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House of Lords

Monday, 19 July 2010.

2.15 pm

Prayers-read by the Lord Bishop of Bristol.

Introduction: Lord Boswell of Aynho

2.22 pm

Timothy Eric Boswell, Esquire, having been created Baron Boswell of Aynho, of Aynho in the County of Northamptonshire, was introduced and took the oath, supported by Lord Brooke of Sutton Mandeville and Baroness Deech, and signed an undertaking to abide by the Code of Conduct.

Introduction: Baroness Stedman-Scott

2.28 pm

Deborah Stedman-Scott, OBE, having been created Baroness Stedman-Scott, of Rolvenden in the County of Kent, was introduced and took the oath, supported by Baroness Fookes and Lord Freud, and signed an undertaking to abide by the Code of Conduct.

Introduction: Baroness Parminter

2.34 pm

Kathryn Jane Parminter, having been created Baroness Parminter, of Godalming in the County of Surrey, was introduced and took the oath, supported by Baroness Scott of Needham Market and Baroness Bonham-Carter of Yarnbury, and signed an undertaking to abide by the Code of Conduct.

Health: Prostate Cancer


2.38 pm

Asked By Baroness Royall of Blaisdon

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, in 2005 the National Institute for Health and Clinical Excellence published referral guidelines for suspected cancer. These include symptoms that GPs should be aware of when considering whether to refer a patient urgently for suspected prostate cancer. It is important that we continue to support primary healthcare professionals in detecting the signs and symptoms of cancer and referring patients quickly. We will consider how best to do this as we review the cancer reform strategy.

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Baroness Royall of Blaisdon: My Lords, I welcome that Answer and am glad to hear that NICE gave the appropriate guidelines, but I believe that too many GPs are still not vigilant enough and do not recognise the symptoms. Does the Minister agree that it might be sensible for me to ask my PCT to ensure that there is greater awareness-raising about prostate cancer among GPs and patients? Does he share my concern that, with GP commissioning, the necessary strategic view of these issues will no longer be taken in areas of the country, that improvements made to date may be undermined and that control could be put into the hands of the very people who, I believe, have not done the best for their patients to date?

Earl Howe: My Lords, there will be plenty of support for GP consortia in the area of cancer diagnosis and treatment, not least from the commercial support units but also from the cancer networks. However, the noble Baroness is right that we are not doing well enough in this country in picking up cases of prostate cancer. Late diagnosis is likely to be a significant contributor to that and is, in itself, the result of a number of factors, poor public awareness being one. Late presentation to primary care is another and, as the noble Baroness hinted, poor detection in primary care is a third. Therefore, supporting GPs in detecting cancer earlier will be a key part of the work that we have to do.

Lord Alderdice: My Lords, given that the prostate-specific antigen test is not in fact pathognomonic of cancer of the prostate but simply of disturbance of the prostate and that significantly high levels of the antigen are likely to lead to an investigative biopsy by a urological surgeon, is the Minister content that we have enough urological surgeons in the country to undertake the level of investigative biopsy that is likely to arise from the higher index of suspicion by general practitioners indicated by the noble Baroness? Entirely separate from that is the question of whether we have enough urological surgeons to carry out the treatment for prostate cancer when it is diagnosed.

Earl Howe: My Lords, I am not aware that there is thought to be a significant shortage of urological surgeons or expertise around the country, although the coverage varies from region to region, as the noble Lord will know. However, I shall take his concerns back with me and make suitable inquiries. If I can write to him further, I shall certainly do so.

Lord Campbell-Savours: My Lords, why cannot we have a national PSA screening programme? Would that not help to avoid late diagnosis?

Earl Howe: My Lords, the noble Lord may know that the UK National Screening Committee examined this question recently. The matter is out for consultation, which will last until the end of September, when a conclusion will be reached.

Lord Williamson of Horton: Will the noble Earl say whether there has been any progress in the development of a test that is more accurate than the PSA test that is currently used?

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Earl Howe: My Lords, there is quite a bit of ongoing work to devise such a test but I am advised that no reliable test exists at the moment. The PSA test is the best that we have. The noble Lord will know that the results of tests show that you have to screen about 1,400 men and treat 48 unnecessarily to save one life. It is not an easy equation.

Baroness Wall of New Barnet: My Lords-

Lord Lloyd-Webber: My Lords-

Lord Strathclyde: My Lords, with respect to the noble Baroness, we have not heard from a Conservative, so perhaps we can hear from the noble Lord.

Lord Lloyd-Webber: My Lords, the Prostate UK charity reckons that 10,000 men a year die needlessly as a result of not being diagnosed with prostate cancer. I agree that the current PSA test is not wholly reliable, but will the Minister agree that all men over 50 should have the test and that their GPs should encourage them to do so?

Earl Howe: My Lords, my noble friend raises an extremely important point. He may like to know that last year the department wrote to primary care trusts to remind them that any man without symptoms of prostate cancer who wishes to have a PSA test is entitled to have one. However, it is important that anyone availing themselves of the test does so on a fully informed basis, because, as I said, it is unreliable and can lead to unpleasant side effects.

Lord Winston: My Lords, is not one of the problems with the PSA test the fact that it produces a vast number of false positives, meaning that a number of people could be at risk of mutilating treatment? Will the Minister give an answer to the question about advances in genomics, which might help in the long term with regard to prostate cancer?

Earl Howe: My Lords, the noble Lord, Lord Winston, is probably in a better position to advise the House on advances in that area of research. I can tell the House that the National Cancer Research Network, set up by the Department of Health in 2001, has brought about a tripling of the number of cancer patients entered into clinical trials. About 12 per cent of cancer patients in England enter NCRN trials, which is the highest per capita rate of cancer-trial participation in the world. The network currently supports about 51 prostate cancer studies, so there is no shortage of research going on.

Baroness Wall of New Barnet: My Lords, does the noble Lord agree that the recording and quality standards around prostate cancer ought to be considered by the Care Quality Commission? Does he also agree that it is a shame that the CQC has decided not to report at the end of this year on the state of the hospitals that it has been working with across the piece? My own hospital, Barnet and Chase Farm, is predicted to be excellent, but it has been told that the Care Quality Commission will not announce those positions at all.

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Earl Howe: My Lords, the main reason for that decision is our belief that the regulatory effort should be directed to where it is most needed. Trusts such as the noble Baroness's, which have been rated excellent, perhaps do not comprise a good use of the CQC's time. However, it is important to recognise that the CQC is concerned with minimum standards. I think that everyone would want to see more than the minimum achieved across the NHS. We need to aim for excellence everywhere.

House of Lords: Peerages


2.47 pm

Asked By Baroness Cox

Baroness Cox: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare a non-pecuniary interest as an honorary vice-president for the Royal College of Nursing.

Lord Taylor of Holbeach: The House of Lords Appointments Commission is responsible for making the recommendations for the appointment of non-party-political Members of this House. The commission does not currently look to fill from particular professions and does not target nominations from them either. However, the commission recommends individuals on the basis of merit and their ability to make a significant contribution. It welcomes nominations from all backgrounds and encourages nominations that would broaden the expertise and experience of this House. The criteria of the commission in making these recommendations are publicly available.

Baroness Cox: My Lords, I thank the Minister for his Answer, which I appreciate. Is he aware that my noble friend Lady Emerton, who I am sad to say is in hospital, raised this matter with me because, to our knowledge, we are the only two nurses in your Lordships' House, and for various reasons neither of us is adequately up-to-date with current issues in the field to represent here the nursing profession's distinctive contribution to healthcare provision and policy-making?

Lord Taylor of Holbeach: The noble Baroness rather underestimates herself; she is a formidable articulator of both health issues and the humanitarian issues in which she takes a great interest. I am sure that the House wishes her noble friend Lady Emerton well. Although I understand the point that the Question makes, there are other Members from across the House who have a nursing background-my noble friend Lady Cumberlege is one-and who, together, form a remarkable group. Indeed, we have just had a Question showing how strong the House is on these very issues.

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In March this year the Appointments Commission received a report from the Constitution Unit at University College London analysing the make-up of the House. This is a fascinating document which noble Lords can now find in the Library. It shows that 4 per cent of the House, totalling 27 Members, have a primary or secondary interest in a medical or healthcare background. I might add that the number is far higher here than it is in another place.

Baroness Gardner of Parkes: My Lords, is the Minister aware that the noble Baroness, Lady Platt of Writtle, has just sought leave of absence from the House because she does not feel able to continue to come? In her nearly 30 years here, she has done a tremendous amount for Women into Science and Engineering. Although I do not approve of selecting people because of their professions, some expertise or knowledge can be of great benefit to the community as a whole. Does the Minister agree?

Lord Taylor of Holbeach: My Lords, I agree with my noble friend. One of the great successes of this House is the expertise that comes in through the Cross Benchers. One has only to look around at the Cross Benches, in particular, to realise the variety of walks of life from which they come. That adds greatly to our debate and I hope that that tradition will continue. The House should pay tribute to the Appointments Commission. Three noble Lords will be retiring this autumn: the noble Baroness, Lady Dean of Thornton-le-Fylde, the noble Lord, Lord Dholakia, and the noble Lord, Lord Hurd of Westwell. Their contribution has been remarkable. One has only to look to see the end product.

The Lord Bishop of Chichester: My Lords, is the Minister aware of the negative impact that a wholly or partially elected House would have on precisely the range of expertise to which he has paid such eloquent tribute?

Lord Taylor of Holbeach: There are at least two members of the all-party Joint Committee on House of Lords Reform either side of me. I am sure that they are very much aware of the role of the Cross Benches and, indeed, the Episcopal Bench in this House. Although I cannot anticipate, I would imagine that that must be one thing that it will be bearing in mind.

Lord Brooke of Alverthorpe: My Lords, is it not possible that, in the event of a partially or wholly elected House, the criteria currently used by the commission could be used by the parties to endeavour to select people of equal calibre?

Lord Taylor of Holbeach:We would like to think that nominations, at least from this side of the House, are already made on merit.

Baroness Deech: My Lords, does the Minister agree that the problem highlighted by the noble Baroness, Lady Cox, is shared by all professions which are extremely worthy but not very well paid-for example, school teaching; I doubt whether there are many schoolteachers here-and that that problem will be

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exacerbated given the sitting hours and the cut in expenses, which will make it impossible for members of the teaching or nursing professions to attend, especially if they live outside London?

Lord Taylor of Holbeach: Maintaining the diversity of the House is very important; all the contributions that have been made have made that quite clear. I am sure that it is the aim and wish of all noble Lords for that to be maintained. It is important to bear in mind that, while Members of this House have direct experience, they also have indirect experience. When we have debates on which there is little or no experience in this House-let us say, teenage unemployment, which is a major issue-many noble Lords have indirect experience of it and are able to contribute to such debates with skill. That is a factor that we need to bear in mind. Direct experience is only one way in which people can contribute to this House.

Baroness Cumberlege: My Lords, returning to the Question, does the noble Lord agree that the profile of nursing has changed dramatically in the past 10 to 15 years? We have nurse prescribing and nurses dealing with very complex long-term conditions. We have nurses taking direct referrals from patients. Much more than that, nurses are now taking strategic decisions in universities, in the Armed Forces, in prison health and in all sorts of other areas. Is not that experience important to this House and would it not enrich our debates and help with the scrutiny of legislation?

Lord Taylor of Holbeach: I can only add that the Appointments Commission looks for nominations from all walks of life. We welcome all nominations from the nursing profession and, indeed, I hope the nursing profession will be listening to this short debate and take steps to make sure that nominations come forward.

Crime: Youth Crime and Antisocial Behaviour Commission


2.55 pm

Asked By Lord Ramsbotham

The Minister of State, Ministry of Justice (Lord McNally): My Lords, the Government will consider the report in the context of our review of anti-social behaviour and the tools used to tackle it, as well as the comprehensive assessment of sentencing policy now under way.

Lord Ramsbotham: My Lords, I thank the Minister for that reply. I am sure he is aware that many of us who take a keen interest in the administration of the criminal justice system have been much encouraged by the intent announced by the Secretary of State for Justice in his rehabilitation agenda. One of the areas that gives us greatest concern is dealing with youth crime and anti-social behaviour. One of the tragedies

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of recent years is that there have been many reports and many recommendations on this, too many of which I fear are gathering dust on the shelves of the Ministry of Justice. Can the Minister assure the House that this excellent report drawn up by a glittering cast, containing many prescient and far-sighted analyses and recommendations, will be included in the Green Paper, which is shortly to come before us?

Lord McNally: I share all the descriptions of the report that the noble Lord used. It has come at an extremely opportune moment. I cannot guarantee that every last recommendation will be in it but, as he said, it comes from a very good stable. I think that, in drawing up the Green Paper and carrying the debate forward, it will be reflected in many of the things that we want to say.

Lord Bach: My Lords, perhaps I may say from these Benches that we too welcome the report and we look forward to the Government's response as soon as is possible. Does the Minister agree, first, that the decline in the number of children and young people in custody by around one-third, as the report mentions, is to be widely welcomed and, secondly, that in some cases, alas, custody even for those so young is necessary? Thirdly, will he assure us that the Government's policy is, as the report suggests it ought to be, that custody should be a last resort?

Lord McNally: My Lords, I have no hesitation in endorsing those three points, in particular that the whole thrust of government policy-as I think that it was with the previous Administration-is to make custody for young people a last resort.

