Legislative and Regulatory Reform Bill |
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Mr. Heald: I understand that in this provision, it may be difficult for the Minister to tackle the big boys. However, it would be helpful if he were able to say, “We do have a plan. We are going to sort out the big boys—the substantial regulators set up by statute—and make sure that they do follow these principles.” If some provision about the FSA or some other regulatory body clashes with the Hampton principles or the five principles, surely it is the job of the Cabinet Office to find out and sort them out. Mr. Murphy: It is not our intention to erode the independence from the Government of those regulators set up by statute. I shall turn to additional questions that have been asked about the Hampton principles. The hon. Member for Christchurch (Mr. Chope) in particular quite rightly talked about them at some length, alluding to 11 or 12 of the Hampton principles of inspection and enforcement. We tried to put in legal terms the Hampton principles, but the wording was not easily transferable to legal language. The five principles set out in the clause are the principles of the Better Regulation Task Force. The code will cover the specific points about which the hon. Gentleman asked. The principles will exist on a statutory basis, and the code would then expand on and deal with the specifics dealt with in the Hampton principles of inspection and enforcement. We will consult about the code later in the year. That is the purpose of having the principles and then enabling the code so that it can pick up on some of the Hampton principles of inspection and enforcement. That is the right way to do it. Mr. Chope: The Minister says that because of a drafting difficulty, he is not putting the Hampton principles in the Bill. Surely, if a legally enforceable code is to be drawn up instead, exactly the same drafting difficulties will arise. Column Number: 250 Mr. Murphy: Our intention is to consult later this year on the specific nature of the code. If we had placed a prescriptive code in the Bill, Opposition Members would understandably and rightly ask why we had not consulted, why we had not sought and listened to opinions. The intention is to consult the regulators and the regulated on the specific nature and content of the code, which will be guided by the principles of inspection and enforcement set out by Philip Hampton. Of course, not all the recommendations in the report require legislation. Some are about good practice, so not all of them would be appropriate for inclusion on a statutory basis. Nevertheless, the change in culture behind the Hampton principles and the suggestions included in them will find a place in the code. The issue is partly about drafting to include the Hampton principles and partly about a determination to consult. Mr. Chope: In the past, it has been the practice of Ministers when debating Bills like this one, which refers to a code, to produce for our benefit a copy of a draft code. Will the Minister undertake to produce a draft code before we reach Report so that we can determine exactly what the Government have in mind and to what extent we may wish to incorporate in the Bill provisions from the Hampton recommendations that are not included in the draft code? Mr. Murphy: I am not certain that I will be able to do that. However, to reassure the hon. Gentleman, I can say that the Minister must seek to ensure that the draft code is consistent with the principles in clause 19, and that we will carry out a wide consultation throughout the country about the content and the specifics of any draft code. We are listening to business and to others to ensure that we get it absolutely right. The hon. Gentleman discussed specifics of the Hampton principles and asked whether regulation would be risk-based. The risk-based issue is dealt with by the principle of targets. The idea would be to target those companies that have had a less than illuminating track record of compliance. The inclusion of targets would incorporate the risk-based element. Mr. Chope: But would it? If the Hampton suggestion is that regulation should be targeted on those cases where action is needed most, the Minister’s point would be covered, but subsection (2)(b) states that
Why is not the word “most” included there? Mr. Murphy: The targets would be based on an assessment by the regulator, who has a knowledge of the field in which they regulate. He will target only those cases that he believes it is appropriate to target according to the principles. There is some flexibility for the regulator to apply targeting. As Philip Hampton discovered, the problem is that fewer than half of the regulators in his review used a risk assessment to reduce enforcement activity on high-performing businesses. For example, according to figures from the Hampton review, in 2002-03,
