposes—thereby there are those who have borrowed on a LIBOR basis reducing risk if they are used intelligently and properly— and who may find that at certain periods the LIBOR and speculatively and extremely dangerously. That can was falsified upwards. I leave all this open, as we do be an acceptable product for a very sophisticated not know yet. In other words, they were paying more investor to use as a way to leverage his or her risk if he than they should have by way of interest rate—base or she is determined to do that. rate and margin—and will obviously seek to recover Just as it is so important to ensure that doctors are that. Again, that can go into enormous sums. kept abreast of changes in medical science, which in a The noble Baroness, Lady Kramer, is absolutely career of, say, 40 years, can revolutionise the subject, it right to focus on the temptations that will exist here. If is enormously important that that should happen in a bank has investment banking and commercial banking financial services. An “annual validation of competence” divisions, there is an obvious reason why it might want would be an excellent discipline that will itself create a to ensure that all these losses emerge in the commercial market. Professional organisations, business schools banking division. It is not particularly because it hates and others will arrange regular courses for people in retail depositors but because it knows that Governments the financial services industry who are affected by the tend to stand behind them, both with a retail deposit clause and need to keep up to speed. I hope that those scheme and—if the bank gets into real trouble and is courses will involve some test or examination at the large enough that its failure might have a systemic end, so that it will be possible to use that as validation. impact—with the lender of last resort, which is the That will greatly reassure the public. I congratulate my central bank in the relevant jurisdiction. That would noble friend on proposing this extremely intelligent not happen with the investment banks. People may contribution to the Bill. well say, “Let’s take all these losses in the commercial I also congratulate the noble Baroness, Lady Kramer, banking division, and if the worst comes to the worst first, on being selected for the very important committee. the central bank will pick it up”, which basically Even those of us who thought—and still think—that a means the taxpayer. 241 Financial Services Bill[LORDS] Financial Services Bill 242

[LORD DAVIES OF STAMFORD] Minister will tell us about how great this new FCA will One can easily see, therefore, that there is a perverse be. For now, though, I will leave it with him and, as I incentive present here. The noble Baroness is absolutely say, perhaps he can digress slightly and answer my right to identify this problem, which, it is hoped, is other question. entirely theoretical. No-one has ever conceived of doing anything of this kind. I trust that this is the case; I am sure the noble Baroness also hopes that it is not The Commercial Secretary to the Treasury (Lord the case. However, we need to think about these things Sassoon): My Lords, I hope that the Committee will in Parliament. We need to ensure that the law is robust agree that it is probably better, given the number of and that it deters wrongdoing as well as punishes members of the Committee here, if I stick to matters wrongdoing when it occurs. That is the spirit in which relevant to this group of amendments rather than the noble Baroness has presented this amendment and wandering off into the long grass from where I might I greatly welcome it. never come back. All three amendments in this group relate to concerns that have arisen in connection with the recent LIBOR scandal, and in that context I am Lord Barnett: My Lords, I, too, congratulate the sure that the Committee would like to thank not only noble Baroness on her appointment to the Joint my noble friend Lady Kramer and the noble Lord, Committee. I hope she will be able to do something Lord McFall of Alcluith, but my noble friend Lord that, from what I have seen, the committee has not Lawson of Blaby, the noble Lord, Lord Turnbull, and been able to do before—namely, focus on the job in the right reverend Prelate the Bishop of Durham for hand. She said—and I disagree with her strongly—that kindly agreeing to join the parliamentary committee this Joint Committee would be enough to do the job on banking standards, which goes to the heart of the completely. I cannot see that happening from what I concerns raised in the amendments. have seen of it now, although I am sure she will not be I turn to the issue of professional standards. grandstanding as members of the committee are doing Amendment 104ZB seeks to place requirements on today. My noble friend Lord McFall will probably do the FCA to impose a training regime. The object of a better job; I congratulate him too on his membership the regime is to specify minimum standards of competence of the Joint Committee. and integrity, and it will include continuous professional I strongly support my noble friend Lady Hayter on development and a code of conduct. Amendment 110ZB this amendment. I am concerned by the broader issue seeks to extend the non-exhaustive definition of the of the FCA. The Government have changed the name integrity of the UK financial system by adding a from the FSA to the FCA. I am not sure that the FCA reference to the professional standards of those working will be any better at dealing with the problems that in financial services. have arisen about LIBOR or anything else, or with all the mistakes that were made. Perhaps the Minister will As a former chairman of the IFS School of Finance— have in his brief the number of FSA staff who have what was previously called the Institute of Bankers—I now simply changed their letters and become members believe as firmly as anyone that professional education of the FCA. While I am digressing slightly, perhaps I has to be a cornerstone of standards in the banking could digress a little more and ask the Minister if he industry. Personally, I wish that more banks would can do what the noble Lord, Lord De Mauley, could insist on more of their employees going through structured not do earlier; namely, to answer my question about professional education, not just at the start of their why the Government decided to make a statement careers but right through them. In answer to the point about an important issue of loan guarantees on the made by the noble Lord, Lord Davies of Stamford, “Today” programme this morning and not in the there are indeed providers of these courses of great House. I look forward to hearing the Minister on that. distinction, including the IFS School of Finance, and The whole issue of what the FCA is going to be able many bankers go through them. However, we would to do within the Bank of England disturbs me a great all like to see many more going through them and on a deal. I am not at all sure that it should have been done continuous basis. in this way. To give huge powers to the Bank of Having said that, particularly in the light of the England, as I said, is hardly likely to help, judging by LIBOR scandal, we must ensure that our regulators what has happened in the past. We now know from the have the right powers to set and enforce high standards governor of the Bank and others that they knew of behaviour in the financial services industry. That is nothing whatever about what was going on, which is why we have invited Parliament to set up an inquiry rather surprising, to say the least. into standards in that industry. While I share many of The noble Baroness, Lady Kramer, was able to the concerns of the noble Baroness, Lady Hayter, that bring LIBOR into this whole issue in her amendment. does not mean that I can support these amendments, Like my noble friend Lord Peston, I am not quite sure which I consider unnecessary and to be coming forward how she managed to get it there but she did, and the at the wrong time. Neither amendment gives the FCA best of luck to her. I hope that she gets a reply. For the powers to impose standards of integrity and competence moment, though, I wonder what changes the Minister that it does not already have. The FCA’s integrity hopes to see that will improve what went on before. objective contains an indicative and non-exhaustive The FSA was clearly not successful in the role that it list of matters that are relevant to the UK financial had been given. I would like to see some of these system operating with integrity. The conduct of those amendments approved so that we can see the FCA working in financial services is already covered by the doing a better job. I wish that that might be true but I objective, even if it is not listed here. The list contains am bound to say that I look forward to what the a number of matters relevant to the LIBOR example, 243 Financial Services Bill[18 JULY 2012] Financial Services Bill 244 including the soundness of the system and the orderly raises, what will be different with the FCA? One of the operation of markets. These can be ensured only if things that will be different is that the Government are standards of professionalism are maintained by those publishing new threshold conditions for all regulated in the industry. firms. Indeed, they have been published today on the Treasury website in advance of the relevant clauses Lord Davies of Stamford: The Minister agrees with being debated in due course. They include tougher me that it is highly desirable that there should be standards on the probity of staff and management in regular courses for people working in the financial regulated firms. The noble Lord, Lord Barnett, is right markets, so that those advising the less sophisticated to insist that tougher standards should be imposed by can be kept up to date. Yet I cannot understand why the FCA than the FSA, and that is exactly what we are he resists the suggestion that that should be a statutory, doing. As ever, he is right on the ball and goes to the mandatory requirement—that, as my noble friend’s heart of the matter. amendment lays down, such people should be forced on annual basis to have their qualifications validated. 4.15 pm What is his reason for resisting that? That brings me briefly to the second point on these Lord Sassoon: If the noble Lord, Lord Davies, two amendments, which is to endorse their timeliness would permit me to complete the argument, I have and to emphasise, as I have already done, that we explained that the FCA has an integrity objective, should wait for the outcome of the Joint Committee’s under which standards of professionalism need to be inquiries. I confirm that we will consider very carefully maintained by those in the industry. Within the overall the recommendations of that committee, including integrity objective the FCA already has a mandate any recommendations for legislative change. and powers to deal with these issues. It will specifically Let me turn to Amendment 110ZC. I will not dwell have powers to impose standards, including training on the debate about the effectiveness or defectiveness and qualification, on individuals. Training, qualifications of the drafting, which was identified by the noble and minimum standards will be of considerable Lord, Lord Peston, and owned up to by my noble importance to the issue of re-establishing a proper friend. I shall not dwell on that as that was not the banking culture. They are matters which will be relevant point of the amendment, but it is nice if amendments to the regulators’ consideration of applications by work in the Bill because we are talking about amending persons wishing to become approved to carry out the Bill. This amendment raises an important point significant influence functions, but it is a big step from about not unfairly penalising the retail arms of our that to the FCA mandating a training regime across big banks in penalties that may arise for the manipulation all areas of financial services. of LIBOR. I put on the record again that it is important The forthcoming reviews, including that of the to recognise that the FSA found for attempted parliamentary Joint Committee, will show whether my manipulation of dollar LIBOR, not sterling LIBOR. analysis is right, or whether the committee believes We know there are other investigations going on but, that the FCA needs additional powers. To answer at as the noble Lord, Lord Davies of Stamford, pointed least one of the challenges from the noble Lord, Lord out, at the moment we do not know whether the Barnett, I refer back to the existence of the committee; attempted manipulation had any effect, whether up or this is going to be central to what it is looking at. I see down. In any case, it is going to be very difficult to one member of the committee nodding assent, but I calculate the net effect. think it is obvious. There are two considerations: how things stand under FiSMA and the impact on the structure of the Lord Peston: From what we know about the LIBOR forthcoming Vickers Bill, the banking reform Bill, scandal is it not valid to infer that, whoever these which will change the effect of the intended amendment people engaging financial intermediation are, they are significantly. If we take the current position, under not a bunch of professionals? Is someone not going to Section 206 of FiSMA the FSA has the power to have to be responsible for raising professional standards, impose penalties on an authorised person who commits or if not raising them then introducing them? I am misconduct, and the FCA will have this power in surprised that the Government do not take this as future. We should be clear about that, but it is not a seriously as they should. matter for the regulator to decide how the firm in question decides to pay and account for the penalty, Lord Sassoon: My Lords, we take it extremely seriously and the regulator’s powers therefore do not extend to and that is why we thought that it was right to set up directing the firm in this respect. However, the critical the Joint Committee. Unlike the noble Lord, Lord point is the effect of the Vickers reforms because, as Barnett, I do not doubt that it will get through its the Committee knows, we will be making very substantial work efficiently, effectively and quickly. changes to the banking landscape through the banking reform Bill when we come to implement the proposals Lord Peston: He is not alone. of the Independent Commission on Banking. Once the Vickers proposals have been implemented, ring-fenced Lord Sassoon: I recognise that we are giving it a big banks will be authorised persons in their own right, challenge and I am grateful to it for taking the challenge and they will not be liable to pay fines imposed on on, and for the terms of reference, but we should wait other authorised persons, so the substance of my to see what it comes up with in this area. Even if it noble friend’s concern will be addressed for the long came up with nothing, there are adequate provisions. term, not just in the case of this particular LIBOR On another point that the noble Lord, Lord Barnett, scandal. 245 Financial Services Bill[LORDS] Financial Services Bill 246

[LORD SASSOON] Finally, my question, like that of my noble friend The regulator will also be required to make rules Lord Barnett, is this: what will improve without such restricting the payments that a ring-fenced bank may amendments? If this is just the FSA becoming the make to other members of the group. This will make it FCA, will we see anything different? I believe we need difficult for another company in the group to require some signals about a code of conduct and raising the ring-fenced bank to contribute towards the payment standards. This may be something we need to return of fines. We need to get this right for the long term. to later but for the moment I beg leave to withdraw the Where fines fall should link to the authorised person amendment. and where there is an overriding concern to separate out parts of the industry, as Vickers has identified, Amendment 104ZB withdrawn. that should be the driver for where fines fall. On the basis of these explanations, I ask the noble Baroness Amendments 104A and 104AA not moved. to withdraw her amendment.

Amendment 104B Baroness Hayter of Kentish Town: Is that it? Moved by Lord Flight I will start with a small correction. The Minister said that these amendments arose from LIBOR. If he 104B: Clause 5, page 16, line 30, at end insert— had picked up my hints when I anticipated him—code “(9) The FCA shall work with the Department of Education for “That’s what his friend said in another place when to secure the provision of teaching on financial literacy at both it was going through Committee in March”—he would primary and secondary level.” know that two of these amendments predated LIBOR. Lord Flight: My Lords, everyone will be aware that the FSMA included a key brief to the FSA to advance Lord Sassoon: Just to be clear, I said that these financial education. My observation is that pfeg and relate to concerns that have arisen in connection with some of the other charities have done a reasonable the recent LIBOR scandal. Of course, they arise in job, and that certain banks such as RBS provide relation to the contact of the industry more generally. reasonable courses, but that still in our schools financial I fully recognise that and I did not in any way exclude education is extremely mixed. If people have not had that from my remarks. financial education at school, it is unrealistic to think that they will get it as adults when they need it. It is an absolute prerequisite of life today that children growing Baroness Hayter of Kentish Town: Not purposefully; up should become what I will call financially literate. I did not mean it like that. But these amendments are We all have to look after ourselves so much. built on many other things. I thank those who have contributed to this debate—the noble Baroness, Lady This amendment is not exactly what I would wish. I Kramer, as well as my noble friends Lord Peston, would like financial education to be part of the required Lord Davies and Lord Barnett. On a small issue, if curriculum in schools and I have asked a question on there are new requirements on the Treasury website that matter in the past. However, I have put forward today, perhaps they could be shared with Members of this probing amendment to see whether the Government the Committee. have to offer rather more than we have at present in terms of making sure that there is universal financial I think the Minister gave us the ammunition that education in our secondary schools. we are asking for. In talking about his role as chair of a training organisation or an accreditation organisation, he said that he wished more banks did structured Baroness Liddell of Coatdyke: My Lords, I have felt training. That is the point we are trying to make. passionately about financial education for a long number Because they do not all do it, we want it mandated. He of years and I support the probing amendment in the also said that there will be a higher entry bar for new name of the noble Lord, Lord Flight. I first became approved persons. But this is not just about people interested in the issue in the late 1990s in the aftermath coming into this industry; something needs doing of the personal pensions mis-selling débâcle when now. That is also what these amendments are about. many highly educated and sophisticated people were Most worrying, however, is that there was no reference mis-sold products, largely because of the impenetrable to a code of conduct. That is why I was slow to get to nature of the language in the retail product being my feet; I was awaiting another page. Obviously, the presented to them and, harking back to some of the Government do not feel that is needed in this industry issues raised in the previous debate, the less than for financial professionals on whom we rely as clients adequate performance of some independent financial and consumers. It is highly regrettable that the one advisers. thing the Minister did not bother to answer on was the Since then my concern has become even greater as need for a code of conduct. I do not know what it is we have seen more mis-selling scandals, such as payment about that that he cannot accept. I do not know why protection insurance and inappropriate hedging he cannot accept the demand for proof of competence. instruments for small businesses against interest rate As was made clear, there need not be one proof of movements. Added to that, there is constant pressure competence for everyone in this field; there can be a on people to get involved in financial instruments at range of them. We are not asking for a single mandate; very great cost—everything from store cards through we are asking for the FCA to come up with a regime to payday loans. There should be a fundamental that would have competence requirements. understanding on the part of people that when they 247 Financial Services Bill[18 JULY 2012] Financial Services Bill 248 take out something like a payday loan, it is not a printing paper basket. However, the company has complied error when the rate of interest is in four figures. It is with the requirement. In those cases, the famous phrases there deliberately as a means of making money. “less is more”—less information, better focused—is This issue comes up regularly. FSMA looked at it. what we should be all about. Every time there is a debate on financial services, That is an important point though not exactly what financial literacy is raised. It has become motherhood my noble friend was driving at. I think my noble friend and apple pie. However, a point will come when we was driving at something designed to deal with people start to take this seriously. I was lucky enough to go to at an earlier stage of their life. In particular, it has a school in an area that had a mutual bank, the relevance to Amendment 104C, in the names of the noble Airdrie Savings Bank, which continues to exist as the Lords, Lord Peston and Lord Barnett, about the last surviving mutual savings bank. It provided certain unavoidability of some risk. One of the issues that has financial education in schools. I have to say that there somehow got about in the world is that we can actually was probably a subplot because I still have the little insulate people from risk. When we have financial silver bank and I still retain a passbook for the Airdrie literacy lessons, we need to emphasise to everybody Savings Bank. I have no doubt that the Royal Bank of that there is no product anywhere that does not carry Scotland did exactly the same when it did its work in some level of risk. I am looking forward to hearing the schools. That is laudable, but at the end of the day the two noble Lords on this issue in a few minutes. I have issues are now too great to leave it to charitable and only one question on my noble friend’s amendment. well meaning organisations. There is a need now, for Who pays for all this? the well-being of the citizenry as well as the well-being of our financial services sector, to put financial literacy Lord Peston: Is the noble Lord going to answer that firmly on the curriculum, and I would hope not just first? here in England but in Scotland as well. I support the amendment in the name of the noble Lord, Lord Flight. Lord Flight: My Lords, at present it is effectively paid for via the charges of the FSA, which then go in a Baroness Turner of Camden: My Lords, I support charitable form to pfeg and others and which is inadequate. what my noble friend has just said. For a number of However, one could turn it the other way round—one years, I was chair of the ombudsman council of the could do it how one wants. With schools teaching PIA, which later merged into the FSA. We used to English literature, that is part of their budget. In my discuss the reports from the ombudsman and one of view, schools should be obliged to teach financial the things which bothered us enormously was the level literacy and that should be part of their budget as of illiteracy in financial services. We began to worry well. about this and to wonder what we could do about it. Eventually we set up a sort of panel of interested, qualified people who would talk to schools and so on Lord Peston: My Lords, I am very sympathetic to to ensure that we were doing at least something to try the amendment and to what has been said by my noble to remedy what we saw was an enormous problem with friends. Unlike them, I am much less optimistic about regard to education. Therefore, I very much support what can be achieved, if anything. First, I will give the what my noble friend has said. She is absolutely right. personal side. When I was at school, I was indebted, We did our best then, but we were taken over and and have been indebted for the rest of my life, to my I have no idea whether the FSA continued what we teachers for the guidance they gave me on the subjects had begun. Certainly we wanted to do that and we did that were taught in school. My love of English literature it and it was quite popular for quite a long time. I hope and my love of mathematics are two very good examples. that this amendment is taken seriously by the Government However, if someone had said “Now we are going to because it is a very important issue. have a class in finance”, I cannot believe that it would have been other than a turn-off. It would not have 4.30 pm been what I went to school for. Times have changed. I agree with that. However, Lord Stewartby: A brief point of order: the screen the other thing is that is amazingly difficult to explain has got stuck. to people even the most elementary examples of financial literacy. To give one example, which is one of my bête Lord Hodgson of Astley Abbotts: My Lords, my noire, I come from a family of gamblers. I know that noble friend has moved a very interesting amendment. gambling is a mug’s game because to be a successful We may be in danger of confusing two issues. The gambler, there are only two possibilities. Either one is noble Baroness referred to impenetrable language. corrupt and has some inside information or one is I quite accept that, but that is a question not of claiming—with the bookmaker creaming 10% off the financial literacy but of improving the form in which top—that one is 10% cleverer than anybody else around, the communication is made. To try and deal with and there is absolutely no reason to believe that. When financial literacy is a much narrower issue than I have tried to explain that elementary proposition in impenetrable language. I support her entirely, but I financial literacy, I have found it impossible to persuade would also add the form and content. How often do anybody at all. That is my personal experience. It does we get a letter from our credit card company saying not mean that we should not try, but it does mean that that it is going to amend the terms in which the credit there is a genuine question mark over what we can card is offered? It is four pages of closely packed print achieve. I am not saying that we should not try, but and what do we do but drop it straight in the waste I am pessimistic. 249 Financial Services Bill[LORDS] Financial Services Bill 250

[LORD PESTON] Lord Northbrook: I support the amendment of my I turn to the technical side of financial literacy. noble friend Lord Flight. Financial literacy is not Perhaps noble Lords have read a brilliant speech given sufficiently taught in schools. Perhaps the Department by Andrew Harvey of the Bank of England in 2009. It for Education could encourage the BBC, which is very is on the Bank of England website. My strong advice weak in the area of discussing business, let alone business to noble Lords is to look it up under “Speeches” rather education, to ask Robert Peston to do a programme than “Publications”. I wasted a good hour knowing on it. that it was there but unable to find it. It is a brilliant analysis of the behaviour of financial intermediaries— which is after all the essence of financial literacy—and Lord McFall of Alcluith: My Lords, I agree not with it is based on network analysis, which is a rather esoteric the pious nature of the amendment of the noble Lord, part of mathematics. I will read one paragraph from Lord Flight, but with the realism of my noble friend Andrew Harvey’s lecture, which I strongly recommend. Lord Peston. I chaired a workplace retirement income commission last year for the National Association of Pension Funds. We have seen a flight from defined Lord Lawson of Blaby: Andrew Haldane. benefit schemes to defined contribution schemes. As a result, we invited a Harvard professor to examine and Lord Peston: Sorry—Andrew Haldane. I am not explain the defined contribution scheme. He told us good on these things. Names are one of my Alzheimer’s that he was unable to understand his own defined problems. Mr Haldane says, in a typically short paragraph contribution scheme, never mind anyone else’s. Therefore, of his brilliant lecture: while financial education may be good, it is not the “This evolution in the topology of the network”— whole show. that is, the network of financial intermediaries— “meant that sharp discontinuities in the financial system were an accident waiting to happen. The present crisis is the materialisation Lord Flight: My Lords, although I acknowledge the of that accident”. issue, I do not believe it is that difficult. I observe that Financial literacy means being able to understand my own parents learnt basic accounting some 90 years those two sentences. I am not a bad mathematician ago at ordinary grammar schools in London as part of but even I had difficulty with the topology of networks. the general certificate. That stood them in pretty good That is the problem in this area. What you can teach at stead. Even in my time, when I was doing basic economics, the level at which the noble Lord, Lord Flight, wants what I learnt was pretty fundamental to understanding to teach, is very little indeed. As I said, that does not what equity was, what debt was, and so forth. The mean that we should not do it, but we should not courses that are up and running are pretty effective—for delude ourselves that we can produce a financially example in my own school, of which I have been a literate population because most people simply do not governor for many years—although I do not say that have the mathematics to understand this kind of work. they are perfect. One of the problems is that since the I cannot believe that anybody could write a non- Second World War, money has almost been thought of mathematical explanation of what Andrew Haldane as dirty within the educational world. This is something said. to shy away from. One of the crucial things is for the schools themselves to have staff who can be taught to Nothing I have said should stop us from trying—I teach and be enthusiastic about the subject. am not going against the noble Lord, Lord Flight, on this—but financial literacy is not the easiest thing to achieve. Lord Stevenson of Balmacara: My Lords, we support this amendment in the name of the noble Lord, Lord Lord Hodgson of Astley Abbotts: Does the noble Flight, although in saying that, like a number of noble Lord not agree that two or three basic things could be Lords, we worry that it does not go far enough in taught relatively easily? The first is the impact of simply calling for the FCA to work with the Department inflation and how it affects the value of savings. The for Education. Surely all children and young people second is the impact of compound interest and the should have access to a planned and coherent programme costs and returns of borrowing. Those two subjects do of personal finance education so that they leave school not require the brilliant mathematics of which the with the skills and confidence to manage their money noble Lord alone is capable. Quite realistic, real-life effectively. Knowing how to manage money and be a examples could be given to people in their final two or savvy consumer is a vital life skill in an increasingly three years at school. complex world. Education is about giving young people the skills and knowledge they need to get on in life, Lord Peston: I have had a little experience of this. In which is why we should get behind a campaign, so that my younger days in the Treasury we tried to persuade every child should not only learn the three Rs at senior Treasury officials that capital investment projects school, but also learn about pensions, savings, borrowing ought to be dealt with by discounted cash flow. We and mortgages. were talking to senior officials who were brilliantly As we have heard, personal financial education is clever, but it was nearly impossible to teach them even covered in the primary curriculum at present, but it is about compound interest. When we had taught them only there as part of the non-statutory framework for compound interest, they had no idea how to convert it PSHE—personal, social, health and economic education. into discounting. Again, I am not saying that we There are, of course, opportunities with a number of should not teach compound interest in schools—quite subjects across the curriculum to learn about financial the contrary. All I am saying is that it is not easy. matters, including citizenship—compulsory for all 11 to 251 Financial Services Bill[18 JULY 2012] Financial Services Bill 252

16 year-olds—mathematics, business studies, careers, to begin as early on in a young person’s school career and enterprise education. However, we think this as possible and should continue in a progressive way important life skill should be made compulsory, as the year on year. previous Government were indeed planning to do in We agree with the amendment of the noble Lord, the last Session of the preceding Parliament. Sadly, Lord Flight, but regret that it does not go far enough, there has been no legislative progress for the past two simply calling for the FCA to work with the Department years. for Education. As Martin Lewis said, that sounds to As the Minister will be aware, an e-petition calling me a little like political doublespeak for filing it in for financial education to be a compulsory part of the the bin. curriculum got more than 100,000 signatures last year As the Minister will be aware, a Private Member’s and led to a Westminster Hall debate, which is worth Bill was introduced recently in the Commons, which reading in Hansard. Many Members of your Lordships’ would require financial literacy to be included in the House will know of Martin Lewis of the website national curriculum. So the Government have the moneysavingexpert.com, who has been campaigning luxury of a choice here. They can take the low road on this issue for several years now, and was indeed the and accept the amendment from the noble Lord, Lord man behind the petition. He has recently corresponded Flight, or the Minister could take the high road and with the Prime Minister, and the most recent exchange indicate today the Government’s support for the Private was an open letter to the Sun, which provoked a Member’s Bill, which would get us to where we all response which I would like to share with your Lordships’ surely want to be on this motherhood-and-apple-pie House. issue. The Prime Minister writes to “dear Martin” and thanks him for the letter. He goes on to say, “It is true that young people should have access to good 4.45 pm quality personal finance education, so that they leave school with Lord De Mauley: My Lords, Amendment 104B, as the knowledge and confidence to manage their money effectively”. my noble friend Lord Flight has explained, would He goes on: require the FCA to work with the Department for “The PSHE non-statutory programmes of study include elements Education to secure the teaching of financial literacy aimed at ensuring that, by the time they leave school, pupils in primary and secondary schools. I am sure, as the should be able to manage their money, understand and explain voices around the House have confirmed, that we all financial risk and reward and identify how finance will play an agree on the importance of financial education for important part in their lives and in achieving their aspirations”. young people and indeed for adults. The Government This goes some way toward answering some of the share this view. points made by my noble friend Lord Peston. The As the noble Lord, Lord Stevenson, said, finance Prime Minister goes on to say: education is currently taught as part of non-statutory “This economic wellbeing and financial capability strand of personal, social, health and economic education. I PSHE was only introduced in September 2008 and Ofsted reported think that was how the previous Government set it up. in 2010 that schools had not yet got to grips with this”. The Department for Education is reviewing PSHE We understand some of the reasons for that now. We education, including whether any aspects of it should are aware that some aspects of PSHE are patchy and, become statutory as part of the basic curriculum, and as you say, there are some schools that are not able to will be carefully considering the position of finance access good resources. However, the letter concludes: education. The Money Advice Service is feeding into “We believe it is important that schools are given the freedom this review. and space to provide a truly rounded education, including important However, the FCA is being set up as a focused conduct things such as finance education”. of business regulator. The Money Advice Service is However, Martin Lewis’s response to the letter says the appropriate body to work with the Department for it all. He thanks the Prime Minister for his comments, Education at an operational level on matters of financial buthesaysthat, literacy. MAS was established by the FSA, and its “financial education must be deemed a core skill. It’s the cheapest objectives are set out in new Section 3R of FiSMA, as way, long term, to prevent millions being screwed by scandals inserted by Clause 5 of the Bill currently before your such as PPI, bank charges and endowments, to help people keep Lordships. They include an objective, energy costs down and tackle our debt epidemic”. “to enhance— The letter finishes: (a) the understanding and knowledge of members of the “So far, your government’s only commitment has been Schools public of financial matters”. Minister Nick Gibb saying: ‘It’ll be looked at in the curriculum I cannot see how MAS could discharge this function review.’ That’s good, but please ensure this isn’t political double-speak without working closely with the Department for for being filed in the bin”. Education. We believe that every child deserves to be supported MAS was established by the FSA as an independent in the development of the behaviours, attitudes and body with similar oversight arrangements to the FOS skills which will allow them to effectively manage their and FSCS. It has a statutory function to enhance the finances in order to fulfil their potential. However, it understanding and knowledge of members of the must be part of the core curriculum, and it must be public of financial matters and their ability to manage compulsory. The recent Impact Review of Financial their own financial affairs. The FSA must take such Education for Young People conducted by MAS, confirmed steps as are necessary to ensure that MAS is, at all times, that attitudes to money are formed early. All the capable of exercising its consumer financial education experts in this area agree that financial education has function. 253 Financial Services Bill[LORDS] Financial Services Bill 254

[LORD DE MAULEY] includes competition references and market studies, as The FCA will take on the FSA’s responsibility for well as super-complaints and promoting competition. consumer protection and conduct regulation, and will Meanwhile, as we know, and welcome, the FCA has oversee MAS in the same way as the FSA does now. also taken on a new remit to promote competition in MAS will continue to have operational independence. financial services. To give the FCA responsibilities in the area of financial On 14 June in another place, Mark Hoban for the education would not only risk diluting its focus but Government welcomed the fact that the Office of Fair would duplicate the role of MAS. So, in short, I do not Trading and the Financial Conduct Authority will believe that this amendment is necessary. I ask my take forward the ICB recommendations to improve noble friend to withdraw it. transparency across all retail banking products. If the OFT retains the right to conduct market studies in Lord Stevenson of Balmacara: I wonder whether the relation to financial service markets, the ABI is concerned Minister can answer my point about the Private Member’s about the risk of duplication and/or the lack of Bill which is going through the other place. It seems to co-ordination between the FCA and the OFT. Therefore, me to offer a way forward on this issue. If he cannot the ABI feels that the OFT should be subject to a give me a reply today because he has not been briefed statutory duty to cooperate and to produce an MoU. on this matter, perhaps he could write to me. It would certainly be the preference of the ABI for the FCA normally to take the lead on competition matters, Lord De Mauley: My Lords, I think I addressed it, and for the OFT to undertake market studies only in although I did not express it in those terms. I said that exceptional circumstances. the department is reviewing PSHE education, including Meanwhile, the consumer world, not dissimilarly, whether any aspect of it should become statutory. That would like the relationship between the FCA and the was intended to be my response. The noble Lord knows OFT changed from that set out in the Bill. The consumer the Government’s approach to Private Member’s Bills. world would like the FCA to have the same powers as a number of other sectoral regulators to make Lord Flight: My Lords, as I said, this was intended, competition referrals themselves—that is, the equivalent largely, as a probing amendment. I am glad that MAS of Section 131 powers. I am attracted to that but have is continuing with its role. I am strongly of the view not tabled an amendment specifically on that at this that financial literacy should be part of the core stage, in the hope that this amendment will give the curriculum. The teaching of it at present is mixed and, Minister the chance to explain why he has not replicated in general, I do not think it is adequate. We have had a such an enabling power within the present Bill. Without useful discussion of the subject and I beg leave to such a power, the FCA will still have to refer cases to withdraw the amendment. the OFT for market analysis before a referral to the Competition Commission can take place. It sounds—and Amendment 104B withdrawn. I guess it will be—a bit slow. It also adds additional, possibly unnecessary, hurdles. The Joint Committee agreed. It said: Amendment 104BA “The Government should review its decision on the FCA’s competition powers. The FCA should be given concurrent powers Moved by Baroness Hayter of Kentish Town alongside the OFT to make market investigation references to the CC. The FCA will need greater competition powers to achieve its 104BA: Clause 5, page 16, line 30, at end insert— recommended objective than is currently set out in the draft Bill.” “1BA Memorandum of understanding between FCA and Office of Fair Trading We know from the debate in the other place that the (1) The FCA must co-ordinate with the Office of Fair Trading Government, however, prefer the FCA to continue to (OFT). have to make a referral to the OFT, which would allow (2) In particular, the FCA and the OFT must prepare and the FCA to draw on the expertise of the OFT. However, maintain a memorandum of understanding which sets out their the Government have agreed that they will review respective roles and responsibilities and how they will work whether the FCA should have specific competition together. powers in five years’ time. (3) The FCA must— It is hard to see why a new authority, set up with a (a) lay before Parliament a copy of the memorandum and specific and new remit to promote competition, should any revised memorandum, and not have the requisite powers. But perhaps we will (b) publish the memorandum as currently in force in such hear the rationale when the Minister replies. Meanwhile, manner as it thinks fit.” the OFT is itself keen to establish greater clarity for interested parties on how the OFT—and subsequently Baroness Hayter of Kentish Town: My Lords, the CMA—and the FCA will work together, and the Amendment 104BA stands in my name and that of OFT is very happy for this issue to be raised today. my noble friend Lord Eatwell. Much will change in The OFT judges it important for effective debate on the OFT, partly as a result of the Public Bodies Act, the Bill that there is an understanding of how the OFT the forthcoming Enterprise Regulation and Reform and FCA will work together. Bill, and this Bill, with responsibility for consumer There is, of course, also the matter—a smaller credit moving from the OFT to the FCA. matter, perhaps—of the handover of consumer credit This amendment is not so much about that but responsibility from the OFT to the FCA, and various about the all-important competition role of the OFT, transitional issues. The handling of these should no until that, in due course, moves to the CMA. That doubt also be included in any MoU. 255 Financial Services Bill[18 JULY 2012] Financial Services Bill 256

The current OFT acknowledges that a key issue will the OFT on a non-statutory basis and the FSA is be the publishing of a memorandum of understanding already working with the OFT on putting in place a setting out the respective roles of the OFT and the memorandum with the FCA. FCA, their responsibilities and how they will work To address the need for particularly swift and effective together. Indeed, I understand that the OFT has already co-ordination in cases where a large number of consumers begun working with the FSA on a draft MoU and is have suffered detriment, such as the mis-selling of payment keen to establish greater clarity for those two parties protection insurance, the FSA has put in place additional and for those of us looking from the outside. formal mechanisms for co-ordination such as the I am aware, although my eyesight is not that good, Coordination Committee of the FSA, the OFT, the that the Minister has a file entitled, “say no to everything”. FSCS and the FOS. Statutory duties to co-ordinate I hope in this case that he might drop that and just and maintain MoUs are not needed to underpin that agree that an MoU may be without that remit. I beg to co-operation. That already happens and is effective. move. On the specific issue of competition, which Amendment 173D addresses, the FCA, as the lead Lord Flight: My Lords, my Amendment 173D covers regulator for financial services, clearly will need to essentially the same point, but is in that part of the Bill work closely with the OFT, as the central competition that deals with the practical operation of the competition authority.Of course, the regulators will have to co-ordinate objective for the FCA. There is clearly a risk of duplication their work so that their own resources are used effectively or lack of co-ordination between the OFT and the and duplication is avoided. Although they will need to FCA, so Amendment 173D proposes a legally binding take into account their respective regulatory objectives MoU setting out how the two bodies will co-operate and priorities, powers, expertise and resources, I contend together and who will do what. It should be made clear that we should allow the regulators, based on careful that the FCA would normally take the lead on competition consideration, to develop an effective protocol for matters in financial services and the OFT would undertake working with each other in order to promote competition. market studies in exceptional circumstances. The competition objective for the FSA is very well worded, 5pm very clear and extremely appropriate. Consumers need a healthily competitive market. I am still of the view I am particularly concerned with the part of the that the PRA should have a competition objective. It is amendment that would stipulate, from the outset, that the lack of competition that led to a cartel in banking. one of the regulators—the OFT—could only be involved Whenever you get a cartel you get bad habits, so, in on an “exceptional” basis. Such a rigid approach my book, a major aspect of having a much healthier would not help the regulators to deliver arrangements banking system is having more competition. which focus on the best way of promoting competition. I note that the OFT does not have a statutory MoU Lord De Mauley: My Lords, Amendments 104BA with any other of the sectoral regulators with which it and 173D both relate to co-ordination between the currently works to promote competition. FCA and the OFT. Amendment 104BA would require The noble Baroness, Lady Hayter, made reference the FCA to co-ordinate with the OFT and to prepare to the OFT and suggested that it would be inefficient and maintain a memorandum of understanding to be if there were two sets of market studies, one after the laid before Parliament and published as it sees fit. other. She makes an important point. If the OFT Amendment 173D, in my noble friend’s name, is similar, receives a referral from the FCA which is accompanied but the duty to co-ordinate, and to establish an MoU, by appropriate evidence and analysis, the OFT may go relates solely to the promotion of competition. straight to the consultation stage without conducting Amendment 173D would also require the MoU to make a further market study of its own. There is precedent it clear that the OFT will conduct a market study into for this in the OFT’s approach to the audit market. In a financial services market within the regulatory remit that case, when the OFT received the report of the of the FCA only in exceptional circumstances. House of Lords Economic Affairs Committee, it went Before turning to the question of the need for straight to consulting on a reference to the Competition statutory provision for co-ordination between the FCA Commission, rather than conducting its own market and the OFT, it might help if I explain the approach study. taken elsewhere in the Bill. The Bill provides for a I hope that I have persuaded your Lordships of the properly focused regulatory system in which the individual importance of flexibility in this area. Although my regulators have clear roles and responsibilities and the file does not say, “Say no to everything”, as the noble right tools to deliver them. It is right, therefore, for the Baroness, Lady Hayter, suggested, in this case I do ask Bill to provide explicitly for co-ordination and MoUs her to withdraw her amendment. between the key players in the system for regulating financial services—the Bank of England, the FCA, Lord Peston: My Lords, I very much agree with the PRA, the Financial Ombudsman Service, the Financial my noble friend Lady Hayter and with the noble Services Compensation Scheme and the Treasury—so Lord, Lord Flight, that competition is the best means that they can work together effectively without the of consumer protection. There are occasional boundaries between their roles and responsibilities counterexamples, but overwhelmingly that is what matters. getting blurred, and of course the legislation sets out a However, it occurred to me while listening to the noble procedure for laying these documents before Parliament. Lord’s reply that I do not now know which is the Clearly, the FCA will need to work closely with the primary body in dealing with competition in the financial OFT and, in due course, the Competition and Markets intermediary sector. Is there a straightforward answer Authority. In fact, the FSA already has an MoU with to that? If I had been asked to guess, I would have 257 Financial Services Bill[LORDS] Financial Services Bill 258

[LORD PESTON] the Government have in mind. It is unclear to me what guessed that it must be the new Competition and is “appropriate” in this case. I hope that, Markets Authority, because its remit is about competition, “emphasis on the unavoidability of some risk”, whereas the FCA’s remit is not. Can we have an answer can be considered seriously. When my noble friend to that? If we do not know the answer, could we be talked a little earlier about his experience in school, he told the next time we meet who is the prime mover in said that he did not think that he would not have been this? terribly interested if anybody had taught him about financial affairs, but I think that risk would be fairly Lord De Mauley: I am pretty sure that the noble simple to explain even to most teenagers at school. In Lord is correct in his analysis, but if there is any those circumstances, this amendment seems reasonable change to that, I will write to him. to me and I hope that the Minister will be able to accept it. I beg to move. Baroness Hayter of Kentish Town: My Lords, the fact that the Minister does not know the answer to Lord Flight: My Lords, it strikes me that the Bill that seems to me to make the case for why we need an slightly buries “buyer beware”, which was in FiSMA, MoU. In fact, in his answer he went through the sorts and that we are creeping towards a culture where a lot of things that the OFT and the FCA would need to of people think that if they lose money on any investment look at—their objectives, their resources and their they are entitled to compensation. I do not wish to be method of working. We are not setting out what those overly harsh but it is fundamental, as the noble Lord should be. We are simply saying that there should be said, that people understand risk and graduations of an MoU that sets out those sorts of things, things such risk. That is backed by financial education. as when one will take the lead and when the other will. I accept, sadly, that the specifics in the amendment Lord Borrie: My Lords, in agreeing with my noble of the noble Lord, Lord Flight, which we were attracted friends Lord Barnett and Lord Peston in their amendment, to, are probably more than we could hope for from the I agree also with what the noble Lord, Lord Flight, Government. However, as the Minister has admitted has just said. He did not used the famous Latin phrase that there need to be MoUs for all the other key “caveat emptor”, perhaps because we are not supposed players—the Treasury, the Bank of England, the FOS, to use Latin any more—that is the case in the courts; it the compensation schemes and so on—it would be may be not so here. If it is convenient to the Committee, extraordinary not to have one for what he now accepts I shall speak to Amendment 106, which is grouped is the prime competition authority: the OFT currently, with my noble friends’ amendment. but the CMA eventually. I hope that the Government The Bill states that the Financial Conduct Authority, will think about this again. The lack of an MoU for in assessing the degree of consumer protection that is the prime competition authority would seem to create desirable, a slightly opaque situation for the other market players “must have regard to … the needs that consumers may have for that want to know who leads on certain items. In the the timely provision of information and advice that is accurate hope that the Minister will think about that, although and fit for purpose”. he did not promise to, I beg leave to withdraw the The noble Baroness, Lady Oppenheim-Barnes, has kindly amendment. joined me in Amendment 106, because, while we agree about information and advice having to be accurate, Amendment 104BA withdrawn. we are not happy about the phrase “fit for purpose” and would prefer it to be replaced by “intelligible”. Amendment 104C “Fit for purpose” is a vague and uncertain phrase. Moved by Lord Barnett As the consumer organisation Which? has said in briefing to me and no doubt to others, it is a woolly 104C: Clause 5, page 16, line 35, at end insert— phrase and invites the question: whose purpose? It has “( ) the need to inform and educate consumers with special become fashionable to use the phrase “fit for purpose” emphasis on the unavoidability of some risk;” for all sorts of reasons, and despite its perfectly respectable origins in Section 14 of the Sale of Goods Act and Lord Barnett: My Lords, the amendment stands indeed previous common law, it is now used to such a also in the name of my noble friend Lord Peston. It is wide extent in all sorts of circumstances that it would fairly self-evident, referring to, be better replaced in the Bill with “intelligible”. “the need to inform and educate consumers”— which I assume everybody is in favour of— Baroness Oppenheim-Barnes: My Lords, I was delighted “with special emphasis on the unavoidability of some risk”. to add my name to that of the noble Lord, Lord Borrie, on this amendment. We go back a very long Life is full of risk, certainly in the financial area— way to when I first entered the Department of Trade I hope that everybody accepts that. New Section 1C(1) and Industry. The position of director-general of fair states: trading was coming up for renewal and my officials “The consumer protection objective is: securing an appropriate said to me, “Well, you will obviously want to appoint degree of protection for consumers”. somebody from your own side, Minister”, to which I If the Minister is unable to accept our amendment, replied, “There is only one person with whom I would I hope that he can explain what, be entirely satisfied”. That was the noble Lord, Lord “appropriate degree of protection for consumers”, Borrie, and this has proved to be the case ever since. 259 Financial Services Bill[18 JULY 2012] Financial Services Bill 260