Lord Corbett of Castle Vale: My Lords-

Baroness Sharples: Will my noble friend say whether ASBOs are on an increase or a decrease?

Lord McNally: The use of ASBOs is about steady but we are looking at whether they are effective. There is evidence that in certain cases they are useful. Certainly, ASBOs can be used to help where disturbances by youths cause great distress to a wide group in the community.

Baroness Linklater of Butterstone: My Lords-

Lord Corbett of Castle Vale: The Minister will be aware that the commission describes the current levels of remand in custody as,

What steps will the Government take to reduce the use of secure remands to the absolute minimum for the protection of the person concerned and the public?

Lord McNally: One of the things that we are looking at very much is the use of restorative justice as an alternative. The pilot projects that have been used indicate that this could have a good impact on the need to send young people to prison. However, as the noble Lord, Lord Bach, emphasised, there are times

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when young people need to be in custody. But, as the report indicates, and as the noble Lord, Lord Ramsbotham, indicated, it should be a last resort. We are trying to make sure that we get the balance right in restorative justice and in taking young people who are a danger to their community off the streets.

Baroness Linklater of Butterstone: My Lords-

Lord Low of Dalston: My Lords-

The Lord Bishop of Wakefield: My Lords, the centres of Wakefield and other towns and cities in Yorkshire are at present prime focuses for urban and social renewal, but are being hampered by the sort of anti-social behaviour that we have been hearing about. In the light of similar situations, does the Minister agree with the Justice Committee of the other place that there is a need for the development of community based services to prevent potential offenders entering the criminal justice system and thus divert them from offending?

Lord McNally: Certainly that is so. In fact, the whole thrust of the present Government's policy is localism involving voluntary organisations so that the community itself is involved in the fight against youth crime.

Baroness Linklater of Butterstone: My Lords, the commission has recommended the disbanding of youth offender panels. Do the Government believe that the better way is actually for the community to become engaged in the decisions affecting young people who offend, particularly in the use of community penalties as alternatives to custody?

Lord McNally: My Lords, I regret to say that that is still under review as far as the responses are concerned, but I hope that my replies have indicated that the whole thrust of the policy is one of localism and local community involvement, and a real attempt to avoid sending young people into custody.

Lord Low of Dalston: My Lords, the commission's report states that the Crown Court is unsuitable as a venue for justice involving young people. Can the Minister say whether the Government will accept the commission's recommendation that prosecutions of all young people under the age of 18 should be heard in the youth court?

Lord McNally: I am afraid I cannot give that guarantee because certain crimes that are committed by people under the age of 18 should go to the Crown Court.

EU: Financial Assistance to Member States


3.01 pm

Asked By Lord Pearson of Rannoch

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The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, at the emergency ECOFIN meeting on 9 May, EU Finance Ministers agreed that up to €60 billion of emergency finance can be provided to any EU member state in accordance with Article 122(2) of the EU treaty. At the same time, euro-area Finance Ministers agreed a €440-billion package of assistance to be provided through a special purpose vehicle. Both these actions are consistent with Article 125 of the treaty.

Lord Pearson of Rannoch: My Lords, I am grateful to the noble Lord for that reply, which does not square with the Government's Answer of 14 June when they agreed that no member state should be allowed to bail out another. Are not the proposed bailouts yet another example in a long line of examples of Brussels riding roughshod over its own legislation? Going slightly deeper, does not history teach us that trouble lies ahead when a regime feels free to break its own laws with impunity, when it is supported by a puppet court, and when its people are powerless to get rid of it? Is that not exactly what we now have with the European Union?

Lord Sassoon: My Lords, I fear that I will not be able to persuade the noble Lord, Lord Pearson of Rannoch, of what I am going to say. However, there is no question of any bailout. The one thing I agree with him on is that Article 125 does indeed rule out any bailout. However, no bailout has been proposed or implemented under Article 122(2) or any other article because what have been proposed are loans, which are fully permitted under Article 125.

Lord Davies of Oldham: My Lords, given the range of opinions that exist on the coalition Benches, from Europhiles to Eurosceptics, would it be possible for the Minister to prevail on the Leader of the House to provide a little niche corner for the noble Lord, Lord Pearson of Rannoch, as he speaks neither for these Benches nor on behalf of these Benches, so he should not speak from them?

Lord Sassoon: My Lords, I am not sure what the question is or what it has to do with Article 125, but we were all entertained by it.

Lord Hannay of Chiswick: My Lords-

Lord Stoddart of Swindon: My Lords, does the Minister agree that Members of the House can speak from any Bench they wish? Does he recall that until 1985 the Labour Party was in favour of complete withdrawal from the European Union?

On the Question, should not the Government ensure that the European Commission and European authorities obey their own laws and not expect member countries to obey laws on pain of a fine?

Lord Sassoon: My Lords, as regards Article 125, about which we are talking today, there has been no suggestion that the Commission or anyone else has proposed anything illegal under the treaty. Indeed, Her Majesty's Government take their own legal advice to confirm that position.

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Lord Newby: My Lords-

Lord Hannay of Chiswick: My Lords-

Lord Campbell of Alloway: My Lords-

Noble Lords: This side! Keep going!

Lord Newby: My Lords, will the Minister confirm that, despite the predictions of the noble Lord, Lord Pearson of Rannoch, and others, the action taken by the EU in respect of the euro has meant that in recent days it has strengthened in relation to the dollar?

Lord Sassoon: My Lords, I have not had this kind of stereophonic or quadraphonic experience before.

I note what my noble friend says about strengthening currencies but it is not the Government's practice to comment on movements in the currency markets.

Lord Barnett: My Lords, does the noble Lord accept that there are potential serious losses to UK banks, not least those owned by taxpayers? I hope he is saying that it would be sensible to occasionally join in with good and sensible proposals to help those UK taxpayers.

Lord Sassoon: Indeed, my Lords. Out of the €500-billion package agreed on 9 May, the UK participates in the €60-billion element of it. I agree that it is appropriate the UK should play its part. I remind the noble Lord that on Friday 23 July the bank stress tests will be published, which will be another important component in ensuring the stability of Europe and the eurozone.

Lord Hannay of Chiswick: My Lords, does not the Minister agree that during these current economic and financial difficulties in Europe we would all do well to remember that, to coin a phrase, "We are all in this together"? Therefore it is in this country's interest that countries in difficulties should be helped, as they are being.

Lord Sassoon: My Lords, as I have set out, the UK is indeed playing its part. Forty per cent of our exports go to the eurozone and it is absolutely critical that we play our part, not only in the current ongoing crisis but in influencing the structural reforms that Europe requires going forward.

Lord Campbell of Alloway: My Lords, perhaps I may ask a simple question, speaking for no Benches at all. What is the Answer: are we or are we not liable?

Lord Sassoon: My Lords, the €60-billion element of the package agreed on 9 May comes out of the EU budget. So far there have been no loans advanced under this but, if there were and any question of loss arose, the UK would indirectly bear its proportionate share, along with any other item in the EU budget.

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European Union Membership (Economic Implications) Bill [HL]

First Reading

3.09 pm

A Bill to make provision for establishing a committee of inquiry into the economic implications for the United Kingdom of membership of the European Union.

The Bill was introduced by Lord Pearson of Rannoch, read a first time and ordered to be printed.

Business of the House

Motion on Standing Orders

3.09 pm

Moved by Lord Strathclyde

Motion agreed.

Legislative Reform (Licensing) (Interim Authority Notices etc.) Order 2010

Grand Committee Debate

Motion to Approve

3.09 pm

Moved By Baroness Rawlings

Relevant document: 8th Report, Session 2009-10, from the Regulatory Reform Committee, considered in Grand Committee on 13 July.

Motion agreed.

Terrorism Act 2006 (Disapplication of Section 25) Order 2010

Copy of the SI
Copy of the Report

Motion to Approve

3.09 pm

Moved By Baroness Neville-Jones

Relevant documents: 1st Report from the Joint Committee on Statutory Instruments and 3rd Report from the Merits Committee.

The Minister of State, Home Office (Baroness Neville-Jones): My Lords, I am aware that the Merits Committee has drawn particular attention to this draft order in its latest report. I welcome the committee's interest: it is entirely appropriate for such an important debate.

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I shall speak first about the threat that we face and then about the Government's approach to it. On the terrorist threat, I believe that no one here today disputes the fact that this country remains a target for terrorists. A good statement of the threat to this country is contained in the annual report on CONTEST, published by the previous Government in March of this year, and it remains valid today. This is available in the House Library. We have dealt with the threat from Irish republican terrorists for many years, and although great steps forward have been taken, that threat remains. There have been as many attacks in the first half of this year as there were in the whole of 2009.

We are only too aware of the threat from Islamist terrorists, five years after the horrifying attacks of July 2005. Numerous other plots, fortunately, have been disrupted. Between 11 September 2001 and 31 December 2009, 235 people were convicted of terrorism-related offences, and a further 22 defendants were awaiting trial at the end of last year. Islamist extremists, particularly those associated with al-Qaeda, aspire to carry out attacks causing mass casualties, to try to undermine our cohesion, our values and our way of life. In dealing with the threat, we have to remain true to those values and freedoms that this country stands for.

The question is often asked why terrorism investigations should be treated any differently from any other criminal investigations, or indeed why we need any special law. Terrorists are, after all, criminals. Serious criminal investigations can also be complex and wide in scale and we frequently use long-standing common law offences to convict terrorists, so why the special treatment? The answer lies in the need to protect public safety. The current wave of international terrorism is no respecter of human life; rather the contrary, in the perverse and evil world of al-Qaeda, mass casualties are a signal achievement of the suicide bomber.

Experience has shown that the earlier the need to intervene to disrupt a terrorist plot for public safety reasons, the greater the likelihood of having to conduct a significant portion of an investigation after arrest and the greater the potential difficulty of obtaining admissible evidence leading to charge and conviction. The House will also be aware that the volume of information requiring careful investigation; the increasingly sophisticated use by terrorists of modern communications; the complexity of international terrorist networks; and the need to secure international co-operation and await the results of forensic examination of substances used by terrorists as weapons all add to the complications of the task faced by the police in unravelling a plot to identify its perpetrators.

3.15 pm

In recognition of the unprecedented nature of the threat, Parliament put in place a maximum of 28 days' detention before charge, but it also did something else. In recognition of the exceptional nature of the power being granted to the state, it inserted a sunset clause, thus signalling that it was to be regarded as a temporary measure. This obliges us to consider not less than annually whether further extension is justified.

I said during previous debates that I thought the evidence for 28-day detention needed to be examined

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more closely. The Government are agreed on this. That is why, on Wednesday last week, the Home Secretary announced the inclusion of pre-charge detention in the Government's wider review of counterterrorism powers, along with control orders, stop and search powers, the use by local authorities of the Regulation of Investigatory Powers Act, deportations with assurances, and measures to deal with organisations promoting hatred or violence. The review will consider the maximum time limit, and whether safeguards in the provisions are sufficient, either in relation to the extension of detention process, or in respect of more general oversight mechanisms.

The Civil Contingencies Act 2004 has been mooted as an alternative to the current pre-charge detention provisions. This is an important suggestion but, after looking at it closely, we have come to the conclusion that the criteria for making emergency regulations under that Act and the purposes for which it is intended do not make it an appropriate vehicle for extending pre-charge detention of terrorist suspects in exceptional circumstances. Since the power to detain for 28 days was passed by Parliament and came into force in July 2006, 11 people have been held for more than 14 days, eight were charged with terrorist-related offences, and four were found guilty. Six people have been held for between 27 and 28 days, three were charged with terrorist-related offences, and two were found guilty. Since July 2007, however, no suspect has been held for more than 14 days.

The fair conclusion from this situation, therefore, is that the power to detain for up to 28 days is not needed routinely for the police to investigate, interrogate and charge terrorist suspects. Given the particular nature of the terrorist threat, on the other hand, we cannot assert with certainty that it will never be necessary to detain some suspects beyond 14 days. Since such circumstances are likely to be rare, we should take steps to reduce the opportunity for abuse of power. So, in moving today's Motion, I am certainly not asking your Lordships House to support 28 days indefinitely, nor even for 12 months, but for a six-month period, which will give us the time to establish the means, possibly by some contingency arrangement, which will enable us to reduce the limit on an indefinite basis. The order will come into force on 25 July and expire at the end of 24 January 2011.

This approach, and indeed the whole review of counterterrorism powers, will be underpinned by the principles of the coalition Government. Those shared principles are based on a respect for our ancient civil liberties and individual freedom. That is why, for instance, the Government have already introduced legislation to get rid of identity cards and the national identity register, which could have held up to 50 individual items of personal data on a vast national register of all the people in this land.

As security Minister, I recognise as much as anyone the need to protect the public and safeguard national security. But I also have a duty, with the Government, to hang on to proportionality in everything I do.

We have taken immediate steps to restrict the use of terrorism stop-and-search powers, which were found to be against international law. We have included the

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controversial use of automatic number plate recognition cameras in the review of CCTV regulation. We will bring forward a freedom Bill, adopt the protections of the Scottish model for the DNA database, restore rights to non-violent protest, end the storage of internet and e-mail records without good reason and extend the scope of the Freedom of Information Act. We will take the same considered, clear-headed approach to pre-charge detention as we are taking on all these issues.