Possibly we all have experience from our constituencies of businesses that may have been operating for two decades with a clean bill of health but that are continually inspected. We are moving towards inspectors targeting their resources more effectively. Mr. Heald: Surely the absolute key is the comprehensive risk assessment. If one asked any of the regulators, they would say, “Oh yes, we’re certainly aiming at the cases where some regulation is needed.” The point, however, is that many of them have not done a comprehensive risk assessment—as the Minister just said—so they are not doing that. What is needed is for the concept of the comprehensive risk assessment to be brought right to the centre of the Bill. Mr. Murphy: I do not share that assessment. The combination of the principles of targeting and of proportionate activity means that regulators will be expected, on a statutory basis, to carry out their activity in a way that is risk based. The specific way that that approach operates will be in the code, on which we shall consult. To be a little more generous to the hon. Member for Christchurch, I shall take up his suggestion of trying to have a draft code available in time for the Report stage, which he may find helpful. Mr. Heath: I am not convinced by the earlier part of the Minister’s response. There was a lengthy explanation of why there are some large and complicated regulators that are set up by statute. The hon. Member for Edmonton intervened to point out the care with which Parliament had scrutinised the power and functions of the Financial Services Authority, and I entirely understand that. I would even understand it if—were the code of conduct written in sufficiently explicit terms—instances arose when the way in which a specific regulator was required to act by statute fell outwith the specific requirements of the code of conduct. In such a case there might be some form of tension between the two, and that might–though I do not think that it should—require an exemption. I cannot understand, however—nor can I find an argument to support it—why any regulatory body should fall outside the very broad principles that we are considering, whatever the statute says in setting up that body. If the statute allows a regulator to act in a way that is not transparent, or in a way that is unaccountable, disproportionate, or inconsistent, that is intolerable. Surely we cannot accept a regulator that works in that way—if this Committee is to mean anything, or if the Minister’s intentions are to mean anything. If that is the case, then whatever the statute may say, it should be amended to bring it into compliance with those very broad terms. Column Number: 252 The Minister is asking us to accept that because a regulator has a very complicated function, it is all right for that regulator to act in an intolerable way. I do not accept that, and I hope that a court would not accept it. By accepting clause 19(3) we would be giving a get-out clause. I am willing to argue the case with the Minister on clause 20(3), when we come to it, because he may have a better argument—though it depends on how the explicit the code of conduct will be. He would also have more of a case had he given a longer list of principles and had he provided for much more complex requirements under clause 19; but given how simple and self-evidently proper the principles are under clause 19(2), I do not think that he has a case for any exemption if we are to have proper governance. Mr. Heald: If we deleted clause 19(3) as an amendment on Report, the effect would be that if any of the bodies set up by statute did not act in accordance with the five principles, the law of implied repeal would mean that their statutes were, by implication, repealed. I do not know whether the parts that were necessary to bring the five principles into force would actually apply. Is the hon. Gentleman’s view the same? 9.45 amMr. Heath: Had I sufficient legal knowledge, I am sure that I would agree with the hon. Gentleman. [Interruption.] My hon. Friend the Member for Cambridge (David Howarth) is muttering from a sedentary position, and the hon. Member for North-East Hertfordshire is right. My hon. Friend is the guru in this matter. I hope that hon. Gentleman agrees that, unless we have a much more satisfactory explanation than we have had today, we will have to return to this matter on Report and get rid of subsection (3). I am willing to entertain an argument on the details of the code of conduct. It would be wrong to invalidate the actions of a regulator, simply because a specific requirement in the code of conduct was at variance with the practice required by statute. We can return to that matter and debate it sensibly. However, I hope that the Minister will consider the point that he is asking the Committee to accept—that regulators can act in a wholly improper way. I do not accept that and I do not think that the Committee should. Mr. Heald: Mr. Caton, this has been a useful debate that has covered the points that I was thinking of raising under clause 20, as well as those under clause 19, so perhaps your earlier ruling was, to that extent, prescient and forward thinking. I welcome the Minister’s offering to produce a draft code of practice to give us an idea of where, between the Bill and the code, he is to place the Hampton recommendations. I thank him for that, but I am concerned about two points. First, in subsection (2), the five principles set out are those that the Better Regulation Commission has been promoting, rather than the more detailed checklist that Philip Hampton