This amendment is important. Perhaps I am not so to them investment instruments that the vendor itself, happy with the term “fit for purpose” because I spent Goldman Sachs, was betting against. The gist of the a great deal of my consumer life trying to find a better amendment—and other things that I would like to be one, which I never did satisfactorily, in order that in the Bill in a much more explicit and in-your-face people could pursue their Sale of Goods Act rights. way—is to assert that there should be a real duty of However, I will have more to say on this later—on care. Amendment 108, I think—when we reach that. Lord Hodgson of Astley Abbotts: My Lords, I very Lord Peston: My Lords, I supplement what my much support the amendment, as I said when speaking noble friend Lord Barnett and others have said about to my noble friend’s amendment a few minutes ago. the built-in risk of pretty well every financial instrument There is a real danger of failing to distinguish between that one might acquire. This amendment is very much risk and fraud. They get intermingled in the public’s in line with that made earlier by the noble Lord, Lord mind. Clearly, fraud is absolutely unacceptable and Flight, on education. Therefore, again I must add my needs to be chased down and prosecuted with all cautionary note that it is very hard to persuade people possible vigour. Too often, in this compensation-culture that the world is full of risk, particularly when it era, a risk that goes wrong is seen as fraud: “I should comes to instruments that look risk-free—for example, not have lost money”. One difficulty with the interesting a government bond, which our Government have never concept, proposed by the noble Lord, of duty of care reneged on. However, if it is a bond fixed in nominal is that although you can explain very clearly to people terms, there is always the risk of inflation so that the the risks that they are taking, when it does not happen real rate of return is highly risky. In a second example, as you and they hope—things are volatile—they are the date of repayment of the bond can be an issue, so inclined to forget that they were given the appropriate that even with a perfectly honest Government who warnings. Our emphasis must be on making sure that intend to pay on the due date, if you have to cash the risk is understood; and that fraud is unacceptable; but bond in at a different date then there is risk involved. that the two are completely distinct. There is a confluence It is vital that people understand these kinds of examples. in the public mind, sometimes encouraged by the way The other risk, and I am not quite clear how we can that the newspapers report it, of two issues. There are approach it, essentially stems from the possibility that plenty of cases where fraud has happened—that is the people one is dealing with are corrupt. To take the wrong—but there are also cases where people have obvious example, if you are offered a particular asset taken risks which they anticipated would deliver them with a high nominal rate of return, is this because the huge returns. When they did not, because they were financial intermediary offering you that asset is particular highly risky, they did not see themselves in any way inefficient or because they are up to no good and the responsible; they sought someone else to blame. only way they can lay their hands on this money is with a high rate of interest? It is often immensely hard to disentangle whether Baroness Hayter of Kentish Town: My Lords, I was you are running a risk by acquiring such an asset, and particularly grateful to hear the words of the noble perhaps the great WC Fields’s dictum is relevant here: Lord, Lord May of Oxford. We will shortly come to a “Never give a sucker an even break”. specific amendment about a duty of care. I hope that he will be here to repeat his words in 20 minutes or The world is full of people like WC Fields, but how is whenever we reach the amendment. I also hope that the ordinary person to know if they are dealing with the Minister can pick up a briefing note that says one? It seems to me, therefore, that the relevant authorities “support”. His face tells me possibly not. have a responsibility at least to take on board their duty to be of assistance to people, partly in an educative At Second Reading, I talked about caveat emptor, way, and partly by controlling the behaviour of people not having realised that it is no longer the accepted themselves. term. I have concerns about it because it is rarely used as an excuse for ordinary consumers to say, “Oh, I lost I very much look forward to hearing the noble Lord’s money”; it is far more used by producers to say, “Well, reply on the question of risk. However, to summarise, we told you so”, even if it was, as the noble Lord, Lord my main point is that if you are living in an area where Hodgson, said on an earlier amendment, on page 4 of there is no risk, then you are dead. small typed script of something that had been sent to them. I remain of the view that responsibility for 5.15 pm ensuring that consumers know what they are buying Lord May of Oxford: I shall make a couple of rests with the provider by producing intelligible and comments in favour of the amendment. As I understand appropriate information. We will turn to the issue of it, its general sense is to state that there is a duty of duty of care shortly. care. The medical profession and the legal profession The Joint Committee on the Bill wrote that, should have an explicit duty of care. An interesting seminar it be essential for the FCA to have regard to the brought together economists, lawyers and philosophers behaviour of consumers, the FCA duty should be in Oxford over the past year and a half, working amended as set out in Amendment 105, in my name towards trying to say something sensible about this. and that of my noble friend Lord Eatwell. As the Joint As I understand it, the amendment is intended to say Committee stated, that, of course, we have to understand that there are “provision of information alone will not significantly improve risks, but that we know of specific examples where consumers’ ability to make well-informed decisions. The information customers have had cheerfully and aggressively marketed needs to be easily understandable and accessible”. 261 Financial Services Bill[LORDS] Financial Services Bill 262

[BARONESS HAYTER OF KENTISH TOWN] in the other place, and therefore the intention behind There is widespread suspicion that many purveyors the amendment that is in my name in this group. I of financial products deliberately try to keep certain hope that the Minister will now go further than his customers in the dark. That confusion can mean that colleague in the other place, who accepted only the some, blinded by graphs and numbers, sign up to a intention behind the amendments, and that he will accept product and later down the track find themselves the amendments as they stand. If it would make him caught by certain clauses and conditions of which they feel better, perhaps he could agree to the intention had, sadly, been unaware. now and bring back a suitably worded amendment on An issue just as difficult, of course, is the ability to Report. compare prices and thus to shop around—an essential element of the much-vaunted caveat emptor, or Lord De Mauley: My Lords, this group of amendments competition, on which the Government rely to improve is concerned with the information provided to consumers, services. Martin Wheatley, the chief executive-designate so that they are able to make empowered choices and of the FCA, has described the difficulty for consumers decisions. Amendment 104C seeks to add a new ‘have in comparing products such as bank accounts, which regard’ subsection to the list of matters that the FCA are structured in a way that makes it really difficult must consider in advancing its consumer protection to establish whether the product is good value. We all objective—namely, know of practitioners who talk in terms so remote “the need to inform and educate consumers with special emphasis from the common-sense understanding of contractual on the unavoidability of some risk”. agreements that people are unaware of what they are I agree with the noble Lord that consumers need to signing up to. This was undoubtedly the case with the understand that there will necessarily always be an recent interest rate swaps. element of risk involved in engaging in a financial Asked whether firms had a duty to go beyond their transaction, and that they must consider carefully legal responsibility to consumers, Mark Hoban MP their own risk appetite and the ability of their personal said in another place: finances to absorb any loss, and enter in to any contract “It is in the interests of firms to ensure that consumers do with full information. We cannot pursue a zero-failure understand the products that they are buying because it then regime in financial services, and consumers must minimises the risk of problems further down the track”. understand this. The regulator cannot shoulder the Although I agree with those sentiments, that answer responsibilities that consumers should take for their seems to be about not having to pay redress later, rather own decisions and actions, but it can take steps—as than trying to prevent the mischief in the first place. my noble friend Lord Hodgson said—to ensure that Unless we do something to reduce such occurrences— consumers have the best possible information when today we have already mentioned PPI, personal pensions they make those choices. and mortgage endowments—we will have learnt nothing Both financial education—which we spoke of earlier— from what has gone wrong. and effective conduct of business regulation have a However, as the amendment moved by my noble role to play in educating consumers about risk. The friend Lord Peston makes clear, it is not simply Money Advice Service will have a key role in improving language—the “crystal mark” of plain English—that financial literacy so that consumers understand the is important. This is about explaining the risk to which difference between available financial products and the consumer is signing up, or for which they are their uses, what information they should seek out paying money so that someone else takes that risk in before entering into a contract or transaction, and exchange for the payment. So they might buy a product what rights they have when things do not go to plan. that covers the risk of inflation but does not cover We covered the role of the MAS when we discussed longevity, or vice versa. Or a product might cover their Amendment 104. life expectancy but not that of their surviving spouse. The permutations are endless. What is key is that, in Baroness Oppenheim-Barnes: On that point, the addition to the language being clear, the limits of the majority of those consumers who are more at risk product should be clear so that—in the famous words— than anyone else from misleading terms are those least there are “no surprises”. If I buy a bottle of Coke I likely to benefit from financial literacy tests. They will will know its size, volume, sell-by date and taste. be properly informed only if this is done in a manner, Regulation has sorted out much of that. We need to and with the type of wording, that would be simple to give this regulator the ability to expect no less from the understand, not complicated. providers of services which they are selling to largely unsuspecting customers. Lord De Mauley: That is right, my Lords. In fact, In the other place, the Minister said: when we debated the previous group of amendments “The Government recognise that there can be significant I spoke about the deliberations that the Department information and capability asymmetries between firms and for Education is going through on that exact point, so consumers”, I thank my noble friend for that. and that poor “provision of information” could be a key factor in, The FCA will set the conduct-of-business regime within which firms will operate and the requirements “a consumer ending up with an unsuitable product”. with which they will have to comply. Just as the FSA He therefore fully supported, does today, placing firms under detailed obligations to “the intention behind the amendments”—[Official Report, Commons, assess the suitability of products for individual clients, Financial Services Bill Committee, 1/3/12; col. 261]— as well as specifying that warnings must be given to 263 Financial Services Bill[18 JULY 2012] Financial Services Bill 264 consumers who express an interest in buying a product that the Money Advice Service—which, by the way, was that does not appear appropriate for their needs or lacerated a few months ago when it went to the Treasury their tolerance of risk. In addition, these requirements Select Committee—is not a consumer protection body, specify which risk factors must be highlighted in the case we need a little rethink. The Minister should take the of specific products—for example, income withdrawals pills and come back, and then we can get some clarity. or the purchase of short-term annuities. However, none of this means that it is the FCA that 5.30 pm should be required to have regard to the need to educate consumers about the unavoidability of risk. Lord De Mauley: I am sorry that the noble Lord is The FCA is not a consumer education body—that is confused. I do not see the confusion that he does. the role of the Money Advice Service—and neither is Perhaps I may move on to Amendments 105A and it an interlocutor between firms or advisers and consumers. 106. So I cannot agree with that amendment. The noble Lord, Lord Barnett, asked what an Lord Peston: I would still like a rational answer to appropriate degree of protection would be. “Appropriate” what I have put to the Minister. The least he can do is is used to allow the FCA to differentiate between the to say that he would like to think about it and come up different needs that consumers may have. The detail is with the right answer. Apart from anything else, it set out in the FSA’s rules and will be transferred into would do him a world of good. the new FCA’s rules. I will not offer to send the noble Lord a copy of them because I suspect they might be Lord De Mauley: My Lords, I think that I have given quite voluminous, but if he would find it helpful I am the right answer but I am happy to write to the noble sure I could send a reference to that particular point Lord, Lord Peston, if I can express it in a way that he in them. might find more acceptable. On Amendments 105A and 106, it is important to Lord Peston: Before the Minister goes on to the note that if we are to create the conditions in which next amendment, my noble friend Lord Barnett’s and consumers can make better choices for themselves, we my amendment, if I may draw his attention to it, need to address some of the asymmetries of information appears in a clause that is headed “The consumer between consumers and providers that still prevail in protection objective” and refers to the FCA. How can financial services. I think that that is a point that noble the Minister make the illogical leap of saying that that Lords are making. That is why the Government added does not concern the FCA? It says categorically in the new subsection (2)(c) to new Section 1C, which will be clause that it concerns the FCA; its acronym appears inserted by Clause 5, before the Bill’s introduction to under the consumer protection objective, in the words, the parliamentary process. This provision requires the “the FCA must have regard to”. regulator to consider, It therefore seems entirely reasonable that the FCA “the needs that consumers may have for the timely provision of should have regard to what my noble friend and I have information and advice that is accurate and fit for purpose”. suggested. You cannot possibly say that someone else This provision complements the FCA’s new power should have regard to it, when the FCA is clearly a to require firms to withdraw a financial promotion body that must do so. and disclose the fact that it has done so, as well as a new power to disclose at an early stage to the public Lord De Mauley: My Lords, I hope I have explained that disciplinary enforcement action has commenced that the FCA is doing that through its conduct-of-business against a firm or individual. The FSA will carry out a regulations and that the issue of education is dealt root-and-branch review of transparency and disclosure with in the ways that I have explained. on the part of firms and the regulator to be completed ahead of commencement of the Bill. Lord Peston: As a matter of elementary logic, though, I agree with many of the points made by the Committee the Minister cannot wriggle away and say that the in terms of the improvements that we want to see, but FCA is doing it some other way. This amendment is I do not agree that Amendments 105A and 106 are about consumer protection and the FCA must have necessary. I argue, for example, that referring to regard to that. I would like an answer to why the Minister information being “fit for purpose” is, in modern idiom, will not accept an amendment that says that the FCA a better way of achieving the aims that we all share. must have regard to it in this specific way. “Fit for purpose” is an umbrella term that includes, for example, information being legible, intelligible and appropriately presented. Information could not be fit Lord De Mauley: My Lords, I think that I have said for purpose if it was not also those things. that the FCA has regard to it, but I cannot go much “Fit for purpose” is also broader and allows the further than I have. regulator to differentiate between the needs of different consumers, to adapt its approach and perhaps to place Lord McFall of Alcluith: Is this not just part of the additional requirements on firms where it considers muddled thinking that took place at the beginning of this necessary. There may be requirements that we this whole process when the word “consumer” was cannot anticipate at this point. Using a broad term changed and the name became the FCA? Consumer such as this therefore gives flexibility and allows the protection lies with the FCA, whether the Minister regulator to be responsive to changing circumstances sees it or not. Given the muddled thinking, and given and market conditions. Being too exhaustive in the 265 Financial Services Bill[LORDS] Financial Services Bill 266

[LORD DE MAULEY] this section, it cannot be deduced otherwise than that Bill could be unhelpful. However, it is also not appropriate, the FCA has a consumer protection objective. That as the detailed requirements will be set out by the issue has to be cleared up. FCA in its rulebook. The noble Lord, Lord May, made a very good point I therefore argue that Amendment 105A is unnecessary, about the duty of care. The duty of care issue has been as fit for purpose already captures information being sidestepped by the Government. The Minister referred intelligible and appropriately presented. Amendment 106 the noble Lord, Lord May, to subsection 2(e), which could restrict the FCA’s ability to design a regime on states that, the provision of information to consumers, as “intelligible” “those providing regulated financial services should be expected is a narrower term than “fit for purpose”. to provide consumers with a level of care”. Being expected to provide consumers with a level of Baroness Hayter of Kentish Town: Before the noble care is a world apart from a duty of care. That issue Lord moves off that particular amendment, perhaps has to be debated further. I may point out that the provision also uses the word I mentioned the terms ability, disability and “advice”. He has covered only the information that vulnerability because they are crucial to consumer has to be clear, but not the point about access to protection. I shall deal first with the ability to understand. advice. Noble Lords have mentioned that we have seen examples of products being shrouded in complexity.I well remember Lord De Mauley: My Lords, I apologise if my argument that back in 2002 I looked into split-capital investment covered only one aspect, but it should be taken to trusts. These products were being sold on a retail basis cover both. to individuals, and nobody could understand them. The noble Lord, Lord May of Oxford, to whom Indeed, I got the architect of the splits in to the I am grateful for his intervention, asked about a duty committee and asked him a question. Believe it or not, of care. Subsection (2)(e) of new Section 1C, which is his name was “Dotty” Thomas. I said, “Dotty, did you headed “The consumer protection objective”, states understand what you were producing?”, and Dotty that providers should, said, “No, I didn’t understand”. An unmarried 35 year- “provide consumers with a level of care that is appropriate … to old woman came to see me. She had put £40,000 away the … risk … [of] the investment … and the capabilities of the for the care of her mother. Within three months, that consumers”. £40,000 became less than £400. When looking at I hope that that is helpful. consumers and duties of care, it is important that we understand the issues and how products are being I hope that I have made it clear that the Government sold, even down to the mundane level. We are talking are fully committed to improving the provision of about ability here. Let us take two credit cards, both information to consumers, and that I have succeeded with an APR of 8%. Given the algorithms involved—we in convincing the noble Lord to withdraw his amendment. needed to recruit a professor of mathematics from Cambridge—two cards with the same APR can have a Lord Barnett: My Lords, I do not think that the 75% difference in payment. Who is on the losing end Minister has convinced anyone. I think he said that my with complex products? It is the consumer, so the issue noble friend Lord McFall was confused, but he was of ability is very important. not confused. None of us is confused except about the The industry keeps telling us that innovation is at way that the Bill is drafted. The whole of this section the heart of financial services and that if you stop refers to consumer protection objectives. We also have innovation, you stop creativity. Most weeks, I go up new Section 1G, on the “Meaning of ‘consumer’”, and down to Glasgow on a plane. If the pilot said to and new Section 1H. The whole lot should be removed, me when I got on, “Mr McFall, would you like to have because we are now told that the MAS will have to an innovative flight to Glasgow today where the plane deal with it. The Minister has not convinced me, and goes upside down?”, I would say, “No. Give us it I hope that we will come back to this at a later stage. simple. Get me there”. That is what consumers want For the moment, I beg leave to withdraw the amendment. from financial products: simplicity and what is written on the can about what they get out for every pound Amendment 104C withdrawn. that they put in. We do not have that. Paul Volker made the point a while ago in a speech in London in which he said that over the past 40 years there has Amendment 105 been only one innovative product in the financial services industry: the ATM. Everything else, you can Moved by Lord McFall of Alcluith forget. So when they tell us that we have innovative 105: Clause 5, page 16, line 38, after “of” insert “ability, products, I suggest caution. disability and vulnerability generally” The noble Baroness, Lady Liddell of Coatdyke, mentioned the mis-selling of personal pension plans Lord McFall of Alcluith: My Lords, I shall speak when she was a Minister. The compensation scheme also to Amendment 136. Amendment 105 insert the cost over £12 billion. The money put aside for payment terms “ability, disability and vulnerability”of consumers protection insurance, which I was asked by the industry into new Section 1C which is entitled: “The consumer to negotiate with consumers just a couple of months protection objective”, as the noble Lord said. Given ago, is £8 billion. The LIBOR scandal, according the that only one body—the FCA—is referred to within FT last Saturday, will cost about £20 billion. If we 267 Financial Services Bill[18 JULY 2012] Financial Services Bill 268 add 20, 12 and eight, we get £40 billion. Let us look went up 5%, 10% or 20%. But the prospectuses did not at some of the countries that had a GDP of less than say that if the market went down 5% or 10% your £40 billion in 2011: Luxembourg, Cyprus, Ghana and shares would be wiped out. It seems to me that, for all Uruguay are just four I have picked out. The scale of those vulnerable people, the FCA has to warn of the the problem is enormous. We are living in a world downside risks of these vehicles. where consumers do not have the ability to understand the complexities—and I include everyone here—so we Baroness Liddell of Coatdyke: My Lords, I support need to do something about it. my noble friend Lord McFall in this amendment but I I mentioned earlier that I was asked to chair the greatly regret the fact that the amendment is necessary. Workplace Retirement Income Commission for the One of the reasons for my regret is the appalling National Association of Pension Funds. What people reputation that the financial services industry is earning are paying for their pensions is enormous. I note on now as a consequence of the events of the past few the Daily Telegraph front page today that fees can years. It is a vital industry for the United Kingdom. It halve the value of your pension. When someone puts was based initially on the probity of the United Kingdom, their money in a pension pot, they do not know what which now has to be seriously questioned. It should they are going to get out at the end of the day because not be necessary to put into a Bill a duty of care on of the complexity that arises. So the issue of consumer vulnerable people. It should be a matter of course. protection and consumers’ ability is central to the When my noble friend Lady Hayter began this debate on the Financial Services Bill. As I mentioned afternoon’s debate, she referred to the issues that have earlier, I challenge anyone to understand the ins and caused such convulsions in the past few months and outs of their portable defined contribution pension have led to a serious loss of trust in financial services schemes. in general. It would come as no surprise that some I also mention disability and vulnerability because particularly vulnerable people, especially the elderly, one of the complaints I got regularly from the good would nowadays prefer to put their money in a sock people working in the financial services industry in under the bed because it is about the only place where our banks and building societies on every high street it is likely to be safe. up and down the land was: “John, I am asked to sell If we are going to restore the integrity of the the ‘product of the month’ and I am getting pushed by financial services industry, we as a Parliament must be my bosses to do that. If Mrs Quinn, 75 years of age, prepared to show that we are prepared to speak up for comes in, I push the same product to her as I push to the vulnerable. Those of us whose careers have taken her grandson James Quinn, who is 26 and starting out us into the other place have had to deal with constituency in life. I know in my heart that that is the wrong thing cases. Quite frankly, a number of times I have felt like to do”. I know a number of people who have resigned sending for the police when I have had constituents from their bank as a result of that, so the vulnerability in with instruments that they have been sold, which, in element is important. many cases, have taken their entire savings away from The asymmetry of knowledge between the consumer them. You get not just the City spivs who you see on and the industry is enormous and we need that balance television programmes but people who live in a community to be reasserted. I have said to the industry, which has selling wholly unsuitable products. many decent people working in it, that regulators and I suspect that the Minister will say that this legislation politicians will not solve this problem because we is not necessary. I urge him to reconsider that. If we do come to it from the side. The ones who will solve the not put the consumer back again at the heart of the problem are the ones who are in the industry. And if financial services industry, we will lose the competitive they solve that problem, if they have that self-regulation, advantage that I hope we still retain despite the events then there will be less need for stricter regulation and of the past few years. We have to overstate to convince there will be the rebuilding of trust and confidence in people that their interests are at the heart of what this the industry. This proposed new Section 1C is central country stands for in terms of financial services regulation. to the future of the financial services industry. I regret that the term “consumer” was taken out of the name Lord Peston: I support my noble friends, particularly of the body known as the FCA. my noble friend Lady Liddell. This takes us back to So vulnerability, ability and disability are central to our earlier remarks today on the need for a professional the issues which confront the industry. If the industry body for the financial intermediary. I was very takes that seriously, with a push from the FCA maybe disappointed at the way in which the Government did we will have a better future. There is a long way to go not seem to recognise that as a matter of great concern. but this proposed new section is crucial in ensuring As I understand it, doctors have a professional body that we get a better financial services industry. I beg in the first place and, secondly, they have a code of to move. conduct. Therefore, this sort of thing is not necessary for them because they know that that is how they have 5.45 pm to behave. This is true of a number of other professions. Lord Northbrook: My Lords, I support the views of However, one group of people who claim to be the noble Lord, Lord McFall, on split-level trusts. professional—the financial intermediaries—have nothing When I was a private client investment manager I like this at all. I think I am right in saying that there is came across these extraordinary products, which offered no professional body whatever. The Government seem marvellous returns. Income shares were offering 8% perfectly happy with that. They do not seem to see and capital shares looked very exciting in the forecasts that they should at least encourage them to set up a and prospectuses of what would happen if the market professional body with a code of conduct, et cetera. 269 Financial Services Bill[LORDS] Financial Services Bill 270

[LORD PESTON] a rise in interest rates, which are unnaturally low at My noble friend Lady Liddell puts her finger on it present. Figures from the Financial Inclusion Centre show when she says that we really should not be discussing that if living costs rise by more than £50 per week, this issue and that it should be taken for granted that it would double the percentage of households—which the sort of things referred to by my noble friend Lord is currently 30%—who have no spare cash at the end McFall could not happen. In a decent society, that of the month. should be the case. However, it is not the case. One of There is surely sufficient evidence in what I have the great things about this House, until we are all thrown said that the idea that consumers should be required out, is that your Lordships accept their responsibilities, to take full responsibility for their decisions does not although our successors may not. It is important to accord with what happens in the real world. My noble draw attention to what responsibilities should exist in friend Lord McFall made this point very eloquently, society. I believe that the Government should respond and we strongly support his idea that in considering positively to my noble friend’s amendment. what degree of consumer protection may be appropriate, the FCA must have regard to the differing ability, Lord Stevenson of Balmacara: My Lords, I support disability and vulnerability of different consumers. the amendment in the name of my noble friend Lord However, it goes further than that. The FCA has McFall. I declare an interest as chair of the Consumer also got to take into account what the CCCS and FIC Credit Counselling Service, the country’s leading debt research tells us about the way people’s history and the advice and debt management charity. I want to focus impact of family issues, illness and relationships interact in particular on people who struggle with debt, often with their credit arrangements. Families are being because they have got into arrears with their credit cards squeezed hard at both ends, with incomes and expenditure or personal loans and other consumer credit products, under pressure. The Bill ought to be amended to but also because of mortgage arrears, rent arrears and, reflect less of the theory of caveat emptor and be more increasingly, fuel and utility debts and council tax. reflective of what is happening on the ground. CCCS has helped more than 1.5 million people in the last three years and about half of them told us that Lord Sassoon: My Lords, the debate on this group unemployment or reduced income were the main reasons of amendments has been very interesting. However, it for their debt problems. People also say that life events has some characteristics of straying into Second Reading such as illness or separation can quickly overwhelm territory because it has gone much wider, albeit over family finances and cause or contribute to mounting very important areas, into questions of broad mis-selling debt. What they find is that debt is rarely a problem in standards in the industry, which we have discussed isolation. There are nearly always other factors that already this afternoon. Therefore, I will not go over all need to be addressed, including the link between problem the points that have been made but stick to the issues debt and depression. Nearly half of CCCS clients said that are the focus of the specific amendment, subject they had been worrying about their debts for a year or only to one general point about the important questions more before seeking help from a debt advice provider. raised by the noble Lord, Lord McFall of Alcluith, on Around a third of people said that their debt problems proposed new Section 1C—on the consumer protection had weakened their relationships or led to a break-up. objective, which clearly goes to the heart of this— Nearly half said that debt had shattered their self- and his observations and questions on proposed new confidence to support themselves and their families. Section 1C(2)(e), which concerns the general principle The pre-crash boom in consumer credit, which of care. peaked in about 2007, also remains a key part of the One issue around the drafting that we should bear UK debt narrative. Even after several years of near in mind is that the FCA will be responsible for the zero lending, the total outstanding secured and unsecured protection of retail consumers, but will also have a debt is still some 91% higher than it was 10 years responsibility for wholesale markets, professional markets ago—so it is a pretty bad picture. Research for CCCS and counterparties. The reason behind the drafting of by the Financial Inclusion Centre concluded that some proposed new Section 1C(2)(e) is to make sure that it 6.2 million households are currently either already in encompasses both the very strong duty of care that is financial difficulty or at risk of getting there, and it is due to individual consumers, on the one hand, and the going to get worse. fact that between professional counterparties the nature The IFS estimates that real median household incomes of the duty of care is very different. Indeed, in the will fall by 7.1% between 2009-10 and 2013-14 as a terms of this particular principle, there may be no result of low growth and fiscal tightening, the largest duty of care under this provision if the market is decline since the 1974-77 fall of 7.5%. Unemployment purely professional—it is very different from a consumer remains at a stubbornly high 8.3%, or 2.65 million product market. It is important to understand that people, although it has just reduced. Youthunemployment background to the discussion. However, these amendments sits at 22%—more than one in five young workers is are very much concerned with protection of the consumer. without a job. This is particularly worrying as we know that time spent not in employment, education or Baroness Liddell of Coatdyke: There is some confusion training as a young adult can have a scarring effect as in my mind about what the noble Lord is saying. He is well as reducing earnings. talking about the responsibility and the environment At the same time, we are experiencing an extended of risk in wholesale markets as against retail markets. period where households are facing rising costs for Even in wholesale markets, there is now a need for a essential goods and services. Food, fuel and transport duty of care. The noble Lord was managing director costs are rising sharply and we will sooner or later face of financial regulation at the Treasury, so he will be 271 Financial Services Bill[18 JULY 2012] Financial Services Bill 272 aware that from the time of Barings onwards there has some elements of the discussion we have just had. The been an issue about the duty of care in the wholesale issues concern disability, ability and vulnerability. I market, too. I am not saying that it should be equated fully share the views of the noble Lord, Lord McFall across the board with the duty of care to consumers, of Alcluith, that the ability of consumers to engage in but no one who has watched developments over the financial services can be affected by their age, disability past few years can take a laissez-faire attitude to what or other personal circumstances. These are points that is happening in wholesale markets. have been made by a number of noble Lords in this debate, albeit that some other points went rather wider. Lord Sassoon: I am not suggesting for one moment The first thing to be clear about is that I disagree that there should be a laissez-faire attitude. I am with the noble Baroness, Lady Liddell of Coatdyke. It merely pointing out that a very different set of parameters would be nice to be in a world in which these issues did has to be used by the FSA, and will have to be used by not have to be referred to in legislation at all, but that the FCA, when dealing with different parts of the is not the position I take. I believe that they should be financial services market. To those who argued earlier reflected in legislation, and indeed they already are in that we should not lose caveat emptor, I point out that a number of ways. For example, both the FSA and the in professional-to-professional markets, of course there Money Advice Service, which we have been talking has to be a high degree of integrity. Recently we saw about, have duties under the Equality Act 2010. The exactly what appears to have been going on in what FCA and the PRA will be subject to the same are fundamentally professional markets. However, that requirements, so the Equality Act also bites on them. is very different from the duty of care owed in the case Also, under the public sector equality duty set out in that we are talking about, which is of selling products the Equality Act, both the FCA and the PRA will be to vulnerable, disabled consumers. Wholly different required to assess their rules and processes for their considerations apply from those that apply in professional impact on protected groups, and take mitigating action markets. I point that out because the noble Lord, Lord where appropriate. In addition, equality law applies to McFall of Alcluith, got into this broader question, financial services providers so that firms are required and as background to the question that we need to make “reasonable adjustments” to their services for to come on to, which is whether it is appropriate to consumers with a disability under the Equality Act, include amendments to highlight important issues about depending on the nature of the product, the barrier disability, ability and vulnerability that address consumer and the size of the business. So there is indeed a body product markets. of law that goes very much to the points which the noble Lord, Lord McFall, makes. Lord Davies of Stamford: I hope that the Minister will think again about this before Report, because he Then there is the question of monitoring compliance has got it profoundly wrong. There is a duty of care by the industry with equality law. This is not a job for all clients. Of course, it has different consequences for the FCA or the PRA. It is for the Equality and according to the nature of the client and according Human Rights Commission, as the regulator responsible, to their sophistication, capital resources and ability to to enforce the law, and it indeed has the powers to do absorb risk. When Goldman Sachs placed collateralised that. These powers include helping individuals with debt obligations—securitised packages of mortgage their legal cases and taking legal action against loans—with professional clients, they knew that the organisations that appear to have broken the law. products were junk, and internal e-mails referred to Amendment 136 specifically concerns the regulatory them as such. They were breaching a duty of care; principle concerning consumer responsibility to which there is no doubt at all about that. The courts will be the PRA and FCA must have regard in discharging looking at this in connection with LIBOR and are their general functions; and through Amendment 105 very likely to decide that if it were the case that even the noble Lord wishes to ensure that the FCA, in professional clients were working on the basis of a determining what an appropriate degree of consumer falsified LIBOR rate, there was a breach of fiduciary protection is, has regard to the way in which certain responsibility and duty of care. Duty of care is an consumers may need extra help and protection. These enormously important term of art. The Minister, this issues are reflected in the FCA’s proposed principles-based afternoon, is trying to weaken and dilute it. That is an approach to regulation, which is designed to ensure extremely dangerous line to go down. that firms adapt their approach depending on the needs of the customer. Instead of having myriad detailed 6pm rules and requirements that focus on different degrees Lord Sassoon: No, my Lords, I am trying to use of vulnerability, disability or other personal circumstances, duty of care in the precise way in which it is used in requirements on firms will focus clearly and unequivocally FiSMA and the regulations that go with it. There are, on the overarching principle that firms need to take of course, all sorts of other considerations that apply, account of their customers’ needs and treat them whether it is in the LIBOR market or other markets. fairly. However, I am trying to use the term precisely as it relates to this legislation and the regulations under it. This builds on the FSA’s current approach. For If we want to redefine duty of care or anything else as example, principle 7 of the FSA’s Principles for Business something that it is not, now is not the time to do it. states: This has been a wide-ranging debate. However, I would “A firm must pay due regard to the information needs of its like to focus on the amendments themselves, which clients, and communicate information to them in a way which is highlight important issues with much more focus than clear, fair and not misleading”. 273 Financial Services Bill[LORDS] Financial Services Bill 274

[LORD SASSOON] “something that one’s efforts or actions are intended to attain or In setting penalties for the failings of firms, one key accomplish”. aspect the FSA considers is, In other words, it is the purpose, the goal or the target “whether the breach had an effect on particularly vulnerable of what we are to achieve. I submit that there is people, whether intentionally or otherwise”. nothing more comprehensive than that. Therefore, we There are examples of where the FSA has taken do not stray away from the subject; this is very germane very significant action. I will cite only one, but I am to the subject. There is still disappointment in the sure the noble Lord is familiar with it. Late in 2011, the FCA being expected to attend something rather than FSA fined NHFA—asubsidiary of HSBC—£10.5 million having a duty to attend. Tonight, we expect to get to a for mis-selling products to elderly customers. The firm particular clause before we adjourn at 10 o’clock, but sold asset-backed investment products to elderly people the consequence of not getting that far is that we take wishing to fund their care home costs, but in fact many it on the next day. In other words, the consequences of them were not expected to live beyond the period are not very great. There is a difference between that for which it was recommended the products were held. and a duty. I could also cite cases in relation to the Bank of Scotland I submit that the Minister, for whom I have great and Swift 1st Ltd, so the FSA has been on the case. respect, has muddled thinking on this. I wish that he The principle that a customer with greater needs would look at this again so that we can come back on should be better protected or offered more support Report to get clarity. Besides me, quite a number of and assistance is clearly enshrined in the regime, but it people cannot understand what the Minister is trying would not be appropriate to take a more detailed to achieve here. I beg leave to withdraw the amendment. approach, for two reasons. First, we would not want the FCA to cut across or duplicate the efforts of the Amendment 105 withdrawn. Equality and Human Rights Commission in considering what circumstances might need special care, and how Amendments 105A and 106 not moved. they should be accommodated. The current approach strikes the right balance of setting a high-level framework with requirements directly imposed on firms by the Amendment 106ZA Equality Act and, on the other hand, with discretion Moved by Lord Lucas for the FCA to impose more detailed requirements as necessary to ensure appropriate consumer protection. 106ZA: Clause 5, page 16, line 43, at end insert— Secondly, I do not think it is right to list all these “( ) The general principle that consumers should have to give matters here. Again, it is potentially duplicative, but informed consent to the use of their personal data by a regulated financial institution, and in particular to the transfer of such data more importantly it also risks being incomplete. For into or out of such an institution when that institution is part of a example, we might legitimately add age, gender or group of companies whether that group is a qualifying parent geographical location—issues which I believe have undertaking or not, and that it should be possible for such been raised in previous debates on this Bill—to the list informed consent to be easily and effectively withdrawn.” already proposed in the amendment, but where would we stop? I believe there are sufficient powers there. We Lord Lucas: My Lords, the amendment concerns will come on in due course to the new product intervention a subject raised by the noble Lord, Lord Whitty, at powers, which are important in this context compared Second Reading. With his consent, I raise the matter with what the FSA has at present. Although we will now in his absence. no doubt come to them in detail in due course, the The issue of consent to the use of information on product intervention powers in new Sections 137C the internet is greatly confused at the moment. We and 138M, which mean that in extreme cases a product have the principle of caveat emptor, as far as possible; could be banned with immediate effect, are also additional we have a set of data protection regulations which are important safeguards to back up the general principles of variable application; and we have a daft system and approach which I have outlined. doing the rounds at the moment under which every I hope that I have made it clear that the Government website pops up with the message, “Can we use cookies?”, take these issues extremely seriously. Unfortunately we to which you answer, “Yes”, because the website will cannot and should not rely on people doing the right not function without that. That is a complete waste of things, which is why we have the various provisions in time which has been foisted on us by Europe. the equality legislation as well as the provisions for the FCA—provisions that will be tougher on intervention The question raised by the noble Lord, Lord Whitty, powers than the powers that the FSA currently has. is interesting and I shall be interested to see where the I therefore invite the noble Lord to withdraw his Government find themselves. When you have a regulated amendment. institution with financial data on people, under what circumstances is it allowed to share those data with other bits of the same company which are not regulated? Lord McFall of Alcluith: My Lords, in withdrawing This may apply to Tesco with all the data which it has my amendment I express my disappointment with the on Clubcard. Is the retail side of Tesco allowed to Minister’s response. Just to illustrate that individuals look at what people are doing in their bank accounts in this House are up to date with electronic technology, and to understand what they should be marketing to I can say that I took advantage of looking up the meaning them? Vice versa, is the banking side of Tesco allowed of “objective” in Dictionary.com, because that is in to look at all the Clubcard data and say, “Hang on, bold at the top of the paragraph we are talking about. this guy looks as though he is going bust because he is “Objective” means, starting to buy cheap orange juice, so we really ought 275 Financial Services Bill[18 JULY 2012] Financial Services Bill 276 not to be offering him the degree of credit that we was pregnant and then sending her some information are”. If we are to allow such sharing, what degree of about that before she had got around to telling her information should be offered to consumers about parents. That is different from the banking side, but what is happening? There is a standard practice on the now that it will be easier for some of these non-financial internet—I rather suspect that we have all done it—where firms to purchase banks there are worries about the we are presented with a little form saying, “Have you spread of information and whether it could leak across. read the agreement? Tick ‘yes’”, and the agreement is Behind the amendment moved by the noble Lord, 154 pages long. As it is not really clear where the Lord Lucas, is the desire for some assurances that changes are from the previous one you signed, you tick guarantees will be put in place to ensure that there is a “Yes” because you want to use the thing. You sort of firewall around any loyalty club databases to prevent trust the people you are dealing with. a spreading across to the offer of financial services. Are we in the territory where the consent to share My noble friend Lord Whitty raised the same subject information will be hidden away in that kind of during the Second Reading debate. We want to encourage automatically signed agreement on the web, or are we new entrants into the banking world to give consumers in the territory where things would have to be made a better deal, but we need to ensure that there are clear in the preamble to the consent form that this sort protections and safeguards to prevent the abuse of of sharing was being permitted and that no disadvantage personal data and that there is perhaps some oversight would be incurred by the customer if they refused to mechanism. share? I find this a puzzling area and I shall be very I assume that the second amendment in this group interested to know what the Government intend that is not being discussed but perhaps the Minister will the FCA should do. I beg to move. nevertheless respond to it.