Terrorism is an enormous international challenge, and it is vital that we support the police and other agencies in their work to keep us safe from it. That is not just a priority for this Government but a public duty that we all share. However, we also share the commitment to upholding the hard-won democratic freedoms that are the thread running through our history. A six-month renewal will provide the opportunity to give full consideration to the important issues involved. I commend the order to the House.

Baroness Kennedy of The Shaws: My Lords, I want to comment on the interesting statement by the Minister. I speak as the chair of Justice, which is the UK-based human rights and law reform organisation whose mission is to advance access to justice, human rights and the rule of law. It is also the British section of the International Commission of Jurists. This House will know that that international commission set up a panel of eminent jurists who reported last year on the issue of terrorism and in February 2009 produced a report, Terrorism, Counterterrorism and Human Rights, in which it recommended that there should be a review of counterterrorism legislation in this country because of its concern that there had been so much erosion of civil liberties and of some of the protections and safeguards that are so important to our system, which is admired around the world.

We therefore welcome the Government's review. The steps they are taking to reinstate many of the liberties that we saw eroded are greatly welcomed by human rights lawyers. However, we are concerned that the Government are still going to continue with the 28-day pre-charge detention relating to terrorism, even for six months. In our view, with great care taken to look at the evidence, we are confident that 28 days is not necessary. We make the argument that it is not necessary because plainly it is at odds with the right to liberty. Also, the period is far longer than any other western democracy has in place, and there is a lack of effective safeguards.

I remind the House of a number of the facts of the cases that have come before the courts in recent times. Our review of the use of the 28 days over the period since 2006, when 14 days was raised to 28 days, found that six suspects had been held for as long as 27 or 28 days. Three of those were released without charge. Three were charged with terrorism offences but, of those three, two were acquitted and only one was convicted. In that one instance where there was a successful conviction, it appears that the great majority of admissible evidence was already available to the police at the time of arrest; it was certainly available before the 14 days were up.

We have also seen that five of the six suspects held for up to 28 days were arrested in the context of

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Operation Overt, the liquid bomb plot. I should declare that I was one of the counsels in that case so I am familiar with it in some detail. Indeed, all three men who were ultimately convicted were charged within 12 days of their arrest-the 28 days were not necessary in that case either.

Justice urges the House that to defer a decision on this matter even for six months is too long. I remind noble Lords that in other western democracies, particularly in common law countries, there is nothing like this erosion of safeguards and protections. In Canada, there is a requirement to charge within a day; in the United States, it is two days; in South Africa, it is two days; and in New Zealand, it is two days. Even in other parts of Europe which do not have the common law system, to which I am so committed, the position is different. For example, in Germany the period is two days; in Spain, it is a maximum of five days; and in France, it is a maximum of six days. Charging is expected to take place within those limits.

We are concerned that there is an incompatibility with Article 5 of the European Convention on Human Rights. We think that it is highly likely that Schedule 8, the authorisation procedure, will be found incompatible with the requirements of Article 5. We ask the Government to look again at whether there is even a need to have the six months' extension which is now being considered.

However, I say all of that in the context of our view that the Government are taking the right steps in having this inquiry into what is needed. Clearly, no country should roll over in the face of terrorism and special steps have to be taken, but it is our view that the extension to 14 days, which was introduced, is adequate to the challenges that we all face.

Lord Pannick: My Lords, I share the concerns expressed by the noble Baroness, Lady Kennedy of The Shaws. I appreciate that we are debating this issue in the context of the Government's very welcome announcement that they will conduct a review of the 28-day pre-charge detention limit. However, I am unpersuaded that there is any basis for continuing this power, even on a temporary basis.

There are three points which your Lordships will wish to have well in mind. First, this is an extraordinarily exceptional power. English law normally requires that suspects be charged or released within four days. The pre-charge detention limit for terrorist cases was limited to seven days until 2003, when it was raised to 14 days. English law jealously restricts the power of the state to detain people without charge, and rightly so. It is only when charged that the person concerned has the right to be told the accusation against him and to respond to it. For the state to hold a person without charge for up to four weeks is inevitably a very substantial interference with their freedom and inevitably has a very damaging effect on their work, family relationships and reputation in the community.

Secondly, there must, therefore, be a very heavy onus on the Government to justify such an interference with basic liberty. The real question is whether they can meet that heavy onus. I suggest that they have failed to identify any practical experience whatever which establishes, or indeed even suggests, that a 14-day

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limit would not suffice. This is, of course, not a new problem. The Home Office has all the relevant information. Will the Minister in her reply please identify for the House whether there are any cases in which pre-charge detention after 14 days was necessary to the successful prosecution of a terrorist suspect? It is surely not sufficient for the noble Baroness to assert-and who can disagree with the assertion?-that it is impossible to be sure that there might never in the future be an occasion when more than 14 days might be required, as she put it.

3.30 pm

My third and final point, which I hope troubles this Government more than it did the previous Government, is that detaining a suspect pre-charge for as long as 28 days is a breach of the European Convention on Human Rights. It would be declared to be so by the European court and, indeed, by our courts were this power to be exercised. In this respect, the European convention simply adopts and applies the principles of English common law developed over the centuries. Article 5 entitles a suspect to be informed promptly of any charge against him, and case law clearly establishes that "promptly" means within a few days, even in cases where an individual is suspected of terrorism. Therefore, if and when the 28-day power is used, it is almost certain that a challenge to its legality would succeed. Can the Minister tell the House whether the Government have been advised to the contrary?

The organisations Liberty and Justice have been making these points eloquently and repeatedly over the years. There is, I suggest, no coherent answer to them. The noble Baroness mentioned the Statement that she made to the House on 13 July, repeating a Statement by the Home Secretary in the other place. She said that,

I am very sorry indeed that this Government do not feel able to demonstrate the difference on this occasion.

Lord Condon: My Lords, in previous debates in your Lordships' House on this issue I spoke strongly against longer periods of detention in these cases-perhaps an uncomfortable position for a former police commissioner to take. Nevertheless, I felt that that was a principled position and I have needed persuasion that allowing detention, even up to 28 days, was necessary. However, we do not know how terrorists' tactics may change tomorrow, the day after or the day after that. There can be no certainty on the sorts of alliances that could be formed around the world in the next few months that may increase the complexity of terrorist investigations, and may well need, in very rare cases, periods of detention longer than 14 days, up to a maximum of 28 days. So although I remain uncomfortable with the notion of detention without charge for as long as 28 days, I support the order. It is a wise, sensible and pragmatic holding position, which is nothing more than a holding position, until further review activity is completed.

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Lord Newton of Braintree: My Lords, I am beginning to think that it is probably unwise for someone who is neither a lawyer nor a former senior policeman to engage in this debate, but those with longish memories may recall that from 2001 until about 2003 I chaired a group of privy counsellors looking at the Anti-terrorism, Crime and Security Act 2001, who produced a report that I am bound to say the then Home Secretary did not like at all, precisely because its drift was somewhat in line with some of the comments that have been made today and, I dare say, has been reasonably well justified by events during the intervening period. All that leads me to say that I, too, have been somewhat depressed-as, evidently, the noble Baroness, Lady Kennedy, and the noble Lord, Lord Pannick, have been-by the drift during the intervening period towards continued erosion of civil liberties.

I therefore take this opportunity to applaud the approach that my noble friend outlined on behalf of the Government. It might follow from that that I would be on the side, in this particular debate at this particular time, of the noble Lord, Lord Pannick, and the noble Baroness, Lady Kennedy. I am not, for a reason that lines me up with the noble Lord, Lord Condon. Against the background of the shift towards a more liberal approach in these matters that appears to be taking place, the Government and my noble friend deserve the chance to produce a properly thought-through change in a well crafted bit of legislation and to not get forced into some of the knee-jerk stuff that we have seen too many times in the past few years.

Lord Howarth of Newport: My Lords, I have a question and, although it may appear tangential, I hope your Lordships will feel that it is a question that I am justified in putting to the Minister. She spoke of the Government's commitment to protecting our hard-won democratic liberties. Should that principle not be applied seamlessly and consistently across all areas of policy? If so, why are the Government not allowing the House of Commons the normal time to scrutinise the Academies Bill? I know it is not a Home Office responsibility, but there is collective responsibility across government as a whole. Parliament is where our democratic liberties are most importantly enshrined, and I would be grateful if the Minister would be willing, on behalf of the Government as a whole, to explain that.

Lord West of Spithead: My Lords, I had not intended to speak today, but my noble friend Lady Kennedy raised a point that I would like to touch on. It relates to how other countries hold people. When I was Security Minister, I discovered-I shall not say to my horror, but to my surprise-that an awful lot of those countries have other mechanisms whereby people are held for unbelievably long periods. The mechanisms are very cleverly crafted so that they do not break any rules, but I found them quite horrifying. It is very dangerous to make those comparisons either within the Commonwealth or within Europe. I can think of one European country not far away that has been holding someone for just over five years in a very clever way so that it does not break these rules. I am very glad that we have not gone down that route. I am

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also very glad that we are debating this point, as our party believes very strongly in civil liberties and we look at things like this as being very important. We did all the time that I was Security Minister-three years. We need to be careful about comparisons. I do not think we have anything to be ashamed of at all in this country.

My other point relates to English law, common law and the wonderful history of this country. It is perfect for a case where you have a murdered body lying on the floor, you investigate that, you find someone who is guilty and you charge them. It is not good when all you have is lots of intelligence. We have found that that intelligence is very often very accurate, but it is not evidence. That makes these cases somewhat different.

The way the Government propose to go forward is eminently sensible. Looking at these issues across the board is very important, but let us not rush into something. We have a good record here. Yes, it seems very harsh, some very horrible things happened and there are a lot of people who mean to do us very great harm. We need to bear that in mind when we weigh all this in the balance.

Lord Ahmed: My Lords, in her opening speech, the Minister mentioned terrorism in Northern Ireland, Islamist terrorists and al-Qaeda Islamist terrorists. I am a little confused. Will she explain the difference between all these terrorists?

Lord Bew: My Lords, I support the Minister with great pleasure because she has over many years now had a fine record of circumspect vigilance, if I could put it like that, in this field. In putting forward this order today, she is exhibiting that same quality of circumspect vigilance. In recent weeks, we have seen the broad outlines of a new government policy on terrorism. On the one hand we have seen a more liberal approach, with an attempt to remove irritations that communities feel with some aspects of policy, and on the other an attempt to draw a firm line with respect to extremist ideologues, symbolised by the action taken by the Home Secretary in the middle of last month over the visit of Zakir Naik. I wish the Government well with this subtle balancing project.

Some of the discussion that is now going on about the strong and realistic possibility that in some months' time we will move from 28 days to 14 seems to be a little unrealistic and utopian. It is based to some degree-not for the first or last time-on a forced and false analogy with Northern Ireland. It is true that the internment policy, which was introduced in mid-1971, was a failure, but we must remember that, although it was phased out in the mid-1970s, terrorism went on for another 20 years and is not to this day fully extinguished in Northern Ireland. It is important not to have exaggerated expectations for the impact of any move from 28 to 14 days, because it is clear, as all serious practitioners acknowledge, that the issues of the illiberality or incipient authoritarianism, alleged or practical, of our modern state are not the ones that motivate those who involve themselves in terrorism.

There is a more complicated question about the broader communities that may or may not have what is called in Ireland a sneaking regard for terrorism.

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Here again, it is clearly the case that the Government must take a careful look at what the state does. However, the truth is that what modern states, even the most liberal and sophisticated, do in the face of terrorism is to a degree always clumsy. It is also the case that it is not quite as important in the evolution of communal attitudes as many believe. The tragedy of terrorist acts is that they force members of the community either to identify with them or, in an act of great moral courage, to say no to them. There is something polarising about these acts that forces communities into a position either of denial or-to use the Irish phrase again-of sneaking regard. Therefore, the fundamental thing has to be to stop terrorism, because those actions are the driver of the process, rather than the inevitable, clumsy and inadequate acts of the state. I guarantee that if we go to 14 days, within two or three years something else that the state is doing will be said to be inflaming communal sentiment. For those reasons of caution, I welcome the circumspect vigilance that characterises the approach to these matters of the noble Baroness and I am glad to support the order.

Baroness Hamwee: My Lords, the extension of 14 days to 28 started as a temporary measure and remains temporary; we need to remember that. However, the extension even to 14 days in the parent legislation was an extension from the original four. Fourteen days is exceptional in every sense of the word and 28 days more so. The noble Lord, Lord Newton, referred to drift. I entirely agree with him. It is important that renewal does not become routine and that the reasons for renewal are not merely a parroting of what has gone before. The measures taken over the past few years have too often been knee-jerk.

This occasion is different. Were it not so, I would have encouraged colleagues to vote against the order. Liberal Democrats have consistently opposed 28 days. It may be a disadvantage to be tidy-minded, but I see the logic of not pre-empting the review of counterterrorism powers-not just the headline powers of control orders, detention without charge, deportation with assurances and so on, but how the powers relate to one another and all the underlying measures and mechanisms that are available or that might be made available. These were listed in your Lordships' House when the Minister announced the review. In all this, I stress the role of the judiciary in allowing an extension of detention without charge and in post-charge interviews. It would be helpful if the Minister could tell us about the bringing into force of, I think, Section 22 of the 2008 legislation.