Mr. Carswell: Does my hon. Friend share my disappointment that the Minister has yet to explain how the principle of accountability will be delivered? How will the regulators be made democratically accountable? I suggested, somewhat impertinently perhaps, that the Minister might like to consider televised parliamentary hearings for appointments to these new super-quangos. There are other suggestions. Perhaps annual budgets for the regulators— The Chairman: Order. This is turning into a speech. Mr. Heald: On a very good point, Mr. Caton, which is that accountability was one of the key principles that Philip Hampton referred to when he said:
I think that we would all agree that their independence is important. None the less, most of the big regulators were set up by Parliament and we are entitled to review their activities and change them if we wish. On the individual activities of regulators, there is a lot to be said, particularly in respect of the major ones, for having confirmation hearings to ensure that the people who take on such roles at the top level are fit for purpose. Certainly, there have been examples in the past—none of which I am going to recount, because I am fully aware of your requirements, Mr. Caton—where regulators have been either over-officious or slack. Having said that, the question for the Minister is why not include the Hampton principles of inspection and enforcement in the Bill. I recognise the Minister’s point that there may be some drafting difficulties or areas where it is not possible to fully put those principles into force in the Bill, but if he is producing a statutory code, it must be possible to put a lot of that into the sort of language we use in Parliament. If that is so, why not include it in the Bill? Mr. Love: There would be some concern if all the additional issues were included in clause 19(2); the Government would no doubt be accused of being too prescriptive. The Minister made a point about consultation. If this were included in the Bill, it would not be subject to consultation, whereas if it is in the codes that go along with the Bill, there will be a real opportunity to consult widely to ensure that we get it absolutely right. Mr. Heald: I am all in favour of consultation; I think it is important to consult on such matters. It is entirely up to the Government to decide when they will introduce legislation and what will be the time scale for the Bill. However, the parliamentary Session is likely to go on until later in the year, so it is not beyond the wit of man to have consultation on a code and still be in time to include it in the Bill. Column Number: 254 I take on board the hon. Gentleman’s point. This should probably be a schedule, rather than part of clause 19. However, what is being asked for could be achieved. It would help us, because I want to be sure that every one of the principles of inspection and enforcement that Philip Hampton came up with is implemented. If a law is needed to do that, I want that to be in the Bill. Mr. Chope: Does my hon. Friend share my pleasure that the Minister has agreed to produce a draft code in time for Report? Does he also agree that it would be desirable for that draft code to be produced sufficiently far in advance of the Report stage for us to be able to table new clauses or amendments in light of its contents? Mr. Heald: That would obviously be very helpful. It is likely that there will be some delay between the end of the Committee stage and Report, and I share my hon. Friend’s hope that the time scale would allow for that. Mr. Murphy: I have not sought to encourage hon. Members to give way in Committee, but let me say that I will undertake to do what has perfectly reasonably been asked for, which is to produce a draft of the code in good time so that Committee members, and other Members, can consider it and table amendments if they so wish. Mr. Heald: That is exactly what my hon. Friend the Member for Christchurch requested, so I thank the Minister very much for that. Mr. Chope: That is an excellent suggestion. The Government Whip has now returned. In light of the fact that there may now be a much more extensive debate on this issue on Report than was previously expected, I hope that he will accept that it might be appropriate for that stage to last for two days, rather than one. Mr. Heald: I would not dream of trespassing on the work of the usual channels, but I certainly think that my hon. Friend is right on that. I shall now move on to my second point about clause 19. The exclusion in subsection (3) that lets the big boys off is not acceptable. Regulators such as the Financial Services Authority and some of the other “Ofs” should behave reasonably. That is all that subsection (2) asks them to do. Surely they would want to be “transparent”—or maybe they would not? Surely they would want to be “accountable”—in fact, I do not think they would like that much—and “proportionate and consistent”? Possibly, they would also like to target what they are doing. They should be setting an