Baroness Hayter of Kentish Town: My Lords, the British banking market is changing, thanks, partly, to Lord Sassoon: My Lords, I shall respond to the the ongoing regulatory reforms, as new competitors amendment that has been moved but I shall not respond enter the market. Clearly, that new competition is very to the amendment that has been not been addressed. much to be welcomed. Consumers need greater choice Amendment 106ZA seeks to add to the list of matters both for themselves and to drive up standards. However, to which the FCA must have regard in advancing its we should be aware, as the noble Lord, Lord Lucas, consumer protection objective. The new “have regard” has spelt out, that potentially some of the new entrants proposed by my noble friend focuses on data protection, to the financial sector happen to possess a large amount as he has explained, and specifically would require the of data on their customers from the non-banking FCA to consider the issue of consumers having to give activities. Therefore, it will be important for safeguards informed consent in order for their data to be shared, to be put in place to prevent any abuse of that information. in particular within a group of companies which includes Clearly, supermarket banks own some of the largest a non-financial services institution. consumer databases in the world, with item-level purchase Of course, I agree that consumers should have full data on each of the millions of members of their knowledge about what is being done with their data at loyalty card schemes. Should that information be used all times and have to consent to any sharing of them. I by the banking arms of those conglomerates, it would will do my best to reassure the Committee, as I think it clearly raise concerns for consumers about their personal is fairly clear, that there is already legislative provision privacy and about the potential for misuse. The concerns in place to deliver what my noble friend wants to achieve are fairly obvious. What about invasion of privacy? A and that this applies whether or not we are talking about consumer’s lender will know everything about what different entities—because it is essentially a legal entity they had purchased and when. For example, imagine test—within a banking group or different entities within that a bank learnt from the supermarket side when a a supermarket group. The bank within a supermarket consumer started to buy cheaper food, they would group is bound to be in a different legal entity from the know exactly when payday loans might be welcome. supermarket operation itself. The same considerations Similarly there is a possibility of the use of that ordinary apply whether within a banking group, within other supermarket data as a credit rating mechanism. financial services groups or within a supermarket group. The ability of a subsidiary to share personal 6.15 pm information about its customers, either with the parent Loyalty scheme operators know an enormous amount company or with another member of the group, is about all of us. I understand that Clive Humby of already regulated by the Information Commissioner dunnhumby, the Tesco subsidiary which manages under the Data Protection Act 1998. It is legislation Clubcard, has boasted that, of the customers who that applies to a financial services firm in exactly the tend to buy only convenience meals, Tesco knows same way as it applies to a supermarket or any other exactly which ones are shift workers by the time of day data controllers. If a financial services firm has breached when they purchase those convenience meals. I assume a customer’s rights under the Data Protection Act—for that means Members of your Lordships’ House who example, if it has used the customer’s personal information shop at 10 o’clock at night. The company also tends to unfairly, for a reason that is not the one for which it know who the students are by the sort of things that was collected, or without proper security—then the they buy. Recently, in the States, there was an example— right course of action is for the customer to complain not in the banking area—of a supermarket having to the firm and then to the Information Commissioner. seen that a woman was buying vitamin supplements, The Information Commissioner has the powers to lotion and hand sanitisers, and working out that she force compliance with the law. 277 Financial Services Bill[LORDS] Financial Services Bill 278

[LORD SASSOON] These provisions, or something very like them, already The FCA will not, therefore, be the first line of exist as FSA principles 6 and 8 in section PRIN 2.1.1 defence in the area of data protection. It is important of the FSA Handbook, but crucially those are principles that we do not blur the lines of responsibility between and do not have the force of law directly. Perhaps a financial services regulator and the Information 30 years or so ago, that would have been a satisfactory Commissioner, who, as we have seen through numbers situation. If the culture and current practices of our of cases, whether in financial services or in other areas, financial institutions were robust, morally sound and is a regulator with teeth. The case in 2007 of Nationwide possessed of a sense of the common good then the is an example of the Information Commissioner amendments I propose would probably not be necessary. taking aggressive action. In support of that, the FSA However, the culture and current practices of many of will take action where appropriate. The Information our financial institutions are not robust, not morally Commissioner is the first line of defence, but if a sound, and certainly not possessed of a sense of the financial services firm were to do something reckless, common good. such as losing a laptop with consumer data on it, then As the noble Baroness, Lady Liddell of Coatdyke, it will be fined, as Nationwide was fined £1 million said an hour or so ago, there have been numerous in 2007. scandals. There was the mortgage endowment scandal, We have the Information Commissioner as the first for example. There was the selling of precipice bonds line of protection to make sure that information cannot to pensioners. There was the payment protection insurance leak from one entity to another within the group scandal. Most recently, there was the mis-selling of without the informed consent of the consumer and interest rate swaps to SMEs. Every day seems to bring that the data within the entity are properly used in the news of yet another gigantic scandal. Yesterday HSBC way I have suggested. However, as a second line of apologised to the US Congress for, among other things, defence, in areas such as the one that I have described, breaches of US anti-money-laundering regulations of the loss of a laptop, the FSA—and in future the and poor record keeping. It turns out that 41% of the FCA—will have important supporting powers. Therefore, bank’s accounts in the Cayman Islands had no customer I would suggest that this “have regard” is one that is information attached to them at all. Senator Levin not necessary or appropriate and might raise false described the bank’s culture as “pervasively polluted”. expectations about the responsibility of the FCA in It is no wonder that confidence in financial institutions an area where there is a regulator with proven ability has fallen most dramatically here in the UK. The to come down hard on those institutions that abuse recent Ernst and Young survey on global consumer consumer data. I ask my noble friend to withdraw his banking reports that 63% of UK consumers say that amendment. their confidence in the banking system has fallen. That is the highest fall in Europe, and higher than in the USA. It seems to be the case that statements of Lord Lucas: My Lords, I am very grateful for that principle promoted by the FSA no longer command explanation. At this stage, it is exactly what I was either the respect or the compliance of some of our hoping for. I beg leave to withdraw the amendment. largest financial institutions. Over the past few weeks, there has been much Amendment 106ZA withdrawn. public discussion of the moral and cultural failures in significant parts of our system. I do not believe that Amendment 106A these failures can be addressed by exhortation. I believe it requires legislation to begin to change these moral Moved by Lord Sharkey and cultural failures, and to encourage the emergence 106A: Clause 5, page 17, line 2, at end insert “and having of more responsible and ethical behaviour. I do not regard to the general duty to provide those services honestly, believe that we can rely on the banks to change in an fairly and professionally in accordance with the best interests of appropriate and timely way without specifying what the consumers in question” some of those changes should be. That is what these amendments are designed to do, by proposing to put into the Bill what is essentially a duty of care—not, Lord Sharkey: My Lords, I shall also speak to perhaps, the most popular concept this afternoon—for Amendment 138A. Amendment 106A adds to what the financial services industry in respect of its dealings the FCA must ″have regard to″ when considering the with ordinary consumers. We may regret that it has degree of consumer protection. It adds the requirement come to this, but it has. It is plain that our trust in to have regard to the general duty of providers of much of our financial system to behave ethically was financial services, grossly misplaced. These amendments try, in some “to provide those services honestly, fairly and professionally in small way, to correct some of that. I beg to move. accordance with the best interests of the consumers in question”. Amendment 138A adds to the regulatory principles to be applied by both the PRA and the FCA. It adds the 6.30 pm principles that, Baroness Drake: My Lords, Amendment 107 is in “authorised persons should act honestly, fairly, and … in accordance my name. Bob Diamond said in November 2011 at the with the best interests of consumers who are their clients”, “Today” programme lecture: and that, “Our culture must be one where the interests of customers and “authorised persons should manage conflicts of interest fairly, clients are at the very heart of every decision we make; where we both between itself and its clients and between clients”. all act with trust and integrity.” 279 Financial Services Bill[18 JULY 2012] Financial Services Bill 280

This amendment puts that principle in the Bill, by to impose across the board between providers and adding to the FCA’s consumer objective that it must consumers, but the amendment would not apply across have regard to the general principle that, the board. It would apply where consumers have a “where consumers properly repose trust in a firm’s discretion and particular relationship with providers that relies on a are vulnerable to the exercise of that discretion, the firm has a firm’s exercise of discretion and they are vulnerable duty to act in the consumer’s best interests”. to it. That is simply what millions of people want, and they In their response to the Joint Committee report, the will not understand if it is denied to them. The basic Government inserted the new principle in the Bill, to principle is simple: if you have discretion when looking which the FCA must have regard, that, after someone else’s money, the starting point should “those providing regulated financial services should be expected be that you act in that person’s or that client’s best to provide consumers with a level of care that is appropriate”. interests. The amendment gives clarity to what is an appropriate I anticipate that the Minister will argue against the level of care where trust and discretion are involved to amendment, citing the fact that current FSA rules set a higher standard of protection. A duty to act in already say that firms must, the consumer’s best interest is clearer in its requirements “pay due regard to the interests of its customers and treat them to avoid and manage conflicts of interest. Where a fairly”, client reposes trust in the firm’s discretion and is but paying due regard is not enough to rebuild trust in vulnerable to the exercise of that discretion it is not the industry, and experience shows us that it falls short enough to balance competing interests. Rather, the of any kind of duty of care. Firms may not get every firm must ensure that conflicts cannot damage clients. decision right on every occasion and risk will not go Separating retail and wholesale banking is part of away, certainly in investments, but firms should at the solution to addressing financial stability and integrity, least be able to demonstrate that when they exercised but it is not the whole answer. Millions of ordinary their discretion and took a decision, they believed that people are saving, directly or indirectly, through the they were acting in the client’s best interests. The capital markets and are vulnerable to the exercise of Government have expressed a preference for the FSA discretion by a long chain of intermediaries. Legislation rules to lay out a specific, clear, focused and transparent must protect not only the integrity of retail banking set of duties on firms, but rules are geared to achieving but the interests of the savers in so-called casino compliance rather than changing behaviours. There banking. “Casino”may be appropriate for the behaviour must be a guiding principle to inform the content of of some intermediaries—the fund managers, traders those rules—the duty to act in the consumer’s best and others—but it is not the underlying purpose of interests. People in positions of trust in financial companies the investment market. As auto-enrolment into workplace have to change their behaviour. We simply cannot pensions gets under way in October, millions more carry on the way we are. people will be added to those saving through these The FSA is attributed with the comment in FTfm markets, many of them low and modestly paid workers. on Monday 16 July that, Even before auto-enrolment, which will bring billions more into these markets, £380 billion is invested in DC “fiduciary duties are more of an aspect of common law rather than something established by its rules and regulations”. pension schemes in the UK. That excludes the billions in DB schemes, investment ISAs and other products That basically amounts to the FSA confirming that and with-profits investments. under the existing proposals it does not see it as part of its remit to uphold the standard of protection that The Centre for Policy Studies has just published the amendment proposes. Hence, that is a very compelling Michael Johnson’s report Put the Saver First, which I argument precisely for this amendment. Others will have just read. Although I may not agree with all of argue that the amendment imposes a new obligation his recommendations, it makes an excellent contribution on firms and that it is not a reasonable standard to ask to the debate as to why the financial services industry of a commercial entity. I am not sure that it imposes a is mistrusted. It states that the financial services, new obligation but it certainly makes it explicit. In “industry would appear to have forgotten that customers are oral evidence to the Joint Committee Martin Wheatley, providing the scarce resource upon which the whole of the … CEO-designate of the FCA, said that, industry relies: their savings capital … Essentially, the industry should put the customer at the centre of everything it does … It is “firms … have responsibilities in terms of appropriateness, in clear that many people are investing in products they do not fully terms of their conduct and in many cases they also have a understand, which are governed by a jungle of complex rules and fiduciary responsibility to clients”. tax regimes that, collectively, almost nobody understands. Savers The wording of the amendment reflects legal principles are therefore putting their trust in the industry, and they need to in that the Law Commission’s summary of the be protected in situations in which the industry has a knowledge advantage. For almost all investors, this excludes very little. A less characteristics of a fiduciary relationship are discretion, subtle description is that regulation should protect investors from power to act and vulnerability. the industry’s self-interest, its inefficiencies and, in some cases, its The principle in this amendment is not inconsistent predatory instincts”. with a commercial entity’s desire to make a profit: In an investment industry with a long chain of what it prevents is unauthorised profit or profiteering intermediaries, the saver exercises virtually no influence at the expense of clients. Firms can continue to have over many key decisions. Indeed, at the behest of the and pursue their own interests, just not at the consumer’s Government, Professor John Kay is examining the expense. Conflicts of interest need to be properly lengthy investment chain and the implications for managed. Again, some may argue that a duty to act in efficient capital markets. There is no shortage of evidence the consumer’s best interest is not the right standard of misalignment and conflicts of interest between the 281 Financial Services Bill[LORDS] Financial Services Bill 282

[BARONESS DRAKE] When the Bill was considered in the other place, the consumer and the providers. The interests of the end Minister argued on this clause, as amendments were users of capital markets—the savers and investors and submitted for an explicit reference to fiduciary duty in those seeking capital—need to be reasserted. That in the Bill, that: turn will support UK economic interests. “Customers should not have to dust down the old statute The Bill should address the cultural issues by reasserting books and dig out their dictionaries … to identify what standards the appropriate nature of the relationship between they can expect from providers”. provider and consumer, where the latter is vulnerable He said that it was better for the FCA to set out to the exercise of discretion by the former and where clear and specific standards via its rules. He also said financial services have too often been seen as controlling that he was not convinced that fiduciary duty, the real economy rather than supporting it. The “is the right standard to impose across the board between providers LIBOR and EURIBOR rate-fixing scandal made many and consumers”.—[Official Report, Commons, 1/3/12; cols. 271-72.] organisations furious because it subverted the integrity Our Amendment 107 tries to address these objections. of a pricing mechanism at the heart of the capital markets. First, it does not rely on the term, “fiduciary duty”; it Promoting consumer engagement and empowerment simply enshrines the common-sense principle that is of course welcome, but it cannot be a substitute for underpins these duties. Where consumers rely on a greater clarity about the roles and responsibilities of firm’s discretion, that discretion must be exercised in each player in the investment chain. those consumers’ best interests. Secondly, it would not supersede or restrict the specific standards to be laid down in FCA rules, but rather provide an overreaching Lord Stoneham of Droxford: My Lords, I am pleased principle that the FCA should bear in mind when to speak in support of Amendment 107, which was setting those rules. Thirdly, it would not apply across spoken to so well by the noble Baroness, Lady Drake, the board but only where appropriate, particularly where and I also have sympathy with the other amendments consumers have a relationship with providers that justifies in this group tabled by my noble friend Lord Sharkey. a best-interests standard. I hope that the Minister will My personal interest in the success of the coming closely consider this matter and strengthen Clause 5 revolution in pension policy through auto-enrolment by accepting these amendments. makes me especially keen to support this group of amendments. We have to rebuild trust in the financial services sector, where culture is currently suspect, to Baroness Hayter of Kentish Town: My Lords, this is encourage greater pension savings. An explicit “consumer’s perhaps the most important debate today—perhaps best interest” principle in the Bill would be a powerful the most important of the whole clause—because these tool for the FCA to ensure consumer interests are amendments are about requiring savings to be managed protected. Fiduciary duty requires those entrusted in the interest of savers, not financial intermediaries. with other people’s money to put those customers first As we have already heard, the Joint Committee and provide appropriate stewardship, not to exploit recommended that the Bill, their position to make an unfair profit or to get “place a clear responsibility on firms to act honestly, fairly and involved in undue risk where it is inappropriate. If professionally in the best interests of their customers”. duties were properly observed and enforced, it would That should not be too much to ask. As my noble provide a sea change in the prevailing culture of the friend Lady Drake said, the Law Commission confirmed financial services industry and lead to a much better that where firms are managing other people’s money, outcome for consumers. or giving financial advice, they have fiduciary duties to The problem is to get the balance right between act in those people’s interests, both individuals and consumers and firms. Concern was expressed in pre- institutions such as pensions that represent, after all, legislative scrutiny that the draft Bill was unbalanced, large numbers of individual savers. That fact is, sadly, enshrining the principle that consumers are responsible not generally reflected within the industry. Because for their decisions but not placing an equivalent these are common-law duties, as we have heard, they responsibility on firms. The new principle, inserted by do not form part of the FSA’s regulatory approach, the Government, to which the FCA must have regard, hence they need to be repeated in the Bill, partly to is that, comfort consumers that the Bill does not trump these “those providing regulated financial services should be expected common-law protections, partly to give the FSA a to provide consumers with a level of care that is appropriate powerful tool to ensure that consumers’ interests are having regard to the … risk involved”, protected and partly to ensure that this duty of care is and the consumers’ capabilities. absolutely entwined in the industry’s DNA, where it The question is whether we are prepared to leave has, until now, been lacking. this so vague and open to interpretation that it would provide very weak guidance. With respect, it leaves 6.45 pm open the question that it was intended to resolve. For those managing long-term savings, the problem is It is not just me. Michael Johnson of the Centre for precisely that there is confusion and misinformation Policy Studies, who I have to explain does not share about the appropriate level of care. Explicit confirmation my political leanings, has written: that those managing other people’s money must act in “The ethos of fiduciary duty should be resuscitated across the their best interests would be a clear and effective way industry”. to get the balance right in the equivalent responsibility Like the noble Lord, Lord Stoneham, I have the for consumers and firms. example of pensions in mind. 283 Financial Services Bill[18 JULY 2012] Financial Services Bill 284

Amendment 107 seeks to enshrine the principle Lord Sassoon: My Lords, there is a lot to deal with that where consumers rely on a firm’s discretion—we because of the number of amendment in this group, must remember, that they are often part of a long although they all broadly cover the same ground. I feel chain, as my noble friend Lady Drake said; they often that if I err on the side of treating them in short order see or know nothing, as with the LIBOR adjustments— I will not do justice to each individual amendment, then the firm’s discretion must be exercised in the but if I deal with each in turn I risk going on too long. consumer’s best interests. Inter alia, that means not I think that in this case I should probably err on the exercised so as to pump up bonuses or shareholder side of doing justice to these amendments, because value. each is somewhat different. As we have heard, the Joint Committee called for The amendments all focus on the need for firms and the FCA to be empowered to hold firms to account by advisers to act honestly, fairly and professionally in upholding this duty to act in clients’ best interests. The the interests of consumers. This follows a recommendation response from the Government was, unfortunately, from the Joint Committee in its pre-legislative scrutiny insufficient, as my noble friend Lady Drake said, in of the Bill. I doubt that anyone in this Committee that they only asked the FCA to have regard to the would question the need for such integrity in firms’ principle that there should be a level of care appropriate dealings with their customers—certainly, they have to the consumer involved and that the need for advice not done so in this debate—but I do not believe that should be accurate, timely and fit for purpose. That is the approach suggested by the amendments would vague, in the words of the noble Lord, Lord Stoneham, help secure the outcome intended. but it also does not go far enough. Nor does the FCA’s I can assure noble Lords that we carefully considered mandate to promote effective competition in the interests the wording suggested by the committee, but concluded of consumers, welcome though it is. that the best way to address the concerns underlying Competition is fine in a perfect market where its recommendation was to modify the matters to which consumers have perfect information, but not for these the FCA is required to have regard, thus reflecting what credence goods whose outcomes might not be known firms should already be doing, rather than to seek to for 20 years; not when terms are used which are impose directly some kind of high-level duty on firms. meaningless to the client but not the seller; not where The consumer protection objective ensures that, as products are bought to cover risks about which any the FCA acts to protect consumers, it will be required normal consumer can have little depth of understanding; to have regard to the level of care that firms should not where prices are opaque, so that shopping around provide to their customers, based on the level of risk is impossible; and not for non-repeat purchases, where involved and the capability of the customers. This is none of the consumers can ever become savvy. set out in new Section 1C(2)(e). The phrase “level of Yes, the Bill provides for improved consumer protection care” is wide enough to ensure that fairness, honesty via the product intervention, the transparency and and professionalism, and certainly acting in consumers’ disclosure advances, but product intervention is following best interests, are all taken into account. I am not sure a failed product, by which time purchases will have how the amendments being proposed would add to been made and disclosure rules still do not compensate the existing provisions; in fact, they may narrow the for how much more the provider knows about risk definition of “level of care that is appropriate”, which than does the individual consumer. We welcome the I am sure the Committee would not wish to do. requirement for the FCA to have regard to consumers’ I thought that I heard my noble friend Lord Sharkey different experience and expertise, and their need for refer to the enforceability in law of principles of regulation. information that is timely, accurate and fit for purpose, I make it absolutely clear that principles of regulation but we want firms themselves to have to sign up to and are indeed enforceable in law. It was those general enforce a duty to act in the client’s best interests, along principles which the FSA used to pursue, for example, the lines of Amendment 138 in the names of the noble the Barclays LIBOR case, and it will be exactly the Lord, Lord Phillips, and the noble Baroness, Lady same for the FCA and the PRA. Kramer, that regulated persons and bodies should Amendment 106A would create a “general duty” assist consumers in taking responsibility. for firms to act in the way that the amendment suggests. The duty to work in the client’s best interests needs Such a duty would be so high level and vague as for it to be in the DNA of every firm, not simply a regulatory to be very difficult for firms to know what was expected intervention power by the FCA. Just as a solicitor’s of them, and it is far from clear what, if anything, such client charter says that he will put the client’s interests a duty would add to the contractual requirements and first—and, incidentally, explain what the costs are terms that already protect clients and consumers. Such likely to be—so there should be an expectation on a vague duty would also be difficult for consumers or anyone handling clients’ money. To quote Michael the regulators to enforce. It is the Government’s position Johnson again, that it is clearer, better and safer for consumers for the “all pension schemes should be subject to fiduciary-like obligations”. FCA to make a body of clear, specific and targeted rules that give both firms and consumers an understanding I believe that these amendments are central to of what level of care is expected, and that is the approach whether the Bill works for consumers, the individuals that we have taken. on whose savings much of this industry is built. Consumers should be able to trust those who advise them, who Amendment 136A would add to the “senior care for their money and provide financial services; management”regulatory principle an acknowledgement they should be able to trust that the client’s interests of the requirements for senior management, will always come first. “to act honestly, fairly and professionally”. 285 Financial Services Bill[LORDS] Financial Services Bill 286

[LORD SASSOON] that considered the draft Bill. I am pleased to see that As with Amendment 106A, I do not believe that this Amendment 107 in her name continues that input into addition would benefit consumers. Both the PRA and these Committee proceedings. the FCA will have powers, under Sections 56, 63 and I am sure that we are all again in agreement that 64 of FiSMA through amendments made by Clauses 11 financial services firms should always act in the best and 12 of this Bill, to take action in relation to a interests of their consumers. It is an issue which it is failure on the part of an approved person to act in a fit important to discuss, as I shall go on to do, but, as the and proper manner in performing functions in relation noble Baroness would expect, I argue that Amendment to regulated activities. Therefore, there is already a 107 would not ensure the outcome that we all desire. perfectly clear and sufficient mandate to ensure that, if Instead, it would add something that the FCA would either regulator judged an individual to be acting in a have to consider when deciding what was an appropriate way that was not honest, fair or professional, they degree of protection for consumers. It would require would be prompted to take robust action against the FCA to proceed on the basis that there is a “duty” them, up to the removal of their status as an approved for firms to act in their consumers’ best interests where person. We do not need extra provision to make this consumers place trust in those firms. Acting, happen. I hope that I can assure the Committee that “in the consumer’s best interests”, the amendment is not required. is a noble aspiration, but defining what this means is Amendment 108C would require the FCA to have difficult, particularly in the context of the FCA regard to, determining what level of consumer protection is “the general principle that firms or advisers must act honestly, appropriate under such a duty. fairly and professionally in the best interests of their customers”. The best way to ensure that firms act in their We agree that they should, but the amendment would customers’ best interests is not through a general duty not guarantee that they would. It would not establish on firms. The noble Baroness acknowledged that there any duties on firms additional to the detailed rules would be a difference of view about whether the made by the regulators. It would instead add something amendment would impose a new duty on firms. Again, to which the FCA would have to “have regard” when she will not be surprised that I would argue that the considering what was an appropriate level of consumer analysis we have done suggests that there is a new protection. As I have already said, new Section 1C(2)(e) general duty here, but we think that the better way to already deals with the point. do it is through FCA rules and principles in support of the consumer protection objective—rules that must be Amendment 138A would include the same phrases, clear, specific and enforceable, and that act to protect “honestly, fairly and professionally” and “best interests consumers against firms that do not or may not act in of consumers” in the list of principles to which both their interests. Therefore, while I disagree with the regulators will have regard when carrying out their substance of the amendment, I support its driving general functions. In addition, it would add the principle principles. This is why we are creating the much more that, focused conduct-of-business regulator, the FCA, which “authorised persons should manage conflicts of interest fairly, will have a very clear consumer protection objective both between itself and its clients and between clients”. and the suite of new powers to protect consumers that While I agree with the sentiment of both of these we have discussed. suggested additions, I have to say that they are again unnecessary. I have already explained why I believe 7pm that the wording referring to the expected level of care in the FCA’s consumer protection objective is the best Amendment 108D would add a further factor to way of ensuring this. which the FCA would be required to have regard when considering what level of consumer protection was On the specific issue of conflicts of interest, if firms appropriate. It states that, were not appropriately managing conflicts of interest, “discretionary asset managers will ordinarily owe fiduciary duty it is unlikely that they would be providing an appropriate to their clients”. degree of protection to consumers. In those circumstances, I think we have already had one dictionary definition the FCA would have very clear powers to act. I am not of “fiduciary duty” in this Committee sitting, but let convinced that the amendment would give the FCA me quote the Oxford Dictionary of Finance and Banking, power or authority that it does not have already. I which says: thank noble Lords for tabling these amendments and “Persons acting in a fiduciary capacity do so not for their own assure them that I understand their concerns. However, profit but to safeguard the interests of some other persons or in advancing its consumer protection objective, the persons”. FCA will already be focused on ensuring that firms The concept is plainly sound and I understand the treat their customers fairly, honestly and professionally concerns that are raised here. Firms engaging in and act in their interests. discretionary asset management take on the responsibility Amendment 107 would include in the list of things to manage the assets of their clients on behalf of their to which the FCA must have regard when considering clients, so do asset managers owe a fiduciary duty to what degree of consumer protection is appropriate a their consumers? I will answer with my best understanding, firm’s responsibility to act in consumers’ best interests as a non-lawyer, of the common-law position: sometimes where the consumer has reposed trust in the firm. I the answer is yes and sometimes the answer is no. It should recognise that the noble Baroness, Lady Drake, will depend on the facts of the case. Such is the beauty made a valuable contribution to the Joint Committee of our common law. 287 Financial Services Bill[18 JULY 2012] Financial Services Bill 288

Adding this amendment to the list of factors to making. This is clearly a market conduct issue and is which the FCA must have regard when considering already embedded in the FCA’s consumer protection what is an appropriate level of consumer protection objective. would, I am advised, serve only to muddy the waters. When pursuing this objective the FCA must have It would require the FCA to engage with some rather regard to a number of factors when considering what arcane provisions of common law to ascertain whether is an appropriate degree of consumer protection. These or not a fiduciary duty exists. If a fiduciary duty were are already set out in the Bill and include, found to apply, the FCA would then have to ascertain “the differing degrees of experience and expertise that different how that duty applied to the facts of the case. What if consumers may have … the needs that consumers may have for the fiduciary duty were insufficient to protect consumers? the timely provision of information and advice that is accurate This amendment would cast doubt on the ability of and fit for purpose”; the FCA to impose obligations on asset managers that and, go beyond the standards required by such a fiduciary “that those providing regulated financial services should be expected duty. to provide consumers with a level of care that is appropriate”. Comparing this amendment with the effect of the These provisions will allow the FCA to ensure that Bill as currently drafted, one finds that the wording firms offer their consumers a level of care that may go “level of care” is broad enough for the FCA to consider further than offering “reasonable assistance”, so again what standard of care authorised persons should provide I suggest that this amendment is unnecessary and may to their consumers. I prefer this plain English and be constricting. straightforward approach to one that resorts to concepts I have given, I trust, a full analysis of these amendments. from common law, which are both imprecise in terms I hope that my noble friend will understand that while of scope and inflexible in terms of their application. he raises some very important points, the construct we Again, I fully understand what is being got at here, have within the Bill means that these issues, which but I believe that this amendment would, no doubt were raised by the Joint Committee, are taken into inadvertently, take us into difficult areas of common account fully within the consumer protection principles law as opposed to common English, which the Bill and the other powers and sections of the Bill to which currently has in its favour. I have referred. Based on those assurances, which refer Similarly, Amendment 138B seeks to require both of course to both the regulators, I ask the noble Lord regulators to have regard to the regulatory principle to withdraw his amendment. that, “where appropriate, authorised persons should have a fiduciary Baroness Hayter of Kentish Town: I am not quite duty towards the consumers who are their clients”. clear, despite all the noble Lord has said, how conflicts of interest will be dealt with. This is not about timely I have set out why I believe that assuming or requiring advice or all those other things he mentions, but it is a fiduciary duty for asset managers in particular towards absolutely central to the issue of duty of care. their clients is problematic and may not give the levels of protection that consumers should expect. We have seen that the benefits of such a duty would not be Lord Sassoon: To be absolutely clear, the regulators— clear-cut, and adding this principle to the regulatory and the FCA in particular—will have very clear powers principles of the PRA as well as the FCA would again to make any further rules on top of those that already just muddy the waters. exist in the FCA’s rulebook in order to deal with conflicts of interest. I can be completely clear and The FCA has a clear mandate to ensure that the unequivocal on that point. The powers are there and consumers of all authorised persons receive an appropriate further rules can be made in this area if the FCA at level of protection, as determined by their particular any point regards them as necessary. requirements and circumstances, without the need to assess whether that level of care in fact constitutes, or should constitute, a fiduciary duty. This amendment Lord Sharkey: I thank the Minister for his detailed could introduce a burdensome process for the regulators response. I listened very carefully to everything he in determining whether a fiduciary duty was appropriate, said, but I was not convinced by the notion that this without in any way increasing what is really important— group of amendments might narrow the FCA’s scope the care that a consumer would receive, which is the to act in this area. I was equally unconvinced that the outcome that we want. general duty to provide services honestly, fairly and professionally was too vague, wide or ill defined, if Amendment 138 would insert the principle that that is what the Minister was actually saying. regulated firms should, I continue to believe that there is merit in an explicit “reasonably assist consumers in taking responsibility”, inclusion of the two principles that we suggest in the for their decisions in the form of a factor to which list of the regulatory principles common to both both the PRA and the FCA would have to have regard the PRA and the FCA. The debate has also shown the when carrying out their general functions. I agree that high level of concern about this whole area. The detail firms should assist customers in taking responsibility of the Minister’s response shows that he is alive to that for their decisions. Many participants in financial level of concern. I expect that we will return to this markets are subject to information asymmetries so matter on Report. In the mean time, I beg leave to cannot transact with firms on a level playing field, withdraw the amendment. and of course there is a role for firms to ensure that their customers understand the decisions that they are Amendment 106A withdrawn. 289 Financial Services Bill[LORDS] Financial Services Bill 290

ignore the Financial Reporting Council. It is the UK’s Amendment 106B independent regulator to promote high-quality corporate Moved by Baroness Hayter of Kentish Town governance. Again, in the other place, Mark Hoban 106B: Clause 5, page 17, line 2, at end insert “and the requirement emphasised that the matters of stewardship and corporate that all asset managers shall disclose the nature of their commitment behaviour are predominantly the responsibility of the to the stewardship code or explain their alternative investment FRC via its codes and the Bill should be about corporate strategy” behaviour. Thus, we require to see co-operation—indeed, an MoU— between those two parts of the new regulatory Baroness Hayter of Kentish Town: Amendment 106B architecture. The two codes need the impetus of an stands in my name and that of my noble friend Lord FRC requirement to comply or explain if they are not Eatwell. Oddly, there is no mention of the Financial just to be left on someone’s shelf. Reporting Council in the Bill, despite its central role in the regulation of financial services. Equally absent is 7.15 pm the FRC’s stewardship code, although it is clearly Even more, as I mentioned earlier, we need to relevant to the objectives of both the PRA and the develop a new code of conduct for bankers. As Ed FCA. In the case of the stewardship code or the UK Miliband has said, if we are serious about banking corporate governance code—also strangely lacking; regaining the status of the professions, we need a code perhaps it is my fault that it is not mentioned in the that goes across the industry. The FRC deals with amendment—the Bill’s drafters may say that that absence codes. It is the regulator for accountancy and actuarial is due to the fact that the precise name of the codes professions, including itself operating independent may change over time. I think that it was the Cadbury disciplinary arrangements for public interest cases. It code, then the combined code, then something else, oversees the regulatory activities of the professional and now it is the governance code. I understand that accountancy bodies and the actuarial profession, including the drafters may say that they do not want the precise bodies such as the ICAEW, which authorise regulated wording of the stewardship code or the corporate members to carry out company audits. The FRC thus governance code included, but I am sure that it is not oversees the disciplinary systems of the regulated persons beyond the wit of drafters to include something such working within the financial sector. Close co-operation as, “such codes agreed by the FRC as are currently in between the FCA and the FRC is essential to strengthen force”. the standards expected of professionals and their The issue of codes and their enforcement is central organisations and in the monitoring and disciplining to the behaviour, standards and culture that we expect of those professionals or their companies. of the industry. The Minister has already rejected a The FCA will rightly be able to disqualify but also code of conduct, but these are separate to that. Since to discipline. However, the first-line discipline lies 2010, there has been reasonable progress with the mostly with the recognised professional bodies and, introduction of the stewardship code. About 230 asset after that, with the FRC, which can deal with accountants managers, asset owners and service providers signed and their firms, auditors and their firms and actuaries— up in the first 18 months of its existence. The stewardship although not their firms. I know that the FRC is code is addressed to firms which manage assets on already thinking about an MoU with the FCA, in part behalf of institutional shareholders, although perhaps to ensure that any disciplinary action is co-ordinated it was not top of the thoughts of those fixing the and that auditors and actuaries are not subject to LIBOR rate: people who were dicing with money which double jeopardy or—my fear—semi-jeopardy. Discipline belonged to others. is one area where FRC-FCA working is needed, but Amendment 106B would ensure that the Bill gives there are other aspects. As the noble Baroness, Lady regulators a proper, clear mandate to strengthen the Noakes, who is not in her place at the moment, noted stewardship code if needed and, importantly, sufficient on 3 July, new Section 9Q allows the FRC to make teeth to ensure that it is adhered to so that culture recommendations to the whole world. Although not changes can happen. In another place, Mark Hoban specified in the Bill, the Explanatory Notes to new noted that the FSA supports the FRC’s stewardship Section 9Q cite the FRC as an example, as the Minister code through mandatory requirements on asset managers said previously in Committee specifically in relation to either to comply with the stewardship code or explain corporate governance standards. their alternative investment strategy. He said that such The FRC also sets standards for monitors and powers would transfer to the FCA, but that power is oversees the work of auditors. It is notable that none not laid down in the Bill. Surely we need to ensure, via of the recent failures was found by auditors, which the stewardship code and its monitoring by the FCA, begs some pretty big questions. The present Governor that asset managers must demonstrate their commitment of the Bank of England has identified changes needed to the code. It needs the force of law to make it happen, to the auditing profession and role, with less window- because that has clearly not been the case so far. dressing of accounts, especially in disguising leverage. I turn to the other two amendments in the group, The Joint Committee suggested that the Treasury should which deal with co-ordination between the FCA and consider whether a duty should be placed on auditors the Financial Reporting Council. Amendment 121B to draw certain risks to the attention of regulators. is intended to ensure such co-ordination and HMT has responded that the FCA would have powers Amendment 121C would require a memorandum of to make rules imposing duties on auditors, but such understanding. I hope that we do not go back to the rules and their monitoring and enforcement largely briefing from the Box that says, “Say no to memorandums reside with the FRC—another reason for the need for of understanding”. It makes no sense for the Bill to the clarity of an MoU as to who does what. 291 Financial Services Bill[18 JULY 2012] Financial Services Bill 292

As a standard-setter, the FRC’s links with European Baroness Hayter of Kentish Town: My Lords, that bodies are key, but many of them will be led by the offer has not come to me. I was at one meeting with FCA or the PRA, which again means that the working the Bill group and asked whether I had access to the relationship between the FRC and its voice in Brussels Bill team, but I have yet to be given its e-mail address. needs to be clear, as well as transparent via an MoU. I I had an e-mail from the team about one of our will take one moment to tell you a story about the amendments earlier this week, and I have written to it need for that to be joined up. When I was working on another issue. I have not had repeated offers. I have with the FRC, I was also working with the Insolvency talked to the FRC about this amendment, and it Service’s Insolvency Practices Council. I was very knows all about it. I am therefore slightly surprised by aware that certain banks were putting people into debt the Minister’s comment. management systems rather than into an independent voluntary agreement. The reason was that if it was an Lord Sassoon: My Lords, I believe that I made the IVA, it could not be carried forward as a debt, it had offer in the last Committee session, on the Floor of to be written out of the bank’s accounts. Putting them the House. Hansard will record when I last made the into a debt management scheme made what were quite offer in this Committee. I cannot speak to every member toxic loans appear normal. Having heard about this of the opposition Front-Bench team but I have made through the Insolvency Practices Council, I went to the offer repeatedly to the noble Lord, Lord Eatwell. the FRC and said, “Your rules do not seem to allow Indeed, I know that the Bill team has made quite clear for that”. The FRC said, “Our rules are absolutely fine to the opposition research team how it can be reached. on that, but they are enforced by the FSA”. So I I make the offer again because I think that there are wandered across to my old friends at the FSA and many things around which we could clear the ground, explained all this. I said that the rules said they should and that would be helpful for everybody. I can quite not be shown as good debts when they were actually understand that there may be issues here, but there are bad debts. The FSA looked it over and said, “Ah, many interested parties who put forward all sorts of that’s very interesting, but it’s a credit issue. Her Majesty’s good ideas for amendments which, on scrutiny, might Treasury deals with that”. So I went back to the lovely be not be reflective of the situation as it exists. lady who I worked with in the Treasury and told her Let me help the noble Baroness with a couple of the the story. She said, “That’s very interesting, but the facts of the situation. First, the FCA has already rules for auditing are made by the FRC. Why don’t brought in a rule with which she may be familiar but you go there?”. That is simply an example of no one to which she did not: rule 2.2.3 of the current Conduct taking responsibility. We need an MoU to be absolutely of Business Sourcebook. This requires UK-authorised clear who will deal with it when something needs doing. asset managers to put statements of commitment to The financial sector service is made up of people—that the stewardship code on their websites, or—if an asset is basically all it is, along with some clever computing manager does not commit to the code—to provide its powers. They are professionals, trained to standards alternative investment strategy there. I would of course set by professional bodies, working to technical standards expect the FCA to carry forward this important rule agreed by the FRC, abiding by ethical codes adopted in its own rule book. So I would suggest to the Committee by their professional bodies which are overseen by the that the suggestion underpinning the discussion we have FRC. If we are to make any progress in improving just had—the contentions around the lack of joined- behaviour and standards, the FRC will be an integral upness—are not reflected in the way in which the FCA part of that. It is a body that must be recognised in the Conduct of Business Sourcebook already explicitly refers Bill, and it must be under a mutual obligation to work to the stewardship code. closely with the FCA. I beg to move. I agree with the noble Baroness completely about the need for an MoU. However, what she does not do Lord Sassoon: My Lords, I am sorry to say that this in her speech this evening is to recognise that the FSA is one of those groups of amendments where I do not already has an MoU with the FRC. I believe that it think that the Committee’s time will be well served. I covers all the relevant matters. We have discussed the have repeatedly made public and private offers to the subject of MoUs before. The Bill provides explicitly opposition Front Bench to talk to us in the Bill team only for MoUs between the key players in the regulatory at any time about any of their amendments. Not once system: the Bank of England, the FCA, the PRA and in the process of this—now long—Committee stage, the Treasury. We have discussed why that should be. or before it, have the Opposition taken up the offer of That does not mean that there will not be—and are talks to discuss amendments. not already—MoUs between the new regulators and other bodies; we have talked about the OFT, and there Baroness Hayter of Kentish Town: My Lords— is already an existing MoU with the FRC. So I understand where the noble Baroness is coming Lord Sassoon: If the noble Baroness will let me, I from in this group of amendments. I believe that the will complete my sentence before letting her in. She matters are already properly accommodated within herself began by saying that these amendments are the Bill. I wish that we could have had a discussion defective, and that is indeed the case. As I shall explain, about this outside the Committee, but I am glad to however, they also do not reflect one or two of the have now got that on the record. I would ask the noble simple facts of the situation. Although there is, of Baroness to withdraw her amendment. course, a proper concern in this area, if the party opposite were prepared to discuss those facts, we Baroness Hayter of Kentish Town: My Lords, it might not be talking about some of these amendments would not be very satisfactory not to consider such an in the way that we are. important issue in Committee. Concern about it is 293 Financial Services Bill[LORDS] NHS: Specialised Services 294

[BARONESS HAYTER OF KENTISH TOWN] What makes AGNSS different is that it brings shared not just by the FRC but by the ICAEW, which eminent clinicians together with commissioners in last night again expressed its support and its belief considering these complex matters and integrates other that the issue is important. As the Minister will know, vital perspectives through members with health economics there are vital and urgent requirements to improve and ethical expertise and from the lay community. For client asset audits. Those can be undertaken only by the first time, AGNSS evaluates services, products and regulated professionals overseen by their recognised technologies using an ethical decision-making framework professional bodies, such as the ICAEW, and these are that holistically balances a range of factors, including overseen by the FRC rather than the FSA. So this is patient need, clinical severity, clinical effectiveness, key stuff. This is not—this will sound awful but I will affordability, service efficiency and the value to society. say it—“a little discussion with the Baroness, who It would be fair to say that the development of AGNSS does not really understand it but can be well briefed and its decision-making framework, with widespread outside this House”. I think that that was the tone of input from all parties, was seen as a model of its kind the Minister’s comments. I am speaking on behalf of and that the group, under the capable leadership of organisations such as the ICAEW, which feels very Professor Michael Arthur, has only grown in stature much that it has a key role to play, which it wants to over the past two years. play, in the regulation of this industry. We know that Organisations and others with an interest in the we need improved rules and guidance about how health and welfare of people with very rare conditions auditors should work. We know that this is in the were greatly concerned when it was announced at the hands of professional bodies, not the FCA. If there is turn of the year that AGNSS would be entering a already an MoU with the FSA, it seems to me that moratorium, pending decisions about its future. If the there will be one with the FCA. So I do not think that reaction to this debate is anything to go by, it is much writing it in legislation will cause a revolution, nice appreciated and valued by research scientists, organisations though that would be. There are important issues of representing patients and pharmaceutical companies, discipline in the hands of ICAEW and other professional who have all expressed their alarm at its possible bodies overseen by the FRC. It would be inadequate demise. for those to be free-floating and not in the Bill. For the moment, however, I beg leave to withdraw the amendment. My understanding is that this decision stems from the view that an advisory group for Ministers will be Amendment A106B withdrawn. incompatible with the provisions of the Health and Social Care Act 2012, which devolves responsibility House resumed. for the commissioning of all specialised services to the NHS Commissioning Board. To quote from my noble Lord De Mauley: My Lords, the noble Lord, Lord friend the Minister’s letter of 8 June to Mark Simmonds Patel, has withdrawn his name from the following MP: debate. I therefore suggest that there is now time for “In the future, there will be a clear differentiation between speakers other than my noble friends Lady Jolly and what services the Board should commission and how those services the Minister to speak for up to five minutes each. are commissioned. It will remain the responsibility of ministers to consider, on the basis of appropriate advice, the list of services that should be directly commissioned by the Board. Ministers will then consult with the Board on those services before laying NHS: Specialised Services regulations that will specify the services that will be commissioned. Question for Short Debate It will be for the Board to decide how it commissions the service”. As the letter acknowledges, Ministers will need advice 7.30 pm on what services are to be prescribed in regulations for Asked By Baroness Jolly commissioning by the board. My understanding is that the Clinical Advisory Group, presently chaired To ask Her Majesty’s Government what is their by a civil servant, Dr Kathy McLean, will fulfil this assessment of the future of the work of the Advisory function in relation to the generality of services. The Group for National Specialised Services. question is whether highly specialised services should be channelled through the same route. Baroness Jolly: My Lords, I declare an interest as The views of eminent clinicians presently sitting on chair of the Specialised Healthcare Alliance, a coalition AGNSS or leading services commissioned through the of 79 patient-related organisations receiving financial AGNSS process suggest that this is at least worthy of support from 11 corporate members, which campaigns debate. In particular, AGNSS is recognised as a route on behalf of people with rare and complex conditions. whereby such services can engage with commissioners. The Advisory Group on National Specialised Services, I am told that this is an iterative and demanding or AGNSS, was established in 2010. Its role was to process, taking some considerable time before a decision provide a single source of advice to Ministers on is taken. The net result is generally one where there are whether services, products or technologies for very indeed costs to the NHS, but often costs that are small patient populations, usually not exceeding 500 reduced as a result of coherent commissioning. For for England as a whole, should be commissioned at example, the decision to commission severe acute national level rather than by PCTs, individually or porphyrias means that young people presenting with collectively. Some 65 services are enormously important potentially fatal attacks should now have speedier to over 10,000 people with a range of very severe and access to expert care with less wastage of the relevant frequently life-threatening conditions. drug, haem arginate, which has a short half-life. Similarly, 295 NHS: Specialised Services[18 JULY 2012] NHS: Specialised Services 296