Reference has been made to the mechanisms available in other jurisdictions. I hope that the review that will come out of the Home Office in due course will explain the differences between the different jurisdictions. I entirely take the point made by the noble Lord, Lord West, that one cannot look at the period of detention without charge in isolation from all the other mechanisms used by the different jurisdictions, as these matters are not easily transferable. However, for those of us who are concerned with this whole area, it would be helpful to have the distinctions spelled out so that we are clear about them.

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3.45 pm

I readily acknowledge that there is a fault-line in my logic in that I am not prepared to keep a wholly open mind until I see the outcome of the review. I am not prepared to cross that fault-line. Liberal Democrat policy is to reduce the time limit to 14 days. In six months or less, I know that I will find myself saying that I am not prepared to settle for-I was going to say "less" but in terms of days it is "more".

The Merits of Statutory Instruments Committee, of which I am a member, asked the Home Office for specific evidence showing that the order is necessary. The Home Office gave us a summary of the state of one investigation 14 days after arrest. It suggested the scale of the investigation that was required in that case, which we were told was typical. However, I wonder whether it would have been very different had we been discussing 21 days or, indeed, 42. I have no idea whether investigators succumb to the temptation to allow work to expand to fill the time available, as is the case with almost everyone else in every other context.

The noble Baroness, Lady Kennedy, referred to the figures relating to releases, charges and so on for those detained for 14 days and more. She referred to the single instance where I understand there was a successful conviction for terrorism offences following 28 days' pre-charge detention and where most of the admissible evidence was available to the police at the time of the arrest. I do not want to be too glib: the suspected or potential offences are serious, but so, too, is detention without knowing the charges against you and so not having the opportunity to answer allegations. I hope that access to information and secret evidence used by the police and prosecutors will also be part of the Home Office review.

Like others, I am extremely grateful for the briefings from Justice, Liberty and Amnesty International. Of course, those briefings are the tip of the iceberg, but the work that they do is extremely valuable. They comment on worldwide monitoring, which shows that a prolonged period of pre-charge detention creates a climate for abusive practices that tend to prompt detainees to make involuntary statements. They refer to the effect on family life, work and other relationships, the stigma to which the noble Lord, Lord Pannick, referred, and the disproportionate and discriminatory impact on members of certain communities, with the consequent negative effect on policing and intelligence-gathering.

When the time limit was last renewed, the Minister, who was then speaking for the Opposition, explained that she did not feel that she could vote for or support a change with potential implications for security on the basis of the then incomplete debate. She said:

"Lest the Government conclude that this is therefore the way to obtain renewal in future-by keeping the House in the dark and by ignoring the numerous objections to obnoxious features of the current legal regime-let me give fair warning that on these Benches we shall not be so complaisant on future occasions. The Government must not think that they can take Parliament for granted".-[Official Report, 23/6/09; col.1542.]

Quite so. The Home Secretary said last week in the Commons:

"I am aware that in asking many hon. Friends and hon. Members to vote for this temporary six-month measure today, I am asking them to take a deep breath and vote for a measure that

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they do not very much like. But I can assure them that if they support this order, I will work with hon. Members on both sides of the House to find a solution that reduces the limit for pre-charge detention, but gives the police the powers they need to keep us all safe from those who would bring devastation to our country".-[Official Report, Commons, 14/7/10; cols. 1008-09.]

I very much welcome those comments from the Home Secretary, her willingness to work on a cross-party basis-this should not be a partisan issue-and her clear indication that, for her, the default is 14 not 28 days. We await the counterterrorism review with considerable interest, so I, too, am prepared not just to take a deep breath but to hold my nose and not to oppose the order today.

Lord Brett: The Opposition support the order so I shall not delay the House too long. However, our support comes with something of a health warning. The contribution from the noble Baroness, Lady Hamwee, highlights this.

In the past few days in respect of various other proposals to review, Members on all sides of your Lordships' House have sought to persuade Ministers to speculate on the outcome of the examinations that have taken place and have been rightly rebuffed. Indeed, the noble Baroness, Lady Neville-Jones, refused to speculate on the outcome of the anti-terrorism review that we debated last week. Accordingly, I am not sure that it was wise of the Home Secretary to indicate a personal preference for 14 rather than 28 or any other number of days when this order was debated in another place. To be fair, she said that she did not think it right to pre-empt the review, which is the most important issue. The noble Baroness, Lady Neville-Jones, spelt out cogently the risk that still exists.

The risk has not diminished in the past year at all. There has been no diminution in the risk of terrorist activity. Indeed, in Northern Ireland there has been an increase. The threat level remains severe and the police and the DPP support the continuance of the 28-day provision. It is a year since its renewal-I accept that that is why we are renewing it, albeit for six months, as it is a temporary provision. Nobody in your Lordships' House would be happier than us, on these Benches, if we found the risk so diminished that the requirement for any pre-charge detention could be removed completely.

We have learnt more in the past year, by means of Operation Overt, about the so-called liquid bomb plot involving the planned destruction of seven passenger aircraft flying to North America. In that case, pre-charge detention beyond 14 days was necessary for six people. There was Operation Pathway in Greater Manchester, which was raised in the debate in the other place a year ago, and we know that that plot was successfully thwarted. We understand much better that it was a serious and advanced plot. These cases explain why, to date, 28 days has been deemed necessary. Noble Lords on all Benches will be happy to see that reduced, I am sure.

I am not sure how this argument can be taken. It is cited that there are few cases, which means that the power is not required. We are also told that there is a natural propensity-Parkinson's law-in security that the more time you give people, the more time they will take. I would be astonished if that were the case in security issues. I would be very surprised if the security

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services and the police were not aware that smart lawyers, many of whom represent clients in courts and are Members of your Lordships' House, are willing to demolish any case built on a prevention of charging when charges could be brought.

It is the right of all Governments to review and it is right to review this order annually. The question is whether in the past year sufficient has happened to persuade us that the threat is diminished. That is where the health warning comes in. I am not sure that I like the idea of a default position of 14 days before a review takes place and before all the key authorities involved have been briefed and made their contribution. Therefore, it is important that the review should be evidence-based. Ultimately, sound judgment is required, which is what we expect from our Home Secretary and our Government, to establish whether we have reached the point where we can withdraw the 28-day provision or impose alternative powers. I am sure that the noble Baroness, Lady Neville-Jones, with her knowledge, experience and integrity, will wish nothing less. I support the Motion.

Baroness Neville-Jones: My Lords, I thank noble Lords for their characteristically thoughtful contributions. The purpose of this short extension is to enable the Government to have enough time to do two things. The first is to look at the legislation concerning pre-charge detention and other counterterrorism legislation that we want to review in the round and in relation to each other. The second is to look at the existing operation of the 28-day regime. I was asked, for instance, whether post-charge questioning, which has not yet commenced, will come into operation. That is precisely one of the factors which we want to look at, together with a number of other provisions which seem to us to be relevant in deciding whether we can reduce the maximum time for pre-charge detention.

I mentioned "contingency" and the Civil Contingencies Act. I stick by my comment that, given the threat about which I will say something in a moment, we cannot say with absolute certainty that a time longer than 14 days might never be needed. Equally, we take the view that the current evidence tends to suggest that we ought not, if we can avoid it, continue with the current maximum length of pre-charge detention. However, we want to look at that and at whether it is possible to put in place some kind of contingency that will enable us, with safety, to reduce the normal maximum time.

A number of noble Lords asked why the UK had to have so long a time when other systems somehow managed to do with less. Like other Members of your Lordships' House, I greatly value the work done by organisations such as Justiceand Liberty. However, when one is comparing systems, it is right to do a thorough job and, as the noble Lord, Lord West, said, it is not entirely fair to compare the UK system with, say, France's. Indeed, even among common-law countries, the practice is not uniform. In Australia, for example, there is a 14-day limit that can be significantly extended by something called the stand-down time.

We should not forget that the threat remains. I very much hope that, by other flanking measures which the previous Government put in place and policies which

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we continue, we are managing to harden our targets and to become a more difficult target for terrorists. We also know more about the enemy than previously. All those are relevant factors in considering whether it is right and safe now to reduce the maximum time for our pre-charge detention.

The noble Lord, Lord Pannick, among others, asked whether there was any evidence for the operation of the 28 days and whether history showed that we needed it. He also asked whether it was right, and in accordance with the ECHR, that the suspect was not given sufficient information at an early stage about the charge. That is not the case. The grounds of arrest are put before a defendant when he goes before the magistrate, and he must go before the magistrate no later than 48 hours after arrest. There is no question that people's rights are being violated in that respect. Much as we would like not to have the legislation if we could-the object of the exercise is to see whether we can dispense with it safely-it is human rights-compliant. I hope that the House will accept that in prolonging the provision for a period while that detailed and careful examination takes place, we are not violating the rights of any current or future defendant, while protecting the public.

I have one last point to make. A noble Lord asked about the difference between the varieties of terrorism that we face. It is disturbing that we have an increase in terrorist activity in Northern Ireland. The nature of that terrorism is somewhat different from the Islamist terrorism that we face, which is one reason why we have the 28-day provision in place at the moment. We will look at introducing other measures in conjunction with a different regime on pre-charge detention, combined with our assessment of how we stand in relation to the threat. Our examination of the legislation will take all those factors-the operation of the legislation itself, our view of the threat to us and our ability to withstand the threat-into account. All those are relevant factors in deciding whether we can find some other way to deal with pre-charge detention in normal circumstances.

With that summary, I thank noble Lords for their contributions and invite the House to approve the order.

Lord Richard: My Lords, before the Minister sits down, may I ask one question? My noble friend on the Front Bench raised the issue that the review should be evidence-based. Of course, until we get the evidence, we do not know how much of it can be published. I totally accept that. Can the Minister go so far as to say that there will be a presumption in the review that the maximum amount of evidence that can be published will be published at the end of it?

Baroness Neville-Jones: My Lords, it is a fair promise to make to this House that we will publish as much of our considerations as we possibly can. On the evidence base, a number of noble Lords asked: were 28 days really necessary in those individual cases or were we dealing with a variety of Parkinson's law? I do not think that the police are guilty of applying Parkinson's law, but it is right for us nevertheless to consider whether we need such a limitation in future.

Motion agreed.

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Child Trust Funds (Amendment No. 3) Regulations 2010

Copy of the SI
Copy of the Report

Motion to Approve

4.04 pm

Moved By Lord Sassoon:

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, the Motion I am moving today invites the House to approve the Child Trust Funds (Amendment No. 3) Regulations, which represent the first step in legislating the changes to child trust funds announced on 24 May to reduce and then stop government payments. Before I explain exactly what these regulations do it may be helpful if I remind noble Lords briefly of why we are making these changes.

As your Lordships will know, Britain has an unprecedented budget deficit. At present, the British state is borrowing £1 for every £4 that it spends, increasing the national debt by £3 billion per week. We believe that tackling that deficit must be this Government's most urgent task. To make a start on the process of deficit reduction, within two weeks of the Government being formed we announced £6.2 billion of Exchequer savings in this financial year. We have of course since taken further action through last month's Budget, which sets out a credible plan to get the public finances back under control. The savings announced in May included £320 million from the child trust fund by reducing government payments from August 2010 and stopping them altogether from January 2011. Those changes will also save us more than £500 million in every future year, thus helping to reduce the structural deficit.

I know that some noble Lords and others have concerns about these changes, including those set out in the amendment in the name of the noble Lord, Lord Davies of Oldham. I want to respond to the points that that raises, but first let me explain what the regulations do. They deliver the first part of the savings that I have mentioned by reducing government payments in three ways. First, Regulation 3 reduces the starting payments. At present all children in a child benefit award have £250 paid into their child trust fund account by the Government when the account is opened. Children in lower-income families later receive a further £250. These regulations will reduce both those payments to £50. This will affect all children for whom child benefit is first paid after 2 August and, therefore, all children born after that date. However, children born before 2 August will be unaffected as long as child benefit is paid for them by 2 August.

The date is 2 August, rather than 1 August, because it is a Monday and child benefit awards always start on a Monday. As child benefit can be backdated for up to three months, a claim will need to be made by 1 November in order for child benefit to be paid by 2 August and, therefore, for the child to be eligible for the current level of government payments. That will give parents a three-month window in which to make

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a claim. I should also mention that a child who would otherwise be eligible for the current level of payment but for the fact that they are subject to immigration control will be eligible if that immigration control is lifted by 1 November. This again provides a three-month window.

One group of children is treated slightly differently; namely, looked-after children in the care of a local authority. These children are eligible for a child trust fund even if they are not in a child benefit claim. They currently receive £500 when their account is opened, which will be reduced to £100 by these regulations. In both cases this is the same total amount as children in lower income families. Again, children born before 2 August may be eligible for the current level of payment and we have allowed a three-month window to become eligible through this route, as with the child benefit route.

These regulations ensure that a child born on 31 July, for example, for whom no child benefit claim is made but who is then taken into care at any time up to 1 November would also be eligible for the existing higher payments. Providing this three-month window accounts for much of the apparent complexity of Regulation 3, but I hope that I have explained it clearly.

I said earlier that these regulations reduce government payments in three ways. The other two are rather more straightforward than the changes to the starting payments. Regulation 4 simply ends the payment of £250 made to all children at the age of seven, as well as the additional £250 given to children in lower income families at that point. These payments will stop for all children turning seven from 1 August 2010 onwards. Regulation 5 ends the annual payments made into the child trust funds of disabled people. The payments due this year will be made, but they will stop from 2011-12.