example. The regulators should not be let off; they ought to be the pioneer corps and the trailblazers, not the ones letting the side down. Will the Minister just have a think about subsection (3)? I am tempted to seek to remove it on Report, because that would force them to behave. Question put and agreed to. Clause 19 ordered to stand part of the Bill. Column Number: 255 Clause 20 Code of practice Question proposed, That the clause stand part of the Bill. Mr. Chope: May I ask the Minister to expand on the effectiveness of the sanctions described in the clause for breaches of the code of practice? It seems that breaches of the code of practice that result in additional costs on business will not enable businesses to claim for the consequential damages arising from breaches of the code. The most that they can hope for is that any breaches of the code could be used as mitigation of penalties imposed. I understand that quite often the Office of Fair Trading will put forward proposals and if they are not accepted by the parties involved, it will say, “If you do not accept these, we will insist on higher penalties.” So it will effectively exercise a process of extortion on the people whom it is investigating. If we are to have regulators who will operate outwith this code of practice, surely there should be an effective sanction. When I studied jurisprudence, one of the principles that we looked at was that there is no point having a command without a sanction. If the Minister accepts that principle, can he point out where the effective sanctions are for breaches of the code of practice under the clause? Mr. Murphy: Very briefly, under the clause, regulators who fail to comply with the statutory duty to have regard to the code of practice in circumstances where they are required to do so could be challenged through judicial review in the usual way. Subsection (4) states that
That subsection derives from the 2001 Act. It seems to have operated pretty effectively in that Act. If the hon. Gentleman has evidence to the contrary, he is entirely free to bring it to the attention of the Committee or of the House on Report. Failure to act in the proper way by regulators is judicially reviewable and it is within the 2001 Act. Mr. Chope: Will the Minister accept that the process of going to judicial review is incredible expensive? Does he expect a corner shop or a small manufacturing business that is subject to oppressive behaviour by a regulator in breach of the code of practice to employ expensive lawyers and to go through the process of judicial review to get an effective sanction for the breaches of the code? Mr. Murphy: I do not think that I am advocating that, but this provision is lifted directly from the 2001 Act. I am willing to be corrected, but I understand that it was not identified during the consultation and the deliberations on the Bill as an inherent weakness in the 2001 Act. If he has evidence that it is and that it has prevented the better regulation agenda, he is entirely free to bring it to the attention of the Committee and the House. Column Number: 256 Mr. Heald: I have been listening to the point that the Minister was making. I wonder whether subsection (4) does not provide some sort of remedy. It seems to be saying that the court or tribunal dealing with a breach of duty by a company would be able to take account of the way in which the regulatory function had been exercised in deciding how to deal with the case. Does that not mean that it would be possible for the court to make a quite penal decision on costs against the regulator? If so—if the regulator had to pay not just his own costs but those of the person victimised or treated in the wrong way—that would be at least some movement in the right direction. Is that what the Minister had in mind? 10 amMr. Murphy: That is entirely the case. I should also like to reassure the hon. Member for Christchurch that non-legal sanctions exist on regulators, including National Audit Office and Audit Commission reports. Those are additional pressures and areas of accountability and respect for regulators. If the hon. Gentleman has evidence that that aspect of the 2001 Act has not worked and has been a deterrent, he is entirely at liberty to bring that evidence to the House’s attention before Report. Question put and agreed to. Clause 20 ordered to stand part of the Bill. Clause 21 Code of practice: procedure Question proposed, That the clause stand part of the Bill. Mr. Heald: Clause 21 sets out the procedure for introducing the draft code and making it law. It provides for consultation and the laying of the draft. It was not clear to me, however, whether what is proposed in subsection (5) is the negative procedure. I think that it is. If so, perhaps the Minister might explain why. The Minister knows that many in the House are keen that all the principles of inspection and enforcement in the Hampton report should become part either of the code or of the statute. Given that they may need to be in the code, those of us in the House who are interested in regulatory reform will want to check that everything that should be in there is in there. If it is not, we might want