AGNSS was able to advise on the managed introduction pricing will supersede the need for separate arrangements of extracorporeal membrane oxygenation, or ECMO, for treatments for very rare conditions, but that alternative which has saved many people whose lungs are severely options will be explored in case of need. distressed, most notably as a result of swine flu. All are agreed that value-based pricing has exciting The danger is that without a clear port of call in the potential. The challenge of expressing that potential form of AGNSS, these important services may get lost will be considerable for the generality of treatments, from sight, as will the opportunity to develop them in but it will be undoubtedly greater for very rare conditions. a way that meets the needs of patients and delivers In the mean time, retention and development of the best value to the NHS. Furthermore, Ministers may be AGNSS framework would seem to have great merit. hard pressed to decide on whether the board should AGNSS represents something of a jewel in the commission such services without high-quality advice crown. The dancer cannot be easily separated from the on what they comprise. dance in determining which highly specialised services The relevance of these services, not just to England to commission and how to commission them. Ministers but to all parts of the United Kingdom, would also will continue to need high-quality advice. I would seem to count in favour of retaining an advisory group hope also that the first mandate to the board recognises alongside Ministers, as would the broader strategic the value of this heritage and bestows it for safekeeping. importance of issues such as proton beam therapy. I therefore put it to my noble friend the Minister that in 7.40 pm the case of highly specialised services there might be merit in retaining a group providing a single source of Lord Turnberg: My Lords, I am sure that we are all advice to Ministers but with a dual reporting function grateful to the noble Baroness, Lady Jolly, for introducing to the board in determining how such services should this debate and setting out the issues so clearly. There be commissioned. is deep concern among the support groups that speak for patients with rare diseases that the loss of this As for the composition of this group, I have heard advisory group, newly formed as it is, will be a retrograde it said from reliable sources that if AGNSS did not step and create confusion and a loss of a valuable exist it would need to be invented. In a recent conversation asset. I have no doubt that the Minister will try to with Professor Arthur, he outlined the three components reassure us by saying that this will all be taken care of that made AGNSS effective, unique and special: the by the commissioning board. There is little or nothing support from the national specialised commissioning in the Health and Social Care Act, or in any other team, the strength of the group—an ethicist, a health document I have seen, that offers any confidence yet economist, a geneticist, a pharmacist, representatives that this has been given enough serious attention. I of all royal colleges, representatives of SHAs, lay look forward to him saying rather more than we have people, carers and patients, commissioners from PCTs heard so far when he comes to round up. and a member of the HTA—and excellent advice to AGNSS from public health doctors. It is the case that the advisory group has been widely regarded as doing a marvellous job. It is recognised We are going through a period of enormous change not only by the NHS and by patients, but also by other in the NHS, but change for change’s sake is to be countries as a model for the way services for patients avoided at any time—and surely now more than ever. I with rare diseases should be provided. It does this by therefore urge the Minister and the chief executive of having developed a rational framework that takes the NHS Commissioning Board to think carefully account of best practice and societal and health gains. about disbanding AGNSS when the need for it remains It has done so in a way that is efficient and at a unchanged. Historically, the view has been taken that reasonable cost. NICE would struggle to combine under one roof the I would like to illustrate this by using the example evaluation of products with a cost per quality-adjusted of the group of orphan, or very rare, diseases that life-year often very substantially higher than the threshold rejoice under the name of lysosomal storage diseases. which usually applies. Furthermore, in this highly These include Gaucher’s disease, Hurler’s syndrome specialised field, where a service develops around a and a number of others. They affect few patients, novel treatment, the distinction between services, products almost all in childhood. An average GP in an average and technology is sometimes difficult to make in areas year is unlikely to see a case. If she is faced with a case of previously unmet need. she is unlikely to know what to do about it and left to The AGNSS decision-making framework therefore herself is likely to be reluctant to fund the patient’s represents a major step forward. It recognises that the care. evidence-base for small patient populations may be These are the sorts of cases that have to be funded less developed. At the same time it imposes demanding and commissioned centrally and cannot be left to standards in terms of the number of patients whose CCGs. Only when sufficient knowledge and expertise condition improves as a result of a treatment, compared are available can commissioning be rationally arranged. to the total number of patients treated. This approaches Here, the advisory group has been invaluable. It is not 100% for more expensive services, products and simply commissioning that is needed. The provider technologies. services for rare diseases must be distributed in a That progress has been hard won and should not be limited, rational number of places to make the best squandered but built upon. In a debate in the House use of limited resources. Specialised services for children of Commons on 30 April about a strategy for rare with lysosomal diseases are located in only three places: diseases, the Minister of State, the right honourable London, Birmingham and Manchester. For adults Simon Burns MP, appeared to suggest that value-based they are located in five places around the country. 297 NHS: Specialised Services[LORDS] NHS: Specialised Services 298

[LORD TURNBERG] service has provided budgetary transparency for the Only by limiting the number of sites can you expect to NHS, ensuring the efficiency and effectiveness of therapies develop a critical mass of specialised doctors, nurses and avoiding unnecessary costs. Fourthly, the ability and other healthcare workers to provide the best possible to launch national tenders for therapy and home care care. They are also the places where teaching and has resulted in further cost savings. Fifthly, there has research into these diseases can best be done. been the development of national clinical guidelines That is one example. Similar needs apply to a much defining diagnostic treatment and management criteria. larger number of diseases, each of which occurs rarely. The Government have determined to disband AGNSS The Genetic Alliance UK is an umbrella organisation as part of the establishment of the NHS Commissioning that brings together over 150 patient-led charities, Board, as has been referred to by other noble Lords. It each set up to support these patients, again mostly is not yet clear how this will work and whether this children, with genetic diseases. Most of them fit into service for the assessment and management of patients the category that is covered by the advisory group; with LSDs will remain a distinct body. The potential that is, they affect fewer than 500 patients a year and disbandment of AGNSS and the subsequent division currently the advisory group covers about 70 specialised of the assessment and management of rare diseases services. For these patients, the advisory group has raises significant concerns that the issues faced by made all the difference. Yet now there is much concern many LSD patients prior to national designation will that all this expertise will be pushed out and dissipated resurface. These will include delays in access to diagnosis as the commissioning board takes on its multitude of and treatment, regional inequalities and inconsistencies, responsibilities. misdiagnosis and inappropriate disease management, Can the Minister reassure us and them that there wasted resources in the NHS, and the separation of will be a rare disease plan in the mandate for the clinical management and appraisal of therapies. board? Will the board have access to the specialised The current service is envied around the world and expert advice that is so valuable and ready made for in its existing form is an example of the NHS at its this purpose in the advisory board? I am sure that he is best. In other branches of the NHS we are encouraged well aware of the need and requires no prompting to create centres of excellence, in terms of heart treatment, from me on this, but I hope that he is going to be able heart attacks, strokes and the like. Many hospitals are to say something today that will help allay these concerns. ceasing those services—to have centres of excellence—but the rationale for them should apply to these rare 7.44 pm diseases as well. Lord Palmer of Childs Hill: My Lords, the noble Can the Minister assure patients benefiting from Lord, Lord Patel, is indisposed and we wish him well. centralised commissioning arrangements provided by AGNSS that they will continue to do so in any new I thank my noble friend Lady Jolly for initiating arrangements and that there will not be a break-up of this debate and for giving a detailed introduction to the existing services? Can the Minister confirm that the problems mentioned in its title. My concern is the new NHS Commissioning Board will retain a specifically with the treatment of Gaucher’s disease, dedicated budget appropriate to meet the needs of the genetic disease mentioned by the noble Lord, Lord LSD patients currently being treated, with provision Turnberg. It is the most common lysosomal storage for potential additional funds for new therapies in the disease. It is caused by hereditary enzyme deficiency. course of development? Can the Minister give an Patients in the UK, together with patients suffering assurance that the new arrangements will not see a from other lysosomal storage disorders, or LSDs, are return to what is called postcode lottery for treatments treated at nationally designated centres run by the of patients with rare diseases? Does the Minister agree Advisory Group for National Services and I am grateful that rare diseases requiring specialised services cannot to my noble friend Lady Jolly for reducing that to be treated in the same way as more common conditions, AGNSS, which saves me from repeating this long and that structures such as AGNSS need to be put in name, or the initials. There are eight nationally designated place to ensure that patients continue to be properly treatment centres in England serving these patients. and appropriately managed and treated by the NHS? Since 2005, the treatment of LSDs has come under Finally, the chairman of the European Gaucher the management of AGNSS, which has allowed LSD Alliance, which represents patients’ groups from 36 patients to benefit from national designation with countries, tells me that the current structure for the respect to assessment, diagnosis, clinical management delivery of healthcare to Gaucher’s patients is envied of the disease and assessment of the therapies. The around the world and is the inspiration for their centralised management of LSDs previously mentioned organisations. I hope that the Minister can provide an by the noble Lord, Lord Turnberg, and my noble assurance to the House that this type of service will friend Lady Jolly is the creation of eight nationally continue. designated centres and has had the following key benefits. 7.49 pm First, there has been provision to patients of access to experts in the management of these rare diseases. Baroness Hollins: My Lords, until 2008, I was deputy Without this access patients have suffered misdiagnosis, chair of the National Specialist Commissioning Advisory as the noble Lord, Lord Turnberg, said, and inappropriate Group, which was a predecessor organisation to AGNSS. treatment. Secondly, all patients in England—and it is There are some very rare conditions affecting England that we are talking about—have had equity mental health. Services meeting the criteria defined by of access to therapies. Thirdly, a nationally funded the noble Baroness have been commissioned, such as: 299 NHS: Specialised Services[18 JULY 2012] NHS: Specialised Services 300 the children’s gender identity development service, for for highly specialised services will indeed mind the gap children struggling with the development of their gender for complex psychiatric conditions, including those identity; services for those with very severe obsessive affecting people with learning disabilities and deaf compulsive and body dysmorphic disorders; secure people, and that the skills that AGNSS has demonstrated, mental health in-patient services for young people, which are still needed to commission highly specialist including those with learning disabilities and those services in the future, will be retained and further who pose a forensic risk; and services for young deaf developed as suggested by the noble Baroness, Lady people with acute mental health problems. Each of Jolly? these disorders is low in overall national numbers, which makes it difficult to assess the suitability of 7.54 pm proposed services and treatments. The proposal made in the draft mandate to the NHS Commissioning Baroness Masham of Ilton: My Lords, I thank the Board is that the board will commission those services noble Baroness, Lady Jolly, for this timely debate on that fall into the national specialised services definition AGNSS. There is no doubt in my mind that there are set. I understand that 85 services are being considered, many really concerned and frustrated people who are of which about 10 are mental health services. These involved in highly specialised conditions, be they patients, include some services that were previously commissioned relatives or doctors treating them. With so much insecurity following recommendation by AGNSS, such as the and with PCTs running down and the national services I have already briefly described. Commissioning Board not operational yet, there is a My worry, and I seek ministerial reassurance on limbo situation. this, is that learning disability and mental health services When a rare disease strikes, it is the individual who will fall though the specialist commissioning gap. Some matters. The correct treatment is vital, but with rare of these services are quite messy. They do not conform conditions risks have to be taken if there are to be to the medical model of rare medical diseases that can improvements. The Chief Medical Officer, Dame Sally be researched in the lab, even if they have a serious Davies, has recently endorsed the value of research impact and are rare. Even moving these services to into rare diseases by the National Institute of Health NICE would create a problem since the research Research as a significant source of benefit for patients investment needed to provide evidence-based treatment with rare diseases. The role of AGNSS is to advise has been neglected until now. Ministers. Does the Minister think that the national If there is to be parity of esteem between mental Commissioning Board members will be infallible so and physical illness, people with severe mental illness that they will not need advisers? We have come to a and with learning disabilities need equal attention to shocking situation when staff in St George’s Hospital, their complex clinical conditions. For example, there is a teaching hospital, neglected a patient of 22 who had no new, well funded research into drugs to treat serious suffered a rare condition, following a brain tumour, mental illness and no repurposing of drugs, and I am that required daily drugs. He died of thirst because unaware of any investment into exploring, for example, staff failed to read his notes. Patients with rare conditions the role of immunology in drug treatment for severe need extra-special treatment; they should not be neglected mental illness. and ignored. What has gone wrong? We need transparency and confession and a fool-proof system for all vulnerable I would like the Minister to comment on the continuing patients. When the Government say that everything is need for such highly specialist commissioning skills fine when it is not, it is a cover-up. that have been developed within AGNSS and its predecessor NSCAG. There is some concern, which I AGNSS is an independent advisory group providing share, that the successful work of AGNSS will be lost, advice to the Secretary of State for Health regarding with the risk of forgetting important lessons learnt the commissioning of services for very small populations about national, highly specialised commissioning in of patients—fewer than 500 patients in England. Will the past few decades. The NHS constitution states that the Minister make clear what the future of AGNSS the NHS’s resources are to be used, is? To cover all specialised services adequately, the Commissioning Board will have a mammoth task. “for the benefit of the whole community”, I must declare an interest as I have a cousin aged six to, who has relapsed neuroblastoma. The treatment his “make sure that nobody is excluded or left behind”. parents are trying to access is likely to become available There are concerns about whether any group which on a trial basis in the UK, but not in time for Jamie. It replaces AGNSS would comprise sufficient expertise has been internationally recognised as being one of to assess the unique requirements of highly specialised the most promising therapies with encouraging results services, as well as about how the strong relationships against neuroblastoma. I think it is available in Germany. built by AGNSS with royal colleges, patients and There are only about 100 patients a year in England others will remain within the national Commissioning with this aggressive type of child cancer. It desperately Board. needs research. Parents will do anything for their For me, the most important message is that some children. This family is appealing to the North Yorkshire highly specialist services are needed for a small number PCT. of people with severe mental illness and learning I am president of the Spinal Injuries Association, disabilities which may meet, or nearly meet, existing which is concerned about tetraplegics and paraplegics criteria. New criteria for highly specialist services must who are not being admitted to spinal units. One case is ensure parity for these groups. Can the Minister assure still residing in St Mary’s, Paddington, on a respirator the House that the new commissioning arrangements after a ski-ing accident. He has been waiting to go to 301 NHS: Specialised Services[LORDS] NHS: Specialised Services 302

[BARONESS MASHAM OF ILTON] such orphan drugs was transferred to an advisory the spinal unit at Stanmore for months. This is not body which later evolved into AGNSS, and the dreaded good. Correct specialised care means good quality for threat of a postcode lottery was removed. patients. The noble Earl is Minister for Quality. Does In its short life, as we have already heard this evening, he agree that there should be a special fund for very AGNSS has garnered high praise for its thorough rare cases so that they are not passed over? I, who have evaluation process, which is seen to be open and every admiration for our hard-working Minister, do transparent, using the uniform expertise to evaluate not want the system to give him the reputation of funding for service provision and therapies, thereby being a Pontius Pilate. Even with AGNSS, there are avoiding inefficient and artificial separation of improvements to be made. There is a black cloud commissioning for drugs and services. It is likely that hanging over the NHS: the £20 billion that has to be this good practice has led to the UK being looked on saved. With so many demands on healthcare, this favourably as a destination for pharmaceutical industry- challenge may just be too great. sponsored clinical trials. Surely we all want this to continue and develop. Can the Minister say what the 7.59 pm timescales are for confirming the future work of AGNSS Baroness Thomas of Winchester: My Lords, I am and can he confirm that the Secretary of State for grateful to my noble friend Lady Jolly for this debate. Health has the duty under the new Act to provide I do not have to declare an interest because, although specialised services for all who need them, however I have a rare disease, I do not have an ultra-orphan rare their disease? disease. There will be a lot of repetition in what we are saying but perhaps the very fact that we all want the 8:03 pm same thing will send a powerful message to the Lord Walton of Detchant: My Lords, I too am Government. That message has been particularly loud deeply grateful to the noble Baroness, Lady Jolly, for and clear from all the groups that have been lobbying initiating this important debate. I have been a long-time us and are very worried about the future of the supporter of the Rare Disease UK consortium, now commissioning of services for these very small populations chaired by the man who recently was the director of of patients with ultra-rare diseases. They all want a the Genetic Interest Group. A recent editorial in the version of AGNSS to continue its invaluable work and British Medical Journal in June said: they do not want its expertise and experience to be lost “Three million in the United Kingdom have a rare disease, when the NHS Commissioning Board takes over the defined in both Europe and the USA as a disease that affects responsibility of commissioning specialised services. fewer than one in 2000 people. It is well recognised that those with rare diseases face intrinsic inequalities in healthcare, and in It is something of an irony that as medical research response to a 2010 recommendation by the European Commission, finds more and more treatments for these ultra-rare the UK government, like other member states, agreed to produce diseases, and as improvements in diagnosis mean that a strategy for rare diseases by 2013”. more people will have a correct diagnosis and therefore The Government at the moment are consulting on this potentially live longer because their condition can be very important topic. treated, the actual drugs and therapies they need might Before I come to that I want to say a word about be deemed unaffordable. That is why we need AGNSS AGNSS, which has proved to be remarkably successful. more than ever at this point where research is at the It has been funded by top-slicing of funds—up to forefront of the Health and Social Care Act. That Act about £100 million a year—from primary care trusts now gives the Secretary of State, for the first time I across the UK and it has enabled companies such as believe, the duty to promote research in the NHS. This Shire Pharmaceuticals to develop enzymatic treatments will inevitably mean that new therapies will be found which have in fact been able to reverse diseases like for rare disorders. This should be great news, but will those referred to by the noble Lords who spoke earlier it be for the very small proportion of the population about the various storage disorders. It has been able to who have these ultra-rare conditions? Will they be control disease in people with Fabry disease, Hunter denied access because of the high cost of treatment? syndrome, Gaucher’s disease and others. It has been The key question is what value-based pricing, due to immensely successful and its future is therefore crucial. be introduced in January 2014, will mean for high-cost It is important that the Government recognise in the low-volume drugs and whether these can be adequately consultation process they are undertaking that the needs assessed within a new value-based pricing framework. will increase as time goes by, because the developments The Department of Health says that the new system in genetic medicine and molecular biology are revealing will give patients and clinicians greater access to clinically in many of these devastating and rare diseases single effective and cost-effective medicines. But experts are genes whose effects can be controlled to an extent by not convinced that the system will work without the new forms of treatment. As time goes by, more and AGNSS framework, particularly given the situation in more orphan and ultra-orphan drugs to control these Scotland where AGNSS does not operate. The last rare diseases are coming on stream. thing we want is to go back to the old days when One major concern about the proposals in the people diagnosed with Pompe disease, for example—an Government’s consultation document is that, while it ultra-rare but treatable neuromuscular condition which contains proposals on diagnosis and services for rare affects fewer than 100 people in England—were not diseases, policy and treatment is deflected to forthcoming always certain that enzyme replacement therapy would proposals on value-based pricing. Value-based pricing be licensed in England because NICE had to be satisfied is unlikely to be capable of dealing with medicines for that it would be cost-effective. Through the leadership orphan and ultra-orphan diseases because, after all, of Sir Michael Rawlings, national commissioning of the number of patients affected by these conditions is 303 NHS: Specialised Services[18 JULY 2012] NHS: Specialised Services 304 relatively small. The drugs that are being developed families and children specialist services will be carried are going to be very expensive and they are not going forward in the new dispensation. Perhaps the Minister to be commercially viable unless they are sponsored could write to me on the clinical standards for young and subsidised by funds from an organisation like people in care. NICE is responsible for taking those AGNSS. This is a crucial issue which I hope the forward. If we can get those right, we will need fewer Government will be able to deal with. At a recent specialist mental health services for children and families meeting Sir David Nicholson suggested that it was in the future. I look forward to the Minister’s response. probable that the functions of AGNSS would be taken over by the national Commissioning Board. I know no 8.10 pm decision has yet been made but will the Government Lord Hunt of Kings Heath: My Lords, I congratulate tell us what the prospects are, whether the responsibilities the noble Baroness, Lady Jolly, on giving us this will be extended and whether funding for AGNSS is welcome opportunity to discuss national specialised likely to be increased? services. The points that she has made are significant Finally, in the light of my own private research I both in terms of specialist services and also in terms of want to mention a disease called Duchenne muscular some of the vulnerabilities in the new architecture that dystrophy—a devastating disease of young boys causing we see being brought into the NHS. progressive muscular paralysis. For the first time certain One of the issues raised by the shifting of responsibility drugs are now coming on stream which have been from Ministers to the NHS Commissioning Board is a shown by clinical trials to be effective in delaying the concern that Parliament and parliamentarians will not actual progression of this condition. These drugs are have sufficient influence on the way in which specialist so-called molecular patches which overcome defects in services will be developed. I too would like to acknowledge the actual gene. This is a form of exon skipping. For the work of AGNSS and express our wish to see it these drugs to be effective, several different types of continued. I thought that my noble friend Lord Turnberg molecular patches may have to be developed. Speeding put it very well. It is important that Ministers continue up that process for different mutations will be difficult to receive the advice of this body in the new arrangements. but the safety issues are all the same. Can the Government It seems to me that the arguments being put forward give us an assurance as these molecular patches for by every noble Lord on this matter are persuasive. this devastating disease become increasingly available that not every single patch is going to have to be tested I also wonder about the advice that the NHS and subject to regulatory control, and that regulation Commissioning Board is to receive. As I see it, there is covering all these patches may be acceptable? a two-stage process. First, there has to be a decision on which services are to be so designated, which will be a We are dealing with a very important group of subject for Ministers and will have to be done through diseases which cause immense human suffering. AGNSS, regulations. I am quite clear that AGNSS has a role to in some form or other, must continue and it must have play. Secondly, if there are services to be commissioned, its functions and, I believe, its funding increased. how are they to be commissioned and how much are to be commissioned? Again, I wonder whether AGNSS 8.09 pm could play a role in advising the national Commissioning The Earl of Listowel: My Lords, with your Lordships’ Board. I do not know whether the noble Earl would be consent, I will speak briefly in the gap on the issue of prepared to comment on that specific point, which is the mental health of families and children and on rather separate from that which we have debated so far clinical standards for children and young people in on advice to Ministers. care. My noble friend Lady Hollins raised important Can the Minister also comment on regional specialist points in this area. I will give one further example. The services? Again, we have not really discussed that but, NSPCC’s Young Abusers Project, run for many years in the past, there has been a mechanism for commissioning by the eminent forensic psychiatrist Dr Eileen Vizard, at the regional level. Can he say how he thinks that deals with children who have abused other children. I that might be done? Of course, it is possible that the am afraid there are significant numbers of those children local offices of the national Commissioning Board but it is hard to get specialist services for them. In the might do it with the advice of some kind of advisory past, Dr Vizard has explained to me how she has service. I encourage the noble Earl to go down that chased her PCT to get the money to provide this route. I really hope that the answer is not that specialist service and has failed. The difficulty is that clinical commissioning groups will federate together the service starts to treat a child whose behaviour to commission regional specialist services. Frankly, begins to improve and he or she begins to get better. that will not happen. I would have no confidence The local authority then whips the child out because whatever in clinical commissioning groups collectively the symptoms have gone. But if the service does not seeing the wisdom of commissioning regional services. intervene effectively in childhood, a child can become At the local level, there has to be leadership. I can see an adult with similar problems. We really need to it coming only from the office of the national address such issues as regards children’s mental health. Commissioning Board. I think that with an AGNSS The Cassel Hospital used to provide a service for approach at that level, alongside an ability of the very damaged families. It enabled mothers who perhaps commissioning board at what we call the local level, had lost several children through being taken into care but which with 28 offices really is at a semi-regional to keep their children because the hospital provided level, there will be scope for that to happen. such good, specialist intervention for the mental health The noble Lord, Lord Palmer, raised the issue of of those families. I would be grateful for the Minister’s postcode prescribing. If too much is devolved to clinical assurance that the importance of the mental health of commissioning groups in relation to specialist services, 305 NHS: Specialised Services[LORDS] NHS: Specialised Services 306

[LORD HUNT OF KINGS HEATH] When the coalition Government were formed in that is almost inevitable. From the action taken recently 2010 we endorsed the previous Government’s proposal by a number of primary care trusts, we have seen that and established AGNSS as an independent stakeholder they are only too willing to restrict services. The North advisory group, bringing advice and funding together Yorkshire primary care trust seems to be in the spotlight into one body. We also gave AGNSS the specific role and to be making some bizarre decisions. It has sought of considering whether certain very high-cost, low-volume to describe treatment, which is well recognised nationally drugs should be included in the national arrangements and internationally, as innovative and almost not proven. for specialised commissioning. In developing this role, The noble Lord, Lord Walton, raised this issue yesterday. AGNSS worked very closely with NICE and developed I would worry if clinical commissioning groups were its own decision-making system. given too much discretion in this area. Under the Health and Social Care Act 2012, Finally, I turn to budgets and how much money is this situation will change from April 2013. Instead of to be top-sliced. I gently say to the noble Earl, Lord highly specialised services being commissioned nationally Howe, that Ministers seem to be in denial about the by the National Specialised Commissioning Team and financial pressures facing the health service at the specialised services commissioned on a regional basis moment. Recently, I had meetings with the Royal by specialised commissioning groups, the new NHS College of Nursing and the Royal College of Physicians. Commissioning Board will take responsibility for They confirmed my view that the NHS is under extreme commissioning all these services. That will all be under pressure, the problem being that primary care—the a national commissioning policy which will be sensitive most vulnerable and most patchy bit of the health to local requirements so that the needs of people with service—simply is not stepping up to the plate in terms rare and very rare conditions are met. of demand management or developing the services Ministers will still be responsible for deciding what that were meant to keep people out of hospital. Given services the board should be asked to commission, but that, the acute sector is under huge pressure, and my it will be the responsibility of the board to decide how worry is that the national Commissioning Board will it commissions those services. The functions of AGNSS be very reluctant to top-slice sufficient resources in cut across both the “what” and the “how” so I do not relation to specialist services. see a role for AGNSS in its current form from April 2013 In reminding the House of my health interest, as and it will cease to be an advisory group offering I should have done at the beginning of my speech, I advice to Ministers. would be very grateful if the noble Earl could say a I would like to set out the current functions little about how resources are to be protected for of AGNSS and consider in turn where each would specialised services in a very strained financial position. sit in the future. The first function of AGNSS is to advise Ministers on which highly specialised services, 8.16 pm products and health technologies should be nationally The Parliamentary Under-Secretary of State, Department commissioned. That will be expanded to cover all of Health (Earl Howe): My Lords, perhaps I may begin specialised services and not just the highly specialised. by congratulating my noble friend Lady Jolly on securing Ministers will need to receive advice on whether services this short debate on the future of the Advisory Group can be defined by the rarity of the condition, the cost for National Specialised Services. This is undoubtedly of providing the service or facility, the number of centres an important area for discussion, not only for the able to provide the treatment, and financial implications members of the advisory group who have worked hard for clinical commissioning groups. We are currently to provide Ministers with advice but also for patients considering an appropriate advisory mechanism for and families who have benefitted from the national Ministers that will keep the list of services directly commissioning on which it leads. commissioned by the board under review, ensuring At the outset I would like to say, in particular to my that services are commissioned at the right level. In noble friend Lord Palmer and the noble Baroness, time, some services might be more appropriately Lady Hollins, that in working up plans for the reform commissioned by clinical commissioning groups, but of the NHS, we absolutely recognised the needs of I emphasise the words “in time”. people with very rare and rare conditions. We wanted The second function of AGNSS is to advise Ministers to make sure that we honoured the commitment in on which centres should be designated providers for the NHS constitution that no one should be “left nationally commissioned services. In the new reformed behind” because of the rarity of their condition. For NHS, this is rightly the role of the Commissioning these reasons, the legislation reflected our view that Board in carrying out its commissioning of services. It specialised and highly specialised services were best is no longer for Ministers to decide upon. Therefore, commissioned at a national level. Services will be advice to Ministers is no longer required. The same is set out in regulations, making it very clear what we true for the third function of AGNSS: advising on are expecting the Commissioning Board to directly the annual budget for new and existing nationally commission. I can assure my noble friend Lord Palmer commissioned services and the contribution required that patients with rare conditions, depending of course from PCTs. The fourth function is to advise on funding on their clinical needs, will continue to have access to of the management function of the NSCT as hosted specialised services and expert treatment. I would say by NHS London. That will no longer be needed. The to the noble Baroness, Lady Masham, that the NHS Commissioning Board will manage one single specialised Commissioning Board will retain money centrally to services budget and commissioning function. So, again, directly commission these services, including services Ministers would no longer need that advice, and it will for very rare conditions. be a matter for the Commissioning Board. 307 NHS: Specialised Services[18 JULY 2012] NHS: Specialised Services 308

Whether commissioning a cataract operation or arrangements to demonstrate transparently that these the most highly specialised and long-term treatment, services are of high quality and represent value for the most important thing is quality of care. We must money. prioritise good-quality clinical advice on highly specialised The noble Lord, Lord Hunt, expressed his services over the structure of a group for its own sake. dissatisfaction that, as he sees it, Parliament will not Work on developing an advisory mechanism for the have a say in which services are commissioned by the board on highly specialised services is ongoing. The NHS Commissioning Board. The consultation on the chair of AGNSS, Professor Michael Arthur, is working mandate provides Parliament and, indeed, others with with the NHS Commissioning Board Authority on the opportunity to express views on that matter. I such an advisory mechanism that would build on the would also reassure the noble Lord, Lord Turnberg, skills and expertise of current arrangements. Within and my noble friend Lord Palmer that within the the board, there will be a clear focus on specialised board there will be a clear focus on specialised services, services, organised around programmes of care to make including experts on highly specialised services, organised sure that services are always top-notch. Commissioning around programmes of care and with a national teams will make sure that contracts with providers commissioning policy for specialised services that is reflect the needs of people with rare and very rare sensitive to local needs, as I mentioned. Clinical leadership conditions. On top of that, there will be specific links will be the responsibility of Professor Sir Bruce Keogh to innovation, including a specialised services innovation and advisory mechanisms to the board are being fund. The board will also manage stakeholder engagement. developed. Within 10 of the 27 local area teams of the I mentioned one important aspect of the work of board, there will be expertise in highly specialised AGNSS, in assessing very high-cost, low-volume drugs, services. but so far I have not explained where this function will sit in the new system. We have looked at several The noble Earl, Lord Listowel, asked about children potential options. I am pleased to announce that, on with specialist mental health issues and whether they the basis of a detailed proposal and discussions, we would have access to appropriate treatment. I can give have asked NICE to take on the assessment of very the assurance that such services will be available once high-cost, low-volume drugs from April 2013. I am the board is responsible for commissioning them. aware that some noble Lords may have concerns about Specialised services relating to mental health was the NICE taking over this work, as the current cost per theme taken up by the noble Baroness, Lady Hollins. quality-adjusted life year that NICE operates for its We are not yet in a position to announce the full list of appraisals of drugs would rule out highly expensive the services that the board will be commissioning. drugs for small numbers of people with rare conditions. However, a great deal of work has been going on to We have explored this issue thoroughly with NICE draw up that list. The chairs of 60 clinical reference and it has developed a process for assessing such groups have been working on the matter. They are all drugs. It will build on the decision-making framework leading clinicians in their fields. The CRGs hold a that AGNSS uses at the moment. That framework broad membership and an assurance process was balances health gain, best clinical practice, societal established that looked at the work of the CRGs. The value and reasonable cost. In addition, recommendations findings of the CRGs were considered by the CAG in from NICE will not be based solely on a cost per May of this year and Ministers expect to set out the QALY figure. list of services over the summer. NICE proposes setting up a dedicated expert panel In answer to the noble Baroness, Lady Masham, I to produce an assessment of a new drug, usually am of course very sorry to hear about the child she within six months. Given that we wish the new process mentioned who has neuroblastoma. Obviously, for to commence in April 2013, NICE will develop interim reasons of patient confidentiality, it is not appropriate methods for the first few assessments. The institute to comment on individual cases. At the moment the plans to subject these processes and methods to a decision for funding treatments for neuroblastoma consultation in 2013-14 alongside the assessments it rests with PCTs. In the future, commissioning decisions will carry out. NICE’s work will make sure that we for patients with rare conditions will, as I have mentioned, have a robust, transparent and consistent process in rest with the board. I cannot say definitely whether that place for assessing very high-cost, low-volume drugs. will be one, but the noble Baroness may like to draw her We have a number of points of detail that Department own conclusions. I am informed that the evidence of Health officials are still exploring with the institute. base for stem cell-based therapy for neuroblastoma is I will be able to say more about the detail of this not yet sufficiently robust despite the comments she proposal in the coming weeks, but, in the mean time, made. I thought it important to provide a progress report to The noble Lord, Lord Walton, asked for an assurance the House. that molecular patches will not be subject to constant The noble Lord, Lord Turnberg, asked about the regular testing. Molecular patches that are found to be mandate. I can tell him that the consultation on the safe by the regulatory process can be used on the NHS. draft mandate, which was launched on 4 July and on My noble friend Lady Thomas spoke eloquently about which we welcome views and comments, emphasises research. She is absolutely right in the importance she the importance of driving improvements in the £20 billion- attaches to that. The Government will invest £800 million worth of services commissioned directly by the board, over five years from April this year in NIHR biomedical including specialised services for people with rare or research centres and units. Most of these centres are very rare conditions. One of our proposed objectives conducting leading-edge research on rare diseases that in the draft mandate asks the board to put in place will benefit patients with these conditions. The NIHR 309 NHS: Specialised Services[LORDS] Financial Services Bill 310

[EARL HOWE] to do something that might or might not be to their has joined the International Rare Diseases Research advantage but which the FCA would have no business Consortium and is actively involved in pursuing the regulating. Therefore, I attempted to reapply myself to consortium’s goals. what must be—from the frequency and scale of the Time is now against me. I beg leave to write to advertisements—a large-scale fraud by now, and attach noble Lords who asked me questions that I have not myself to the concept that if something is widely had time to answer. Once again, I express my gratitude advertised as a consumer investment it is something to to my noble friend for raising this important subject. which the FCA should be able to pay attention. That is a reasonable way of separating large-scale public frauds from minor arrangements that should be outwith Financial Services Bill the ambit of the FCA. Committee (4th Day) (Continued) The second part of the amendment deals with the fees or benefits that accrue to managers of investments. 8.30 pm I will take as a particular example stock lending fees. Over a long period the FSA has been unable to make managers declare their full benefits from managing Amendment 107 not moved. funds. The level of fees in this country is far too high anyway. Managers take far too large a proportion of Amendment 107A the total return. Noble Lords may have heard the Danes on the radio this morning, threatening to bring Moved by Lord Lucas low-cost investment management to the UK. Good 107A: Clause 5, page 17, line 5, at end insert— luck to them; I hope that they will be permitted to do “( ) the way in which a financial product or opportunity is so. However, we ought also to pay attention to our drawn to the attention of or otherwise made available to own business, and to making sure that, where a firm members of the public; says that it charges 1.5%, that is what it will charge, ( ) the ways in which the provider of a financial product or and that it will not indulge in something that is essentially service derives revenue therefrom, and the way that this a risky practice and taking all the benefit from it is disclosed to the purchaser;” without telling its clients that that is what it is doing. There are a number of ways in which the City has Lord Lucas: My Lords, both segments of the derived benefit from the investment management process. amendment are in effect questions that ask my noble One that particularly gets my goat is high-frequency friend where he envisages that the limits of the FCA’s trading, which is robbery by any other name. People powers will lie in dealing with what I perceive to be a get a preferential supply of information about trades couple of current problems. The first part of the and are able to surf the wave of real investors’ trades. amendment is aimed at things such as tropical forestry Every penny that they make is at the expense of real investment. One finds full-page advertisements in investors—in other words, our pensions. The only supplements, in particular in the Guardian but doubtless reason we tolerate it is that they are doing this to in other places. Presumably, advertisers think that foreigners as well, so we are making more money out Guardian readers are notable suckers for green investment. of it than we are losing. That is not a healthy way to go The advertisements promise rates of return varying on. We should have an open and transparent arrangement from 18% to 22% per annum over a period of 15 years, for saying how money is earned in the City, and it and are backed up by a remarkable lack of financial should be clear to people who are investing exactly information of any kind—just lots of happy pictures what bite the managers and others in the City are of growing trees and talk about the value of the taking out of a scheme, so that they can make a eventual timber and the many uses for it, about the reasonable judgment on whether this is the right place unspecified rise in the market price of timber, and so to invest or whether they should take their money off on. As far as I can make out, they are complete scams. to somewhere where they will be allowed a higher I investigated one of them in as much detail as I share of the total return. I beg to move. could—which turned out not to be very much, because not much was forthcoming. The Commercial Secretary to the Treasury (Lord The schemes escape FSA regulation because they Sassoon): My Lords, I am grateful to my noble friend are not considered to be collective investment schemes. for bringing up these important matters. As he knows, Although they involve a collection of people pursuing they are not easily dealt with. I will say a few things a single investment objective—which is the way the about where we are. I will not dwell too much on the scheme manager makes money—they are not collective specifics of the amendment because, as he said, his in the sense that at their root is individual ownership intention is to provoke a discussion around some of of a separate plot of trees, land in the UK, wine or these topics rather than around the specific drafting. another similar separable asset. Therefore, the FSA The difficulty around these unregulated activities currently is unable to regulate them. and schemes is that a line must be drawn between Thanks to my noble friend, I had very helpful regulated and unregulated activities. Around the margin, conversations on this matter with his department, wherever the line is drawn, there will always be incentives where officials said that the tack that I was originally for rogues to exploit the boundary. This may well be pursuing might lead to the FCA having all sorts of what people are doing on some of the schemes to jurisdiction over arrangements that were essentially which he referred—I do not want to express a view. private, such as arrangements between consenting adults The first thing that we need to recognise is that a line 311 Financial Services Bill[18 JULY 2012] Financial Services Bill 312 has to be drawn between regulated and unregulated far as advertisements are concerned I can see I have activities. For example, we would not want to draw the lost that argument, and we will wait until some crisis regulatory net so wide that it would capture investments arises and events force the Government’s hand. There in a family farming business or investments by family we are. People should have been more careful with and friends in a small start-up business—the sort of their money; they should have known that 20% compound activity that as a Government and as a House we very for 15 years was probably not safe. much encourage. So far as investment management is concerned, Once one accepts that there will be investment schemes I think we have been doing some useful things in these that involve a number of people that we do not want last few years in paying real attention to fees, to executive to capture in the regulatory net, there will always be a remuneration, and to other ways in which the return borderline, and I fear that there will also be people to capital is being eroded and the way in which that is who seek to exploit it. It certainly appears that the costing us all in terms of pensions, support for pensioners schemes that my noble friend referred to were structured and the health of the economy. I hope we continue to specifically to avoid being captured in regulations. make progress. I shall certainly take an interest in the That means that the regulator cannot act unless either way the FCA asks for disclosure in this area. However, the schemes fall into the regulatory net, or the promoters for the moment I thank my noble friend and beg leave of the schemes hold themselves out to be regulated. to withdraw the amendment. Some fall into the trap of holding themselves out to be authorised and regulated, and then they can be caught. Amendment 107A withdrawn. However, the majority do not. I do not think we can simply or easily change the definition of a collective 8.45 pm investment scheme in Section 235 of FiSMA to address the point, because either the boundary will shift somewhere Amendment 108 else, or we will capture the sorts of legitimate activity that I have referred to. Moved by Lord Borrie What my noble friend Lord Lucas usefully draws 108: Clause 5, page 17, line 7, at end insert— attention to is the role of the FSA at present, and that “(h) where credit is granted to a consumer, a clear statement, of the FCA in future, which is to think very hard in cash terms, of the total cost of such credit” about the preventive consumer education work that is needed to warn the public about the risks of these Lord Borrie: My Lords, this amendment stands unauthorised schemes. The fact that my noble friend in my name and that of the noble Baroness, Lady regularly comes back to them undoubtedly helps to Oppenheim-Barnes, whom I am delighted to have raise that awareness. On the other side, the regulator, supporting it. She was Minister for Consumer Affairs whether it is the FSA or the FCA, will also work with in the early years of the Thatcher Government and is a the police, trading standards, and the Insolvency Service lady of tremendous knowledge and ability in this field. in this space to do whatever they can. However, I I will also speak on Amendment 197ZA which, rather appreciate that unregulated activities will be nigh on surprisingly, is grouped with these other amendments. impossible to stamp out altogether. I am sorry, but it is I will come to that in a moment. no great surprise that I cannot give my noble friend Lord Lucas a complete answer on that. The Financial Conduct Authority is taking over the responsibilities that are currently with the OFT in On fund management fees, the main point is to give dealing with consumer credit. It is important that the my noble friend reassurance that there is a substantial Bill maintains and ensures long-term protection for regime in place through the FSA’s rulebook regarding consumers in future consumer credit transactions. One the disclosure of investment management fees. There problem is that it is often very difficult for consumers is a lot of debate and discussion in this area at the to compare one loan, for example a pay-day loan, with moment. The fact that it was discussed on Radio 4 this another on a like-for-like basis. Indeed, it is quite morning shows that this is becoming an issue which is difficult for people to know what the costs are of a getting a lot of exposure, which must be a good thing particular loan that is granted to them. The amendment in terms of making investors aware of how much of proposes that the total cost of credit “in cash terms”—I their capital can disappear through regular compounding emphasise that—is quoted to the consumer whenever of fees. Whether the fee levels in the UK are particularly credit terms are granted. high or not, compared to other jurisdictions, is clearly not a straightforward matter but is another dimension As I understand it, in pay-day loans there are two of this which has been referred to. Ultimately I suggest elements to charges. One is the core charge or interest that these issues are not matters for the Bill beyond charges. The other comprises any other mandatory the fact that I am sure that the FCA will have all the charges, such as transfer or set-up fees, that may be powers necessary in this area. It is an area in which exacted by the creditor. It is vital to my mind that the awareness-raising of the sort which my noble friend is cost of credit described includes all unavoidable charges. engaged in will focus the regulators to use the powers Those which are not discretionary but mandatory that they have. I am grateful to him for raising these should all be disclosed, and the disclosure should be in points, but I ask him to withdraw his amendment. cash terms because even the most disadvantaged debtor— even someone with less financial knowledge than others— understands cash terms. The pound sign means something, Lord Lucas: My Lords, of course, I am grateful to whereas the percentage sign does not. I know that the my noble friend for his reply, although I do not share noble Baroness, Lady Oppenheim-Barnes, wishes to his optimism as to the number of people listening. As refer to this matter in a moment. 313 Financial Services Bill[LORDS] Financial Services Bill 314