As I have said, these changes are the first step in the Government's changes to child trust funds, and we also intend to bring forward primary legislation to stop government payments altogether, which cannot be done through these regulations. I realise that some will be disappointed by these changes, so I want to respond now to the points made in the amendment tabled by the noble Lord, Lord Davies of Oldham. The first is that the Government are ending a successful savings scheme. In many ways, it was far too early to judge the success of the child trust fund, but in any case the main point here is that the Government are ending a savings scheme that is unfortunately not affordable given the budget deficit that we have inherited.

The second point is about how this will affect those on lower incomes and with disabilities-whether this is fair and whether it will increase inequality. At the root of that is the fact that children from lower income families receive higher government payments than other children. However, it is also the case that children in better off families are more likely to receive contributions from their friends and family and that those contributions are also likely to be higher. Together, this means that the child trust funds of children in better off families are expected on average to be worth more at the age of 18 than those of children in lower income families. It is therefore far from clear that the child trust fund would have reduced inequality. As for disabled children,

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we have already said that we will recycle the funding that would have been used to make the additional payments to disabled children and use it to provide additional respite breaks.

Finally, the amendment argues that these changes will not foster a savings culture in the next generation. We have been clear that we want to encourage saving across the population, including saving by parents for children which can in turn help children to develop the savings habit. We are therefore considering carefully the best way of doing that within the constraints of the public finances. Indeed, my honourable friend the Financial Secretary will be discussing this with stakeholders later this week. That meeting will include representatives of child trust fund providers, and I know that this is another group which is disappointed by the changes we are making. I realise that some are concerned about the profitability of offering accounts that start with £50 from the Government rather than £250. We are working closely with providers to explore ways of reducing their costs, and that will also be discussed at this week's meeting.

I am sure that the noble Lord, Lord Davies of Oldham, will want to explain the amendment in his name in his own words, but I hope that I have explained the Government's views on the points that it raises and the reasons for the changes we are making to child trust funds, as well as what these regulations do. As I said, we believe that unfortunately it would be simply unaffordable to continue to spend more than half a billion pounds on child trust funds every year. Stopping government payments will allow us to save that money, and by moving quickly to reduce payments from August, we can also maximise the savings made in this financial year as we make a start on tackling Britain's unprecedented deficit. As I have explained, these regulations will allow us to do that by reducing government payments at birth and ending them at age seven. I hope that noble Lords will support them.

Lord Maples: My Lords, I think that many of us feel that it is no business of the Government to tax parents and give money to their children. If parents want to do that, they can do it themselves. I am disappointed that this scheme cannot be ended immediately. If I understood correctly what my noble friend said, he seemed to say that that could not be done by regulation, but needed primary legislation. Can he confirm that and tell us whether this will be done in the next Finance Bill?

Lord Sassoon: I can confirm for my noble friend that it is not possible to end completely child trust funds by way of regulations, which is why we are doing this in two stages. The primary legislation will be coming forward in the near future in order to complete the process. I beg to move.

Amendment to the Motion

Moved by Lord Davies of Oldham

4.15 pm

Lord Davies of Oldham: My Lords, it is always encouraging to hear the Government's defence before the amendment has been moved. I congratulate the noble Lord on taking advantage of his position and commenting on the amendment when introducing the regulations. I recognise his need to do so. Even before we had articulated and identified the main sense of the amendment, I found his response to it rather flimsy, not least because it was clear that the Conservative Party did not go into the general election with a proposition to abolish the fund. The Conservatives spoke in their usual vague terms about the necessity for some curtailing of this constructive scheme, but they did not address the issue of bringing forward primary legislation to abolish it.

The Liberals were in favour of abolishing the scheme but, knowing the consequences for the children of the less well-off in society, they had it in mind that the Budget would protect, or even enhance, the position of children in that situation. We shall debate the coalition Budget next week, but the Liberal Democrats will be hard pressed then to defend their part in it. That is why they ought to think twice about the impending decision to scrap the whole of this scheme through primary legislation in due course.

We have heard from both parties in the coalition that savings are a priority. Earlier this year, the present Chancellor said that we need to restore our savings culture and that,

This scheme has one significant advantage-it is universal in its appeal and covers each and every child, with special provisions for those families with the least propensity to save. It was because of that that it was warmly welcomed when it was introduced.

What is now being proposed is quite clear. We may, in due course, hear of some vague ameliorative measures for the poor and disabled, but what will happen as a result of these regulations is a straightforward deterioration in their position. This is an attack on the poor and disabled. I appreciate that the noble Lord made the best fist that he could of it when indicating an element of gradualness, but this will happen all too quickly and with dramatic effect.

The scheme is successful in emphasising a savings culture and long-term investment. If we were talking about sacrificing short-term investments-I imagine that there will be plenty of examples and illustrations from the government Benches over the forthcoming months and longer about the constraints necessary on investments in the short term-that would be one matter, but this is investment for the long term. It ensures that, when young people reach the age of 18 and their needs are particularly acute, they have a basis that can help them to organise their lives.

We should not underestimate the significance of the point that young people will have reached at that time. When people reach the age of 18 to 21, family expenditure increases apace. The average amount owed

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by 18 year-olds is just over £5,000; the average family spend on young people in this range is more than £13,000. That is before we have any idea-although how can we feel encouraged?-of what the implications of higher education finance might be for that substantial section of young people who expect to stay in full-time education beyond the age of 18. A black hole is opening up for that generation of young adults, who could have looked forward to long-term, modest savings, who could have looked forward to being part of a savings culture and who could have looked forward for the first time to having a stake in the economy and in the country, something that I would have thought had some appeal to Conservatives down the ages. This was an opportunity not just to talk in broad terms about the advantages of increasing financial literacy and improving equality of financial education among our young people but also to give a clear illustration of resources that were being developed on their behalf and would give some point to that financial education and assist in it.

None of this underestimates the fact that aspects of public expenditure need to be reined in. We made quite clear as a party before the election-and we made no bones about the issue in the debate on the Budget-the necessity for constraints on public expenditure. However, at stake today is a scheme that is long term in its investment potential and has particular advantages to the least well-off in our society. It is one that aids all the objectives that we share with regard to creating greater opportunities for young people and ensuring that they feel part of society, yet the Government are out, first, to strip the scheme of many of its benefits and, then, in the very near future, to abolish it. That is why the Opposition have put down their amendment. I beg to move.

Lord Naseby: My Lords, I declare an interest. I contribute to the child trust funds for both my granddaughters, Ciara and Ella. In a sense, I should declare an interest in that I am the only one in the Chamber at the moment who was involved in the creation of the child trust fund when it was originally voiced by one of the think tanks, IPPR. Some funds were transferred from the Children's Mutual, of which I had the privilege of being the chairman at that time, so I was in at the beginning. I state now, as I stated then, that I had reservations about the supplementary contributions at seven and 11.

The scheme has worked, in the sense that 6 million children have benefited from it so far. About a third of the trust funds have been topped up by various family members and that figure is slowly increasing. Some would say that a third of young people saving anything significant is not a huge success, but it is certainly a very good start. It is certainly better than anything that had happened in any previous scheme from any other Government, so when I first heard the news I had to think hard about this whole situation.

I suppose that as an economist I am conscious of the economic situation that my noble friend on the Front Bench has been saddled with. I am not the least bit surprised that he has looked at every conceivable large sum sitting on the books-and £500 million is a large sum in anybody's counting house. My noble

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friend will correct me if I am wrong, but I think that the figure is £525 million, of which £5 million is the cost of administration and £520 million is the figure for the amount given out in benefit.

I recognise that any Government facing the situation that our Government face at this time would need to claw back a significant sum from any scheme, whether for children or anyone else. However, I want to make a plea. I welcome the news that my noble friend announced from the Dispatch Box that there is to be a meeting with the providers later this week or early next week. That is a hopeful sign and could be beneficial.

Whether or not this particular scheme goes forward, the kernel of the scheme is the unique number that is issued by the Government to every child in the country. I have calculated the cost of issuing those unique numbers to be about £2 million. Whether or not the scheme continues and whether or not there is to be a mark 2 version-there was an inference on that from my noble friend on the Front Bench-without that unique number it is not possible to take it forward. My plea to him is to recognise that that is the kernel of the scheme. I am sorry to take issue with my noble friend, who has just joined us, but I think that what he said was wrong. The unique number is absolutely crucial. If that goes, the scheme is dead and I would personally regret that.

Lord Liddle: My Lords, in rising to support the amendment moved by the noble Lord, Lord Davies, I make one simple point. I accept that the country faces grave financial difficulties and that there will be a need for public spending cuts. I accept that the child trust fund scheme may need revision. However, what the Government are proposing is extremely drastic. Of all cuts, it is not the right cut to make. I will explain why.

The child trust fund attempts to build capital that people, especially the most vulnerable and poorest in our society, can spend when they reach adulthood. There is far greater inequality of wealth than of income and there is a particularly great inequality of what an economist would call liquid wealth. Inequalities of wealth have narrowed in recent years largely as a result of the expansion of home ownership, which has spread over large sections of the population. However, there is a massive inequality in how much cash in savings people have for meeting essential needs.

This morning, I looked at the figures that the Institute for Fiscal Studies-a noted body-quotes in its latest research on the subject. The latest figures, which were for 2005, show that the median family in Britain has cash savings that it can access of the massive sum of £1,100. For the family at the 75th point of the distribution, the figure is £16,000 and, for the family at the 90th point of the distribution, it is £60,000. However, families at the bottom, below the median, have virtually no cash or liquid savings of any kind.

The child trust fund was a bold and radical attempt to give children from poor families in particular, through targeting extra resources on those families, some stake, so that, when those children came to maturity, they would have some funds that they could access. This Government are proposing to take that away, which is why I support the amendment moved by the noble Lord, Lord Davies.

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4.30 pm

Lord Hodgson of Astley Abbotts: I support my noble friend. Clearly, we have urgent savings to make, and £500 million is no trifling sum-and there is really no alternative. If I have a problem with what we are discussing today, it is along the lines of the direction of travel, as my noble friend Lord Naseby said. I shall come back to that in a minute.

Before I get to the substance of my remarks, I declare an interest. I am chairman of a firm that provides compliance training and administrative support to independent financial advisers. Therefore, I have an involvement in the savings industry. The firm is regulated by the Financial Services Authority and I am an authorised person.

The economic devastation wreaked on our country as a whole and left behind by the previous Labour Government is well documented, and I do not propose to plough this familiar ground. Perhaps the only astonishing thing-a theme that ran through the comments of the noble Lord, Lord Davies-is that somehow the Labour Party continues to deny its involvement and responsibility. Its approach is along the lines of, "It was nothing to do with us, guv-it was all down to those Americans and their subprime mortgages". While the subprime mortgage market may have been the spark, our economy was tinder dry, and that is down to the previous Labour Government.

If that aspect has been well documented, less well documented are the parallel ravages of the previous Labour Government on the savings and financial well- being of private individuals. In 12 short years, the Labour Government effectively brought to an end every single final salary private sector pension scheme. It is true that this would have been a difficult time for private sector pension schemes. Increasing longevity would have caused difficulties to their operation. The increased lifespan is devoutly to be looked for and welcomed on an individual basis, but it represents a nightmare for a pension fund trustee. So there would have been problems-but the Labour Government delivered three hammer blows. First, there was the tax on pension funds; the Chancellor clearly believed that it was a goose that would continue to lay golden eggs. Secondly, there was the introduction of a pensions regulator with varying and often capricious powers. We saw the impact on management companies of the different valuations that could be applied to pension fund deficits, with the regulator nearly always taking the most extreme deficit. Last but not least, the previous Government created a perfect storm for pension funds, with low interest rates, which meant that the discount rate applied to the liability was low and therefore liabilities were high, and there was a collapse in asset values, which meant that the assets held for their discharge were reduced. There was an increasingly large deficit, so any sensible board of directors closed the scheme to new entrants, then ceased further accruals, then moved from 60ths to 80ths-and so on. This was a major plank for our savings culture, which was removed in 12 short years by the Labour Government, unless you were in a public sector scheme, where inflation-proofed pensions remained the norm. But that is for another day.

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No less important was the attitude of the Government towards spending, which created a change in social attitudes to debt and to saving. If the Chancellor of the Exchequer-later the Prime Minister-claims that he has abolished boom and bust, it is not surprising that change follows. Credit card debt soared while long-term savings plans were cashed in, in a way that was almost certainly bound to earn the person who had taken them out a less than adequate return.

The consequence was the collapse of the savings ratio. When the Labour Government came to power in 1997 the ratio was 10 per cent of disposable income; by 2007 it was 2 per cent. So when the noble Lord, Lord Davies, puts down a Prayer about fostering a savings culture, he will understand why, in the light of that record, I have a sense of slightly hollow laughter. The noble Lord talks about a black hole opening up for 18 year-olds. It is opening up not because of the removal of the child trust fund but because of 10 years of incompetent economic stewardship by his Government.

Where I agree with the noble Lord is that we cannot allow this situation to continue-if we do so, our fellow citizens are going to face a difficult old age. What to do? Saving, in my view, is about creating the right habits and explaining that, because of the magic of compound interest, putting small sums aside regularly over time can create large sums over 20, 30 or 40 years. We see this in mortgage repayments. A payment each month pays off the interest but also some of the principal, so that at the end of the term the mortgage has been paid and the house belongs to the mortgage holder. Of course people are aware of the direct debit and of when interest rates rise, but that becomes part of the landscape. We need to seek to achieve this on a much wider basis.