to complain about it, debate it and ensure that the code goes as far as it should. My experience of the negative procedure is that we do not get a debate every time we pray against an order. The last time that I looked at the statistics, it was something like 35 times out of 2,000. I may be wrong—it may be slightly different—but it is something like that. What can the Minister say to us about the procedure in subsection (5)? Is it negative, and if so, why? Surely it should be affirmative. Will he think about that or at least guarantee that if we did pray against it, there would be a debate? Column Number: 257 Mr. Heath: The hon. Gentleman is absolutely right that prayers are seldom answered in this place, although I must say as a matter of information that next week I have a prayer against an order on the civil courts and full recovery of costs, which will be debated. Unfortunately, since then I have been reshuffled in my responsibilities, so it will fall to someone else to do it. However, that is a different matter. Mr. Heald: I am sure that the Committee would like to congratulate the hon. Gentleman on his appointment as Liberal Democrat shadow Leader of the House. I understand that he is running for the deputy leadership, and I am sure that we all give him our best wishes for good luck. Mr. Heath: I am grateful, although I am not sure that that will actually assist my candidacy. The negative procedure is less appropriate than the affirmative when bringing the code of practice into effect; that is absolutely right. I shall go back a stage, however, because there is also the issue of the consultation process. The only specific consultees allowed for under the Bill are the regulators, who may be considered to have a rather partial view of how they carry out their functions. Of course we need to talk to the regulators about how the code of practice affects them, but there is a much wider range of bodies among the deregulated, and they have a much more material interest in the code of practice being right. In preparing for the Bill, the Minister gained quite a broad database of consultees; I hope that they will be
for the purposes of subsection (3), and that they will have the opportunity to respond to the draft code of practice when it is published. I also hope that, whatever procedure we eventually arrive at for the consideration of the code of practice, we will follow the process suggested for part 1 of the Bill, by which consultation responses are made available to the relevant Members of the House that will consider it. That way, we can be clear about whether the code of practice meets the concerns of those who are regulated. That seems a critical part of the process. Mr. Murphy indicated assent. Mr. Heath: The Minister is nodding, so I am hopeful of a positive response; all is sweetness and light this morning. It is desperately important that we hear what the effect will be, particularly on small businesses. For many of us they are the prime concern, because it is they who carry the greatest burden of regulation. We need an effective way of knowing how the provisions will affect them, and whether it meets their requirements in reducing the burden on them. Mr. Murphy: I, too, congratulate the hon. Gentleman on becoming shadow Leader of the House. I was not aware that he was standing for deputy leadership of his party, but that explains why he did not publicly support any of the leadership candidates;
Clause 21 sets out the procedural requirements that a Minister must follow when proposing to issue or revise a code of practice under clause 20. I assure the hon. Member for Somerton and Frome (Mr. Heath) that consultation on the code of conduct will, of course, be guided by best practice on the code of conduct, which we discussed earlier. It is my understanding that responses to the consultation on the code of conduct will be made public, in the way that I have already mentioned. There is a responsibility to publish them, so, yes, the process will be conducted openly and transparently. The hon. Member for North-East Hertfordshire is absolutely correct: first, the Minister must consult on the draft code of conduct, and then, following consultation, if the Minister decides to proceed with the draft, in its original form or in a modified one, the draft must be laid before Parliament and is subject to the negative procedure. That is consistent with the procedure set out in clause 10(4) of the Regulatory Reform Act 2001. However, I hear what both Front Benchers say about prayers never being answered—although I thought that our attendance here was in answer to our prayers, and that we had all sought divine intervention to be allowed membership of this Committee. The hon. Member for North-East Hertfordshire reasonably asked whether it would not be more appropriate for such a code of practice to be laid under the affirmative procedure, and I will reflect on whether that would be appropriate as a means of strengthening what was in the 2001 Act and placing a more onerous procedural responsibility in the Bill. I hope that that reassures and heartens him in some way. |
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