[LORD BORRIE] Section 124 of the 2007 Act can be addressed only by As I indicated, I shall speak also to Amendment 197ZA way of an amendment to Section 124 to provide for a in this group. To my mind, this is almost a separate profit element. That is what my amendment seeks to topic because it deals with plans involving arrangements do and I trust it will find acceptance with the present managed by a debt management company that is Government. negotiating with creditors to reschedule a debtor’s repayment of debts. As we know, there are some charitable schemes; for example, that run by the Consumer Credit Counselling Service, whose chairman, my noble Baroness Oppenheim-Barnes: My Lords, I was very friend Lord Stevenson, sits on the Opposition Front grateful to the noble Lord, Lord Borrie, for tabling Bench. It does a tremendous amount of work and this amendment. It is something that I have been does not exact fees from the debtor, as it is a charitable passionately concerned about for many years. I am organisation. Other schemes are financed sometimes possibly the most innumerate person in your Lordships’ by contributions from creditors but, as we have already House. I say so on an occasion when we had speaking heard in earlier debates, there are unfortunately huge in our earlier debate the noble Lord, Lord May, who is numbers of debtors owing huge amounts of debt. one of the premier mathematicians in the world. I am There is a great need for them to have properly approved very glad that he is not here at this moment. and fair debt management schemes and plans to enable I have been desperately concerned about the them to start afresh, having had their debts rescheduled presentation of the costs of credit for any consumer at and paid off. any level. When the first regulations came out, following the two Consumer Credit Acts, they were a long time There is a practical need for commercially operated coming and were very detailed. They were drafted by schemes to work as well as the Consumer Credit someone in a little office at the top of the Department Counselling Service and other schemes to which I have of Trade and Industry and they came down very referred do. The need for commercially operated schemes slowly. Just as I was leaving, down came the regulations to exist requires that the debtor pays fees. Unfortunately, for AER and APR. I took one look and said, “No—not as has also come out in today’s discussions, the OFT possible. I cannot make head nor tail of this.” They has found, in a fairly recent review of 2010, that there were too polite to say to me, “Well, most people could, have been a great many abuses in the system, including and you can’t”, so I put it to the test. This afternoon, misleading advertising and excessive fees exacted by before coming into the Chamber, I asked 20 different debt management companies. The OFT has used formal Members of your Lordships’ House if they knew what powers to revoke the consumer credit licences of various AER or APR stood for. None of them knew—and debt management companies but, to my mind, debt one of them, who is not here at present, actually management companies that are run properly and moved an amendment. fairly on a commercial basis are needed for debtors When this amendment was coming up I started to and in the consumers’ interests. look a little more deeply at what had happened since The nub of my amendment is that in 2007, under those regulations were passed, after my time there. I the previous Government, the Tribunals, Courts and came across the information that we have in fact had Enforcement Act provided for debt management plans two draft directives from the EU, which are very to be put in place, as approved by the Lord Chancellor, precise. The 2008 directive, in order to inform consumers, while in 2009—again, before the change of government— gives us a basic equation in numerical form. It has a Ministry of Justice lawyers said that any implementation big E, a big C, a little k, a bracket, 1 plus a cross, minus of such powers to approve schemes would require the a little 4, equals another big E, with an M over it, provision of some form of profit element for this to be and a little l equals 1, then a D1, a bracket, another effective. These Ministry of Justice lawyers, whose 1 plus a cross, squared. That is the formula in the EU opinion I have seen, thought that the present wording directive of 2008. There is an explanation. It says it is, of Section 124 of the 2007 Act was defective because it “where…XistheAPR…misthenumber of the last drawdown, allowed debt management scheme operators to recover k is the number of a drawdown”— only costs actually incurred; for example, staff and thus LSXM— accommodation costs—out-of-pocket expenses, as it “Ck is the amount of drawdown k”— were. The 2007 Act does not allow for any specific I will not go on. There are at least four more lines like profit element to be charged, yet surely, as long as the that. profit element is reasonable and there is nothing unfair We have been observing that particular formula in in it to the debtor, it ought to be allowed. My amendment this country since that directive but there was a new allows such a profit element, provided it satisfies the directive in 2011, which is presumed to help with what Lord Chancellor before he approves any debt management has been decided, since 2008, was too difficult a problem plan. for most consumers. It says: This is a practical and useful amendment to bring “The experience gathered by Member States with the the relevant provision into line with what had been implementation of”, intended, as I understand it. Fair debt management that directive, plans are needed for the large numbers that, sadly, “has shown that the assumptions set out in … that Directive do exist of multiple debtors. Given the level of need for not suffice”, such plans, it is not only not-for-profit organisations et cetera. They have watered it down somewhat but it that should be allowed to offer debt management is not going to come into force until January 2013, so solutions. As Ministry of Justice lawyers have said, the at the moment we still have the formula that I quoted problem of the defective drafting of the current law in to your Lordships. 315 Financial Services Bill[18 JULY 2012] Financial Services Bill 316

I really think that my noble friend Lord Sassoon industry that does not adhere to best practice breaches will welcome the opportunity to accept this amendment. guidelines on cold calling, text messaging and e-mails. It is so simple and prescriptive. It is not general, like Some will take up-front fees and/or fail to disclose any of the other amendments. When you think of all properly the amount of compensation that a consumer the difficulties that people have with credit these days, will pay if their claim is successful. Through high-pressure even if they are more numerate than I am, then to give sales they will sign up people who have no possibility them the information in simple figures about how of making a successful claim on the basis that they can much it will cost them if they pay on time—that must get you thousands of pounds in compensation. always be made clear—and how much if they do not That sort of activity is prohibited under existing must be very attractive to any Government, or to regulation, but unless it is effectively policed it comes anybody concerned with the problems facing consumers to nothing. However, large numbers of those in the in this area today. It is simple and it is cheap. I beg my industry do not adhere to best practice and a few could noble friend to give me some encouragement. even be described as rogues. In a recent debate on this subject in your Lordships’ House, the noble Lord, 9pm Lord Kennedy, said that the Government need to take Lord Flight: My Lords, the noble Lord, Lord Borrie, a long, hard look at the industry, look at existing pointed out that this chapter addresses the transfer of provisions and make a number of changes to beef-up the regulation of consumer and small business finance existing regulation and ensure that existing provisions from the Office of Fair Trading to the new FCA. My are used effectively in an industry that needs effective two amendments, Amendments 118D and 147K, address policing. a specific point: the suggestion that the regulation of In those circumstances, it is also fair to pick up a claims management companies might be transferred point made by the noble Lord, Lord Flight, that the from the Ministry of Justice to the FCA, on the current arrangements with the Ministry of Justice acting grounds that this area has attracted quite a lot of as both the sponsoring department and the regulator complaint. appear to have broken down. It would be good if the I also wanted to make the point that, as the Minister Minister could report on what progress has been made will be aware, the industry is slightly concerned that on this list of helpful suggestions. the re-drafting of all the arrangements that presently My noble friend Lord Borrie drew attention to the operate through the CCA regime to come under financial debt management sector and in particular to the 2007 regulation and to end up in an FCA rulebook is a Act. There are nothing like as many private sector pretty monumental task. It is questionable whether debt management firms in the UK, as much of the that can all be accomplished with due care to become debt advice is undertaken by charitable bodies such as operative by April 2014. Therefore, might it be wise Citizens Advice and my own body the CCCS, which and/or possible for at least some of the CCA activities offer a free service of high quality.Collectively, commercial to be able to continue beyond April 2014, allowing firms administer some 200,000 debt management plans sufficient time for consultation and for rewriting everything and about 50,000 IVAs. The trade body, DEMSA, into what is required as a new format? Apart from estimates that this is some 40% of all the debt management anything else, there is some £50 billion worth of lending plans currently in operation. finance to very small businesses, which are substantially DEMSA states that its goal is to promote best one-man operations and represent a few million businesses. practice and protect the interests of clients and the It is really quite an important commercial area, and it lenders to which they owe money, but in its review of is important that things do not get through by mistake the sector in 2010 already referred to, the OFT found in the re-drafting that could cause problems. instances of non-compliance among DEMSA member firms, albeit DEMSA members received a clean bill of Lord Stevenson of Balmacara: My Lords, my noble health compared to the rest of the sector, and action friend Lord Borrie kindly drew the Committee’s attention was taken on a number of firms. to my position as chair of the Consumer Credit On the publication of its report on debt management Counselling Service and I declare my interest again. I in March 2012, the chair of the BIS Select Committee, would also like to thank him very much for his kind Adrian Bailey MP, said: remarks about the work of the charity, which does so “During these difficult economic times, increasing numbers of much for people who have unmanageable debt. people up and down the country—not least some of the most This is a wide-ranging group of amendments in the vulnerable members of our society—are relying on the provision sense of issues that have been raised. I will focus on of consumer debt management services and payday loans to make ends meet. And yet this industry remains opaque and two areas: the claims management area and the debt poorly regulated. Despite a Government consultation that ended management space. Claims management companies almost a year ago little has been done to remedy the situation. have increased in number and have come to the attention The Government must take swift and decisive action to prevent of the public, and the industries in which they operate, firms from abusing the needs of such a vulnerable customer base”. much more in recent years. You have only to turn on The committee’s main recommendations are worth the TV or listen to the radio to be bombarded with repeating. The Government must work to phase out advertisements from claims management companies. up-front fees: the provision of guidance on this point E-mail traffic is also increasing. by the OFT is inadequate. The Government should There are apparently more than 3,200 authorised introduce the necessary regulations to ensure companies firms operating today. Of course, many in the claims publish the cost of their debt advice and their outcomes management industry act responsibly. The part of the if an agreement cannot be reached during discussions 317 Financial Services Bill[LORDS] Financial Services Bill 318

[LORD STEVENSON OF BALMACARA] Lord Sassoon: My Lords, I have said, however, that with the industry. The Government should establish improvements are needed, as was identified in the review. effective auditing of debt management companies’ If any impetus is needed in setting up the meeting client accounts. The report concludes that greater which the noble Lord seeks, I shall relay the message transparency in the commercial debt advice market to my colleagues in the Ministry of Justice to make would benefit consumers hugely and that voluntary sure that it happens if it is not already fixed. Yes, there codes of practice are highly unlikely to achieve this are problems to fix. They include—very much to the aim. The Government must be prepared to regulate if point of the noble Lord, Lord McFall—the establishment consumers are to receive the protection and the level by the claims management regulator of a specialist of information they require. team to handle CMCs that pursue claims for mis-sold It seems clear from all this that we have reached the PPI. Not for the first time, the noble Lord is one step stage in these two sectors whereby strong and effective ahead of me, but that is one of the specific items that regulation is required. We also think it is time that the need to be addressed to improve the situation. Government should take advantage of the opportunity Since last November, the team has conducted of the Financial Services Bill to make the new regulatory more than 60 audits of claims management companies bodies responsible for this currently unregulated part to identify any evidence of lack of compliance with of the market which affects so many vulnerable customers. the rules. That team is working with the Financial Ombudsman Service, the FSA and the Financial Services Compensation Scheme, as well as with major banks, Lord Sassoon: My Lords, this group contains an to help identify non-compliant businesses, gather evidence interesting mix of loosely related amendments, if they and help improve the claims process for consumers. It are related at all. I shall respond first to the amendments is recognised that there is a problem, and the authorities concerning claims management firms. are working in a joined-up way to deal with it. More Amendments 118D and 147K seek to bring claims broadly, the Government have reviewed the conduct management companies under the regulation of the rules which all CMCs must comply with as a condition FCA. Clearly the regulation of claims management of their licence. The Ministry of Justice will shortly companies must be effective, but there are two reasons launch a consultation on amending the conduct rules why a transfer of CMC regulation to the FCA is to tighten up on certain practices and provide further not the right course of action. First, the best way to clarity. I firmly believe that improvement is needed improve regulation of CMCs is to make changes and that the improvements to regulation of CMCs to the current regime, rather than by transferring currently being proposed by the Ministry of Justice responsibility for regulation to another body. My noble are the right course of action. Transferring responsibility friend has already questioned whether the transfer of for regulation to another body would not be. consumer credit responsibilities by April 2014 is achievable. I should say, in parenthesis, that I believe it is achievable, Secondly, the FCA will be a conduct-of-business although I appreciate that there is a lot to do. There regulator for financial services, but claims management will be a consultation early in 2013 about how it will companies do not provide a financial service. It is true operate. However, we are talking here about making that many of those companies are active in the financial another transfer of responsibilities, which I do not believe services sphere, particularly in relation to matters of is necessary or the best way to achieve the objective. PPI, but their business is not limited to claims in relation to financial services. It is therefore not clear The Ministry of Justice, as we have heard, is the why it would be logical for the FCA to take on this body responsible for regulating the activities of businesses responsibility. providing claims management services. It carried out a review last year of claims management regulation I turn to Amendment 108, concerning the regulation which concluded that fundamental reform was not needed of consumer credit. The amendment would require but identified a number of areas where improvements the FCA, in considering what degree of protection is could be made. A shift in responsibilities now would appropriate for consumers, to have regard to, not address the underlying problems in the conduct of “where credit is granted to a consumer, a clear statement, in cash claims management companies and would detract from terms, of the total cost of such credit”. the concrete steps that the Government are taking to I am conscious that, with an amendment in the names address those problems. of the noble Lord, Lord Borrie, and my noble friend Lady Oppenheim-Barnes, I am facing a formidable Lord McFall of Alcluith: The Minister said that the duo with vastly more experience in these matters than Ministry of Justice undertook a review that concluded I have. The Government clearly recognise that there that fundamental reform was not needed. As I mentioned are difficulties with APR—which, for the avoidance of earlier, two months ago I chaired a meeting between doubt, refers to the annual percentage rate—representing the banks and consumer groups on PPI, where £8 billion the cost of short-term loans such as pay-day loans, but is at stake. Both groups were very concerned about let me explain to the Committee what we are doing. some rogue claims management companies and asked My colleagues in the Department for Business, for an urgent meeting with the Ministry of Justice. Innovation and Skills have been working with the Indeed, I hope that they will get a meeting with Ken short-term loan industry to ensure that borrowers Clarke as a result. Therefore, on the ground the situation receive clear information about the cost of a loan in is much different from the one the Minister describes, cash terms per £100 in addition to its APR. The four with the Ministry of Justice saying that fundamental main trade associations, which represent over 90% of reform is not needed. the short-term loan industry, have agreed to update 319 Financial Services Bill[18 JULY 2012] Financial Services Bill 320 their codes of practice to reflect this and made other Lord Eatwell, but also the noble Lord, Lord Stevenson commitments to help consumers, and that will be done of Balmacara, that Clause 6 enables all consumer by 25 July. I believe that this is very significant progress. credit activities currently regulated by the Office of Having said that, I would argue that the APR serves a Fair Trading to be transferred to the FCA, including useful purpose in enabling consumers to compare the debt management. So I hope the noble Lord will cost of different credit products, so that will remain in accept my assurance that no further provision in this place in addition to the new cash cost number that will area is necessary, because it is indeed picked up by the be given. definition of Clause 6. I should turn next to Amendment 197ZA, before 9.15 pm I address some government amendments in the group. As I think my noble friend recognises, it is important It concerns the question of the statutory debt management to note that the consumer credit directive is a maximum scheme and is also in the name of the noble Lord, harmonising directive and one that requires the cost of Lord Borrie. It would amend enabling powers in the credit to be expressed as an APR. It does allow for Tribunals, Courts and Enforcement Act 2007 for a other pricing information to be given, such as the cost statutory debt management scheme, if implemented, of the loan in cash terms, but this must be less prominent to apply to commercial as well as not-for-profit than the APR. organisations. I very much agree with the sentiment of Amendment As I said, the Government are currently working to 108 but, as I have explained, in making this new deliver non-legislative alternatives with the debt agreement with the industry, we are going as far as we management industry, as we have with the fee-charging can to add the cash cost as far as it is permitted by the pay-day loan industry. We want to give sufficient time European directive. and focus to that work to develop a voluntary code and to take account of the wider changes to the Lord Borrie: The people who will subscribe to the regulation of the debt management sector enabled by new code are those who are more likely to conform to the Bill, which will lead to more proactive and intrusive the requirements of the Government, the ministry or regulation for the sector, before we look to a statutory whatever. It is the other companies, which may not scheme. If the Government were to resort to a statutory subscribe to these requirements, that one is bound to scheme, that would be the appropriate point to revisit be more worried about. Those are the ones that will the provisions in the Tribunals, Courts and Enforcement not provide the cost of credit in cash terms. Act 2007 to ensure that they meet the policy needs, rather than addressing it at this stage through the Bill before we have bottomed out the ability of a non-legislative Lord Sassoon: My Lords, I believe that a step that solution to have effect. takes us from no agreement in this area to a situation where over 90% of the industry has agreed through I shall speak briefly to the government amendments the code of practice to reflect the cash cost, and for in the group, Amendments 142 and 194 to 196. Noble that agreement to be in effect from 25 July, is a huge Lords may be aware that the Government brought step forward. Of course, because it is done via a code forward a number of amendments at Report in another of practice and a voluntary agreement, BIS has been place to support the transfer of consumer credit regulation able to do it relatively quickly. I would suggest that from the OFT to the FCA. Among those amendments having it 90% done, and done quickly—which one was provision enabling local weights and measures hopes will drive fringe players out of the market if authorities—trading standards—to continue to provide they do not buy into the codes of practice—is the right services to the national consumer credit regulator and way, and an energetic and effective way, for my colleagues to take action against those who provide credit on an to address the situation. We should wait and see how unregulated basis following the transfer to the FCA. that operates, but I believe that it will be effective. It is The amendments complete the group by creating parallel a major advance and is compatible with the difficult provisions for the Department of Enterprise, Trade constraints of the European directive. and Investment in Northern Ireland, which plays the same role in Northern Ireland as does trading standards in England and Wales. Baroness Oppenheim-Barnes: Could the motive behind the European directive possibly be their desire not to With those various assurances abut this rather disparate see anything quoted in euros? group of amendments, I ask the noble Lord, Lord Borrie, to consider withdrawing his amendment. Lord Sassoon: I am not going to question the motives of the directive, except to note that in this Lord Borrie: Yes, of course I will withdraw my area, as in others, we are not free agents. amendment, but I must express disappointment with I turn to Amendment 118E, which seeks to insert the disinclination of the Minister to take the one into the list of “regulated financial services”, referred further step that would enable a change to be 100%, to in the FCA’s objectives, rather than whatever percentage of good boys will conform to a code of practice. “debt management companies or debt adjustment services companies”. There is no explicit reference to debt management or Lord Bilimoria: My Lords, I accept that there is an debt adjusting on the face of the Bill. However, I element of contradiction in advocating, on the one would like to reassure—I am grasping for whose name hand, that we go carefully on transferring consumer is attached to this amendment—the noble Lord, credit but, on the other, that we transfer CMCs. I just 321 Financial Services Bill[LORDS] Financial Services Bill 322

[LORD BILIMORIA] services”. However, it needs to add new paragraph (b), make two points on consumer credit. I argued strongly because—and I did not know this, until I looked it up for its transfer at the time of the FSMA; I am pleased this morning—certain recognised investment exchanges to see it happening; I think that that is correct. CMCs are not, apparently, regulated financial markets, because are basically a financial service. They are lodging claims they get an exemption under Section 285(2). for people, whatever the cause. I hope that, in due We have added “or market maker” because market course, it may be transferred to the FCA. makers seem to be taking in the role of investment exchange in some areas. There is a move-over. If those Amendment 108 withdrawn. market makers are already covered by new paragraph (a) Amendments 108A to 108D not moved. —“regulated financial services”—I would be content with that assurance. If they are not, I would be grateful Amendment 108E had been withdrawn from the Marshalled if the Minister could sketch out what exemptions List. there are from this new paragraph. I beg to move.

Amendments 109 to 111 not moved. Lord McFall of Alcluith: My Lords, I would like to address briefly a number of the points in Amendment 111A Amendments 112, 115 and 116. It is just a simple change: Moved by Lord Tunnicliffe rather than have “may have regard”, put “must have regard”—to, for example, 111A: Clause 5, page 17, line 23, after “exchange” insert “or “the needs of different consumers who use or may use those market maker” services, including their need for information that enables them to make informed choices”. Lord Tunnicliffe: My Lords, Amendment 111A is in It is this concept of informed choice that is very the names of my noble friends Lord Eatwell and important. I well remember when we had the scandal Lady Hayter, and I shall also speak to Amendments 112, of endowment mortgages; we looked at that issue in 115 and 116; I shall do so briefly. the other place. The consumers would be presented Competition has an important role to play in the with two types of mortgages, one which the salesperson financial services industry. Indeed, as the party leader, said had a small pile of cash at the end of the day, and my right honourable friend Ed Miliband, has been the other a repayment mortgage. Believe it or not, the arguing since his conference speech in the autumn of one which had a small pile of cash was cheaper than 2011, if we are to rebuild our economy so that it works the repayment mortgage. It defied logic, but everybody in the interests of the many and not the few, we need piled into it, not least because the salespersons were root and branch reform of our banks. Having greater getting 80% of the first year’s contributions from competition and more players in the market is an individuals. When we looked at this, the industry said, important element of the process. Competition, along “This was way in the past”. It was depending on a high with choice, transparency, integrity and access, is an level of inflation for its returns. If inflation is 8% then integral part of the market working well. On this side you are going to get your cash pile, but if it is only 2% of the House we welcome, therefore, the inclusion of a or 3% then you are in trouble. We are still living with competition objective in the remit of the Financial the consequences of those endowment mortgages, with Conduct Authority. people making claims for them. That was not an However, we must continue to emphasise the question informed choice, and it is why it is important to be “What is competition for?”. It is for the consumer. In a more definitive in the Bill and insist that the FSA must sense, I am disappointed that the noble and learned look at that issue, as well as at, Lord, Lord Fraser of Carmyllie, did not move his “the ease with which consumers who obtain those services can amendment. First, it would have been an opportunity change the person from whom they obtain them”. for me to say just how much I disagreed with it. Secondly, it would have been an opportunity for the Minister to 9.30 pm say how much he agreed with me. I hope, therefore, that he will emphasise the importance of this clause to We all remember another case where people going the interests of the consumer. The competition objective into retail shops, whether an Army and Navy store, in the Bill is built around the consumer, so I support Marks and Spencer or wherever, were being sold credit the amendment in the name of my noble friend Lord cards in store. They had to sign up there and then in McFall, which requires the FCA to have regard to the the store for those credit cards and there was no factors contained in new Section 1A. redress. We ensured in the other place that that practice was stopped and that people had an opportunity to I shall turn to Amendment 111A, and I am very reflect on the card and decide whether or not they pleased that the noble Lord, Lord Lucas, asked a wanted it. probing amendment, proving that it is respectable to do so. This is but a probing amendment, in order to If you make a plea to people in industry, that does understand new Section 1E(1), which states that: not seem to work, so we need to be much more firm. It is with that in mind that I ask that we make this simple “The competition objective is: promoting effective competition in the interests of consumers in the markets”. change from “may” to “must”. Perhaps it is trying to say “all financial markets”; if the Minister said that was what it meant, that would Lord Sharkey: I support Amendment 112 in the name be great. Clearly it covers a great chunk of financial of the noble Lord, Lord McFall. As the Bill stands, markets with new subsection (1)(a), “regulated financial the use of “may”instead of “must”, when listing matters 323 Financial Services Bill[18 JULY 2012] Financial Services Bill 324 to have regard to in considering the effectiveness of effectiveness of competition in a given market. It is an competition in the markets under discussion, seems to indicative and, importantly, a non-exhaustive list. The have two problems. The first is that it makes the FCA cannot dodge or duck out of its overall competition competition objective less strong than the consumer objective. Had we not put the non-exhaustive list of protection objective, in which the FCA is given a list of examples down there we might not be expressing the things that it must have regard to. In the competition concern that we have. There would be the simple objective, the FCA is given a list of things that it may competition objective and that would be that. have regard to. Why is this? Why is the consumer Given the list, let me explain a bit more why there is protection objective definite about what the FCA must danger in changing “may” to “must”. That would have regard to, while the competition objective is not? mean that the FCA would always have to consider all Surely it would be more sensible to have these objectives the issues set out in new subsection (2). The FCA on an equal footing and in both cases supply the FCA should not necessarily have regard to all of that list with a list of things that it must have regard to. when looking at particular competition questions. There The second problem is that the use of “may”, could be unintended consequences. regarding what the FCA takes into account in considering If the FCA wishes to take action to promote switching, the effectiveness of competition, seems to render the the consideration of barriers to entry will not be as whole clause without much force or substantive meaning. important as the ease with which consumers can transition Why list the factors that the FCA may have regard to between providers and how that is affected by the if it actually does not have to do so? Either the factors structures of the market or behaviours of incumbents. listed are important to consider or they are not. If To enable the FCA to generate the outcomes that we they are important, surely the FCA must consider want under the competition objective it is important them. If they are not important and can be disregarded that the list is expressed in the terms that it is. This by the FCA, as the Bill seems to provide, why are they does not make the basic objective of the FCA weaker there at all? I hope that the Minister may see the virtue in this area. It just means that we need to give it a of “must” and might agree to the noble Lord’s degree of discretion to be able to target the particular amendment. issues that they are looking at at any one time. That addresses the amendments that are being spoken Lord Sassoon: My Lords, I am infinitely flexible; it to and I hope that the noble Lord, Lord McFall of depends how long we go on this evening but I can see Alcluith, will consider not pressing his amendment. one or two amendments coming up on which I can be more accommodating than I will be on this one. Lord Tunnicliffe: My Lords, I am sorry that the I shall start with perhaps the easiest part: the questions Minister did not rise to my invitation to wax a little from the noble Lord, Lord Tunnicliffe, around lyrical over his commitment to consumer interest, but Amendment 111A. I am delighted to see the noble at this late hour I do not now invite him to. I am sorry Lord joining the fray. We have now had four players too that he was not able to see the attraction of on the Front Bench from the Opposition; I wish that “must”. I have laboured on such ventures and I know we had such depth of reserves on our side. However, the ferocity with which one’s brief has said that one I will battle on. must never move from “may” to “must”. Many of us Amendment 111A seeks to bring the activities of would have been more satisfied if the Minister had market makers into the scope of the FCA’s competition accepted “must”, and we will have to see whether my objective. I reassure the noble Lord and the Committee noble friend Lord McFall brings this back later for that the activities of market makers are already very further consideration. much covered by the objective. Put very simply, to I thank the Minister for his straightforward assurances operate as a market maker firms will have to obtain on Amendment 111A and I beg leave to withdraw. permission to deal in investments as principal, and that is a regulated activity. That means that such firms are performing a regulated activity or a regulated service, Amendment 111A withdrawn. and noble Lords will see that new Section 1A(1)(e) clearly states that markets for regulated financial services Amendments 112 to 113 not moved. fall within the scope of the FCA’s objective, so the FCA can indeed shine its regulatory light on market Amendment 114 makers as on any other part of the sector. For completeness and to clarify, as far as recognised investment Moved by Lord Sharkey exchanges or RIEs are concerned, they can be exempt 114: Clause 5, page 17, line 34, after “market,” insert— from the general prohibition under Section 285(2) of “( ) developments in the markets for unregulated financial FiSMA, but even their activities are brought within services that are in the interests of consumers and the scope of the competition objective by virtue of businesses, subsection (1)(b) of new Section 1E in the Bill. I hope ( ) the desirability of establishing a new authorisation that that deals with that. regime for direct financial platform providers to protect Turning to Amendment 112, competition can mean consumers and providers,” many things to many people. To indicate what the Government might want the FCA to look at in deciding Lord Sharkey: I shall speak also to Amendment 119. how to advance its competition objective, subsection (2) Both amendments are to do with financial innovation of new Section 1E sets out a number of matters to and particularly with peer-to-peer lending. They add which the FCA may have regard in assessing the to the factors the FCA may have regard to—or must 325 Financial Services Bill[LORDS] Financial Services Bill 326

[LORD SHARKEY] This is one of those asymmetrical cases where no have regard to, if the Government eventually accept regulation risks the complete destruction of the sector Amendment 112—when considering the effectiveness and some regulation carries only a small risk of of competition. The first amendment would require discouragement, if any, and the strong probability of the FCA to have regard to developments in markets encouraging wider distribution and uptake. At Second for unregulated financial services that are in the interests Reading, the Minister also said, of consumers and businesses and to have regard to the “this is a matter that we will keep under review”.—[Official Report, desirability of establishing a new authorisation regime 11/6/12; col. 1261.] for direct financial platform providers to protect consumers That is precisely what these amendments would require and providers. the FCA to do. It is important that we have that That means, essentially, that the FCA would have commitment in the Bill and I hope that the Minister to look carefully at new, unregulated services and will recognise that the balance of risk and reward here would have explicitly to weigh the merits of regulating argues in favour of these amendments. peer-to-peer lending organisations. Peer-to-peer lending Before I close, I would like to ask the Minister for has already passed the $1 billion mark in the United clarification. It may be that the Bill already brings States, where it is regulated, and it is growing very fast peer-to-peer lending under regulation. Clause 6(3) in the United Kingdom. Many commentators see peer- amends paragraph 23 of Schedule 2 to FSMA 2000. to-peer lending as a direct way of dealing with the This paragraph brought into the scope of regulation banks’ failure to lend to individuals and to small rights under any contract under which one person businesses. Andy Haldane of the Bank of England has provides credit to another if the obligation of the even suggested that these non-traditional lenders could borrower to repay is secured on land. The present Bill eventually replace banks. amends paragraph 23 by removing any reference to The Government acknowledge the potential of this secured on land and substituting the phrase, new lending model and have made £100 million of “Rights under any contract under which one person provides seed money available. However, this new model of another with credit”. peer-to-peer lending is not covered by existing financial Does this change in practice bring peer-to-peer services legislation and that leaves it exposed to very lending under regulation, as it might appear? If it does serious dangers. This new industry, unregulated, is not, as is probable, despite the apparent clarity of extremely vulnerable to rogue players entering the language, then I hope the Minister can give sympathetic market. All it takes is one rogue player, one big scandal consideration to the amendments. I beg to move. and a lot of losses for ordinary lenders for the model to be discredited and to fail. That would be a very 9.45 pm undesirable outcome. We desperately need new and innovative financial services to provide real competition Lord Flight: My Lords, I believe that the FSA has for existing banks and to fund those areas of commercial been looking in some detail at how to regulate platforms, life, particularly SMEs and start-ups, that the banks and has been doing so for quite a while because it is are so obviously failing to fund. It is not as though difficult territory. It is either about to or just has come innovative, real-world consumer-orientated financial forward with its proposals. services are in good supply. In fact, it could be argued that peer-to-peer lending and crowd funding are the Lord Lucas: My Lords, I very much support what only significant financial innovations that are around the noble Lord, Lord Sharkey, has said in this area. at the moment and likely to benefit the real economy. My Amendment 117B in this group picks up a couple At Second Reading, the Minister said in response of aspects of it. The first aspect is, to suggestions that peer-to-peer lending be taken into “the role of regulation in enabling innovative business models to regulation: compete with established businesses”. “The Government do not think that statutory regulation is By regulating this area so heavily we have created a appropriate at this point. The sector is very small and such structure where it can be extremely difficult for people regulation would be a barrier to new entrants and innovation”.— to be innovative. The noble Lord, Lord Sharkey, drew [Official Report, 11/6/12; col. 1261.] an obvious example of that when he talked about the The industry does not agree with that. The leaders of regulations that independent financial advisers have to the industry are acutely alive to the danger to their work under. If IFAs are allowed to talk about ordinary business model presented by a rogue operator. They money products but not allowed to talk about peer-to-peer would welcome regulatory protection for consumers lending products then, by not regulating them and not and providers. This protection need not be onerous. bringing them under the umbrella of regulation, we Indeed, any regulatory regime should be judged for are making it difficult for these new entrants to compete. suitability not only on the protections it provides but We are creating a barrier to innovation. on how little of a barrier to entry and innovation by This particular innovation is not just fluff or proper operators it offers. In fact, this is one of those amusement. It promises, if it gets going in a substantial occasions when the market, particularly for crowd way, to alleviate some of the pressure on the national funding into SMEs, requires regulation in order to financial system: you get away from borrowing short expand. We need IFAs to distribute these products if and lending long, and away from the £85,000 guarantee, we are to enlarge the market, and IFAs absolutely and you put those risks back on the lender. It is also a require regulation before they will consider doing that. structure that may prove to be extremely useful in We also need regulation that will allow these products local lending in areas where the lenders can identify to be located inside tax-efficient wrappers. that the borrowers are part, in some way or another, of 327 Financial Services Bill[18 JULY 2012] Financial Services Bill 328 the same community and can, in that way, develop The difficulty with doing that is the forest of regulation substitutions for pay-day lending and other more expensive we have put in place to tie down the existing old-style and onerous arrangements. So there are real opportunities businesses in that area. The opportunity for and the here to improve the financial system as a whole. The benefits of innovation in that area seem obvious. So FCA really ought to have regard to the way in which we must have an FCA which understands not just regulation produces barriers for entry in the way that not-regulating but also how regulating constructively the noble Lord, Lord Sharkey, has described. will enable businesses to compete where, if they are But it is not just without government that these left unregulated, they may not even be able to exist. barriers appear; they are also within government. One of the principal barriers to the expansion of peer-to-peer Lord McFall of Alcluith: My Lords, I should like to lending is the tax arrangements, that you cannot offset add my support. My name is not on the amendment. your losses on bad debts against the interest you earn A number of months ago I spoke to Giles Andrew, of on the good ones. Banks can but peer-to-peer lenders Zopa, about peer-to-peer lending, and I was very cannot. Among the reasons why the Treasury, which is taken by what he said. I think back to the MPC and refusing to regulate, will not extend tax concessions is the American whose name escapes me but who is just that these businesses are not regulated. So the Treasury departing from the MPC to take up a post at the itself is causing the problem that is crippling the Peterson Institute in America and his comments about development of this business. a spare tyre. We lack a spare tyre in the UK in terms of It is all very well to run a business which is restricted our banking. Whether it is a Labour Government or to borrowers of the highest quality, which is effectively this Government, none of us has solved the problem what it is at the moment. All the peer-to-peer lenders of getting lending out. We have a lot to learn in that that I am aware of have pretty low bad debt ratios. area. Our top banks are responsible for 450% to 500% That is because they do not lend to risky borrowers, of our GDP. We will not make progress on that. This because there is no offset for the losses. The net return initiative should be looked at. Nothing fundamental to their investors if they did start making loans with, will change tonight but it is good that it is on the say, an average default rate of 5% would start to agenda and I am delighted to be associated with it. become extremely low because there would be no relief for the 5% of losses and they would be paying full income tax on their 12% of income. It starts to make Baroness Kramer: My Lords, I am in full agreement very little sense, so none of the peer-to-peer lenders with the three previous speakers, who have covered have gone into that territory. But lending to areas of virtually all the territory—which at this hour I will not the community where there is a risk of default, such as repeat. However, I should like to add one point. The young businesses, is exactly the sort of area where this only argument that I have received from Ministers Government are trying to push the banks with so little outlining why this area should not be regulated is that success, and where businesses such as the Funding Circle regulation is potentially too heavy-handed and will would love to go if the Government would make it prevent the sort of growth of a new, young industry. I possible. think that in this House we have rather more faith in the regulator, which has begun to move forward and As I say, the reasons for not going there are entirely understand that appropriate and proportionate regulation due to the Treasury, and the reasons why the Treasury is a standard that can be achieved. I say that in order cannot grant the concessions are also down to the to pick up the entity to which the noble Lord, Lord Treasury. It really should be open to the FCA to try to Lucas, referred. Unlike the peer-to-peer lenders which break that circle and persuade the Treasury to face one fall outside the current regulatory framework, Seedrs direction at a time and to promote something which is had to be regulated because it is marketing equity in everyone’s interests, particularly the Treasury’s. Nor investments. It falls into the regulated arena and has would I just confine our thinking to peer-to-peer had to seek authorisation. lending, which is what is there at the moment. Other I quote from the blog of the chief executive: peer-to-peer ideas are around. Peer-to-peer investment “The authorisation process was long and sometimes painful, in start-ups already qualifies. There is an FSA-registered but we feel that it was an absolute necessity in order to satisfy business called Seedrs, in which I take an interest. both the letter and the spirit of the law. The FSA scrutinised every There are proposals for peer-to-peer investment aspect of our business model and operations, and after over a management. That goes back to an earlier amendment year of iterative questions and answers, they gave us the go-ahead. in terms of trying to reduce the return that stays in the We are proud to be the first platform of our kind to receive pockets of investment managers by disintermediating FSA authorisation—or, to our knowledge, approval by a major that business. financial regulator anywhere in the world. But more importantly, we are convinced that it was the right thing to do to go down this There are certainly proposals for doing this in the route, and we now look forward to launching the Seedrs platform field of annuities. The opportunity is obvious: old as a fully authorised business”. people want income and young people want capital. If It is using the authorisation as a marketing mechanism. you can produce a mechanism where the two can Having talked to the regulator and then followed exchange that, you are looking at something where through with Seedrs publications, it is clear that both you can cut out a very large amount of cost in the sides have been satisfied with this process. Rather than middle, where you could produce for people who are being too onerous, there is a sense that regulation has trying to settle their pension fund annuity at the been appropriate and that the authorisation has matched moment a decent rate on which to do it, and where the circumstances. If we can achieve that with the you could provide for young people who need capital a equity platform, surely we can achieve that with the decent rate at which to have it. lending platform. 329 Financial Services Bill[LORDS] Financial Services Bill 330

The Lord Bishop of Durham: My Lords, my name is As I said when I responded at Second Reading, this is on this amendment and the noble Lords, Lord Lucas a new and growing sector and we do not want to and Lord Sharkey, have said virtually everything I inhibit its growth. Nor do we want to put up barriers want to say. I will simply add that in the areas where to new entry by protecting the incumbents. Furthermore, the access to finance is most wanting, the creation of we would expect the costs of regulation to be passed safe space—through regulation of the kind that the on to consumers. noble Lords described—is what will enable competition I reassure noble Lords that the Treasury is alive to to start to break the stranglehold of some of our the needs of the sector. My colleague the Financial larger lenders, who neither lend in these areas themselves Secretary has met some key players in this emerging nor are willing to make space for others to lend in market. While the Government do not think that them. That is a fundamental reason why there is still a statutory regulation is appropriate at this point, we shortage of finance. will keep this under review. I say advisedly that the The Bank of England’s north-east agent in her Treasury will keep it under review because the decision report, which was published this morning, talked about is for the Treasury and not for the FCA when it comes inadequate supplies of finance to the SME sector in into operation. the north-east of England despite the valiant and I am happy to confirm to the Committee—this is determined efforts of the Government, through guarantee important in relation to some of my noble friend’s schemes, to make that possible—and those schemes points—that the changes being made as part of the are not providing finance at anything under 10%. The Bill under Clause 6 would make it legally possible to banks are simply layering charge upon charge upon bring direct platforms into scope. I stress again that we charge. We need regulation to permit competition. It have made no decision to regulate and do not believe will not stop competition. I hope the Minister will see that we should. However, unlike the position under the advantage of this as it has been so eloquently put FiSMA, we now have an enabling provision in new by previous speakers. Section 1J whereby we can amend the objectives to bring peer-to-peer platforms, for example, into the Lord Tunnicliffe: My Lords, these Benches do not scope of regulation. My noble friend is right to draw have a particular view on Amendment 114. If the attention to Clause 6 as an enabling clause. noble Lord, Lord Sharkey, is to press this further at a I turn to Amendment 117B. Where innovative finance later stage in light of the response from the Minister, models are regulated, the FCA will of course take a we will have to think through whether we will support proportionate approach, as I made clear when the it. It clearly has consensus support in the Chamber Committee discussed social investment last week. Where tonight so we will look at it very carefully. In his they are not regulated, there is no role for the FCA, response, can the Minister give a view on how wide or and there can also be no role for the FCA to facilitate narrow he sees his amendments, particularly the extent the work of other government departments. I regret to to which they might have a general utility in, for want say to my noble friend that the decisions about tax of a better term, future-proofing the legislation? treatment, for example, will remain a policy matter for Turning to Amendment 117B, we all want to support the Chancellor, as will the decision about the scope of innovation. Once again we do not have a view on this regulation in this area. Of course, the Chancellor amendment, but if it is pressed at a further stage, what keeps all tax policy matters under review in the context we always have to look at with innovation and competition of his Budget. is proportionality. Yes, innovation creates competition, new ideas and opportunities, but it may put the customer It is perhaps worth saying that there has never been at risk. Proportionality has to be there to balance new a generalised income tax relief for losses on investments, opportunities with proper protection. which is part of what is being discussed in this area. HMRC has always sought to classify dealings in financial products by individuals as investment rather than 10 pm trade, and a targeted income tax relief specifically for Lord Sassoon: My Lords, in addressing Amendments loans made through p-to-p platforms would be open 114, 119 and 117B, the Committee has drawn attention to particular risk of avoidance, would encourage other, to some very topical and important issues. I cannot similar investments to request similar tax relief and now remember why Adam Posen of the MPC came in; might prove challengeable under EU state aid rules. I think it was Adam Posen who the noble Lord, Lord Therefore, I do not want to get my noble friend’s McFall of Alcluith, referred to. This is an area that is hopes up in this area, although he was of course right rightly being widely discussed. The Government agree to draw our attention to the issue. that innovative finance models such as peer-to-peer Finally, I cannot support Amendment 119 because lending are important. Some £100 million of the only if and when the Government decide that direct £1.2 billion that will be invested through the Business finance platforms are to be regulated will we insert Finance Partnership will be invested through other relevant definitions into FiSMA. As I said, the provision non-traditional lending channels, to reach smaller is there in new Section 1J to update the definitions. I businesses such as peer-to-peer platforms, so the hope I have provided my noble friend with at least Government are putting their money in this space. some assurance that the Bill takes forward the legal We agree that if these types of operations are to be framework so that if a decision is made to bring regulated, the regulatory approach to be applied should p-to-p platforms into the scope of regulation, it could be proportionate. However, the Government do not be achieved. Therefore, I ask him to withdraw his believe that the case for regulation has yet been made. amendment. 331 Financial Services Bill[18 JULY 2012] Financial Services Bill 332

Lord Lucas: My Lords, is my noble friend agreeing I have been encouraged by a lot of the debate. with me that the principal reason why there is no There is an almost universal consensus that regulation ability to offset tax for peer-to-peer lending activities might be important and might be a very good thing. I is that they are not regulated and therefore there is think I am perhaps a little encouraged by what the scope for abuse? Minister has said, but I will read Hansard carefully tomorrow to check that I am still encouraged. There is Lord Sassoon: No, my Lords, I am not saying that. one issue here that needs stressing, which is the matter There are plenty of different tax treatments for all of urgency. It takes only one rogue operator to go sorts of regulated and unregulated activities. I see the bang in a very serious and public way to sink this issues as separate. However, I have indicated a couple whole area. The Government should perhaps be a of areas in which changing the tax treatment would be little more alive to that particular problem and the risk difficult and would run counter to some of the broader of that happening. Having said that, and looking at accepted principles by which we run the tax system. the clock, I beg leave to withdraw. But I would not link the two things explicitly together. Amendment 114 withdrawn. Lord Sharkey: There was a question in the debate about the scope of my suggestion. The amendments Amendments 115 and 116 not moved. were drafted deliberately widely so that they create a “may” or a “must” for the FCA when it considers House resumed. competition so that it looks at new developments in the market that may be in the interest of consumers. House adjourned at 10.07 pm.