In two places the Labour Government did some sensible things. The first was that they launched and maintained the ISA programme, a sensible way of increasing annual savings by individuals. The second was the concept of a child trust fund. The unique reference number referred to by my noble friend Lord Naseby stimulated parents to do something for the financial future of their child. Evidence from industry, as my noble friend said, suggests encouraging trends in the way that parents and families started to contribute as a result of this stimulus, and there was an increase in the number of children having regular long-term savings plans.

As I said, I agree that the country cannot afford to make a contribution to each child's trust fund. Is it right, however, to wind down the structure that has given rise to this increasingly successful savings policy? Surely £5 million a year for administration is a low cost in comparison to the potential social benefits. If in future we continue to send to the parents of every child their unique reference number, it can do no harm. It may well stimulate some parents, who otherwise would have done nothing, to start saving for their children. One day Conservative policies will have revived the financial health of the nation, and maybe at that point it will seem to be a useful way of encouraging savings and initial payments will be resumed. It would

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be a pity if at that time we had to recreate the administrative back-up that we may shortly be going to demolish.

I hope that my noble friend will think carefully about this final step before statutory proposals are brought forward in the autumn. I entirely support the need to make immediate savings but we must not, in the old phrase, spoil the ship for a ha'p'orth of tar. Creating a savings culture is critical to our country's future prosperity, and child trust funds could provide a useful element of that.

Lord Newby: My Lords, over the coming months and years a series of public expenditure cuts will no doubt come forward that will make people on these Benches feel extremely uncomfortable,. This, however, is not one of them. We opposed the introduction of child trust funds at the start, before there was a financial crisis, for a number of reasons that in my view have not been seriously undermined by the experience of the child trust fund programme.

First, we were very sceptical of the programme because we felt that it was poor value for money. We felt that the principal beneficiaries of it would be middle-class parents and middle-class families who saved every last penny they could tax free, and that the poor-because they were poor-would not be able to add to the programme. As the noble Lord, Lord Liddle, said, poor children will undoubtedly end up with a nest egg aged 18, but middle-class children will end up with a big nest egg aged 18 because their parents will have taken advantage of very significant tax breaks. This view has been borne out by the take-up of child trust funds in constituencies. In the poorest constituencies, 40 per cent of parents have not even exercised their option on where the trust fund should go, far less put any money in it. Therefore, our view was that the scheme was not such a wonderful measure in reducing wealth inequalities-far from it, as the wealthy were the principal beneficiaries.

Secondly, it always seemed to us implausible that this scheme would somehow inculcate a savings culture among young people as young people were not saving. The Government were saving on their behalf and in a minority of cases their parents were also saving on their behalf. Why would that inculcate a savings culture in a 10, 12 or 15 year-old? Many children will simply be unaware of the scheme as they are not putting anything into it; they are passive beneficiaries of it. Therefore, I do not believe that it inculcates a savings culture, nor do I see how, in itself, it helps improve financial literacy.

The third issue we have with this flows from that. I am a great supporter of thrift. When I was a boy, my parents practised it and encouraged me to practise it. However, the thing about thrift is that you save up and forgo something now so that when you get the benefit of it at a later date, you value it because you know that it has cost you something in terms of consumption forgone. The problem with this scheme is that there is no link between the contribution and the benefit which you achieve aged 18. Noble Lords have said that 18 year-olds will use a nest egg they are given for all kinds of worthy purposes and that it will be used to help their education. On an earlier occasion, a noble

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Lord from the Labour Front Bench suggested that 18 year-olds might use this nest egg to put down a deposit on a house. I do not know whether my experience of 18 year-olds is totally different from that of other noble Lords who have spoken but, frankly, I do not believe that the mentality of most 18 year-olds-poor or affluent-is to take a nest egg to which they have not contributed and use it for long-term savings and benefits. To me, that goes against the grain of human nature and nothing that I have seen in my experience of 18 year-olds suggests that human nature has suddenly changed.

The strongest argument for child trust funds is that it must be in the interests of society for parents to save funds so that their children can be helped when they have more requirements. At the moment, parents can save £5,100 tax free in an ISA, which can then be transferred to their children at age 18, or whenever, to benefit them. If the money is transferred in that way, I suspect that the relationship between the parents who have saved the money and their children will mean that it is more likely to be used for a positive purpose. The tax free ISA limit of £5,100 is far beyond the savings capability of a family on a median income. It offers plenty of scope for parents who have a desire to save for their children to do so already. There may be an argument for marketing ISAs which may eventually be used to provide a nest egg for children, but the benefit in terms of taxation is already there in ISAs, and the child trust fund, almost by definition, can be of additional benefit only to parents who have enough money to put not only into an ISA but into a child trust fund. That is not the cohort of parents who the proponents of child trust funds-

Lord Naseby: If the noble Lord's argument was valid, why do 12 per cent of families contribute to ISAs, whereas contributions to child trust funds cover 30 per cent of families?

Lord Newby: My Lords, that is why I was saying that I thought that within the ISA wrapper, a marketing campaign directed at parents who wanted to save for their children could be extremely effective.

We opposed the child trust fund from the start. We oppose it now and we hope that the Government waste no time in bringing forward the primary legislation to finish it off.

4.45 pm

Lord McKenzie of Luton: My Lords, I speak in favour of the amendment moved by my noble friend Lord Davies and in opposition to the content of the regulations.

Wherever we end up on this issue this afternoon, and if the statutory instrument is to proceed, I support the proposition of the noble Lords, Lord Naseby and Lord Hodgson, that we should do what we can to preserve the infrastructure of the arrangements, so that they do not die and can be revived at some stage.

I shall also digress a little into pensions, as did the noble Lord, Lord Hodgson. I was not sure whether we would discuss them this afternoon, but I contest the proposition that the noble Lord made about the record of the previous Labour Government. Yes, we did introduce the Pensions Regulator and, indeed, the

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Pension Protection Fund. Without those very important planks of pension provision, many more people today would have lost their pensions and be without decent provision in retirement. I have a specific question for the Minister. The noble Lord, Lord Hodgson, raised the issue of what he called a tax charge on pensions. It was not a tax charge on pensions, but a change in the imputation system which reduced corporation tax and therefore denied the repayable tax credit. If the noble Lord's party sees that as an attack on pensions, can the Minister say whether that will be reversed and whether it is the policy of the coalition Government to revert to an imputation system of tax, or whether they will continue with, in his noble friend's words, a tax raid on pensions?

As we have heard, these regulations are the first instalment of the coalition Government's proposals to scrap child trust funds altogether. The Government have other form on this. Child trust funds are one of the initiatives that a Labour Government developed to promote asset-based welfare, in recognition of the importance of asset holding in determining approaches to employment, education and well-being. The other initiative was the savings gateway. It consists of a time-limited two-year savings account for those in receipt of certain means-tested benefits and credits-those on low incomes. Up to certain limits, the Government were to match savings pound for pound. That was clearly a way of incentivising saving by those for whom a tax break is not particularly relevant. Sadly, we are now told that this programme will not now be introduced this month, as it is also not affordable. This removes at a stroke one of the pillars of asset-based welfare, for a saving of £115 million in 2014-15-savings, by definition, paid for by the poor. They are some of the same families and individuals who will pay the highest price for the winding up of child trust funds, and they are some of the same families who will miss out because of the coalition Government's scrapping of the tax credit elements for infants, the termination of the health in pregnancy grant, the limitation of the Sure Start maternity grant for the first child, and the freezing of child benefit.

These regulations end all government contributions for children at age seven. This is a loss of £250 for most children, but a loss of £500 for seven year-olds in low-income families. There is also a reduction in the special contribution of £500 for looked-after children. The poorest and most vulnerable are having to bear the greatest burden. There is yet worse. At present, children entitled to any rate of DLA are entitled to an annual government contribution of £100, or £200 if the highest rate of the care component is received. From April next year, this is to be snatched away as well. Government contributions to accounts when first opened are to be reduced by £200 for most children and £400 for the poorest.

My noble friend Lord Davies made the point that although the Conservatives' manifesto made clear that they would seek to remove the universal element of the child trust fund, they had a commitment to preserve the remainder:

"We will ... cut government contributions to Child Trust Funds for all but the poorest third of families and families with disabled children".

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So how do we justify the current situation? What was it that the Lib Dem wing of the coalition said that persuaded the Tories? I am bound to say that I hope it was more than what the noble Lord, Lord Newby, just enunciated. What was the quid pro quo, and how much of the half a billion pounds of saving comes from withdrawing support from the poorest families? Perhaps the Minister could specifically let us know.

We have heard about the Children's Mutual, which is a provider of accounts. It claimed that the child trust fund is the most successful savings policy to date. Does the Minister share that assessment? Does he at least accept that over 5 million children now have child trust fund accounts-I think the noble Lord, Lord Naseby, said 6 million-and, with the Government's safety net, there is now virtually 100 per cent take-up of the facility. Some 1.4 million parents, families and friends are contributing to the accounts and, had the scheme continued, from 2020, each year nearly £3 billion would have been available to young people as they reached adulthood. Seventy per cent of the government investment goes to households with average or below-average incomes, and 50 per cent to the 1.5 million families with incomes under £16,000. Since the introduction of child trust funds, the number of children having regular long-term savings made for them has nearly doubled. While the annual cost is not insignificant, tax relief for ISAs costs double the tax relief for child trust funds, and even after proposed changes to tax relief on pensions, it is many multiples of the cost of child trust funds with take-up being 30 per cent and 40 per cent respectively, subject to auto-enrolment.

If the savings gateway and child trust funds are to go, what alternative policy approaches does the Minister recommend to encourage children and young people into recognising the value of saving? How does he propose to do that? Doubtless, he will pray in aid the importance of financial capability education. In this regard, we note that the Red Book identifies the launch of the new national financial advice service next spring. The coalition Government's document states that it is to be,

When he replies to the debate, will the Minister update us on this service, which is clearly well advanced if it is to be launched next spring? What form will the levy take? How much is intended to be raised? What is included within the definition of the financial services sector? If the levy is not to be in place by next spring, how is the service to be funded?

The coalition Government do not need to axe child trust funds. Leaving aside issues around the timing and depths of the cuts the Government intend to make, which we have made clear we consider to be too soon, too far and dangerous, there is a fundamental matter of priorities. What thinking goes into a Budget judgment that determines that a banking levy should raise less than a quarter of the cuts in welfare measures? What analysis drives the conclusion that savings should be given a boost by ending the obligation to annuitise at age 75, which is relevant only to those with very substantial pension pots, but that all children should not be given a helping hand to get into a savings

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culture and build assets for when they become adults? If the Government want to encourage people to save more and borrow less, why abolish this important programme that helps young people to save? If they are intent on rolling back universality in the welfare system, why extend this to poor families and families of disabled children?

These regulations are unworthy. I will conclude with a quotation from the alliance that is seeking to push back the measures. It states:

"We recognise that in a time of severe cuts financial contributions from the state to any savings schemes are hard, yet there is still an urgent need to encourage families to save for their children's futures. The Child Trust Fund is the most successful government saving scheme ever. It has made great strides towards increasing the asset base in Britain, helping families save for the costs they will face as their children make the transition into young adulthood. At present, nothing has been proposed to be put in its place. That is why we formed the Save Child Savings Alliance. The key element of the Child Trust Fund must be retained, even if Government decides that the Treasury cannot afford contributions at present".

Lord Blackwell: My Lords, I rise briefly to support the Minister in bringing forward these regulations. I declare my interest as director of a life and savings institution in the UK, but stress that I speak in a purely personal capacity. Like my noble friend Lord Newby, I have opposed these funds on principle. At the level at which they are funded, they are an example of gimmick politics-where the Government take money off taxpayers and then give it back in ways that are meant to make the population feel grateful for their largesse, having taken off significant amounts in administration costs.

The reason why the poorest in this country do not have significant savings is that they cannot afford to save. The best way to help those people is to reduce their taxes and target benefits on them. That is why I favour anything that reduces public expenditure and enables us to take more people out of tax, as the last Budget started to do at the lowest end of the income level. Of course it is important to encourage savings, but an important characteristic of that is to have the simplest possible regime, not one that is adorned with lots of Christmas tree ornaments. We have very effective ways of encouraging savings through the ISA and pensions regimes. The Government should focus every effort on making those schemes as universally attractive and accessible as possible. This scheme does little to add real wealth to the poorest people in this country. It is an adornment that we can do without.

5 pm

Lord Morgan: My Lords, I will make one simple point. This country is deeply unequal. Inequality has extended and expanded during both Conservative and Labour Administrations. It expresses itself in many ways, including in the differing abilities of people to save and in whether saving as a concept means anything to them. There are plenty of possibilities for saving. We heard a paean of praise for them from the Liberal Democrat Benches. They are for middle-class and wealthier people, through ISAs, which enable wealthier people to lay aside money and provide additional benefits to them as well. For poorer people the possibilities

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for saving were already weak, and this Government's inegalitarian policy is clearly designed to make things worse.