GC 91 Arrangement of Business[18 JULY 2012] Northern Ireland Act 1988 Order 2012 GC 92

make clear their respective roles and responsibilities. Grand Committee This follows the approach taken to similar provisions in the 2010 order. Wednesday, 18 July 2012. I can confirm that the Department of Justice in Northern Ireland has been fully consulted during the Arrangement of Business preparation of this draft order and fully supports it. Announcement The same is true of Whitehall departments that may be affected. I hope that noble Lords will also support 3.45 pm the making of this draft order. It may, in effect, make The Deputy Chairman of Committees (Lord Brougham relatively minor, common-sense amendments to the and Vaux): My Lords, if there is a Division in the statute book but this is in pursuit of the much more Chamber, the Committee will adjourn for 10 minutes. significant aim of completing the devolution of policing and justice to the Northern Ireland Executive, which itself has led to a level of political stability in Northern Northern Ireland Act 1998 (Devolution of Ireland not seen in a generation. I therefore commend Policing and Justice Functions) Order 2012 the order to the Committee. Considered in Grand Committee 3.46 pm Lord McAvoy: My Lords, I immediately declare Moved By Earl Attlee that the Official Opposition are in support of this move. It is worth spending a minute or so on how we That the Grand Committee do report to the got here. As the Minister rightly said, the devolution House that it has considered the Northern Ireland of policing and justice was a huge achievement after Act 1998 (Devolution of Policing and Justice long and painstaking negotiations. I was long enough Functions) Order 2012. in the other place to remember the commendable Relevant document: 3rd Report from the Joint efforts of the Government led by Sir John Major in Committee on Statutory Instruments initiating this process. When Labour came to power, we knew how sensitive and complicated all these issues Earl Attlee: My Lords, the devolution of policing were. We worked with all parties and the Irish Government and justice in 2010 was a major step forward on the to ensure that the transfer of power and the creation path towards the political stability that Northern Ireland of a new Department of Justice in Northern Ireland now enjoys. Noble Lords will be aware that the prospect were stable and sustainable. of devolving policing and justice was raised in the David Ford is doing a very good job in difficult Belfast agreement of 1998, the joint declaration of circumstances. He has the full support of Vernon 2003 and the St Andrews agreement of 2006. However, Coaker, shadow Secretary of State for Northern Ireland, it was only in 2010, through agreement reached at in carrying out his challenging and important job. He Hillsborough Castle, that a clear timetable was established and the Northern Ireland Executive have done good for the devolution of policing and justice functions to work in continuing progress in building peace. However, the Northern Ireland Assembly, which then formally the violence of last week, most notably in Belfast, took place on 12 April 2010. where 20 police officers were injured, shows that there It was necessary as part of the devolution process is much to be done. Parading and areas of dispute to make a number of consequential changes to the around parades have a knock-on effect on community statute book in order to transfer a wide range of relations and the terrorist threat. Heightened tensions statutory functions conferred on government Ministers mean heightened security and we should all be aware to the appropriate authorities in the devolved of the desire of dissident republicans to wreck the Administration. The Northern Ireland Act 1998 peace process. I pay tribute to the Police Service of (Devolution of Policing and Justice Functions) Northern Ireland for the courage and determination Order 2010 made the vast majority of these transfers they show every day to protect and serve everyone in of functions. However, due to the timing of the 2010 Northern Ireland. order, there were provisions of the same parliamentary Significant responsibilities on national security still Session that did not take into account the transfer of lie with the Northern Ireland Office. The boundaries policing and justice functions and these now require are sometimes blurred between what is national security amendment. In addition, a small number of provisions and what is the responsibility of the devolved were also either missed or now require technical correction. Administration and the PSNI. That is inevitable and The main purpose of the draft order before us part of the process. We all know that there are no today is therefore to make the necessary amendments cut-and-dried, easy solutions in Northern Ireland. In to the statute book to complete the transfer of policing the attempt to take everyone with us, there will be and justice functions to the devolved Administration. blurred edges. Most amendments are achieved through straightforward This order is an attempt to do something about substitutions of references such as “the Department that, and my contribution today will be mainly to ask of Justice” for “the Secretary of State”. Where the some questions. I am not quite sure of one or two function being transferred involves both policing and things. I apologise for that. I am new to this job and to justice matters and excepted matters, such as national studying the legislation affecting Northern Ireland. I security or immigration, provision has been made to hope to learn quickly enough. Article 7 says: divide these functions between the Secretary of State “(2) In paragraph (1) for ‘Secretary of State’substitute ‘Department and the Northern Ireland Department of Justice to of Justice’. GC 93 Northern Ireland Act 1988 Order 2012[LORDS] Northern Ireland Act 1988 Order 2012 GC 94

[LORD MCAVOY] For as long as there is a Parades Commission that is (3) In paragraph (2) for ‘Secretary of State’ substitute ‘appropriate acting independently and where elected representatives authority’”. at the most senior level do not have responsibility for Is there a reason why these cannot both be allocated to decisions being taken about these issues, but policing the Department of Justice? In paragraph (4), can the itself has to gather up the problems, we will continue areas of authority be defined a bit better between the to have this kind of contention. I should like to ask the Department of Justice and the Secretary of State? Minister whether, if this order goes through—as I Can this section be explained a bit better? I do not have no doubt it will—he will take back to his right quite grasp why the responsibility lies where it does. honourable friend the Secretary of State for Northern In Article 14, there seems to be some dubiety about Ireland and other colleagues a proposal that they look the status of the National Policing Improvement Agency. seriously at the devolution of responsibility to the I am informed by our Home Office spokesman that Office of the First Minister and Deputy First Minister the agency is being abolished as part of the Crime and whereby they would have to resolve the problem of Courts Bill. If it is being abolished, why is it mentioned parades. Some might say, “That is impossible”, but here? some would have said that about policing in general. It Apart from these questions, the Official Opposition is not a sustainable position, when people are appointed fully support this move. It makes further progress in to make difficult decisions and are backed up by the devolution in Northern Ireland and we are fully supportive Government here in London, that those decisions are of the Government’s actions. always second-guessed by way of criticism without there being any specific proposal for a realistic alternative decision. Lord Alderdice: My Lords, I, too, support this small I hear each side saying that the answer is for the piece of legislation. I do not think it is particularly fellows on the other side to back down. We were very contentious, but I would like to use the opportunity to used to that in the past, but there must come a time pick up on some matters of devolution. when we will have another devolution order in this As the noble Lord, Lord McAvoy, has said, a place that will put the responsibility back to where it considerable amount of work has been done in ensuring actually belongs, the elected representatives of the that these last few pieces of the devolution of policing people of Northern Ireland to make decisions about and justice functions are completely satisfactorily. When these matters and then to live with them. my predecessor as leader of the Alliance Party, Sir Oliver Napier, was Minister of Law Reform in the ill fated However, I want to say how much I back this order 1974 power-sharing Executive, one of the key problems and how striking it is that an issue involving devolution was that policing and justice functions had not been of policing and justice, modest as it is, is no longer a devolved. Therefore, when things got out of control it matter of contention. was, partly at least, because the power-sharing Assembly did not have the possibility of enforcing its own rule. Lord McAvoy: Has the noble Lord had any thoughts When my successor as leader of the Alliance Party, about the process that could be used by the First David Ford, became Minister of Justice, it was in the Minister and Deputy First Minister to arrive at context of agreement on the devolution of policing conclusions? and justice—something that Seamus Mallon, the deputy leader of the SDLP and later Deputy First Minister, Lord Alderdice: I am hesitant because, of course, as pointed out was the absolutely critical thing in ensuring soon as one makes a proposal, the likely response is to that there was a serious and stable devolution settlement. knock it down. However, I make the following He was right about that, although for a long period it observations. First, it is clear that the elected representatives was believed that it was so contentious that it was did have a set of proposals that they were prepared to quite impossible. There was an element of truth in bring to the Assembly but which the Orange Order at that. Without other political agreements, perhaps it that stage was not prepared to accept. I believe that was impossible. the Orange Order has come some distance since that However, there is one aspect of policing that remains time and, in my discussions, properly mandated contentious and difficult, when many others are now representatives of the Orange Order engaged with able to be discussed—a policing board, district local nationalist constituents. That would not have policing partnerships and so on. It was the aspect happened some years ago. It was a promising thing, referred to by the noble Lord, Lord McAvoy, in which even if agreement was not able to be reached. I encourage I have been slightly involved lately—the question of the First and Deputy First Ministers and the parties in contentious parades. These are not easy matters, as all the Assembly to pick their proposals up and to try to noble Lords around the Room know very well. One of push them through. the things that struck me is that some of those who have been saying in strident terms that the problem is 4pm mistaken judgments by the Parades Commission have Secondly, my noble friend may be able to correct had least to say in terms of proposals for better me if I am wrong, but I think that I am right in decisions by a Parades Commission or another body. I saying that, in extremis, where it is impossible for the am not sure that I see another way of addressing this police to police a decision of the Parades Commission, problem until we find ourselves considering another the Secretary of State retains some kind of residual instrument that is devolving responsibility to the First function and responsibility. I wonder whether, through Minister and the Deputy First Minister or to the that residual responsibility, it might be possible for Executive itself. him to indicate to the First and Deputy First Ministers GC 95 Northern Ireland Act 1988 Order 2012[18 JULY 2012] Northern Ireland Act 1988 Order 2012 GC 96 that he would welcome their coming forward with a little. I recently met some people from the Middle proposals, whether based on some of their previous East and I am sure other noble Lords have done the proposals or something that they bring forward de same. novo. I specifically want to ask the Minister about Section 9 of the Immigration and Asylum Act as I am a little Lord Empey: My Lords, the bulk of these proposals confused. I am not fully conversant with all sections of are, I understand, tidying up and technical in their the Act but can the Minister explain it a bit more? Will nature. Therefore, some pieces of legislation were in he also tell us whether this legislation is applicable to process through this place at the time that devolution Scotland? Policing and other functions are devolved was implemented, and consequently missed the deadline to the Scottish Parliament, so is there consistency for inclusion in the legislation at that stage. However, I throughout the United Kingdom in the treatment and want to ask the Minister about one area: Clause 9 of implementation of the Immigration and Asylum Act? the Immigration and Asylum Act 1999. There is an issue because, unfortunately, Northern Before the Minister answers, I make the general Ireland is being used by some people as a back door point that people have short memories. It is not that into the United Kingdom. They are coming into the long ago that we would have been talking about significant Irish Republic and are getting into the United Kingdom numbers of disturbances in July. This year, most of via Northern Ireland. There have been some cases the cameras were fixed on an area that hardly stretches recently of arrests being made, and I believe some the distance from where the Deputy Chairman of people either have been, or are about to be, before the Committees is sitting to the end of this Room. courts for immigration offences. Can the Minister Consequently, we have to take into account the fact expand a bit in his final answers on that question? that there has been dramatic change and progress, something which is frequently forgotten. Lord Kilclooney: My Lords, I apologise as I have to Parading has been an issue for centuries. This is not be brief due to other commitments this afternoon. I new. I think that it has moved on significantly, because want to refer to some of the comments made by the there is a greater acceptance of people’s different noble Lords, Lord McAvoy, Lord Alderdice and cultures and the way in which they celebrate their Lord Empey. This order of course has my personal cultures. Of course, the country as a whole is having to support and, as a former Minister of Home Affairs come to terms with that. There has been progress. dealing with the police in the middle of the last The issue of the Parades Commission is particular century, it is clearly of great interest to me. However, I and has come in for a lot of criticism over the past few am not going to talk about the past, I am going to talk weeks. This, again, is not a new phenomenon, but if about one or two present-day problems in Northern people want to find a solution to these issues, the only Ireland. way that it will be found is through engagement with First, I note my entry in the register of interests, as I all political parties in a meaningful way and wider am going to talk about the media. The noble Lord, sections of the community at local level. An attempt Lord McAvoy, mentioned contentious parades, and was made two years ago to bring forward proposals the noble Lords, Lord Alderdice and Lord Empey, but, sadly, not all parties were fully involved in that. emphasised what a great improvement there has been That can easily be corrected. The particular proposals in Northern Ireland in that context. Incidentally, is it I would have had great difficulty with. Some of them not a sign of the improvement in circumstances in were not thought through properly. Neither do I believe Northern Ireland that 100 members of the Police that it is beyond our collective ability to find a solution. Service of Northern Ireland incorporating the former Over time, we found solutions to things that people Royal Ulster Constabulary, are coming to rescue London thought were absolutely impossible. from its problems next week? That represents a change Yes, it can be resolved but it will require everybody in what is happening within the United Kingdom. to be engaged at a political level. That is the only way One of the things that worried me during the past we were ever able to get agreement on the Northern week, watching the media here in Great Britain, especially Ireland Act 1998: because everybody was engaged. Sky and the BBC, was that they concentrated on one That could be repeated on the parades issue, and of parade only, near the Ardoyne. There were hundreds course other contentious issues like how we treat the of parades last week in Northern Ireland, all of which past. The whole issue of inquiries is very contentious. were peaceful and orderly—but not one reference was There is clearly a hierarchy of victims. We are coming made to that by the media here in Great Britain. up to the 40th anniversary of Bloody Friday in Belfast, Worse still, they misrepresented what did happen. which was a terrible event. There has been no inquiry They reported—not simply alleged—that an Orange into that. There are no prosecutions pending or parade went through the Ardoyne. It did not go through investigations going on into that event. Nine people the Ardoyne, it went down the main road past the were killed that day; I remember it very well. Ardoyne. To walk through the Ardoyne would have There is still work to be done. This is going to take a been absolutely criminal, and madness. They do not generation. People need to stand back, look at where get the terminology correct and give the impression of we were and look at where we are. No matter how you provocation. There was no riot immediately after that measure it, it is a good story to tell. We should take Orange walk—it was after a parade by supporters of comfort from that. The story coming out of Northern the Real IRA, who went down that road a few hours Ireland is predominantly a good news story, and I later. Once again, the media did not make that clear hope that other parts of the world that are still struggling here in London and there were terribly misleading can perhaps learn a little, and that perhaps we can help reports. GC 97 Northern Ireland Act 1988 Order 2012[LORDS] Northern Ireland Act 1988 Order 2012 GC 98

[LORD KILCLOONEY] Finally, we owe a great deal of gratitude to the The second point—bringing us right up to date as Police Service of Northern Ireland which has played a we are talking about the Department of Justice in very constructive role in this process, but it still, as we Northern Ireland and the devolution of powers from have heard, has a very difficult task in ensuring that here to Stormont—regards a report recently in the the law is enforced fairly and that those who resort to Tyrone Constitution. It is a paper with which I am violence are brought to justice. personally connected but I had no involvement in the report. It was a local report of an Omagh District 4.15 pm Council meeting. Councillors from all parties, Sinn Lord Bew: My Lords, I, too, support the order and I Fein, Ulster Unionists and the DUP, were reported as thank the noble Earl, Lord Attlee, for introducing it. I complaining about departments of government—I think also thank the officials in the Northern Ireland Office the Department of Justice was mentioned—discriminating for producing helpful explanations of some of the against the people outside greater Belfast. This is more technical parts of order. That is necessitated not something now taking place under the terms of simply by the fact there was legislation going through consultation. Who are these government departments, this place in 2010 but that other prior pieces of legislation including the Department of Justice, consulting with such as the Policing and Crime Act 2009 had to be and who are they offering jobs to? They are restricting taken into account. So the logic behind the legislation the advertising of jobs and consultation documents to is impeccable and not a problem at all. press within the greater Belfast area and no longer using the media outside Belfast. The result is that I want to make just a brief remark about the there is now a bias in favour of the people living within general issue of the devolution of policing and justice. the greater Belfast area. As one who lives west of The noble Lord, Lord Alderdice, has already alluded the Bann myself, I am getting complaints now from to the fact that those of us who tried to make the people—and the report in the Tyrone Constitution is argument for the Good Friday agreement in 1998 typical of what I am hearing— that people in found that at the time that that was one of the most Londonderry, Tyrone and Fermanagh and counties dangerous and weakest parts of the argument. I can Down, Armagh and Antrim are no longer getting the remember leaving a television studio, having supported same opportunities as people in the greater Belfast the Good Friday agreement, and receiving a call from area. the bowels of the Northern Ireland Office from a well-known senior figure therein congratulating me on To be personal and specific about one newspaper, the fact that I had actually avoided all discussion of the Belfast Telegraph, 55% of its readers now are the issue and had pushed it to one side. Although restricted to the greater Belfast area. There are only allowed for in theory in the 1998 Act, it was considered about 700 copies of the Belfast Telegraph sold in each to be something for the far distant future—and I mean of the main towns in Northern Ireland, yet the weekly a future beyond the time we are now living in and papers there, many of which are owned by companies acting upon. So it is quite remarkable that we have with no connection to me, sell 10,000-12,000 copies. made this progress and that the parties of Northern However, the Department of Justice advertises in the Ireland have reached so much agreement about it. The Belfast Telegraph restricting most of the readers to logic of that progress has to be, as the noble Lord, the greater Belfast area, thereby ignoring the people in Lord Alderdice, said, that we consider the role of the the other parts of Northern Ireland. I want to place Parades Commission and the devolution of those that on the record today because, as we consider powers to the First and Deputy First Ministers. I devolving more powers to departments in Belfast, they support his request to the Minister that at least some must treat all sections of the community in Northern thinking should begin on this matter. The question of Ireland fairly and not continue this discrimination timing is inevitably a difficult one for the reasons against people living outside greater Belfast. explained by the noble Lord, Lord Empey. Lord Browne of Belmont: My Lords, I was a member I want to add one other point. We are extraordinarily of the Northern Ireland Assembly in 2010 when policing lucky in the person of the Minister responsible for and justice were successfully devolved. It was a very justice in Northern Ireland. He was, as the noble difficult time but I am pleased to say that since then Lord, Lord Alderdice, knows, the leader of the Alliance the Justice Committee has performed its task well. I Party, which he led with such distinction for so long. think it has enabled both sides of the community to He has his critics, of course, but in Northern Irish take responsibility for policing. I know that we all terms he is a very consensual figure—as consensual as wish to move forward to a shared future. However, it is you are going to get. The political circumstances that not without difficulty. Respect, as we have heard, for led to his appointment will not necessarily subsist for different traditions and cultures does not come easily ever, and that is understating the case. In the context and does not necessarily appear overnight. It will be a of all we have said about the almost magical nature of long-term learning process. We all face challenges in the improvement in Northern Ireland, we have to be Northern Ireland but I am confident that issues such aware that there are still difficulties, one of which is as parading, as we have heard, will be resolved and I the possible personality of the next Minister for Justice. know that there is a lot of work in the background However, that is a mere caveat, and I agree that in going on that will help to do that. When these issues general things have gone remarkably well. are resolved, I am confident that the Northern Ireland Executive can concentrate on the issues that are important Earl Attlee: My Lords, I am grateful for the support to the people such as housing, education and the state of the noble Lord, Lord McAvoy, for the order. He of the economy. said that he is new to the Northern Ireland brief. GC 99 Northern Ireland Act 1988 Order 2012[18 JULY 2012] Rehabilitation of Offenders Act 1974 GC 100

In 1998 I was the Opposition Spokesman for Northern of Justice. This brings the legislation into equivalence Ireland, and I have to say that I enjoyed it, particularly with Scotland. He asked: why are we altering an Act when visiting the Province. I am also grateful to all that deals with accepted issues? Certain aspects of noble Lords who have contributed to the debate. immigration, such as bail, are fully or partly justice The noble Lord, Lord McAvoy, asked me about issues, and should therefore be devolved. This arrangement Article 7: why should not all responsibility be transferred again brings the legislation as it relates to Northern to the Department of Justice and why is there a split of Ireland into equivalence with that obtaining in Scotland. responsibility for the policing of the airport? The The noble Lord, Lord Kilclooney, talked about the policing of an airport involves both excepted functions support of the PSNI to the Olympics. This arrangement such as national security and immigration, and devolved was agreed some time ago and is not a response to the functions such as policing. This arrangement ensures failure of security firm G4S to recruit enough staff that responsibility for key exempted considerations for the Games. However, I should also like to take this such as national security arrangements remain the opportunity to pay tribute to the PSNI, and the RUC before responsibility of the Secretary of State while allowing it, for their assistance on international policing operations the Northern Ireland Department of Justice to take that I have seen and have very much appreciated. I full responsibility for those aspects that relate to the should also like to give thanks to the work of the PSNI. devolved functions. He also asked me about the interaction The noble Lord also got on to somewhat wider of the Crime and Courts Bill: whether it seeks to issues, which he is entitled to do, about discrimination replace the National Policing Improvement Agency, by the Department of Justice in terms of consultation why is that not referred to in the order. The Crime and and advertising. This is a matter for the devolved Courts Bill is still passing through this House. We will Administration, which I am sure he will recognise. His ensure that it makes the necessary consequential comments are on record and can be seen by the amendments, but to legislate now would be the wrong relevant Ministers. If I have missed out anything, I will thing to do. write to noble Lords. The noble Lord, Lord Alderdice, talked about parades. I agree entirely with his observations about the difficult Motion agreed. issues around the Parades Commission. The Government regret that community tensions spilt over into violence Rehabilitation of Offenders Act 1974 in the evening in the aftermath of the 12 July parade in the Ardoyne. The Government totally condemn all (Exceptions) (Amendment) (England and violence and we want to avoid a repeat of the violent Wales) Order 2012 scenes of riots in Belfast that have been beamed across Considered in Grand Committee the world each summer. We need to ensure that the marching season passes off peacefully. Violence around 4.25 pm parades affects those living in the areas and does Moved By Lord McNally nothing to promote the good name of Northern Ireland. It is in everyone’s interests to find a locally agreed That the Grand Committee do report to the solution to devolving the regulation of parades. It was House that it has considered the Rehabilitation of disappointing that the Northern Ireland Executive Offenders Act 1974 (Exceptions) (Amendment) was unable to reach an agreement in 2010. I hope that (England and Wales) Order 2012. it is something they can look at again and find a Relevant document: 2nd Report from the Joint compromise solution to this problem that blights Northern Committee on Statutory Instruments Ireland every year. It is not for the Government, however, to comment The Minister of State, Ministry of Justice (Lord on the independent decisions of the commission. I am McNally): My Lords, as noble Lords will be aware, the sure that the Committee fully accepts that the Parades Rehabilitation of Offenders Act 1974 exists to support Commission is an independent body that has to make the resettlement of offenders into society where they arduous decisions about contentious parades. It has to have demonstrated that they have put their criminal take many considerations and all factors into account behaviour behind them. After a specified period of in an attempt to reach a compromise. These are difficult, time the Act declares most convictions spent and an demanding and sometimes nearly impossible decisions ex-offender need no longer declare them. When they to make, and we stand by its impartial judgment, apply for most jobs, or seek insurance, they need not particularly given that there is no other mechanism to disclose this information and subsequently not suffer adjudicate on parades in Northern Ireland. potential discrimination as a result of it. The noble Lord, Lord Empey, also talked about the The Committee will recall that we recently brought Parades Commission. All that I can add is that I forward the first reforms to the Act for more than sincerely hope that agreement can be reached at some 40 years following a thorough and evidence-based point. I agree with him that good news is coming from review of the Act in the light of current sentencing Northern Ireland. We have come a long way since I practices. The amendments extend the scope of the was previously an opposition spokesman in the 1990s. ROA so that custodial sentences of up to and including The noble Lord asked whether all of Article 9 had four years can become spent, and in most cases reduce been accepted and what the position was in Scotland. the time before which convictions can become spent. The article partly devolves certain functions, such as We will commence the reforms as soon as the necessary bail and regulation of the Immigration Services changes to procedures and processes have been put in Commissioner, to the Northern Ireland Department place. This is likely to be spring 2013. The Government’s GC 101 Rehabilitation of Offenders Act 1974[LORDS] Rehabilitation of Offenders Act 1974 GC 102

[LORD MCNALLY] 4.30 pm reforms restore the balance between the need for public The second group of amendments are technical protection and the freedom for an ex-offender to put and ensure that the scope of the exceptions order their past behind them. remains largely unchanged following changes to the The exceptions order to the Act is a key part of definition of “regulated activity” in the Protection of maintaining this balance. The order lists certain activities Freedoms Act 2012. The new, tighter definition of that are exempt from the Act, such as work that “regulated activity” is part of the Government’s involves significant contact with children or vulnerable programme to scale back the vetting and barring adults. This means that where an individual is applying scheme. The Protection of Freedoms Act narrows the for a job within a specified activity, their full criminal scope of “regulated activity”, which will only cover record history is available to the employer. If an contact with vulnerable groups where there is a real individual has a conviction that has been declared opportunity to do harm—for example, with regular, spent, the prospective employer can then see it. unsupervised teaching of children and professional We must be careful not to jeopardise the operation healthcare. Activities that are lower risk, such as those of the Rehabilitation of Offenders Act. The activities relating to supervised volunteers in schools and listed on the exceptions order are only those that receptionists in hospitals, will no longer be covered by present an opportunity for people involved to cause this definition. harm to the public where there is evidence that there is The Protection of Freedoms Act also repeals provisions a real—rather than potential—risk to children, vulnerable regarding “controlled activity”and the current definition individuals or some other particularly sensitive area of of “vulnerable adult” in the Safeguarding Vulnerable work. It is important to note that for the vast majority Groups Act 2006. Currently, the exceptions order of purposes and employments, the Rehabilitation of contains references to “controlled activity”and “vulnerable Offenders Act still applies. adult” as well as to “regulated activity”. If the order is The careful balance between maintaining public not amended, the changes in the Protection of Freedoms protection and allowing offenders to lead law-abiding Act will reduce the scope of people eligible for standard lives by removing barriers to employment needs to and enhanced criminal records checks once the provisions keep pace with the present. The exceptions order must come into force in September. therefore remain up to date with developments elsewhere. The purpose of these amendments is to maintain The order presented today is an illustration of the the existing eligibility for criminal records checks for Government seeking to maintain this balance in line those activities that involve frequent contact with with recent changes to legislation and does not represent vulnerable groups but which do not come under the a significant extension to the scope of the order. new, tighter definition of “regulated activity”. This ensures The first amendment adds the role of police and that employers and voluntary organisations will still crime commissioner to the order, ahead of the first be able to access criminal records checks from the elections for this office in November. Police and crime Criminal Records Bureau to inform their employment commissioners will set the budget and priorities for decisions. Ministers gave assurances to this effect in the police force within their local area and will hold both Houses during the passage of the Protection of the local chief constable to account for performance Freedoms Bill. and delivery. During the passage of the Police Reform This instrument also brings forward one reduction and Social Responsibility Bill, now an Act, there was in the current coverage of the exceptions order. People cross-party support in both Houses for the role of who supervise 16 and 17 year-olds on unpaid work police and crime commissioner to be held to a higher experience will be removed from the order so that they standard in terms of disqualification on the grounds will no longer be asked to disclose their spent convictions of previous convictions. Members of the police force by their employer. This change is part of the wider are themselves held to a higher standard and it is work that the Government are doing to encourage crucial for a police and crime commissioner, who has employers to offer work experience opportunities by oversight of the force in their local area, to be able to reducing unnecessary bureaucracy and red tape. As command public trust. people who supervise 16 and 17 year-olds in paid An individual is ineligible to hold the post of police employment currently are not asked to disclose their and crime commissioner if they have any conviction spent convictions by their employer, we consider that for an imprisonable offence, whenever incurred and this change brings unpaid work into line with established regardless of whether a sentence of imprisonment was practice for paid employment without presenting actually imposed. The amendment to the exceptions additional risk. order ensures that all candidates for the role of police The consolidation of the provisions regarding and crime commissioner have to disclose all convictions healthcare professionals simplifies the multiple references when signing a declaration of eligibility to stand for to health and social care occupations in the exceptions election. Criminal records checks can then be made to order. These changes will provide a unified definition verify this information. If a candidate is found to have of “health care professionals”, which will make the given false information, they will be removed from order more user-friendly. The amendments are technical post. Although this amendment extends the scope of and do not make any changes in eligibility for criminal the order to include police and crime commissioners, records checks. They also reflect recent changes to the the numbers affected by the change are very small. regulation of social work in England. The Electoral Commission will publish guidance to I hope all noble Lords agree that the exceptions candidates and returning officers to include specific order is an important means of protecting the public. advice on disqualification and eligibility. The instrument presented today ensures that the legislation GC 103 Rehabilitation of Offenders Act 1974[18 JULY 2012] Data Protection Order 2012 GC 104 is up to date and effective in its aim, while maintaining Before setting out further details about this order the vital balance towards the resettlement of offenders it may be helpful for noble Lords if I set out some that the Rehabilitation of Offenders Act seeks to of the background to the work of the Hillsborough achieve. I beg to move. panel. As noble Lords will be aware, 96 people were killed and 766 other people injured as a result of this Lord Thomas of Gresford: My Lords, I only wish to tragedy, which remains the deadliest stadium raise one point, on guidance notes for police commissioner disaster in British history. Since 1989, there have been candidates. I want an assurance from the Minister that a number of investigations and inquiries into the those guidance notes will be translated properly into tragedy, but a sense has remained on Merseyside and Welsh. He may, or may not, know that there was beyond that the full story of Hillsborough has not considerable embarrassment following the elections to been told. Because of the enormous strength of public the Welsh Assembly last May when there was no feeling, the previous Government established the proper translation into Welsh. As a result of that, one Hillsborough Independent Panel, with a remit to ensure candidate did not divulge that he held a post that, maximum possible disclosure of records relating to between the previous election and that election, had the disaster. I want to reiterate that the current disqualified a candidate from standing in those elections. Government fully support the panel and its work. He, being Welsh speaking, had only read the Welsh- Indeed, this order has very much been made in that language version and, accordingly, there was no problem. spirit. But another candidate, who did not speak Welsh, One of the roles of the panel, chaired by the right could only have read the English guidance notes, and reverend Prelate the Bishop of Liverpool, is to oversee he was disqualified by the Welsh Assembly although and co-ordinate the disclosure of records from public he was successful in the election. agencies including the police, and from government, including Cabinet documents. Some of this material Lord McNally: My Lords, I am assured that the consists of “sensitive personal data”, as defined by the Electoral Commission is responsible for publishing Data Protection Act 1998. It is the sharing during the guidance, but I say to my noble friend that I will check panel process and possible subsequent public disclosure with the commission on whether it plans such a Welsh- of this material which concerns us today. language edition. I cannot believe that it will not, In the context of the Hillsborough Independent given the normal practice in such elections, but I will Panel’s disclosure of records, much sensitive personal make inquiries and write to my noble friend with, I data, such as medical records of survivors, will quite hope, suitable assurances. properly not be placed in the public domain. But the publication of other records would clearly add significantly Motion agreed. to the public’s understanding of the events surrounding Hillsborough. Although I am, quite rightly, not aware of the details of these records, I understand that they Data Protection (Processing of Sensitive include, for example, papers relating to various legal Personal Data) Order 2012 processes which arose as a consequence of the disaster. Considered in Grand Committee For these records, organisations within the scope of the panel’s work agreed that publication is in the 4.36 pm public interest but want to be absolutely clear that such disclosure is capable of meeting the requirements Moved By Lord McNally of the Data Protection Act 1998. That the Grand Committee do report to the The Data Protection Act 1998 gives individuals House that it has considered the Data Protection several rights in relation to their personal and sensitive (Processing of Sensitive Personal Data) Order 2012. personal data. It also places obligations on all organisations to ensure that, where personal data is Relevant documents: 2nd Report from the Joint processed, the impact of processing on the individual Committee on Statutory Instruments, 3rd and is appropriately considered. The Act also allows for 4th Reports from the Secondary Legislation Scrutiny the making of an order to create conditions that will Committees enable disclosure where those existing conditions in the Act are deemed insufficient. The Minister of State, Ministry of Justice (Lord The order before us today specifies the circumstances McNally): My Lords, the order before us today specifies where the processing of sensitive personal data may circumstances in which sensitive personal data may be take place where that processing is disclosure of processed in accordance with the Data Protection information relating to the Hillsborough disaster and Act 1998. This is a technical order but the work it that disclosure is necessary to give effect to the relates to is of the utmost importance. The circumstances disclosure protocol which governs the work of the set out in the order relate to arrangements put in place Hillsborough panel. The order and the protocol work for disclosure of information about the Hillsborough in tandem and will, in effect, act as a two-stage process disaster, and in particular the work of the Hillsborough to determine disclosure. In considering whether Independent Panel. This order removes any doubt processing sensitive personal data is necessary to give that sensitive personal data relating to the Hillsborough effect to the panel’s disclosure protocol, an organisation disaster can be disclosed to the panel and publicly, will have to look at the facts of each case and balance where disclosure is necessary to give effect to the the benefits of disclosure against any impact that disclosure protocol which guides the panel’s work. disclosure might have on an individual. The order GC 105 Data Protection Order 2012[LORDS] Data Protection Order 2012 GC 106

[LORD MCNALLY] perhaps general point that the titles of instruments helpfully ensures that this balance can be assessed should be clear and transparent. I wonder whether it is with particular reference to the overall aims of the possible, even at this late stage, for the title to be Hillsborough panel. changed so that anyone who wishes to refer to the The order will not guarantee that any and all disclosures instrument in due course can track it down with ease. of sensitive personal data contained in documents Maybe there will not be many but there may well be relating to the Hillsborough disaster will automatically some who wish to do that. In replying, perhaps the be lawful. Because of the way the Data Protection Minister will also indicate whether he and his ministerial Act 1998 works, it will be for the organisations concerned colleagues will look at the more general point made by to decide, once the order is made, whether the new the committee about the titling of such documents. conditions it sets out are met, so an organisation or One or two questions arise on the detail of the order, the panel will need to look at whether the proposed based on the Explanatory Notes, which are, as ever, disclosure is truly necessary to give effect to the panel’s very helpful. In particular, they say that the panel’s arrangements. If it is met, the relevant organisation secretariat will discuss the implications of the order would also need to satisfy itself that the disclosure will with the disclosing organisations and the Hillsborough comply with the rest of the Act and its principles, and families. I am not sure about the timing of that; any other relevant law. perhaps the Minister will enlighten us. Have those It is clearly not the intention of the Government in discussions begun in advance of the order? In other making this order, or the Hillsborough Independent words, has the draft order been discussed or is the Panel in requesting it, that sensitive material is disclosed intention to discuss it only when it is finally confirmed? inappropriately or in a way that might cause distress I hope that discussions have already taken place. It to the families of the bereaved and those injured in would seem a little odd if they have not but I assume this disaster. Therefore, I would like to assure noble that they have. It would be very helpful to know about Lords, in response to a concern raised in another that. place, that where sensitive personal information which A couple of other questions arise from the detail, is not otherwise publicly disclosed as part of the panel particularly on the panel’s terms of reference and how process is placed into the National Archives or local the protocol that it seeks to adopt, and which the archives, all the safeguards which protect personal order facilitates, will work in practice. The Minister data will apply to this material. This includes the referred to exceptions to public disclosure, particularly requirements of the Data Protection Act itself. That information that indicates the views of Ministers. In means, in particular, that it will not be disclosed to the the normal course of events that would be sensible. general public, or at least until it can be guaranteed However, will Ministers’ views be particularly relevant? that its release would not cause distress or harm. After all, they would be discussing any events after The Ministry of Justice and the Home Office have they happened, so their views would not materially worked with the Information Commissioner’s Office contribute to the work of the panel in seeking finally and officials from the Hillsborough panel to seek a to ascertain the causes of the tragedy. resolution to the data protection issues which have As the noble Lord said, it is also indicated that been raised. The order under discussion today is the individuals’ identities may well be protected. The notes result of that work. All parties are content that the indicate that certain categories of individual will be order, if agreed by Parliament, provides a suitable redacted from the information. I wonder about this in legal channel for disclosure and is a proportionate respect of two particular categories: police officers response to the issue. who were constables or other ranks up to and including I am sure that I speak for all sides of the Committee sergeant at the time the document was produced, and when I say that the promise made to those affected by the fourth category listed—although I will confine the Hillsborough disaster must be honoured, and that myself to two—of junior public employees who were this Government have made a clear statement that we not in a position to determine their agency’s response. are committed to facilitating the fullest possible disclosure. In relation to the first category, I wonder what the I commend this draft order to the Committee and I rationale for that restriction might be. It may be that beg to move. people at the rank of sergeant were not in a position to influence, one way or another, the outcome on the day. 4.45 pm On the other hand, it is possible, I suppose, that they Lord Beecham: My Lords, as the Minister reminded might have been and the difficulty of redacting means us, it is now close to a quarter of a century since this that perhaps people who are definitely not in a position terrible event occurred. The pain has yet to be assuaged to do anything might find themselves potentially under and many questions have yet to be answered. I commend some kind of cloud or question as to what their role the Government on proceeding to facilitate the work had been. This is a difficult area but can the Minister of the independent panel. give an indication of the rationale of that and whether I have one or two questions, beginning with the he is confident that in redacting all names of those point made by the Secondary Legislation Scrutiny ranks and below, and of the other category to which I Committee about the title of the order. In paragraph 26 referred, justice is being done to those who are in no of its report, the committee says that it is disappointed way culpable on any view. that the title of the legislation does not make the We welcome the progress that is being made. We Hillsborough connection clear, and that those with an welcome the way the working of the panel will now be interest in the investigation of the disaster should be facilitated but I would be grateful if the noble Lord able to find related information easily. It makes the could respond to the questions I have raised. GC 107 Data Protection Order 2012[18 JULY 2012] Public Bodies Order 2012 GC 108

Lord McNally: My Lords, I am very grateful to the order has been discussed with the families at all stages noble Lord, Lord Beecham, for that intervention. The and those discussions will continue. I note the point Hillsborough disaster is one of those events where you that the noble Lord made about Ministers but the know where you were on the day. I was in Rochdale Government have taken the decision that all material, and I can remember hearing the tragedy unfurl on the including Cabinet minutes, will be published. I can radio. As an avid soccer fan I thought then, “Never understand that, as it is not just an inquiry into what again”. To be fair, much has changed in the way that happened in or around the ground—people will want football treats its fans in terms of ground safety so to know about a range of issues. Over these 25 years, I perhaps we can say never again. Also, successive have taken an interest in the follow-up to Hillsborough Governments have realised that there are still open and, as such, one of the statements that I found most wounds in Liverpool and there are questions that need reassuring was the one by my right honourable friend to be answered. Again, successive Governments have the Home Secretary, when she made clear that the responded to that fact by the determination to carry Government’s attitude would be full disclosure, within through this very thorough inquiry under the very the limits that I referred to about due care and not distinguished and trusted leadership of the Bishop of putting the families through the trauma again by Liverpool. careless or unneeded disclosure. On the question of the title, it is probably true to One has to make a judgment about the protection say that it would have been better to have had a title of junior officers and lower-rank officials. It is a that stated the intention exactly. However, there were judgment call and if the panel brought forward events contrasting opinions on whether the panel and the or findings that meant that a particular individual bodies giving evidence to the panel were protected warranted being named for some action or lack of under existing legislation. In a way, this order is a little action, that would be a matter the panel would have to bit of belt and braces in terms of giving assurance so take into account. I also think that, if you are publishing, that the panel could do its work. Could it have been it is fair in terms of responsibility to have a certain better described in the Data Protection (Processing of redaction policy. We have made the judgment that it is, Sensitive Personal Data) Order 2012? In hindsight, in fairness, right not to publish all the names concerned. perhaps it could and it could have made a specific I think those were the points that the noble Lord reference to the specific case that it was there to raised and I ask the Committee to approve the Motion. address. However, we considered the views of the committee carefully and concluded that to deal effectively Motion agreed. with its concerns might have brought potentially damaging delay into bringing this order forward. We have taken Public Bodies (Abolition of Her Majesty’s such action as possible with local media and others to make it clear that people will be able to locate this Inspectorate of Courts Administration and order. I would ask noble Lords to bear in mind that to the Public Guardian Board) Order 2012 have accepted the committee’s recommendations would Considered in Grand Committee have meant that the order would have had to have been withdrawn, re-laid and to have gone through the 5pm scrutiny process again. That might have pushed the Moved By Lord McNally House’s approval for the draft order—if it is forthcoming—back past the Summer Recess and would That the Grand Committee do report to the have had a knock-on effect on the expected delivery House that it has considered the Public Bodies time of the panel’s findings. (Abolition of Her Majesty’s Inspectorate of Courts The fact that there is no specific reference to Administration and the Public Guardian Board) Hillsborough in the title is not, I think, a catastrophic Order 2012. error. We have taken measures to try and guide people Relevant documents: 2nd Report from the Secondary who wonder what it is and what it is for. I hope this Legislation Scrutiny Committee; 2nd Report from explanation clarifies that. the Joint Committee on Statutory Instruments Lord Beecham: I understand that and am grateful to the noble Lord. I am just wondering whether the The Minister of State, Ministry of Justice (Lord pathway will be signalled on the website and so on, so McNally): My Lords, the purpose of this order is to that people looking at the Hillsborough website will abolish two of the Ministry of Justice’s public bodies: be directed to it rather than having to comb down Her Majesty’s Inspectorate of Court Administration, through long lists of statutory instruments. I have not which I shall hereafter refer to as HMICA, and the looked at the website myself and so do not know how Public Guardian Board, which I shall hereafter refer it is set up at the moment, but I assume there will be a to as the PGB. This omnibus order provides for abolition website for the independent panel. If it is clear from of these bodies, with no transfer of functions in the there what this document is about and where it can be case of the PGB and, in the case of HMICA, with a found, that would be sufficient. I assume that is what transfer of certain functions which I will outline shortly. is happening but I would be grateful if the Minister The Public Bodies Act 2011, which received Royal could confirm that. Assent in December, was the legislative vehicle resulting from a 2010 government-wide review of all public Lord McNally: I think I can confirm that that is bodies, which had as its overriding aims to increase what is happening and that anybody who goes to the transparency and accountability, cut out duplication Hillsborough website will be directed to it. The draft of activity and discontinue unnecessary activities. GC 109 Public Bodies Order 2012[LORDS] Public Bodies Order 2012 GC 110

[LORD MCNALLY] I turn now to the Public Guardian Board, the In conducting individual reviews of their own public second body addressed in this omnibus order. The bodies, departments were asked, first, to address the PGB was set up in 2007 to scrutinise and review overarching questions of whether a body needed to the way in which the Public Guardian discharges his exist and whether its functions should be carried out or her functions and to make such recommendations at all and, following from this, whether it met specific about the matter to the Lord Chancellor as it thinks tests that would justify its retention. In the case both appropriate. While this is a worthwhile role, the HMICA and PGB, the Ministry of Justice felt that Government believe that it can now be more effectively retention was not justified. They were therefore included and efficiently delivered through new governance in what was then the Public Bodies Bill, now the arrangements within the Office of the Public Guardian, Public Bodies Act 2011. which I shall hereafter refer to as the OPG, the executive I will now give some background on each body in agency which supports the Public Guardian’s work. turn, beginning with HMICA. It was set up in 2003 The Ministry of Justice feels that a separate body for and was given two main statutory duties—first, to this purpose is no longer needed. As a result, the inspect and report on the system that supports the board was found not to meet the key tests for retention business of the Crown Court, county and magistrates’ as part of the 2010 government-wide review of public courts and, secondly, to carry out joint inspection, bodies, and was listed for abolition in the Public along with other criminal justice inspectorates, of the Bodies Bill. criminal justice system. However, the situation in which Following the abolition of the PGB, governance of HMICA was working changed greatly after it was the Public Guardian and his office will be provided, in created. Her Majesty’s Courts and Tribunals Service, line with usual government arrangements for executive previously HM Courts Service, has since that time agencies, through a management board within the developed and put in place more sophisticated and OPG. This will be chaired by the OPG’s chief executive, robust ways of carrying out audits, which has mitigated with executive membership from the OPG and the the need for independent inspection of court Ministry of Justice as well as three non-executive administration systems. directors. The presence of non-executive directors The outcome of this was a decision by the previous will provide independent scrutiny and challenge of the Administration to close HMICA administratively. It discharge of the Public Guardian’s functions and was felt, given the more robust audit and monitoring those of his office. Collectively, they will have relevant processes then in place, that continuing to fund the experience such as business and performance management, body was unjustified and it was closed at the end of financial management and dealing with those who December 2010 with the full support of the Lord lack capacity. I must emphasise that the board itself Chancellor and inspectorate’s senior management. This has also accepted the proposal to abolish, and held its order, therefore, merely puts on a legislative footing last meeting in June. that which has already been administratively achieved. As well as fulfilling a key aim of the public bodies Closing HMICA will save around £6.4 million against review of discontinuing activities that are no longer the Ministry of Justice baseline for this spending needed, the abolition of the PGB will provide savings review period. in the region of £400,000 over the current spending The Government remain committed to joint inspection review period. Implementation of the new governance of the criminal justice system, and this order includes arrangements for the OPG will incur some costs that a transfer of functions to the other criminal justice will offset these savings, for which our best estimate is inspectorates, which will enable them to inspect HMCTS no more than £187,000 over the same spending review for the purposes of joint criminal justice inspections. period. As with HMICA, the proposal to abolish the This will ensure that no necessary functions previously PGB was included in a full public consultation which carried out by HMICA will be left without a statutory ran from July to October 2011. There were a total of basis. 12 responses, of which 10 did not oppose abolition as The legislative abolition of HMICA also formed long as alternative governance structures for the OPG part of a Ministry of Justice consultation that took were put in place. Two were opposed to abolition due place in October 2011. Eighteen responses were received, to concerns that the PGB’s functions would not be of which seven were opposed to abolition, three expressed adequately carried out by other means. As we have some concerns, six stated their support for abolition ensured that the board’s functions will indeed be and two did not express a view either way. Among adequately replaced by the OPG’s management board, those who supported abolition, the overriding feeling the Ministry of Justice finds no compelling reason to was that there was no need for an independent inspection change the proposal to abolish. of the courts in the current climate, and that HMICA’s I turn now to the scrutiny given to this order, which function could be adequately carried out elsewhere. was laid before Parliament on 10 May. Orders under Those who opposed abolition were generally concerned the Public Bodies Act have a minimum 40-day scrutiny that a key government body would be left without period, with a committee of either House able to independent scrutiny, and that the inspectorate’s specific extend this to 60 days by resolution if that is felt functions would be left in jeopardy. These concerns necessary. This order been scrutinised by several Select have been addressed in the transfer of functions that Committees: in this House, the Secondary Legislation have been written into the order, and the Ministry of Scrutiny Committee; in another place, the Justice Select Justice therefore finds no compelling argument within Committee; and, collectively, the Joint Committee on the consultation responses to change its proposal to Statutory Instruments. None of these triggered the abolish. optional 60-day extended scrutiny period. The Secondary GC 111 Public Bodies Order 2012[18 JULY 2012] Public Bodies Order 2012 GC 112

Legislation Scrutiny Committee reported on this secondary legislation has been brought forward. Having order on 24 May, having requested a few points of said that, I do not dissent from the view that change is, clarification from officials. The committee was satisfied if not necessary, then certainly not damaging, subject that the order met the tests set out in the Public Bodies to the observations of the Secondary Legislation Scrutiny Act, but specifically asked the Minister to address two Committee about adequate reporting and annual reports key points during this debate, and I will now address to the public. these. By sheer coincidence, I received a copy of the First, the report stated that public reassurance would annual report of Her Majesty’s Courts and Tribunals be enhanced by the results of Her Majesty’s Courts Service just this week—a rather glossy document. and Tribunals Service’s scrutiny of court administration There was very little in it about the actual operation of being published on an annual basis. I can confirm that the courts and tribunals. There is a lot of financial Her Majesty’s Inspectorate of Prisons provides a full information. I do not have the document with me, but report of each inspection, and recommendations to my recollection is that there is only about a page or so improve outcomes are submitted to the relevant Secretary of detailed reporting—in fairly minimal fashion—of of State. Moreover, all these reports are published and the work of the service. Given the extra responsibilities, publicly available. and while acknowledging that custodial arrangements Secondly, the report suggested that the Ministry of will be dealt with separately, there ought to be a fuller Justice should publish the outcome of the new governance report than has evidently been the practice thus far. arrangements for the Office of the Public Guardian. I can confirm that the Office of the Public Guardian 5.15 pm publishes, and will continue to publish, an annual In relation to the Public Guardian Board, the noble report, and that this will indeed cover governance Lord has written to me, in response to a range of arrangements as well as key performance indicators complaints that I voiced in connection with other and monitoring outcomes. In fact, the latest OPG matters, about the performance of the Office of the annual report was laid before Parliament only last Public Guardian and the Court of Protection. It is week. Key stakeholders were also sent letters outlining true that the board accepted the Government’s proposal the new governance arrangements before they came that it should be abolished. The saving made by doing into effect, as outlined in the consultation response. so, incidentally, is only £100,000. Almost the whole of The Ministry of Justice has taken on board the views the rest of the £2 million or thereabouts comes from of the Secondary Legislation Scrutiny Committee, the abolition of the other body, so it is a modest and thanks it for its thorough reporting. amount. I shall repeat what I think I recall saying in HMICA and the PGB are two public bodies that the House, which is that it is not particularly satisfactory were created to carry out particular functions, but when the Public Guardian is also the chief executive of their roles have either been superseded by other bodies the organisation. A measure of independence in the or can be carried out more efficiently and effectively chairmanship of that body, as opposed to making it through other means. HMICA is already closed an executive position, would have been desirable. I administratively, and the Ministry of Justice has taken acknowledge that there are to be three other members the opportunity within this order to put its residual of the board. There were seven members from a functions on a statutory footing, ensuring ongoing variety of backgrounds, but now there are to be only scrutiny of court administration and the wider criminal three. I have my doubts as to whether that is adequate, justice system. The functions of the PGB have not given the history of the organisation. There is a lot of been formally transferred but we have put robust ground to make up. governance mechanisms in place in the OPG that will Having said that, the board itself has accepted its ensure continued oversight of the work of the Public demise gracefully and I do not wish to challenge its Guardian. view. However, I would like to place on the record our The Ministry of Justice remains committed to close thanks and, I am sure, those of the Minister to those scrutiny of the courts and tribunals system, and to who over the past few years—the board has been continuing the excellent work of the Public Guardian. going for only a short time—have done their best to In the current financial climate, however, it is right improve what was a fairly unsatisfactory operation, that unnecessary activities and bodies across government and had begun to tackle some of the major problems. should be removed; abolishing these two bodies will It would be reassuring if the Minister confirmed that save the public purse several million pounds. I therefore some of the issues raised in the board’s farewell letter commend this draft order to the Committee and beg to the Lord Chancellor about, for example, “investment to move. in new technology”, joint working with other organisations and the hoped for appointment of someone who Lord Beecham: My Lords, as the Minister has said, would be a champion of the Mental Capacity Act are HMICA was effectively abolished last December. It is on the Government’s agenda—or at least are being now, seven months later, that we have the interment in considered. I am not asking him to confirm that these statutory form. Some sort of inquest might be thought matters are to be dealt with now, but whether at least appropriate. the last report of the chairman of the board will be This is another example of what I would call pre- considered. legislative implementation, as I have done in respect of We accept that these changes will be made. We look several other measures the Government have brought forward to rigorous annual reporting so that the forward in the past two years. It is unfortunate that the performance of both the courts service and the decision has been implemented even before the relevant guardianship office can be given adequate scrutiny in GC 113 Public Bodies Order 2012[LORDS] Public Bodies Order 2012 GC 114

[LORD BEECHAM] Public Bodies (Abolition of Crown Court the public interest, particularly in relation to the public Rule Committee and Magistrates’ Courts guardianship function because by definition we are dealing with many vulnerable people, so it is important Rule Committee) Order 2012 that we should see perceptible progress being made in Considered in Grand Committee dealing with their affairs and providing a system that is accessible and efficient in so doing. 5.23 pm Moved By Lord McNally Lord McNally: My Lords, again, I thank the noble Lord, Lord Beecham, for his constructive response. I That the Grand Committee do report to the am not sure that it was pre-legislative implementation; House that it has considered the Public Bodies perhaps it was pre-legislative anticipation, but I take (Abolition of Crown Court Rule Committee and the point. I also accept his point about annual reporting. Magistrates’ Courts Rule Committee) Order 2012. I am sure that the relevant bodies will note his comments Relevant documents: 3rd Report from the Secondary that annual reports should be just that. There should Legislation Scrutiny Committee; 3rd Report from be full coverage of all areas of responsibility, particularly the Joint Committee on Statutory Instruments when the body concerned has taken on new responsibilities. The Minister of State, Ministry of Justice (Lord I also take on board the point about the Public McNally): My Lords, the purpose of this order is to Guardian. There is concern and we must be sure abolish two of the Ministry of Justice’s public bodies: that oversight is proper and full. One aspect that we the Crown Court Rule Committee, which I shall hereafter now hear about in relation to our ageing population refer to as the CCRC, and the Magistrates’ Courts is the need to make sure that those whose mental Rule Committee, which I shall hereafter refer to as the capacities may be diminished have proper protection. MCRC. This omnibus order provides for the abolition It is important that that is assured. We believe that the of these bodies, with no transfer of functions in the presence of non-executive directors will provide case of the MCRC, and in the case of the CCRC, with independent scrutiny and challenge to the discharge a transfer to the Lord Chief Justice of the function of of the Public Guardian’s functions and those of his making rules for the Crown Court. office. Collectively, the directors will have the The Public Bodies Act 2011, which received Royal relevant experience, including in business, performance Assent in December, was the legislative vehicle resulting management, financial management and dealing with from a 2010 government-wide review of all public those who lack capacity. There will also be non-executive bodies. Its overriding aims were to increase transparency director representation in the Public Guardian’s two and accountability, cut out duplication of activity existing stakeholder groups, which meet four times a and discontinue unnecessary activities. In conducting year. There will be continued liaison between the individual reviews of their own public bodies, OPG, the MoJ’s sponsor team and relevant policy departments were asked first to address the overarching officials, including those who led on the Mental Capacity question of whether a body needed to exist and its Act 2005. I hope that the noble Lord will accept those functions to be carried out at all and, following from assurances that his very valid questioning on this is this, whether it met specific tests that would justify its being addressed. retention. In the case of the two court rule committees, I do not think that any other points were raised. I it was considered that their functions needed to be emphasise again that each report and recommendation carried out but that they could be effectively carried arising from all inspections of the courts will be published out by, or in consultation with, other rule committees. for public scrutiny. The Ministry of Justice felt that retention of the committees was therefore unjustified, and they were Lord Beecham: I am very grateful to the Minister, included in what was then the Public Bodies Bill, now who has answered fully. I am stretching the purpose of the Public Bodies Act 2011. today a little wider than I should, but I wonder whether it is the Lord Chancellor’s intention to reply to the I will give some background on each committee, letter that he received from the outgoing chairman beginning with the CCRC. The Crown Court Rule and whether that reply will be placed in the public Committee was created by the Supreme Court Act 1981 domain. to examine any proposed amendments to Crown Court rules and, together with the Lord Chancellor, to make Lord McNally: Knowing the Lord Chancellor’s the necessary rules for the court. However, the committee’s courtesy in all such matters, I am sure that a full reply role in making criminal rules has been superseded will be sent. I will see that it is also copied to the noble since that time by the creation of the Criminal Procedure Lord, Lord Beecham. Rule Committee in 2003, leaving it with a role in relation to only a few civil rules. Due to this reduced When I saw that the title of the order included role, the committee is now rarely used and the Ministry “public bodies”and I saw the noble Lord, Lord Beecham, of Justice therefore proposes that it be discontinued. come in, I was petrified. I thought that I would be grilled, so I was even more pleased than usual to see The Government recognise that the committee’s him take his place at the Dispatch Box, rather than as limited residual functions, though few, should still be a Back-Bencher. Having made that confession, I commend carried out and require both technical expertise and the Motion. impartiality.This order therefore transfers these functions to the Lord Chief Justice, who will be free to consult Motion agreed. the other court rule-making committees, and any other GC 115 Public Bodies Order 2012[18 JULY 2012] Public Bodies Order 2012 GC 116 person or body as he sees fit, before making rules in does now; before making these rules, he will still be relation to the Crown Court. This transfer of function able to consult any of the other rules committees as he removes the need to maintain a separate committee sees fit. He has agreed in principle to this approach. for such a small workload, which reflects the wider As with the CCRC, the abolition of the MCRC was aims of the Public Bodies Act to cut out unnecessary included in a full public consultation published by the bureaucracy. It also means that a greater range of Ministry of Justice in 2011. Ten responses were received expertise will be available to the Lord Chief Justice, regarding the proposal; of those, five supported and which is a more effective way to make court rules. This two opposed abolition. Among opponents of the proposal, approach has been agreed in principle by the Lord the main concern expressed was that, after abolition, Chief Justice. there would be a lack of expertise available to the Lord The abolition of the CCRC and the transfer of its Chief Justice when making rules. However, this was remaining functions to the Lord Chief Justice formed balanced by the response of the Magistrates’ Association, part of a Ministry of Justice consultation that took which said that the other rules committees were well place between July and October 2011. Nine responses placed to advise the Lord Chief Justice, as well as that were received regarding the proposal, of which only a of the Law Society, which equally had no objection to few opposed abolition, with the chief concern being abolition. As with the CCRC, the Lord Chief Justice that abolition would lead to a loss of people with will be able to consult any rules committee when appropriate expertise whom the Lord Chief Justice making rules on which the MCRC is currently consulted. could consult before making rules. We are therefore satisfied that there will no loss of However, as I have spelled out, the order will allow expertise resulting from abolition, and see no reason the Lord Chief Justice, after abolition, to consult any to retain the committee. rule committee and any other person or body as he I will now turn to the scrutiny given to this order, sees fit when making rules. As these committees have which was laid before Parliament on 17 May. Orders considerable rule-making experience, I am satisfied under the Public Bodies Act 2011 have a minimum that there will be more than ample expertise on which 40-day scrutiny period, with a committee of either House the Lord Chief Justice will be able to call—indeed, able to extend this to 60 days by resolution if it feels it there will be a wider range than is currently the case. necessary. This order has been scrutinised by several For this reason, the Government see no reason to alter Select Committees: in this House, by the Secondary their proposal to abolish this committee. Legislation Scrutiny Committee; in the other place, by the Justice Select Committee; and, collectively, by the The Magistrates’ Court Rule Committee is the second Joint Committee on Statutory Instruments. None of body addressed within this omnibus order. The MCRC these triggered the optional 60-day extended scrutiny was established under the Magistrates’ Courts Act 1980 period. as a body to be consulted by the Lord Chief Justice before he makes rules in relation to these courts. The The Secondary Legislation Scrutiny Committee MCRC is also consulted, along with other rule committees, reported on this order on 31 May, and requested a few before certain rules are made under the Courts Act points of clarification from officials. The report stated 2003 relating to justices of the peace and justices’ that the committee was satisfied that the order met the clerks. The committee does not itself make rules but tests set out in the Public Bodies Act 2011, and did not exists as a consultative body alone. ask for any points to be addressed by me in this debate. I will therefore take this opportunity simply to thank However, since the MCRC was established, the the committee for its thorough report. creation of the Criminal Procedure Rule Committee These two committees were created to make rules in and the Family Procedure Rule Committee has greatly relation to various parts of the courts system. However, reduced its remit. The only remaining function of the since their creation, their functions have been largely committee is to be consulted on rules relating to civil overtaken by other rule-making committees. In the non-family proceedings in the magistrates’ courts. There case of the CCRC, we have taken the opportunity in are relatively few such proceedings, and the need for this order to transfer the remaining functions of the amendments to the rules is very infrequent. The committee committee to the Lord Chief Justice, which will allow was called upon twice in 2009, not at all in 2010 and him to consult any rule-making committee or person twice in 2011. This does not justify the retention of a that he sees fit when making rules. In the case of the dedicated committee. MCRC, the Lord Chief Justice may already consult any such body or person in relation to the committee’s 5.30 pm narrow residual scope as necessary, and no formal transfer is necessary. The Government recognise that the committee’s remaining consultative functions, though narrow, are I am therefore satisfied that, for both committees, both necessary and technical, and require impartiality the necessary remaining functions will continue to be to be carried out. However, they do not need to be carried out after abolition, with no loss of expertise in performed by this committee specifically but may be the making of court rules. Closing these two committees performed by any person or body with the right technical is consistent with cutting out unnecessary bureaucracy expertise and impartiality. Due to the narrow scope of and making the carrying out of public functions simpler the committee’s remaining functions, this order makes and more efficient. I therefore commend the order to no provision for the transfer of the MCRC’s functions your Lordships and beg to move. to other rules committees. However, after abolition, the Lord Chief Justice will continue to make the rules Lord Beecham: My Lords, I have no problem with upon which the MCRC is presently consulted, as he the substance of this order. However, the Secondary GC 117 Public Bodies Order 2012[LORDS] National Minimum Wage Regs 2012 GC 118

[LORD BEECHAM] I will concentrate my remarks on the minimum Legislation Scrutiny Committee does have a problem wage rates. As I am sure noble Lords will be aware, the with the form; indeed, it had a problem with the form increases contained in the regulations are those of the order we have just discussed, and they are not recommended by the Low Pay Commission in its 2012 unrelated. The report on the previous order stated that: report. In March, the Government announced that we “The content of the ED was adequate to explain the draft had accepted all the commission’s rate recommendations. order but the Committee found its presentation confusing. The The regulations increase the adult minimum wage rate ED, like the draft Order, covers the abolition of two evidently by 1.8% in October, from £6.08 to £6.19. unrelated public bodies, and rather than dealing with them separately and sequentially, it jumps between the two throughout. This In making this recommendation, the Low Pay presentation did not aid clarity when considering the draft Order. Commission concluded that caution was essential. We recommend that in future the Explanatory Document laid While it recognised that real incomes have fallen, it with any omnibus Order that contains provisions about unrelated believed that in the current difficult economic public bodies deals with each body separately and sequentially”. circumstances a large increase would carry too great a The committee made much the same point in relation risk to jobs. We believe that this increase is appropriate. to this order, saying: It is based on sound economic evidence, research, “The content of the Explanatory Document was adequate to analysis and consultation by the commission. It maintains explain the draft Order but the Committee found its presentation the relative position of the lowest paid and is one that confusing and repetitive”. businesses will be able to afford. Of course, I am being repetitive at the moment but The Low Pay Commission also concluded that that is because it is necessary to be so. there is scope for an increase to the apprentice minimum The committee does not have any quibble with the wage that we introduced in October 2010. It recommended substance, but will the Minister ask those involved in that the apprentice minimum wage should be increased the preparation of these documents to bear these by 5p to £2.65 an hour. We consider that this increase strictures in mind so that clarity is served and what are is appropriate. potentially somewhat different bodies are dealt with At this point, I should mention what is not in this separately rather than run together in a rather confusing year’s regulations. Both the Government and the Low way? However, we have no objections to the order Pay Commission remain very concerned about the itself. position of young workers in the labour market. I am sure your Lordships share that concern. Young people Lord McNally: I am very grateful to the noble are more vulnerable than they have been previously as Lord, Lord Beecham, for drawing that to my attention. they have been hit harder by the difficult economic I am sure that the officials responsible for the drafting circumstances. That is why we asked the Low Pay are not outraged by the suggestion. I can assure him Commission specifically to consider their position in that we always take note of such strictures, and if we the labour market. Their position has continued to be can make orders clearer and less repetitive, that will be difficult and there is some evidence that in these tough to the benefit of all concerned. economic conditions the minimum wage level may have an impact on their employment opportunities. Motion agreed. This is because, over the last few years, youth minimum wage rates have increased faster than young people’s National Minimum Wage (Amendment) earnings generally. As a result, the so-called “bite” of the minimum wage for young workers—the minimum Regulations 2012 wage as a percentage of median earnings—has increased, Considered in Grand Committee while the bite of the adult rate has remained stable. Pay data from the Office for National Statistics shows 5.38 pm the bite for 16 to 17 year-olds as being around 73%, Moved By Lord De Mauley with the bite for 18 to 20 year-olds at around 80%. This compares with the bite of the adult minimum That the Grand Committee do report to the wage of around 51%. The commission concluded that House that it has considered the National Minimum it would be imprudent for the bite to rise any further Wage (Amendment) Regulations 2012. and therefore recommended, albeit reluctantly, that Relevant document: 4th Report from the Joint minimum wage rates for young workers should not be Committee on Statutory Instruments increased this year. It is usually the case with economic downturns that Lord De Mauley: My Lords, the regulations do the employment of young people turns down earlier three things. First, and most importantly, they increase and faster than that or older people, but then recovers the minimum wage rate for adults and apprentices, faster. However, this time the employment of younger and increase the maximum amount for living workers has yet to recover. In addition, since the start accommodation that counts towards minimum wage of the economic downturn, the number of younger pay. Secondly, they reflect changes to the names of the workers who have never had a paid job or a place on a apprenticeship programmes in England. Thirdly, they learning scheme has increased. We consider that the make it clear that deductions or payments for commission has taken the right approach. Freezing accommodation do not affect minimum wage pay the youth rates has been a very tough decision. However, where the accommodation is exempt from the minimum raising the youth rates would be of little value to wage accommodation rules because it is provided by young people if it meant it was harder for them to get higher or further education institutions. a job in the long run. GC 119 National Minimum Wage Regs 2012[18 JULY 2012] National Minimum Wage Regs 2012 GC 120

I turn now to the other elements of the regulations. this Dispatch Box a couple of years ago. They are not The names of the apprentice programmes in England gaining those skills and experience if they are out of have changed, so the regulations make consequential work. Hard times mean that we have to make hard changes to reflect this. Last year, we implemented decisions. The decision was a hard one, as the noble regulations to exempt higher and further education Lord knows. However, the evidence found by the Low institutions from the minimum wage accommodation Pay Commission makes a compelling case that it rules where they provide accommodation to workers would not be prudent to increase the minimum wage who are enrolled as full-time students with them. for youth workers. Regulation 2(5) puts right a minor omission in those The noble Lord asked about enforcement. The regulations. It makes clear, for the avoidance of doubt, Government are firmly committed to the minimum that deductions or payments for such accommodation wage and to effective, risk-based enforcement. Paying are not included in calculating whether the minimum anything less than the minimum wage is totally wage has been paid. unacceptable. If we find examples of businesses breaking The Low Pay Commission’s rate recommendations the law, we crack down on them. The Government were made against a difficult economic background. actively target employers who flout their responsibilities They are based on extensive economic evidence and and investigate any complaints made against them, take account of the prospects for the UK economy. taking them to court if required. We are clear that an We consider that they are appropriate and balance the effective compliance regime goes much wider than just needs of low-paid workers against the challenges that enforcement. It must reach employers that are at risk businesses face. I ask your Lordships to consider these of underpaying their workers as well as those who regulations. have already fallen foul of the rules. With this in mind, our strategy for minimum wage compliance focuses on Lord Young of Norwood Green: My Lords, first, I how the compliance and enforcement landscape should apologise for missing the beginning. I had not expected look over the next three to five years. It recognises that things to go quite so quickly in the previous debate. our approach must continue to be based on intelligence I only have a couple of points to make. I came in and data. probably at the right time on the analysis in respect of Clearly, in the context of reduced budgets, we will young people. I do not disagree with the analysis that need to prioritise. However, underpayment of staff the noble Lord, Lord De Mauley, made about the wages is not an option. Our strategy is helping us to “bite”. I noticed it was clearly a difficult decision make informed choices, and ensures that we have the because in the impact assessment it says: right tools for the job and that resources are focused “The labour market position of young people continued to where they are most effective. I can tell the noble Lord worsen in 2011, with employment of young people continuing to that in 2011-12, HMRC completed 2,534 minimum fall and unemployment to rise (although the extent to which pay wage investigations. It found non-compliance in 879 cases is a factor is not clear)”. and identified arrears of £3.5 million that were owed It concerned me a bit. They took, I thought, a very to 17,300 workers. cautious view. If they had only increased it to £4 it The Government are committed to the minimum would have been something, although admittedly wage because of the protection it provides to low-paid marginal. workers and the incentives to work that it provides. The only other question I would like to ask the The Low Pay Commission’s rate recommendations noble Lord—I do not necessarily expect him to have strike the right balance between pay and jobs. It is the answer as I did not give him any warning of the important that we have a minimum wage that helps as question—is regarding enforcement, on page 13 of the many low-paid workers as possible, but it is equally impact assessment. I am interested to know whether important that we do not damage employment prospects the noble Lord has any information on the level of by setting it too high. enforcement and whether that is improving—although one side of me would prefer the need for it to be less. Lord Young of Norwood Green: I thank the noble Nevertheless, is any statistical information available Lord for the information on enforcement, which was from HMRC? If not, I should be grateful if the noble helpful. I did not realise that it was lurking there. Lord could write and advise me. Other than that, I I want to say something further about youth have no further comments to make. unemployment because the latest figures have come out. I do not want to score points on this because I Lord De Mauley: My Lords, this has been a short applaud some of the things that the Government are but important debate. I thank the noble Lord, Lord doing. The focus on apprenticeships is one of the good Young, for his contribution. He initially commented things. However, I did not want to lose the opportunity on the youth rate, and I understand why he would do of saying that it is still not enough. The situation out that. As I think I explained, youth unemployment is a there is very serious. In some areas, the levels of youth major problem that we are trying to address. We do unemployment are alarmingly high. I am just using not believe that increasing the cost of employing young this opportunity to call on the Government to have a people would help them, quite apart from businesses, careful look at some of their policies. There is still a for example. There is little point in pushing wages up if reluctance from the Government to accept that there it means that jobs are no longer available. Once young ought to be a requirement in public sector contracts people are in work, they are gaining important skills for companies who bid successfully to indicate how and experience that will help them to progress. The many apprenticeships they will take on. There is still noble Lord would have made that point to me from an abysmally low number of companies that offer GC 121 National Minimum Wage Regs 2012[LORDS] Community Interest Company 2012 GC 122

[LORD YOUNG OF NORWOOD GREEN] Lord De Mauley: My Lords, the community interest apprenticeships. That in itself might not solve all the company form was introduced by the Companies (Audit, problems, but when only something like 4% to 8% of Investigations and Community Enterprise) Act 2004 companies are offering apprenticeships, there is a long and the Community Interest Company Regulations way to go. Although the total figures for apprenticeships 2005. The legislation created a new type of company always look good, a significant number are adult tailored for social enterprise that wanted to use the apprenticeships. I do not say that there should not be familiar company form but with the assurance that adult apprenticeships, but that does not address the assets would be used primarily for the benefit of the areas of major concern. community. The new form was intended to complement When going around a local estate, I could not help existing and well established forms such as charities noticing four young teenagers—it was difficult to know and industrial and provident societies which are also how old they were, but they were definitely in their commonly used in the social enterprise sector. teens—who were certainly not at school, in college, in Since July 2005, when the legislation came into training or at work. It was the middle of the day. That force, over 6,700 social entrepreneurs or social enterprises is a wasted opportunity and potentially an opportunity have chosen to register as community interest companies. for them to get into trouble. That is a situation in CICs—I shall resist the temptation to call them “kicks”, microcosm of the challenge we face. However, I thank although I think it is a fairly widely used expression—carry the noble Lord for the information he has given us. out a wide range of activities taking in sectors such as health and social care, retail, manufacture, the Lord De Mauley: Apart from the minutiae of how environment, business support, working with young the issue is addressed, I would like to say that the people not in employment, education or training, older noble Lord and I are at one in appreciating how people, addressing cultural needs and running community important this problem is and the fact that it must be cafés and centres. The Regulator of Community Interest addressed. He might like to know that overall, with Companies, Sara Burgess, is an independent regulator the investment announced in this year’s Budget, we for this legal structure. will deliver at least 250,000 more apprenticeships over The regulator discharges its responsibilities by ensuring the next four years—I am not trying to score points CICs comply with a community interest test on here, but just as a comparison with the previous registration. They are then monitored and supported Government’s plans—which will total 360,000 places. to ensure that they continue to operate in the interest That includes funding for training for up to 40,000 of community benefit and are transparent in the way apprenticeship places over the life of this Parliament they do this. A statutory asset lock ensures that there that will provide additional capacity to support young is limited or no private gain. The community interest unemployed people, in particular through progression company report is a key feature of the model. The from the department’s work experience programme. directors of a community interest company must produce The Government are launching a new £75 million a report annually to show to the public and the regulator programme of training and other targeted support that the community interest company is continuing focused on SMEs to help access advanced level and to meet the community interest test and engaging other higher apprenticeships. I hope that that is helpful appropriately with stakeholders. to the noble Lord. When the relevant aspects of the Companies Act 2006 The regulations we have been discussing support were implemented, they made a number of changes. the Government’s commitment to delivering fairness Unfortunately a gap was created, so that although all and supporting business. I believe that the provisions CICs have to prepare an annual report, not all of them are fair and appropriate. The increase in the adult rate have to file it. Filing the report is optional for small will maintain the relative position of the lowest paid companies that benefit from certain accounts and while also being one that businesses will be able to reporting exemptions, when it was always intended afford. I hope that noble Lords can accept the regulations. that it should be compulsory for all community interest companies. The vast majority of community interest Motion agreed. companies are small. I am delighted to say that I can reassure your Lordships that in practice CICs have filed reports. However, it is important to put the point beyond doubt, and indeed Parliament imposed a duty Community Interest Company on Ministers to do this. (Amendment) Regulations 2012 The regulations will make provision requiring the Considered in Grand Committee directors of all community interest companies to submit a copy of the annual community interest company 5.53 pm report to the Registrar of Companies together with the community interest company’s annual accounts as Moved By Lord De Mauley a package. Placing the report on the companies register should be compulsory for all community interest That the Grand Committee do report to the companies, even for those that are small. CICs are House that it has considered the Community Interest subject to a light-touch regulatory regime to minimise Company (Amendment) Regulations 2012. burdens for them, and the report is therefore one of a Relevant document: 4th Report from the Joint very limited number of means by which stakeholders Committee on Statutory Instruments and the regulator can check that a community interest GC 123 Community Interest Company 2012[18 JULY 2012] Community Interest Company 2012 GC 124 company is complying with relevant rules. The report absolutely no progress at all. The Government’s response, contains important information on the impact of the which my committee are going to discuss for the next community interest company’s activities, directors’ couple of weeks, states, remuneration, the payment of dividends to shareholders “Companies House and the Charity Commission are working and the consultation of stakeholders. together to address this issue and are considering both the joint The regulations will, as always intended, apply late submission of accounts and common annual returns… There is willingness and commitment from both organisations to address filing penalties if the package is received after the this recommendation, although there are technical challenges to filing deadline, address the gap created in the be overcome… These differences do not necessarily prevent a implementation of the Companies Act 2006 and ensure single portal being developed, but they do add complexity and a that the transparency offered by the submission and business case is under development to ensure that any changes are publication of the CIC reports continues as it was made following a full appraisal of the benefits”. intended. I therefore commend the regulations. If ever I heard the long grass whispering, this was it. A bit of business case development 15 months in is not Lord Hodgson of Astley Abbotts: My Lords, I will good enough. I am not asking my noble friend to take make a comment or two. The CIC is a very valuable responsibility for this. I am saying that we really can corporate form and has enabled the development of do something to improve the way in which Companies the social enterprise sector. The asset lock has proved House, the CIC regulator and—parenthetically, it is valuable and a good way of developing an alternative nothing to do with our discussion this afternoon—the to the purely charitable structure. I therefore fully Charity Commission work together to reduce the agree with my noble friend that we need to close this regulatory burden. As my noble friend has told us, loophole. However, when I read in the Explanatory there are 6,700 CICs, but there are more than 30,000 Memorandum a government department using the charitable companies. We are talking about being able words, “to minimise the burden” it is like the letter I to get rid of 30,000 to 50,000 forms if Companies get from my power supplier or my mobile phone House can be persuaded actually to walk the walk as company saying, “We are going to introduce some opposed to talking the talk about minimising burdens changes, which are going to improve the service we are when, in fact, it is doing no such thing. It is just providing you”. Youknow immediately that the service reorganising the regulations—quite rightly, because I is going to deteriorate considerably. accept that it is closing a loophole—in a way that benefits them and has no benefit to the CICs whatsoever. What the Explanatory Memorandum is trying to I urge my noble friend, let us find a way to get parade here is the idea that this is somehow helping Companies House to collaborate with the CIC regulator CICs. In fact, this measure is helping the CIC register on the one hand, the Charity Commission on the and Companies House, because The memorandum other and, in so doing, take a small step in reducing states that, regulatory burdens for this charitable and social enterprise “it has been decided that the directors of a CIC should be sector. required to deliver the annual community interest company report to the Registrar of Companies together with CIC’s accounts and reports”. Lord Young of Norwood Green: My Lords, I confess It might be that a CIC would find it more comfortable that I was in complete ignorance of community interest not to do this—it might want to send it a different time companies until I saw this, and I learnt quite a bit of year. However, this is designed to help the regulator looking at it. They are one of our more interesting by making the CIC send the two reports at once. All I innovations, given that a significant number have been am saying to my noble friend is that it is sophistry to created and continue to be created. I have looked on pretend that this is minimising burdens. If his department the website at the latest grouping. I admit that until I would like to minimise the burdens, it could quite listened to the noble Lord, Lord Hodgson, I saw this quickly arrange for Companies House and the CIC order as correcting an error. registrar to agree one form that combined the two. I have some sympathy for the view of the noble You could have a CIC company reporting form that Lord, Lord Hodgson, that we should try to make included both parts of what a normal limited company things as easy as we can. I was impressed when I read would provide as well as the particular assurances for the impact assessment that all of them have submitted the CIC. their reports. I hope that I have got that right. If only we could ensure that all companies managed to do 6pm that, it would be a major step forward. Nevertheless, I I say to him—this is in no way a criticism—that in will be interested to hear the Minister’s response to the these circumstances, Companies House is obdurate, view of the noble Lord, Lord Hodgson. I have no which is not too strong a word, in not being prepared further comments. to move forward the regulatory structure in a way that reduces the burden. Eighteen months ago, I was asked by the Minister for Civil Society, Nick Hurd, to undertake Lord De Mauley: My Lords, I thank my noble a review of the burdens that were affecting the friend Lord Hodgson and the noble Lord, Lord Young, development of the charitable sector. My report was for their consideration of the draft regulations. To called Unshackling Good Neighbours. One thing suggested address my noble friend’s point about the claim in the in that was that Companies House and the Charity documentation to reduce the regulatory burden, I can Commission should get together and provide a common first establish that it is at least not increasing it, because report for charitable companies, of which there are all CICs were already filing. I think that the contention 30,000. Fifteen months on from that report, there is is that it is more straightforward to have one account GC 125 Community Interest Company 2012[LORDS] Tribunals, Courts and Enforcement 2012 GC 126

[LORD DE MAULEY] existing list of formal insolvency procedures, primarily filing date and one set of penalties, and also that bankruptcy, in around 120 separate pieces of legislation. e-enablement will allow easier submission. I throw These disqualifications are necessary as bankruptcy myself on his mercy, but those are the suggestions that will often have been caused by some form of financial I put to him. mismanagement. It is therefore considered prudent His greater point about the co-ordination between that individuals subject to bankruptcy should not the registrar of companies and the Charity Commission hold specific high-profile positions of trust in which —I think that was the nub of it—I will take back to financial judgment may be required. This measure will the appropriate departments. I think that it will be also result in better governance of the bodies in question more than one department, but it is a valid point. as it will reduce the risk of someone who has become Consistency is essential in the regulatory environment, insolvent being appointed to one of the specified where light-touch regulation means that there are positions. limited measures to ensure that CICs are meeting the The list of disqualifications to which a bankrupt is obligations laid out in the legislation. I commend subject was reviewed in 2006 as part of provisions these regulations. introduced following the Enterprise Act 2002. Any disqualifications thought unnecessary were removed Motion agreed. at that time. Those that remain are still felt to be relevant and necessary. I commend the order to the Committee. Tribunals, Courts and Enforcement Act 2007 (Consequential Amendments) Lord Young of Norwood Green: My Lords, I thank Order 2012 the Minister for his concise but comprehensive Considered in Grand Committee explanation. I must admit that, again, I have learnt something. I was a school governor and we asked the governors to declare their interests. Most are CRB 6.05 pm checked but we never thought to ask them about this Moved By Lord De Mauley area—it may be that we should have done so. I do not have any arguments against what seem to That the Grand Committee do report to the House be sensible changes but I draw something to the that it has considered the Tribunals, Courts and Committee’s attention. I went through the impact Enforcement Act 2007 (Consequential Amendments) assessment, the end of which says: Order 2012. “I have read the Impact Assessment and I am satisfied that … Relevant document: 5th Report from the Joint it represents a fair and reasonable view”. Committee on Statutory Instruments I cannot read the signature of the Minister but it does not look like the noble Lord’s. However, the front page Lord De Mauley: My Lords, the Tribunals, Courts includes two typographical errors that mean it does and Enforcement Act 2007 (Consequential Amendments) not make sense. It states: Order 2012 unsurprisingly makes consequential “This statutory instrument will make such necessary changes amendments to various pieces of primary and secondary and ensure that where it is appropriate for particular public legislation, which already disqualify a person from posts”— holding certain positions in the event of their bankruptcy. I think it means “post-holders”— This order extends those disqualifications to persons “to have been personally insolvent”. subject to debt relief orders and to debt relief restrictions It does not make sense. I think there is also a typographical orders or undertakings. error in the last sentence of the next paragraph. It is It has long been held that going bankrupt should somebody’s responsibility to check them; I just draw disqualify a person from holding certain offices and them to the Minister’s attention. Other than that, I am positions, and legislation is in place to provide for this. happy to agree to these changes. Debt relief orders were introduced in 2009 and in many ways have a similar impact to bankruptcy. Both Lord De Mauley: My Lords, we are grateful to the provide individuals with debt relief and subject them noble Lord for his close scrutiny— to certain automatic restrictions. It makes sense to introduce consistency between the further restrictions Lord Young of Norwood Green: Vigilance. that apply to bankrupt individuals and those that apply to people subject to a debt relief order. That is Lord De Mauley: His vigilance, indeed. I will certainly what the order seeks to achieve. It will prevent individuals look into those matters. In the mean time, I hope your subject to a debt relief order holding certain positions, Lordships will agree to consider the order. for example that of pensions trustee. It also prevents their holding some board memberships—for example, Motion agreed. acting as a school governor or member of a local authority. The order will add a debt relief order to the Committee adjourned at 6.10 pm. WS 49 Written Statements[18 JULY 2012] Written Statements WS 50

Guidance on decided cases, where an applicant has Written Statements been refused on the basis of failure to meet a requirement Wednesday 18 July 2012 that they believe should have been in the rules but was not, will be issued soon. Immigration Infrastructure Investment Statement Statement The Commercial Secretary to the Treasury (Lord Sassoon): The Government have today launched UK The Minister of State, Home Office (Lord Henley): Guarantees to accelerate major infrastructure investment Today the Supreme Court gave judgment in the cases and provide major support to UK exporters. of R (on the application of Munir and another) (Appellants) v Secretary of State for the Home This is only possible because of the Government’s Department (Respondent) and R (on the application hard-won fiscal credibility, which is now being used to of Alvi) (Respondent) v Secretary of State for the support growth in critical areas of the UK economy. Home Department (Appellant). First, applications will open today for UK Guarantees In the case of Munir the Supreme Court confirmed to kick-start critical infrastructure projects that may that the Secretary of State has discretion to grant leave have stalled because of adverse credit conditions. Up outside the rules and held that the source of this to £40 billion worth of projects could qualify. They must discretion is the Immigration Act 1971 and not the be ready to start in the 12 months following a guarantee royal prerogative. being given. Applications can be made from today to Infrastructure UK and, subject to legislation, the first In the case of Alvi the Supreme Court held that guarantees are expected to be awarded in the autumn. “Any requirement which, if not satisfied by the migrant, will lead to an application for leave to enter or remain Eligible projects will be subject to charges, due being refused is a rule within the meaning of Section 3(2)”. diligence and as a minimum must be: A “rule” that must be laid before Parliament by way of nationally significant, as identified in the Government’s the procedure under Section 3(2) of the Immigration National Infrastructure Plan 2011. The Government Act 1971. This judgment goes further than recent will also consider other exceptional projects of national caselaw in the Court of Appeal, which held that there or economic significance on a case-by-case basis; was a spectrum of “substantive requirements affecting ready to start construction within 12 months from a entitlements” which had to be in the rules and “means guarantee being given and having obtained (or being of proving eligibility”, which did not. The Supreme about to obtain) necessary planning and other required Court noted that the case law had produced uncertainty consents; and litigation and that a greater degree of certainty is financially credible, with equity finance committed required. and project sponsors willing to accept appropriate The Supreme Court has drawn the line in a way restructuring of the project to limit any risk to the which provides a clear and workable framework for taxpayer; the future but some requirements in the current dependent on a guarantee to proceed and not otherwise Immigration Rules are not consistent with this judgment. financeable within a reasonable timeframe; and In particular, the visitor, points-based system and good value to the taxpayer: they must be assessed family rules impose some requirements on applicants by HM Treasury to have acceptable credit quality; by way of guidance which fall foul of the Supreme must not present unacceptable fiscal or economic Court’s judgment. The Government will therefore lay risks; and must make a positive impact on economic a statement of changes on 19 July coming into force growth. on 20 July in order to safeguard their lawful operation. The Government will consider the most effective We recognise the complexity of the system and we form of guarantee on a case-by case basis using a will therefore undertake a more substantial review of robust assessment and approvals process. the rules and consider how they can be simplified. The Secondly, as part of UK Guarantees, a new temporary Migration Advisory Committee is currently reviewing lending programme will be available to ensure around the Codes of Practice which this judgment requires 30 public private partnership (PPP) infrastructure projects are included in the rules and we expect a shorter, worth an estimated £6 billion over the next 12 months updated version to be available for inclusion in due can go ahead, including projects in the transport, course. health, housing and education sectors. The immediate changes to the rules will mean that PPP projects currently raise all of the required for applicants under the visitor, PBS and family route project debt from the private sector. The Government the position has not changed. They are required to are making loans available to projects as an exceptional meet the requirements of the rules and provide the response to current market conditions. This will ensure specified evidence that they meet those requirements. that these projects are not delayed by current constraints The evidence will now be specified in the rules rather in the long-term lending markets. The loans will be than in guidance. made on commercial terms, alongside the existing The Government are also making some minor changes commercial lenders and for a minority of the project to improve the drafting and transparency of the Rule debt requirement. and some technical corrections to the rules. Applications can be made to Infrastructure UK by Applications already submitted will be considered project authorities or sponsoring departments. Loans under the new rules. advanced under this programme will be funded from WS 51 Written Statements[LORDS] Written Statements WS 52 existing departmental capital budgets, subject to HM UK Export Finance will begin supporting loans by Treasury approvals. This will be a temporary intervention, the end of the year. Up to £5 billion of loans outstanding initially available for a period of 12 months from today. will be supported, with the programme designed to Finally, a major £5 billion export refinancing facility ensure there are minimal risks to the public finances. will be available from later this year to support British Sectors supported could include aerospace, oil and gas exporters by ensuring overseas buyers have access to extraction equipment, transport and telecommunications long-term funding. infrastructure services. WA 51 Written Answers[18 JULY 2012] Written Answers WA 52 Written Answers Agriculture: Farm Buildings Questions Wednesday 18 July 2012 Asked by Lord Rooker Due to an error in the submission process, the To ask Her Majesty’s Government what actions following Question printed on 13 July should have been they have taken in respect of allowing farmers to asked by Lord Harries of Pentregarth and not the Lord build dwellings for agricultural employees and their Bishop of Chester. families since 2010. [HL1325] To ask Her Majesty’s Government whether they have set floor space limits for the construction of Indonesia on-farm agricultural employee dwellings since Question 2010. [HL1326] Asked by Lord Harries of Pentregarth: The Parliamentary Under-Secretary of State, To ask Her Majesty’s Government, in the light Department for Communities and Local Government of the escalating violence in West Papua, including (Baroness Hanham): Paragraph 55 of the National the killing of a leader of the independence movement Planning Policy Framework makes clear that the essential Mako Tabuni, whether they will press for the United need for a rural worker to live permanently at or near Nations to send observers to West Papua, and their place of work in the countryside is a special make representations to the Government of Indonesia circumstance that can justify new isolated homes in to allow access to West Papua for journalists and the countryside. The Government have not set a floor humanitarian organisations. [HL1402] space limit for the construction of such dwellings: this would be a matter for the local planning authority to determine if considered locally appropriate. The Minister of State, Foreign and Commonwealth My department has also been backing “Home on Office (Lord Howell of Guildford): The UK takes the Farm” schemes, which promote the redevelopment seriously all reports of human rights violations in the of disused agricultural buildings as new and affordable provinces of Papua and West Papua. We are concerned housing. We have encouraged councils to look favourably about the recent increase in violence in the province of on such planning applications and/or amend their Papua and we are aware of the death of Mako Tabuni existing local planning policies to support suchschemes. on 14 June. Our embassy in Jakarta has raised concerns about the security situation with the Indonesian Ministry Asked by Lord Rooker of Foreign Affairs and is monitoring the situation To ask Her Majesty’s Government what changes closely. The embassy regularly encourages more open they have made to regulations regarding the use access to Papua for journalists and humanitarian of redundant agricultural buildings since organisations. We have also taken the opportunity to 2010. [HL1327] encourage discussion of Papua at a senior level where possible including when the Prime Minister met the To ask Her Majesty’s Government how much Indonesian President in April 2012. In June a British red tape they have abolished regarding the use of parliamentary delegation from the Inter-Parliamentary buildings and facilities on permanent agricultural Union raised their concerns over the human rights show grounds since 2010. [HL1328] situation in Papua with the Foreign Minister, Defence Minister and Indonesian parliamentarians. Our embassy Baroness Hanham: As part of this Government’s has requested permission from the Indonesian Authorities determination to deliver planning simplification we to travel to Papua twice over the past month. published, on 3 July, a consultation on new opportunities The UK does not currently intend to press for the for sustainable development and growth through the United Nations to send observers to West Papua. In reuse of existing buildings. I invite the noble Lord to May Indonesia had its second Universal Periodic Review, respond to the consultation, which closes on 11 September where United Nations member states had the opportunity 2012. to comment on the human rights progress in Indonesia. My department has also been backing “Home on In our statement we raised the situation in Papua, as the Farm” schemes, which promote the redevelopment did a number of other countries. The UK’s priority is of disused agricultural buildings as new and affordable to encourage full implementation of special autonomy housing. We have encouraged councils to look favourably for the provinces of Papua and West Papua and press on such planning applications and/or amend their for increased focus on economic and social development existing local planning policies to support such schemes. to address the widespread poverty in the region. We supported the creation in September 2011 of a new presidential unit, UP4B (Special Unit for Acceleration Armed Forces: Defence Cuts of Development in Papua and West Papua), which Question aims to accelerate development in these provinces and Asked by Lord Stoddart of Swindon pursue constructive communication with the Papuan people. We hope this unit can now make meaningful To ask Her Majesty’s Government whether cuts progress on governance issues and contribute to efforts in financing the army and the reduction of 20,000 to alleviate the widespread poverty and economic soldiers are designed to enable it to fit into a future marginalisation of ethnic Papuans. European army. [HL1466] WA 53 Written Answers[LORDS] Written Answers WA 54