The abolition of the saving gateway, to which my noble friend referred, is obviously a part of this issue. It was a very carefully tested and costed scheme, and it worked extremely well in other countries as well as in this one. It was not a display of mad largesse by a left-wing Government in this country-there are plenty of examples of it elsewhere. However, the saving gateway scheme has simply been abolished, which means that poorer people who would not normally fall into the categories of those who are able to save, as set out by the noble Lord, Lord Newby, will now not have the possibility of doing so. The child trust fund is a part of that. These are people who have to be assisted by the state. As we have heard, they cannot save very much, if anything, and it is the function of government to provide assistance for such people. The scheme was very successful with a good take-up, as we heard from the noble Lord opposite, who spoke impressively with great knowledge and feeling on the subject, but now working-class and poorer people will be denied the ability to take serious decisions at key moments in their lives. The savings structure that we have is manifestly unfair, and it reflects the social inequalities and unfairnesses in this country.

My final point is that, contrary to what has been said, child trust funds, along with the saving gateway provision, improved people's ability to understand finance. There was a real point in financial literacy. People with no financial literacy at all because they had no funds and were simply victims of a harsh capitalist system now found themselves with the means to understand these matters. Therefore, this extremely mean-spirited proposal increases inequality, denies economic and social empowerment to many people, and, I am afraid, is all too typical of what we have had over the past few weeks.

Lord Davies of Oldham: My Lords, I am grateful to all noble Lords who have contributed to the debate. Of course, the Minister will have the joy of the last word and the necessity of replying to the specifics of my amendment. However, I assume that he is going to contribute to the debate before we conclude and I extend him the courtesy of doing just that. If he wishes to rise now, I shall of course defer to him.

Lord Sassoon: My Lords, I am grateful to those who have taken part in today's debate. A number of noble Lords have spoken eloquently about the advantages of the child trust fund, and I agree with much of what they said, although others have pointed out that, even setting aside the issue of affordability, the child trust fund is not a perfect vehicle. However, as I said earlier, given the unprecedented budget deficit that we face, the question is whether government payments into the fund remain affordable, and I am afraid that the Government believe they simply are not.

I turn to a number of the specific points that were raised. I start with a point made on both sides of the House by a number of your Lordships, including my noble friends Lord Naseby and Lord Hodgson of Astley Abbotts, and the noble Lord, Lord McKenzie

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of Luton, concerning whether the wrapper or unique number would continue to allow people to save through the child trust fund mechanism. Many other speakers suggested that the wrapper should remain available to parents, even once government contributions had stopped, or that some other, new form of tax-free savings account for children should be put in place. To reiterate what I said earlier, the Government are considering this question carefully and I am sure that it is one of the major issues that will be discussed later this week by my honourable friend the Financial Secretary when he meets representatives of the industry. I thought that the contributions of my noble friends who expressed their understanding of why the CTF had to go were particularly telling.

I shall pick up some of the other points. I suppose that it is good knockabout stuff to try and pick out what people said in manifestos and to compare that with the coalition agreement, and we will live with that game for some time to come. In response to the noble Lords, Lord Davies of Oldham and Lord McKenzie of Luton, I say that it is indeed the case that both the Conservative and Liberal Democrat manifestos set out an intention to reduce spending on the child trust fund, as did the coalition agreement and the programme for government. We have since then looked at the options and the Government believe that it is right to stop the government contributions entirely as that will make the greatest contribution towards deficit reduction.

We then had a number of contributions-including from the noble Lords, Lord Davies of Oldham and Lord McKenzie, and from my noble friends Lord Hodgson of Astley Abbotts and Lord Blackwell-about who had done what on savings over the past few years. I noted that the noble Lord, Lord Davies, talked of this as an onslaught on savings while, on the other hand, my noble friends talked about the hammer blows inflicted on savings by the previous Labour Government. I do not think that this is the time to go into who has done what to whom.

Some of my noble friends have pointed out that what the previous Government did to support ISAs was important, and that if it was affordable, the child trust fund initiative had an important role to play. I think that we would all agree that the recent level of savings has been too low. It is the current Government's intention to foster a culture of personal responsibility and better financial planning to improve individuals' independence over their lifetime, particularly in planning for retirement. We will measure the policies on savings against the coalition's three principles of freedom, fairness and responsibility, while making sure that such measures are affordable and effective. Attention has already been drawn to the fact that the Budget announced a number of measures which will take the first steps-I stress, first steps-in meeting these aims, such as the annual financial health check and an end to the effective requirement to annuitise pension savings at 75. That is an important reform that has not been mentioned this afternoon.

There was then a particular stress-again from the noble Lords, Lord Davies and Lord McKenzie, and from the noble Lord, Lord Morgan-on whether we

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were hitting low-income families and how this was fair. They did not draw attention to the reforms that we are making to the tax credit system. We are tackling the deficit in a way that is fair and ensuring that tax credits, which are an important part of this construct, are targeted at those who need them most. I remind noble Lords that the Government will freeze child benefit to help fund very significant increases in child tax credit and will invest around £3 billion in the child element over the next two years. Although we are making significant savings to reduce the deficit, we can be sure that this will not lead to a negative measurable increase in child poverty over the next couple of years.

Lord McKenzie of Luton: On the issue of no measurable increase in child poverty over the next few years, can the noble Lord remind us which year is the basis for making that assessment? I think that updated statistics came through between the Budget pronouncements and where we are today. Will he confirm that, so that we can have absolute clarity?

Lord Sassoon: I thank the noble Lord for his question. I think that it will relate to periods looking forward, on a rolling basis. However, I will let him know the base for this particular two-year period. I think that the point here is that the coalition Government will make every effort to protect the poorest in our society, including children, by a combination of measures, of which the cessation of the child trust fund is only one.

Other points were made by the noble Lords, Lord Liddle and Lord Davies of Oldham, about protecting those on the lowest incomes and those with disabilities, and about the distributional effect of the child trust fund. However, as my noble friend Lord Newby pointed out, the evidence to date suggests that the child trust funds of children in better-off families are expected to be worth, on average, considerably more than those of children in lower income families when they reach the age of 18. The distributional impact is therefore not clear, and it may well be that on some of the estimates a child in a better-off family would have a fund amounting to some £4,700 whereas a child in a lower-income family would have one that totals only £3,600.

We recognise the additional needs that face children with disabilities, and the Government will publish a Green Paper in the autumn to look at a wide range of issues for children with special educational needs and disabilities. To reconfirm the point I made earlier, from next year we will recycle the funding that would have been used to make the additional payments within the CTF to disabled children, and use those funds to provide additional respite breaks. I should also note that my noble friend Lord Newby pointed out alternative ways of delivering an increasing savings habit which we all want to see.

The noble Lord, Lord Davies of Oldham, made the particular point that many young people are in debt at 18 and need the CTF. In that context, I again stress that we have announced plans for a free annual financial health check that will give everyone a chance to review their finances and get the help they need to take action to improve them. That will be launched nationally in spring 2011.

19 July 2010 : Column 880

The noble Lord, Lord McKenzie of Luton, asked whether the Government would reverse the abolition of the dividend tax credit changes that so dramatically hit pension funds under the previous Government. I regret to say that there are a lot of tax and other measures introduced under the previous Government that it might be highly desirable to reverse but which, regrettably, cannot all be dealt with. The coalition's programme for government said that we would like to reverse this change, and we will revisit it when the public finances improve.

My noble friend Lord Newby felt that the CTF would benefit the middle classes and not the poor, thereby benefiting the wealthy more. I have already touched on that point, and should now like to confirm the statistics. Only 13 per cent of families on lower incomes are making contributions each year, compared with 30 per cent of other families. Indeed, as one might expect, the contributions are likely to be lower for lower-income families. I can therefore confirm my noble friend's point.

The noble Lord, Lord McKenzie of Luton, asked a specific question on the financial health check and the social responsibility levy. I confirm that that levy is intended to fund the national financial advice service, which will include the annual financial health check to which I referred. However, we are ready to listen to views from everyone on how the Government should support debt advice.

5.15 pm

The noble Lord, Lord McKenzie of Luton, also raised some points about changes to tax credits and child benefit. I believe that I have already answered them. I stress again that I will get the baseline for him, but we are looking at that in the round with the intention of ensuring that the poorest children are protected.

The last question, asked by the noble Lord and the noble Lord, Lord Morgan, was about the scrapping of the saving gateway. I have to come back to where we started. I fear that the saving gateway is in the same basket. With the unprecedented Budget deficit, we have to make some very tough choices. The saving gateway would have cost more than £300 million over the next five years, and it is unaffordable. We were also concerned that there was a lack of engagement from providers and that not everyone in the target market would have had easy access to a provider, so the Government have decided that the saving gateway will not be introduced.

Again, I am grateful to those who have spoken in today's debate. The regulations form an important first step in implementing the Government's announcement that we will reduce and then stop government payments into child trust funds. By saving £320 million this year and more than £500 million each year in future, we will make an important contribution to the reduction of Britain's unprecedented Budget deficit. I come back to where I started. Reduction of the deficit has to be our most urgent task, which is why we have taken the approach that we have of reducing government spending on the child trust fund as quickly as possible. It is a challenging task, which is why we decided that government payments should

19 July 2010 : Column 881

stop altogether to make the greatest contribution. I have stressed, and reiterate, that we are listening to noble Lords who have suggested that there may be some continuation of the wrapper and the unique reference number.

I realise that this provision is disappointing for some noble Lords and for others outside this House, but I believe that it is necessary and I hope that, having had a full discussion, the noble Lord, Lord Davies of Oldham, will feel able to withdraw his amendment.

Lord Davies of Oldham: I shall speak to my amendment in a moment, possibly with some significant conclusion, but, first, I thank all noble Lords who have contributed to a very constructive debate. One obvious divide in the debate is that my noble friends Lord Morgan, Lord Liddle and Lord McKenzie emphasised the distribution of wealth, which is what the scheme is about. The scheme is not about child benefits and support for poor families in the short term; it is about producing a modicum of wealth for young people at the age of 18, when it is recognised that they need it. What is important about that is not that there will not be disparities between the middle class and the poor, and between the very wealthy and the middle class-of course there will. Of course those with greater resources will contribute more, but the significance of this scheme is that it brought, and brings, the crucial issue of a savings culture to the less well-off. It provides for young people who come from poor homes at least a toehold on resources and brings them within the framework of the nation as far as wealth is concerned.

The Minister, with his contributions on what the Government will do to ameliorate the impact on poor people through tax changes and changes to benefit, convinces no one. First, we all know in this House that if we think that there is to be a major redistribution of wealth from the better-off to the less well-off in our society under the coalition's politics, we will be grievously mistaken. We are not going to be conned with those generalisations, nor will we accept that this is about a direction of travel. It is not. This is about a full stop. The noble Lord, Lord Hodgson, made a constructive point and in a moment I will give him due credit for that.

I do not accept that the Government's proposals are anything other than an interim for a matter of months; that is, to cut and then to stop something most constructive. The noble Lord, Lord Blackwell, indicated that the funds are a gimmick, but they are not at all. They were to engage and to be an incentive to those whose propensity to save is very low. The noble Lord, Lord Newby, thought that the substitute could be ISAs. My heavens, if ISAs had been the substitute, we would not have the distortion that we have at present in those who benefit from incentives to save. He knows very well that, whereas this scheme engages 30 per cent of the population, ISAs engage about 13 per cent from those who are better off and can afford to save.

I am grateful to the noble Lord, Lord Hodgson, and the noble Lord, Lord Naseby, who speaks with great insight. They emphasised the importance of the Government thinking again about the infrastructure of this scheme. On our Benches we would probably

19 July 2010 : Column 882

use the word "principles". I know that such a word is almost alien to those who form a coalition of diverse views and call themselves a Government but, if the Minister were to discuss some issues of principle which can be saved and safeguarded with those who have been concerned about this scheme and have contributed so much, in order that we could build on the successes achieved so far, out of this debate and the ashes of the Government's proposal would come one small glimmer of hope for the Opposition. There is not sufficient of a glimmer of hope to dissuade me from believing that I should test the opinion of the House.

5.22 pm

Division on Lord Davies of Oldham's amendment.

Contents 154; Not-Contents 189. [The name of a noble Lord who voted in both Lobbies has been removed from the voting lists.]

Amendment disagreed.

Division No. 1


Ahmed, L.
Anderson of Swansea, L.
Andrews, B.
Archer of Sandwell, L.
Bach, L.
Barnett, L.
Bassam of Brighton, L. [Teller]
Berkeley, L.
Bhattacharyya, L.
Billingham, B.
Bilston, L.
Blood, B.
Boateng, L.
Bradley, L.
Brennan, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.
Brooks of Tremorfa, L.
Campbell-Savours, L.
Carter of Coles, L.
Chandos, V.
Christopher, L.
Clark of Windermere, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Cobbold, L.
Condon, L.
Corbett of Castle Vale, L.
Cunningham of Felling, L.
Davidson of Glen Clova, L.
Davies of Coity, L.
Davies of Oldham, L.
Desai, L.
Dixon, L.
Donaghy, B.
Donoughue, L.
Drake, B.
D'Souza, B.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Foster of Bishop Auckland, L.
Gale, B.
Gibson of Market Rasen, B.
Giddens, L.
Golding, B.
Gordon of Strathblane, L.
Gould of Potternewton, B.
Graham of Edmonton, L.
Grantchester, L.
Greengross, B.
Grenfell, L.
Griffiths of Burry Port, L.
Harris of Haringey, L.
Harrison, L.
Hart of Chilton, L.
Haskel, L.
Haworth, L.
Hayter of Kentish Town, B.
Henig, B.
Hollis of Heigham, B.
Howarth of Newport, L.
Howie of Troon, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Janner of Braunstone, L.
Joffe, L.
Jones, L.
Jones of Whitchurch, B.
Jordan, L.
Kennedy of Southwark, L.
King of West Bromwich, L.
Kinnock of Holyhead, B.
Kirkhill, L.
Knight of Weymouth, L.
Lea of Crondall, L.
Liddell of Coatdyke, B.
Liddle, L.
Lipsey, L.
Low of Dalston, L.
McAvoy, L.
McConnell of Glenscorrodale, L.
McDonagh, B.
Macdonald of Tradeston, L.
McFall of Alcluith, L.
MacKenzie of Culkein, L.

19 July 2010 : Column 883

Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
Mallalieu, B.
Manchester, Bp.
Martin of Springburn, L.
Massey of Darwen, B.
Morgan, L.
Morgan of Drefelin, B.
Morgan of Huyton, B.
Morris of Handsworth, L.
Morris of Manchester, L.
Morris of Yardley, B.
O'Neill of Clackmannan, L.
Oxburgh, L.
Patel of Bradford, L.
Paul, L.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Prescott, L.
Prosser, B.
Prys-Davies, L.
Quin, B.
Radice, L.
Ramsay of Cartvale, B.
Rea, L.
Rendell of Babergh, B.
Richard, L.
Richardson of Calow, B.
Rosser, L.
Royall of Blaisdon, B.
Sawyer, L.
Scotland of Asthal, B.
Sheldon, L.
Sherlock, B.
Simon, V.
Smith of Basildon, B.
Smith of Gilmorehill, B.
Snape, L.
Soley, L.
Stone of Blackheath, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Temple-Morris, L.
Thornton, B.
Tomlinson, L.
Touhig, L.
Triesman, L.
Tunnicliffe, L. [Teller]
Turnberg, L.
Uddin, B.
Wall of New Barnet, B.
Warnock, B.
Warwick of Undercliffe, B.
Watson of Invergowrie, L.
West of Spithead, L.
Wheeler, B.
Whitaker, B.
Wilkins, B.
Williams of Elvel, L.
Woolmer of Leeds, L.
Young of Hornsey, B.
Young of Norwood Green, L.


Addington, L.
Alderdice, L.
Alton of Liverpool, L.
Anelay of St Johns, B. [Teller]
Ashcroft, L.
Ashdown of Norton-sub-Hamdon, L.
Astor of Hever, L.
Attlee, E.
Ballyedmond, L.
Barker, B.
Bates, L.
Bell, L.
Bilimoria, L.
Black of Brentwood, L.
Blackwell, L.
Bonham-Carter of Yarnbury, B.
Boothroyd, B.
Boswell of Aynho, L.
Bottomley of Nettlestone, B.
Bowness, L.
Bridgeman, V.
Brooke of Sutton Mandeville, L.
Brookeborough, V.
Browning, B.
Burnett, L.
Byford, B.
Caithness, E.
Campbell of Alloway, L.
Cathcart, E.
Chadlington, L.
Chidgey, L.
Clement-Jones, L.
Colwyn, L.
Cope of Berkeley, L.
Cotter, L.
Coussins, B.
Craig of Radley, L.
Craigavon, V.
Crickhowell, L.
De Mauley, L.
Denham, L.
Dholakia, L.
Dixon-Smith, L.
Dundee, E.
Dykes, L.
Eden of Winton, L.
Elton, L.
Erroll, E.
Falkland, V.
Falkner of Margravine, B.
Fearn, L.
Feldman, L.
Finlay of Llandaff, B.
Fookes, B.
Forsyth of Drumlean, L.
Fraser of Carmyllie, L.
Freeman, L.
Freud, L.
Gardiner of Kimble, L.
Gardner of Parkes, B.
Garel-Jones, L.
Geddes, L.
German, L.
Glentoran, L.
Goodhart, L.
Goodlad, L.
Greenway, L.
Hamilton of Epsom, L.
Hamwee, B.
Hanham, B.
Hannay of Chiswick, L.
Harris of Richmond, B.
Hastings of Scarisbrick, L.
Henley, L.
Higgins, L.
Hill of Oareford, L.
Hodgson of Astley Abbotts, L.
Howe, E.
Howe of Aberavon, L.
Howell of Guildford, L.

19 July 2010 : Column 884

Hunt of Wirral, L.
Hussein-Ece, B.
Hylton, L.
James of Blackheath, L.
Jenkin of Roding, L.
Kakkar, L.
Kilclooney, L.
Kirkwood of Kirkhope, L.
Laird, L.
Lang of Monkton, L.
Lawson of Blaby, L.
Lee of Trafford, L.
Lester of Herne Hill, L.
Lindsay, E.
Linklater of Butterstone, B.
Liverpool, E.
Lucas, L.
Luce, L.
Luke, L.
Lyell, L.
McColl of Dulwich, L.
Maclennan of Rogart, L.
McNally, L.
Maddock, B.
Maples, L.
Marland, L.
Mawson, L.
Mayhew of Twysden, L.
Methuen, L.
Montgomery of Alamein, V.
Montrose, D.
Moore of Lower Marsh, L.
Morris of Bolton, B.
Neuberger, B.
Neville-Jones, B.
Newby, L.
Newton of Braintree, L.
Nicholson of Winterbourne, B.
Northbrook, L.
Northover, B.
Norton of Louth, L.
Oakeshott of Seagrove Bay, L.
O'Cathain, B.
O'Neill of Bengarve, B.
Onslow, E.
Oppenheim-Barnes, B.
Palmer, L.
Pannick, L.
Parminter, B.
Perry of Southwark, B.
Phillips of Sudbury, L.
Popat, L.
Rawlings, B.
Reay, L.
Redesdale, L.
Ritchie of Brompton, B.
Roberts of Conwy, L.
Roberts of Llandudno, L.
Rogan, L.
Rotherwick, L.
Ryder of Wensum, L.
St John of Bletso, L.
St John of Fawsley, L.
Saltoun of Abernethy, Ly.
Sassoon, L.
Scott of Foscote, L.
Scott of Needham Market, B.
Seccombe, B.
Selborne, E.
Sharman, L.
Sharp of Guildford, B.
Sharples, B.
Shaw of Northstead, L.
Sheikh, L.
Shephard of Northwold, B.
Shutt of Greetland, L. [Teller]
Slim, V.
Smith of Clifton, L.
Steel of Aikwood, L.
Stewartby, L.
Strathclyde, L.
Taylor of Holbeach, L.
Tenby, V.
Teverson, L.
Thomas of Gresford, L.
Thomas of Walliswood, B.
Thomas of Winchester, B.
Tope, L.
Tordoff, L.
Trenchard, V.
Trimble, L.
Trumpington, B.
Tugendhat, L.
Tyler, L.
Ullswater, V.
Verma, B.
Waddington, L.
Wade of Chorlton, L.
Wallace of Saltaire, L.
Wallace of Tankerness, L.
Walmsley, B.
Walpole, L.
Waverley, V.
Wilcox, B.
Williams of Crosby, B.
Williamson of Horton, L.
Willis of Knaresborough, L.
Wright of Richmond, L.

Motion agreed.

Financial Services and Markets Act 2000 (Contribution to Costs of Special Resolution Regime) Regulations 2010

Copy of the SI
Copy of the Report

Motion to Approve

5.36 pm

Moved By Lord Sassoon

19 July 2010 : Column 885

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, the Financial Services Compensation Scheme, which I refer to here as the FSCS, was established under the Financial Services and Markets Act 2000 to compensate customers of authorised financial services firms when those firms were in default.

When the financial crisis broke in 2007, paying compensation under the scheme was the only way to protect depositors. The Banking Act 2009 set up new arrangements that allow for the resolution of failing banks and building societies in a number of ways, including the transfer of all or part of the business of the failing institution to another institution or into temporary public ownership. These transfers can include the transfer of the retail deposits; that is, deposits held by persons who are eligible for FSCS compensation. The effect is that those depositors are protected not by the payment of compensation under the FSCS but by having new accounts with a different bank or building society.

Transferring a business can involve a cost. A receiving institution will normally expect to receive payment for taking on liabilities such as deposits in excess of any assets that are transferred. However, if a failing institution's retail deposits are part of the business transferred to a stronger bank or building society, the FSCS will not need to pay compensation to the depositors concerned.

It is appropriate, therefore, for the FSCS to contribute to the cost of using the special resolution regime to resolve a failing bank or building society. It would have been spared the potentially large cost of compensating depositors. However, there has to be a limit on that contribution, which should obviously be the cost that the FSCS would have incurred in paying compensation to depositors.

The Banking Act 2009 inserted a new section into the Financial Services and Markets Act 2000, usually referred to as FSMA, to give the Treasury the power to require the FSCS to make a contribution capped in the way that I have described. It also gave the Treasury the power to make regulations to deal with the detailed points that would arise. Regulations under this power were made in 2009, shortly after commencement of the Act, to allow the FSCS to contribute to the costs of the resolution of the Dunfermline Building Society.

However, it was quickly realised that these new FSMA powers did not get some of the detail quite right. In particular, it was found that no account could be taken of the time that it would take to complete a bank resolution and, therefore, of the interest costs that would be incurred in financing the initial payments to receiving institutions while waiting for the proceeds of the disposal of other assets of the failed institution. Equally, no allowance could be made for the interest costs that the FSCS would have to pay on the borrowing needed to finance a compensation payout. These matters could not be addressed by making revised regulations under the original power provided in 2009. Amending legislation was therefore included in the Financial Services Act 2010 to correct the FSMA powers in these two respects.

The regulations now before us complete the process by making use of the new powers to put the necessary detailed provisions in place to provide for interest

19 July 2010 : Column 886

costs to be included in the resolution expenses and to calculate the limit on the FSCS contributions to those expenses. They do this by requiring the Treasury to keep detailed accounts of the resolution costs actually incurred, of the recoveries actually made and of the costs and recoveries that the FSCS would have made in the hypothetical scenario in which the failed institution became insolvent and compensation was paid to depositors. Interest is then added to the outstanding balances of these accounts on a daily basis and any contributions that the FSCS pays are deducted. Finally, closing balances are calculated when the resolution ends and a final contribution to resolution costs is calculated and paid-or, if the FSCS has already paid too great a contribution, a refund will be calculated and paid.

To enable the Treasury to do this, the regulations also provide for the FSCS to estimate the amount and timing of the compensation that it would have paid in the hypothetical scenario. They also provide for an independent valuer to estimate the amount and timing of the recoveries that the FSCS would have made from the winding-up of the failed institution in that scenario. There is also detailed provision on making interim payments, on referring disputes to the Upper Tribunal, on the appointment of independent valuers and on the independent verification of the accounts.

The regulations also include transitional provisions to ensure that action taken under the previous regulations is properly allowed for. The previous regulations are then revoked. The powers inserted by the Financial Services Act 2010 provide that interest can be applied to accounts kept in respect of the Dunfermline Building Society under the new regulations as from 19 November 2009. I beg to move.

Lord Davies of Oldham: My Lords, I am grateful to the Minister for his clear exposition of the implications of the regulations and for bringing to our deliberations a new term, FSMA. We struggled in the past with the Financial Services and Markets Act, using the full phraseology until we were breathless and even blue in the face. I am sure that the noble Lord, Lord Newby, who participated in many of those debates will join me in appreciating the fact that we now have a short official term for referring to the Act. At least we will delight in that.

I reassure the Minister that, whereas we might have had a little Sturm und Drang over the previous measure, on this one all is sweetness and light, largely because the Minister is describing the implications of the regime set up under the banking legislation that the previous Administration introduced and the crucial question with regard to the costs of the special resolution regime.

I noted carefully, as I know the Minister and his officials will have done, the returns from the consultation. It must always be manna from heaven for the Minister when the consultation indicates that there is no consensus among those who have been consulted on some important items, because that gives maximum freedom to act. I would only say that, where the Government have acted in those terms, we are content with the position that has been broadly identified.

19 July 2010 : Column 887

We appreciate that we live in an age of openness and accountability. We accept the point that is indicated in the Minister's speech and the Explanatory Notes that the question of audit with regard to the Bank of England and its role is very limited, for all the reasons that we know. However, we appreciate that it is important that all those involved with this situation are satisfied that value for money is achieved. The Government have indicated that that is their objective and the Opposition are scarcely going to deny the validity of that position.

I emphasise the obvious fact that the calculation relating to the costs that would have been involved if there had been a bailout, in the event that the institution had actually folded, is difficult. There will always be more than a little quibbling about that situation but, as the Minister will know, we are fully in approval of the broad principles behind these regulations and I am happy to support the Government.

5.45 pm

Lord Newby: The noble Lord, Lord Davies, and I have spent many happy hours discussing FSMA, whether we called it that or something else. This is a continuation or conclusion of one aspect of those deliberations and we are content with the statutory instrument before us. However, this is one small part in the overall new regulatory framework under which the banks will operate, of which the new capital adequacy requirements under Basel is another and the establishment of the EU banking supervisory body, which we gather may be located in London, is yet another. Will the Minister take this opportunity to update the House on some of those wider developments? Do the Government feel that, as we are getting our own house in order, the international framework that everybody agrees is necessary to supplement domestic arrangements is also moving forward at a reasonable and acceptable speed?

Lord Sassoon: Well, we have gone from Sturm und Drang to something else and, if I can spread a little joy by introducing the term FSMA, I am happy to do so.

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