The Parliamentary Under-Secretary of State, Ministry all briefings is reducing the stigma that can be attached of Defence (Lord Astor of Hever): The requirement to to mental health disorders. The services maintain a reduce the size of the Army and its resources was support line that provides a fully trained, confidential, based on a number of factors, notably the fact that our independent and non-judgmental listening and support combat role in Afghanistan is coming to an end. We service, and welfare officers, padres, and members of need to restructure our forces to face an increasingly regimental organisations are all able to provide advice uncertain world, ready to intervene whenever and and support. For those seeking help online, the defence wherever to protect our national interest and with an internet website provides information on how to get ability to project force and prevent conflict through advice and help urgently, and we are currently trialling “agile and adaptable” Armed Forces, as set out in the access for service personnel to the “Big White Wall” 2010 strategic defence and security review. online early intervention service for people in psychological Many but not all of the operations we wish to be distress. involved with in the future are likely to be conducted For those who do need treatment, mental healthcare with our allies, particularly those from NATO. The is provided by primary care medical centres supported UK Government will continue to decide when and by specialist mental health services. There are 15 military where they deploy their national forces, and have Departments of Community Mental Health (DCMHs) made it clear that they would never sign up to a across the UK (plus centres overseas), which offer a standing European army. wide range of psychiatric and psychological treatments, including medication, psychological therapies, and environmental adjustment where appropriate. In-patient Armed Forces: Mental Health care, when necessary, is provided in specialised psychiatric Question units under contract with the NHS. The Ministry of Defence and Department of Health Asked by Lord Lee of Trafford are working together, alongside organisations such as Combat Stress and the Royal British Legion, to improve To ask Her Majesty’s Government how service the mental health care provided to ex-service personnel, personnel are screened for psychological problems and veterans’ mental health is an area which has on return from operations; and what steps they are received significant attention from this Government in taking to support the agencies, including Combat the past two years. Following the publication of Stress, that help veterans at risk. [HL1481] Dr Andrew Murrison’s report “Fighting Fit”, the Government pledged £1.8 million per annum for the The Parliamentary Under-Secretary of State, Ministry remainder of the spending review period to implement of Defence (Lord Astor of Hever): The UK Armed its recommendations. Much work has already been Forces do not currently have a programme of mandatory completed, such as the launch of a 24-hour veterans mental health screening, because no robust research-based telephone helpline, a trial of the online wellbeing evidence has been produced to show that it is effective service “Big White Wall” and an e-learning package in identifying those people who do have a problem. In for NHS general practitioners to familiarise themselves fact, research undertaken at the King’s Centre for with veteran-specific health problems. Military Health Research (KCMHR) indicates that in Furthermore, each of the 10 Armed Forces Networks some circumstances it can actually be harmful, by (based geographically in the old strategic health authority presenting significant numbers of both false positive areas) has received £150,000 from the Department of and false negative results. However, we have undertaken Health with which to build up enhanced community to commission new research into the question, and the veterans’ mental health services in their areas. These major post-operational screening trial (POST) being services are now up and running in almost every conducted at KCMHR in conjunction with the US region with the remainder planned to come on line by Department of Defense, which is due to report in the end of this calendar year. These services were 2015, is looking at the effectiveness of post-deployment developed in conjunction with local groups, for the testing and monitoring of personnel. local population. Although we do not screen all those returning from operations, checks are carried out on certain high-risk groups, such as seriously injured patients admitted to Armed Forces: Munition Centres the Royal Centre for Defence Medicine within the Questions University Hospitals Birmingham NHS Foundation Asked by Lord Moonie Trust. In addition, all trauma survivors, including amputees, who are referred to the Defence Medical To ask Her Majesty’s Government whether Rehabilitation Centre (DMRC) at Headley Court, contingency planning has commenced to prepare have a mental health assessment as part of their for the future basing of Vanguard class submarines multidisciplinary team admission assessment. in the event that an independent Scotland demands We do of course already have a wide range of withdrawal of all nuclear equipment. [HL1463] measures in place to provide mental health advice, To ask Her Majesty’s Government whether support and treatment to service personnel. Throughout contingency planning has commenced to prepare their careers service personnel receive regular briefings for the future storage of weapons currently held and training on the identification and management of at Coulport in the event that an independent both operational and workplace stress, including Scotland demands withdrawal of all nuclear recognising its signs in their colleagues. A key factor in equipment. [HL1464] WA 55 Written Answers[18 JULY 2012] Written Answers WA 56

To ask Her Majesty’s Government whether serving and ex-serving personnel; and, if so, what is contingency planning has commenced about the their assessment of the suicide levels amongst personnel future storage of equipment currently held at DM who have served in the recent conflicts in Iraq and Glen Douglas, in the event that Scotland becomes Afghanistan. [HL1480] independent. [HL1515] ToaskHerMajesty’sGovernmentwhethercontingency The Parliamentary Under-Secretary of State, Ministry planning has commenced about the future storage of Defence (Lord Astor of Hever): Information on of equipment currently held at DM Beith, in the suicides and open verdict deaths in the UK regular event that Scotland becomes independent. [HL1516] Armed Forces is published annually by Defence Analytical Services and Advice. ToaskHerMajesty’sGovernmentwhethercontingency The Ministry of Defence is currently undertaking planning has commenced about the future storage research on veterans of operations in Iraq and of equipment currently held at DM Crombie, in the Afghanistan. This will monitor the causes of death event that Scotland becomes independent. [HL1517] (including suicide) of all serving members of the Armed ToaskHerMajesty’sGovernmentwhethercontingency Forces from 2003 until the end of operations in planning has commenced about the future of United Afghanistan. The intention is to run the study for the Kingdom test ranges, in the event that Scotland lifetime of the cohort; therefore the population will becomes independent. [HL1518] include both serving and discharged personnel and will assist us in continuing to develop our support for The Parliamentary Under-Secretary of State, Ministry former personnel and those leaving the services. The of Defence (Lord Astor of Hever): The UK Government MoD hopes to publish initial results in 2014. position is clear: Scotland benefits from being part of the UK and the UK benefits from having Scotland Armed Forces: Weaponry Theft within it. The UK Government are not making plans Question for independence as we are confident that people in Scotland will continue to support Scotland remaining Asked by Lord Kennedy of Southwark within the UK in any referendum. The Ministry of Defence (MoD) is therefore not undertaking contingency To ask Her Majesty’s Government how many, planning in respect of future basing, storage or testing and what types of, weapons and ammunition, under arrangements in the event that Scotland becomes the control of the Armed Forces or the Ministry of independent. HM Naval Base Clyde is a significant Defence were lost, stolen or otherwise unaccounted local employer, with over 6,000 Naval Service, MoD for in (1) 2010, (2) 2011, and (3) in the first six civilian and contractors’ personnel; and this number is months of 2012. [HL1396] expected to rise significantly as the Royal Navy submarine fleet builds up there over the coming years. The base is The Parliamentary Under-Secretary of State, Ministry a major source of employment for highly skilled workers of Defence (Lord Astor of Hever): The following table and a major contributor to the local and national provides the latest available figures for weapons that economy. have been recorded as being either lost or stolen since 2010 and shows, where appropriate, where subsequent recovery has been made. These figures include reported Armed Forces: Suicide losses in operational theatres. The term “unaccounted Question for” is not recognised in respect of weapons as they are Asked by Lord Lee of Trafford recorded as either lost or stolen once reported. No comprehensive figures are available in respect of To ask Her Majesty’s Government whether data ammunition losses. This information is not held centrally are collected relating to the suicide level amongst and could only be provided at disproportionate cost.

2010 2011 20121 Lost/Stolen Recovered Lost/Stolen Recovered Lost/Stolen Recovered

Pistol 7 0 4 1 5 3 Rifle 162 87021 Machine Gun 633 75000 Shotgun100000

1 From 1 January to 30 June. Bahrain Question

2 This figure includes four Drill Purpose rifles. Asked by Lord Patten

3 This figure includes 59 weapons that were lost during transit to To ask Her Majesty’s Government what is their Afghanistan. assessment of human rights in Bahrain. [HL1537] WA 57 Written Answers[LORDS] Written Answers WA 58

The Minister of State, Foreign and Commonwealth The UK is one of a small number of countries to Office (Lord Howell of Guildford): On 10 July the have always maintained an embassy in Rangoon and Foreign and Commonwealth Office published new we monitor developments in Burma closely. This enables reporting on our assessment of the human rights us to play a leading role in the EU’s policy towards situation from April to June in Bahrain, which was Burma. We are active in the United Nations (UN), considered a cause for concern in the 2011 Annual and during Burma’s Universal Periodic Review session Human Rights Report. This is part of a new quarterly at the UN, we urged the government to prosecute update review system to inform Parliament, non- those responsible for human rights violations. We also governmental organisations and the general public strongly supported a UN resolution at the Human about our latest assessment. This more flexible quarterly Rights Council in March which called on the Burmese reporting will strengthen the assessments we make Government to take urgent measures to end the targeting about which countries should be added to or removed of civilians in military operations. from the list of countries of concern in the 2012 We will continue to take every opportunity to press annual report. the Burmese Government to protect their people’s We believe a number of improvements have been human and democratic rights, release all political prisoners made, but we remain concerned by the lack of progress and achieve a lasting and peaceful end to ethnic violence in certain areas and ongoing allegations of human rights abuses. Care Services: Elderly People The Parliamentary Under-Secretary of State Question for Foreign and Commonwealth Affairs, my honourable friend the Member for North East Bedfordshire (Mr Burt) Asked by Lord Taylor of Warwick visited Bahrain on 11 June and met a number of senior To ask Her Majesty’s Government what steps Bahrain Government officials, and representatives from they will take to ensure that cross-party talks resume Bahrain’s political parties and opposition groups; Mr Burt concerning the funding of long-term care for the also held roundtable discussions with members of civil elderly. [HL1430] society.In all the meetings, we emphasised the importance of, and need for, full and timely implementation across The Parliamentary Under-Secretary of State, the whole range of reforms. The King promised full Department of Health (Earl Howe): The Government implementation of recommendations of the Bahrain have always been clear about the importance of achieving Independent Commission of Inquiry; we will monitor a long-term consensus on reform of the funding system this commitment. for adult social care. In addition, the Bahraini Ministers for Justice and On 11 July the Government published the White the Interior have recently visited the UK to discuss our Paper Caring for our Future: Reforming Care and human rights concerns and areas where the UK might Support, the draft Care and Support Bill and a progress be of assistance. We will continue to raise our concerns report on social care funding. The measures set out in on human rights with the Bahraini authorities for as these documents reflect wide-ranging discussions over long as it is necessary. recent months, both with the care sector and with the We are also clear that violence on the streets is Official Opposition. Together they represent the most unacceptable. Legitimate and peaceful demonstrations comprehensive overhaul of care and support since 1948. are an integral part of any democratic society, but As set out in the progress report on funding, the political street violence is not and it hinders efforts Government agree with the principles of the Dilnot towards reconciliation. recommendations and intend to base a new funding model on these principles if a way to pay for it can be Burma found. Given the size of the structural deficit and the Question economic situation we face, it is right that the final decision is considered alongside other priorities at the Asked by Lord Janner of Braunstone Spending Review. To ask Her Majesty’s Government, in the light The progress report sets out some key implementation of the address by Aung San Suu Kyi to both Houses, questions that the Government now want to consider what action they are taking to support democracy with the care sector. We will engage with stakeholders in Burma. [HL1427] to explore options for what shape a reformed system could take. We very much hope that the Official Opposition will continue to play a part in this engagement The Minister of State, Foreign and Commonwealth with the objective of achieving shared consensus on Office (Lord Howell of Guildford): The Government social care funding reform. have long been a supporter of those in Burma pursuing democracy and respect for human rights. The Government continue to provide programme support to efforts Carers promoting democratic practice, the rule of law and the Question protection of human rights. These projects cover capacity Asked by Lord Storey building for ethnic nationality political parties; training of independent citizen election watchers on the election To ask Her Majesty’s Government, further to the law, electoral process and procedures; promotion of Written Answer by Earl Howe on 13 June (WA 261), labour rights among workers; and increasing the capacity what is their assessment of the estimate by Carers of civil society groups to lobby public institutions. UK that the economic value of the contribution WA 59 Written Answers[18 JULY 2012] Written Answers WA 60

made by carers amounts to £119 billion per year; Cambodia is not a signatory to the 1980 Hague and whether future spending reviews will reflect Convention on the Civil Aspects of International Child this contribution. [HL1407] Abduction. Therefore there are no international agreements in place to ensure the return of Mr Heslehurst’s son to The Parliamentary Under-Secretary of State, the UK, for custody to be decided here. The British Department of Health (Earl Howe): We are very much Government are unable to interfere in legal proceedings aware of, and greatly value, the significant contribution in Cambodia or in any other country. The FCO has which unpaid carers make to the care of older and provided Mr Heslehurst with appropriate consular younger disabled people. There is scope for debate advice and assistance. about how best to put a financial value on this care but there can be no doubt about its huge value to those who receive care and to the wider community. Extradition While in some respects, the Carers UK estimate Question could be seen as an over-estimate, formal services Asked by Lord Hodgson of Astley Abbotts would not need to replace every hour of unpaid care: for example, carers may include among hours of unpaid To ask Her Majesty’s Government, further to care time spent with the cared for person, in case they the Written Answers by the Minister of State for should need help, but undertaking other activities Policing and Criminal Justice on 1 April 2011 (Official and/or time taking the cared for person on an outing. Report, Commons, col. 548W) and the Minister of In other respects, it could be seen as an under-estimate. State for Immigration on 21 June 2011 (Official Report, It does not include a valuation of the long-term impacts Commons, col. 211W), when they will publish the of intensive caring on the carer’s own health and results of the exercise to estimate the average costs well-being or on the carer’s career prospects and life-time of executing a European Arrest Warrant and an earnings and pensions. extradition request in England and Wales. [HL1482] In the last spending review, the Government allocated extra resources to support carers of all ages and to The Minister of State, Home Office (Lord Henley): provide them with breaks to sustain them in their The exercise to which the noble Lord refers is ongoing. caring role. We cannot pre-empt decisions about future The results will be published in due course. spending reviews.

Disabled People: Manufactured Goods Forced Marriage Question Question Asked by Lord Low of Dalston Asked by Baroness Tonge To ask Her Majesty’s Government whether they To ask Her Majesty’s Government how government will review current United Kingdom legislation to departments work together to combat child marriages ensure effective accessibility and usability of and forced marriage. [HL1135] manufactured goods for disabled people. [HL1366] The Minister of State, Home Office (Lord Henley): The Parliamentary Under-Secretary of State, The Forced Marriage Unit (FMU), which is jointly Department for Business, Innovation and Skills (Baroness funded and run by the Home Office and the Foreign Wilcox): The Government have no current plans to and Commonwealth Office, leads the Government’s undertake a comprehensive formal assessment of UK work to tackle forced marriage working with partners legislation. across government, statutory agencies and non- governmental organisations. This multi-agency group meets quarterly at the FMU Partnership Board to Edward Peter Heslehurst review progress on actions developed to tackle these Question issues. Asked by Lord Maginnis of Drumglass To ask Her Majesty’s Government what Health and Social Care Act 2012 representations they have received regarding the Questions case of Edward Peter Heslehurst; what action they have taken in this case; and what progress they have Asked by Baroness Finlay of Llandaff made towards enabling Mark Heslehurst to have access to his son, now in Cambodia. [HL1514] To ask Her Majesty’s Government, under the provisions of the Health and Social Care Act 2012, The Minister of State, Foreign and Commonwealth what levers postgraduate deans will have to ensure Office (Lord Howell of Guildford): The Foreign and measures for controlling the quality of training are Commonwealth Office (FCO) is aware of Mr Heslehurst’s in place and used effectively. [HL1553] case and Mr Heslehurst has been in contact with FCO officials both in London and the USA where he The Parliamentary Under-Secretary of State, Department previously lived. I appreciate the difficult circumstances of Health (Earl Howe): For postgraduate medical education Mr Heslehurst is facing and sympathise with his distress programmes, the function of postgraduate medical in being separated from his son Edward. dean is key in ensuring the graduate medical workforce WA 61 Written Answers[LORDS] Written Answers WA 62 gains the necessary knowledge, skills, behaviours and consistent coding of clinical data. READ codes however, expertise to provide safe and effective patient care or do not allow the level of detail most appropriate to the public health. This function is essential to the delivery recording of specific and rare conditions. The department of training programmes and, because of the interdependence is therefore seeking to move the National Health Service of training with service, to the continuity of safe care to systematized nomenclature of medicine clinical terms for patients. (SNOMED CT), adapted to fit all necessary uses, as Every local education and training board (LETB) the single coherent terminology. Unlike READ codes, will appoint a director of education and quality, or SNOMED CT includes a standard technical mechanism equivalent position, to be accountable to the board for for the scaled or ranked documentation of condition the effective quality management of education and severity (for example, allowing each patient’s condition training programmes commissioned or provided by to be judged and further specified as mild, moderate or the LETB. The director of education and quality may severe). The UK Terminology Centre (UKTC), which also be the postgraduate medical dean. Quality standards maintains SNOMED CT, is also engaged with the are a key component of the contracts LETBs will hold department’s “Consultation on the United Kingdom with higher education institutes. An education outcomes Plan for Rare Diseases” which includes consideration framework is being developed to guide LETBs in this of coding, documentation and record-keeping requirements. process. Where quality is deemed to be inadequate a The department will take an approach to the adoption contract may be moved to an alternative provider. of information standards that builds clinical and professional buy-in into the process and promotes Asked by Baroness Finlay of Llandaff adoption by the market, so that the systems and To ask Her Majesty’s Government, under the solutions that can be procured and used across health provisions of the Health and Social Care Act 2012, and care already have national standards built in. The how postgraduate deans will be able to be seen to department will therefore engage with relevant operate independently in managing the quality of professional, patient and industry organisations. training, given that the local education training board is made up mainly of providers. [HL1554] Higher Education: Bogus Colleges Earl Howe: We expect the local education and training boards to be able to demonstrate that their Questions postgraduate deans will be able to act independently. Asked by Lord King of West Bromwich There will be clear checks and balances in place and quality metrics to hold local education providers to To ask Her Majesty’s Government whether the account for the quality of education delivered by owners of bogus colleges which are closed down by individual providers. Postgraduate deans will have all the Government are required to refund fees and pay the powers they have now to respond to concerns compensation to the students affected by the college about the quality of training and take action where closure. [HL1609] required to improve standards and assure the professional regulators and Health Education England that poor performance is identified and tackled. In addition in The Parliamentary Under-Secretary of State, Department the new system they will have the support of the local for Business, Innovation and Skills (Baroness Wilcox): I education and training board and if necessary, Health assume the noble Lord is referring to the sudden Education England, to challenge poor quality and closure last year of a number of independent colleges behaviours. that recruited mainly international students following changes in the UK Border Agency’s requirements for international recruitment. Health: READ Codes Privately-funded colleges, run as education businesses, Question are not required to register with the Department for Asked by The Countess of Mar Business, Innovation and Skills, neither are they required to be inspected by the Government’s school and inspection To ask Her Majesty’s Government whether, in body, Ofsted. BIS has no power to close them down order to provide accurate epidemiological data of and is unable to intervene on behalf of their students. specific conditions, they will (1) require general BIS supplied information to the UK Council for practitioners to use READ codes on patient records International Student Affairs (UKCISA) on how students and add a scaled severity level of the condition(s) could contact Citizens Advice in order to find out how concerned, and (2) develop an overarching code for they might go about recovering fees. This was included rarer conditions in conjunction with the Royal College in advice on the UKCISA website to students affected of General Practitioners and relevant patient by college closures. groups. [HL1529] Asked by Lord King of West Bromwich The Parliamentary Under-Secretary of State, Department To ask Her Majesty’s Government whether of Health (Earl Howe): The department’s Information they provide any assistance to the students of Strategy The Power of Information: Putting all of us in bogus colleges which are closed down by the Control of the Health and Care Information we Need, Government in finding alternative courses in other highlighted the importance of high quality data and institutions. [HL1610] WA 63 Written Answers[18 JULY 2012] Written Answers WA 64

Baroness Wilcox: I refer the noble Lord to my While gender can affect educational performance, response to his previous question. other factors have a greater impact, for instance poverty Privately-funded colleges, run as education businesses, is the single biggest factor affecting attainment at are not required to register with the Department for every key stage. The coalition Government have made Business, Innovation and Skills, neither are they required it clear that they want to see more resources being to be inspected by the Government’s school and inspection spent on the education of disadvantaged children. The body, Ofsted. BIS has no power to close them down pupil premium provides additional money for each although we are aware of a number that closed following disadvantaged pupil in the country. Schools are free to changes to the UK Border Agency’s tier 4 rules for use the premium as they see fit as they know best the recruiting international students. needs of their disadvantaged pupils. However, BIS officials worked with the UK Council for International Student Affairs (UKCISA) and the Housing British Council to provide advice for students affected Question by college closures which UKCISA put on its website. UKCISA, the British Council and the British Asked by Lord Beecham Accreditation Council also worked together to help To ask Her Majesty’s Government what steps such students find alternative courses. they will take to mitigate the risk of failing to secure the building of 80,000 affordable homes by 2015, and the extra cost to the public purse of £1.4 billion Higher Education: Men as a result of rising housing benefit costs, identified Question by the recent National Audit Office Report Financial Asked by Lord Stoddart of Swindon viability of the social housing sector: introducing the affordable homes programme. [HL1377] To ask Her Majesty’s Government, further to the Written Answer by Baroness Wilcox on 5 July The Parliamentary Under-Secretary of State, Department (WA 192–3) concerning the participation of women for Communities and Local Government (Baroness Hanham): in higher education, whether they will investigate The National Audit Office report confirmed that: why men are falling behind women in higher education “the Department of Communities and Local Government selected participation. [HL1465] the best delivery model open for the funds it had available. The department has so far achieved its policy objective to maximise The Parliamentary Under-Secretary of State, the number of homes delivered within the available grant funding. Department for Business, Innovation and Skills (Baroness On average the grant awarded per home is a third of previous Wilcox): The department published a report in 2008 programmes”. which investigated the factors affecting male and female Affordable housing is supported by both public participation in higher education (HE). The report capital investment, and housing benefit. Whilst the Gender Gaps in Higher Education Participation: An Government have acknowledged that the affordable Analysis of the Relationship between Prior Attainment homes programme will place some additional pressure and Young Participation by Gender, Socio-Economic on housing benefit, the new affordable rent model has Class and Ethnicity is available here: http://www.bis.gov permitted a reduction in capital grant rates from around .uk/assets/biscore/corporate/migratedD/publications/ £60,000 per property to only £20,000. D/DIUS_RR_08_14. This has allowed the Government to fund far more, The analysis found that the gender gap is manifested much needed, affordable homes than would have been much earlier in the education system, before entry to possible under the old model of delivery. As the National higher education, for example in differences between Audit Office noted, the Government now expect to girls’ and boys’ GCSE and A-level attainment. Its key deliver 80,000 new affordable homes through the affordable finding related to gender was that for young people homes programme. It would only have been possible (18-19 year-olds) there was no conclusive evidence of to fund 27,000 using the old model. a gender difference in the likelihood of participating This means that many more households will have in HE—once prior attainment (in the form of young the opportunity to live in a new sub-market rented people’s attainment at GCSE or equivalent) was controlled property, rather than the Government supporting them for. The analysis suggested that there was no additional through the payment of local housing allowance in the gender effect at the point of entry to higher education private rented sector. The most effective way of mitigating and that efforts to reduce the gender gap in HE the housing benefit pressure is therefore to ensure that participation should predominantly be aimed at increasing the new affordable rent homes are delivered. the relative attainment of young men prior to HE. The Homes and Communities Agency monitors The Department for Education is committed to delivery through regular meetings with providers. Where ensuring that all groups of pupils have the opportunity risks arise to delivery it will be taking action to mitigate to make good progress and reach their potential, these. The agency provides this department with regular whatever their gender, class, language or family progress reports and risk assessments. It has taken background. steps to bring forward delivery of affordable homes. Evidence shows that schools with little or no gender Figures are set out in its corporate plan, published on gap tend to be characterised by a positive learning 6July. ethos, high expectations of all pupils, high quality I would note that the £1.4 billion figure that the noble teaching and classroom management and close tracking Peer cites is a net present value extrapolated over of individual pupils’ achievement. 30 years, rather than a cost over the Spending Review WA 65 Written Answers[LORDS] Written Answers WA 66 period. In the context of the need to tackle the deficit We continue to call on Israel to comply with its left by the last Administration, the affordable rent obligations under international law, including the Fourth programme delivers greater economic and social benefits Geneva Convention, in all the territories it occupies, for the taxpayer and will result in far more homes including the Golan Heights. being built than would have been possible under old funding models. Indeed, the Government’s broader affordable housing Israel and Palestine programme is delivering £19.5 billion of public and Question private investment over this Spending Review period. Asked by Baroness Tonge To ask Her Majesty’s Government whether they Israel will make representations to the Government of Questions Israel concerning reports of the confiscation of Asked by Baroness Tonge water containers from families in the Jordan valley by Israeli armed forces. [HL1526] To ask Her Majesty’s Government whether they have made representations to the Government of The Minister of State, Foreign and Commonwealth Israel about the release of Marwan Barghouti from Office (Lord Howell of Guildford): Water is one of the prison. [HL1525] issues expected to be addressed in final status negotiations between the Israelis and the Palestinians. The UK The Minister of State, Foreign and Commonwealth continues to urge both parties to enter into direct talks Office (Lord Howell of Guildford): We have no plans to resolve the Israeli-Palestinian conflict. to make representations to the Israeli Government We are not aware of this specific incident but the concerning Marwan Barghouti’s release from prison. Government have had detailed discussions with both Asked by Lord Hylton the Israeli and Palestinian authorities on the issue of water supply policies in the Jordan valley. We want to To ask Her Majesty’s Government whether they see the fair and the effective distribution of shared will ask the Government of Israel to allow, and water resources throughout the Occupied Palestinian UNESCO to organise, independent archaeological Territories. and structural investigation of excavations now under In addition to lobbying at political level, the UK is way in the area of the Al Aqsa Mosque and Temple funding a project working with Palestinians and Israelis Mount in Jerusalem. [HL1533] to help improve co-operation on water issues to the benefit of both parties. Lord Howell of Guildford: Officials at our embassy in Tel Aviv have raised the issue of archaeological excavations near to the Western Wall and the Temple Israel and Palestine: West Bank Mount in Jerusalem, as well as the future of the Question Mughrabi ramp, with the Israeli authorities on a number Asked by Baroness Tonge of occasions. We understand that the issue of the Mughrabi ramp has also been the subject of discussion To ask Her Majesty’s Government what is their at the executive board of the United Nations Educational, assessment of reports of attacks on Palestinians by Scientific and Cultural Organisation (UNESCO). settlers from Itamar in the West Bank, and the Given the sensitivity of the site, we have asked the alleged involvement of the military; and whether Israeli authorities to consult fully with relevant parties, they will make representations to the Government including UNESCO, before any work is carried out on of Israel about the use of legal sanctions to deter the Mughrabi ramp or in areas that would directly further attacks. [HL1524] impact the Temple Mount. Asked by Lord Hylton The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): We are aware of To ask Her Majesty’s Government what assessment reports of attacks on Palestinians by settlers from they have made of reports that Syrian curricula Itamar in the West Bank. have been replaced by Israeli ones in schools in the We have serious concerns about the increase in occupied Golan Heights; and, if the reports are violence by extremist Israeli settlers against ordinary correct, whether they will make representations to Palestinians and Palestinian property which we have the Government of Israel regarding the application raised with the Israeli Government on a number of of the Fourth Geneva Convention in the Golan occasions. The Secretary of State for Foreign and Heights. [HL1534] Commonwealth Affairs, my right honourable friend the Member for Richmond (Yorks) (Mr Hague) joined Lord Howell of Guildford: We are not aware of other European Union (EU) Foreign Ministers in recent reports of curricula being replaced in schools in expressing “deep concern regarding settler extremism the Golan Heights. However, we understand that the and incitement by settlers”and condemning “continuous Druze residents of the Golan Heights have had separate settler violence and deliberate provocations against education curriculum designed and implemented by Palestinian civilians” in the EU Foreign Affairs Council the state of Israel, since the 1970s. conclusions of May 2012. The Foreign Affairs Council WA 67 Written Answers[18 JULY 2012] Written Answers WA 68 called on the Israeli Government to bring the perpetrators Prisons: Escorts to justice and to comply with its obligations under Question international law. The Parliamentary Under-Secretary of State for Asked by Baroness Stern Foreign and Commonwealth Affairs, my honourable To ask Her Majesty’s Government what action friend the Member for North East Bedfordshire (Mr Burt) they are taking to improve the performance of the issued a statement on 22 June condemning recent acts escort provider in prisons following the report by of settler violence, including an incident in which a HM Chief Inspector of Prisons on HMP Woodhill mosque in the West Bank town of Jaba was vandalised, of 22 June, which noted an increase in the percentage and calling on the Israeli authorities to ensure that the of escort vans arriving late. [HL1511] perpetrators are brought to justice. Our ambassador to Israel reinforced this message with Attorney General Weinstein on 7 July. The Minister of State, Ministry of Justice (Lord McNally): The report reflects a degree of concern on the part of the prison about the times at which vehicles collecting prisoners for transport to court arrived at North Korea the prison. We have noted this concern and are taking Questions action to address it. However, it may be noted that performance as measured by the time of reception at Asked by Lord Alton of Liverpool the court has improved significantly over recent months. To ask Her Majesty’s Government further to the A performance improvement plan is in place to Written Answer by Lord Howell of Guildford on secure enhanced performance in relation to the whole 12 March (WA 21), whether, in the light of a 2010 of the escort journey. The plan is being closely monitored survey conducted by InterMedia of North Korean by the National Offender Management Service. refugees and travellers in China which found that 27% had listened to foreign radio while living in North Korea, they will reconsider their conclusion Retail: Mary Portas Review that BBC World Service broadcasts would have a Question very low impact; and what percentage of the population Asked by Lord Kennedy of Southwark would have to be reached for them to regard broadcasts as having a high impact. [HL1394] To ask Her Majesty’s Government, in the light of the Portas Review, what action they are proposing to take to improve England’s high streets. [HL1398] The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): The Foreign and The Parliamentary Under-Secretary of State, Department Commonwealth holds regular meetings with the BBC for Communities and Local Government (Baroness Hanham): World Service to discuss global priorities. This includes The Government published their response to the Portas North Korea. We have brought the InterMedia report review on the 30 March. We accepted almost all of to their attention. However, under the terms of the Mary’s recommendations and announced that we would Broadcasting Agreement between the Foreign and be going even further by offering a “Portas-plus”package Commonwealth Office and the BBC World Service, of measures to support high streets, including: the World Service has operational and managerial independence. It is therefore their responsibility to a £10 million high street innovation fund awarded allocate and prioritise their resources. to councils in areas blighted by empty shops and recovering from the riots to help bring entrepreneurs These decisions are based on balancing market back to their communities; need and market size (including access), as well as comparative costs. There are no current plans for the a £500,000 investment to help business improvement World Service to open any new foreign language services. districts access loans for their set-up costs; a £l million future high street X-fund which will Asked by Lord Alton of Liverpool reward the areas delivering the most effective and To ask Her Majesty’s Government, further to the innovative plans to bring their town centres back to Written Answer by Lord Howell of Guildford on life; and 12 March (WA 21), whether the BBC World Service £l million funding support to help the development has taken into account the audience that learns of high street neighbourhood plans as part of our news and information by word of mouth from neighbourhood planning programme. people who are listening to foreign broadcasts, when We are also supporting the first 12 successful winners deciding not to broadcast to North Korea. [HL1447] of the round 1 Portas pilot competition, with a further 15 to be announced shortly, to help deliver a new vision for their high street and road-test the collaborative, Lord Howell of Guildford: I refer the noble Lord to local town team approach recommended by Mary the answer to his question HL1394. Portas. The BBC World Service uses a number of These initiatives build upon the measures which the measurements and sources to inform its decisions on coalition Government have already delivered to support how to allocate its resources. high streets, which include: WA 69 Written Answers[LORDS] Written Answers WA 70

doubling small business rate relief for two and a Personnel with an identified specific learning difficulty half years to help small shops, and making it easier would be given the appropriate support and work time for small firms to claim small business rate relief to address their needs to maximise their learning potential through the Localism Act; and to develop their talents and skills. Through the scrapping Whitehall planning guidance which forced Defence Medical Services, personnel would have access up parking charges. Guidance now encourages councils to the full range of medical care, such as general to attract shoppers by setting competitive parking practitioner, occupational health and psychiatric support. charges; Former regular personnel with a reserve liability changing planning rules to allow councils to provide and volunteer reservists attending for mandatory training more parking spaces in town centres, to make them or voluntary duties will only be eligible for such support able to compete with out-of-town supermarkets; when mobilised into service as the result of a call-out notice. updating licensing laws to give councils more powers to tackle late-night, anti-social behaviour, and introducing a new late night levy to make streets Third Parties (Rights against Insurers) safer; Act 2010 focusing retail development in town centres through Question a “town centre first” planning policy; introducing a high street support scheme to help Asked by Lord Kennedy of Southwark the local high streets affected by the August 2011 riots recover and get back to business; To ask Her Majesty’s Government whether they intend to bring into force the Third Parties (Rights encouraging councils to cut unnecessary street against Insurers) Act 2010. [HL1584] clutter, which disfigures local high streets; and making it easier to convert empty offices into residential The Minister of State, Ministry of Justice (Lord use, which could give a boost to town centres by McNally): I refer the noble Lord to my Written Statement increasing the resident population and local footfall. of 12 July 2012 (Official Report, col. WS 145) which referred to the announcement by my honourable friend Royal Navy: Reserves the Parliamentary Under-Secretary of State, Ministry Question of Justice (Jonathan Djanogly) on the same day: “In response to the Written Parliamentary Question from the Asked by Lord Empey honourable Member for Aberdeen North (Frank Doran) on 5 March 2012 about the commencement of the Third Parties To ask Her Majesty’s Government what help is (Rights against Insurers) Act 2010 (UIN 98039) I undertook to available to members of the Royal Navy Reserve make a further Statement before the Summer Recess (Official who (1) suffer from dyslexia, and (2) have a gender Report, 5 March 2012, col. 537W). identity disorder. [HL1550] The position remains that no date has yet been set to bring the Act into force. The Ministry of Justice is continuing to work with interested parties to prepare the way for commencement at the The Parliamentary Under-Secretary of State, Ministry earliest practicable date. As stated in the report on the implementation of Defence (Lord Astor of Hever): Members of the of Law Commission proposals [HC 1900] presented by the Lord Royal Naval reserve in full time reserve service are Chancellor to Parliament on 22 March 2012 this is unlikely to be eligible for the same help and support as regular members until 2013. of the Naval Service. I will make a further Statement in the autumn”. Wednesday 18 July 2012

ALPHABETICAL INDEX TO WRITTEN STATEMENTS

Col. No. Col. No. Immigration...... 49 Infrastructure Investment ...... 50

Wednesday 18 July 2012

ALPHABETICAL INDEX TO WRITTEN ANSWERS

Col. No. Col. No. Agriculture: Farm Buildings ...... 52 Health and Social Care Act 2012...... 60

Armed Forces: Defence Cuts ...... 52 Health: READ Codes...... 61

Armed Forces: Mental Health ...... 53 Higher Education: Bogus Colleges...... 62

Armed Forces: Munition Centres ...... 54 Higher Education: Men ...... 63

Armed Forces: Suicide...... 55 Housing...... 64

Armed Forces: Weaponry Theft...... 56 Indonesia...... 51

Bahrain...... 56 Israel...... 65

Burma ...... 57 Israel and Palestine...... 66

Care Services: Elderly People...... 58 Israel and Palestine: West Bank ...... 66

Carers ...... 58 North Korea ...... 67

Disabled People: Manufactured Goods ...... 59 Prisons: Escorts ...... 68

Edward Peter Heslehurst ...... 59 Retail: Mary Portas Review ...... 68

Extradition ...... 60 Royal Navy: Reserves...... 69

Forced Marriage ...... 60 Third Parties (Rights against Insurers) Act 2010 ...... 70 NUMERICAL INDEX TO WRITTEN ANSWERS

Col. No. Col. No. [HL1135] ...... 60 [HL1407] ...... 59

[HL1325] ...... 52 [HL1427] ...... 57

[HL1326] ...... 52 [HL1430] ...... 58

[HL1327] ...... 52 [HL1447] ...... 67

[HL1328] ...... 52 [HL1463] ...... 54

[HL1366] ...... 59 [HL1464] ...... 54

[HL1377] ...... 64 [HL1465] ...... 63

[HL1394] ...... 67 [HL1466] ...... 52

[HL1396] ...... 56 [HL1480] ...... 56

[HL1398] ...... 68 [HL1481] ...... 53

[HL1402] ...... 51 [HL1482] ...... 60 Col. No. Col. No. [HL1511] ...... 68 [HL1529] ...... 61

[HL1514] ...... 59 [HL1533] ...... 65

[HL1515] ...... 55 [HL1534] ...... 65 [HL1537] ...... 56 [HL1516] ...... 55 [HL1550] ...... 69 [HL1517] ...... 55 [HL1553] ...... 60 [HL1518] ...... 55 [HL1554] ...... 61 [HL1524] ...... 66 [HL1584] ...... 70

[HL1525] ...... 65 [HL1609] ...... 62

[HL1526] ...... 66 [HL1610] ...... 62 Volume 739 Wednesday No. 37 18 July 2012

CONTENTS

Wednesday 18 July 2012 Death of a Member: Lord Chilver Announcement ...... 223 Questions Flooding: Insurance...... 223 Economy: Growth...... 225 Schools: Children in Care...... 228 Railways: Electrification ...... 231 Littering from Vehicles Bill [HL] First Reading ...... 233 Five Statutory Instruments Motions to Approve...... 233 Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2012 Motion to Approve ...... 234 Financial Services Bill Committee (4th Day)...... 235 NHS: Specialised Services Question for Short Debate ...... 293 Financial Services Bill Committee (4th Day) (Continued) ...... 309 Grand Committee Northern Ireland Act 1998 (Devolution of Policing and Justice Functions) Order 2012...... GC 91 Rehabilitation of Offenders Act 1974 (Exceptions) (Amendment) (England and Wales) Order 2012 ...... GC 100 Data Protection (Processing of Sensitive Personal Data) Order 2012...... GC 103 Public Bodies (Abolition of Her Majesty’s Inspectorate of Courts Administration and the Public Guardian Board) Order 2012...... GC 108 Public Bodies (Abolition of Crown Court Rule Committee and Magistrates’ Courts Rule Committee) Order 2012 ...... GC 114 National Minimum Wage (Amendment) Regulations 2012 ...... GC 117 Community Interest Company (Amendment) Regulations 2012 ...... GC 121 Tribunals, Courts and Enforcement Act 2007 (Consequential Amendments) Order 2012 Considered in Grand Committee ...... GC 125 Written Statements...... WS 49 Written Answers...... WA 5 1