The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, the Government are aware of the growing issue of diabetes in minority-ethnic groups. The NHS is taking a range of actions to ensure effective treatment. The recent publication of clinical guidance on type 2 diabetes by the National Institute for Health and Clinical Excellence identifies those at high risk and how best to manage the risk. It specifically mentions ethnic minorities and identifies pathways to ensure effective management.
Lord Harrison: My Lords, given that the worrying rise of type 2 diabetes among our ethnic communities is absorbing an ever increasing share of 10% of the NHS budget, which itself is shrinking for diabetes care, will the noble Earl institute an increase in the number of diabetes nurses, who are at the heart of communities, support the Diabetes UK campaign for ethnic-community champions and, finally, heed the advice coming from the dedicated research team at the University of Warwick that matching health professionals tutored in the cultural knowledge and understanding of our ethnic communities can give enormous benefits?
Earl Howe: My Lords, I agree wholeheartedly with the thrust of the noble Lord's question. As he will know, Diabetes UK has pioneered a programme of diabetes community champions from ethnic-minority communities to raise awareness of the condition in their communities. The Department of Health has awarded Diabetes UK a grant through the volunteering fund national awards for the programme to be rolled out across 12 English cities over the next two years. I gather that 111 community champions have already been recruited in London. This is exactly the sort of initiative that we need if we are to reach those who are most at risk of developing or, indeed, being diagnosed with diabetes.
Lord Singh of Wimbledon: My Lords, for many years, the Network of Sikh Organisations has been active in working in clinics in gurdwaras, or Sikh temples, to promote an understanding of health issues and to do checks for blood sugar and raised cholesterol. These tests and other health advice have been very
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Earl Howe: My Lords, I am aware of several local initiatives that are doing great work in accessing those in both black and minority-ethnic communities along the lines mentioned by the noble Lord. We have made important progress in strengthening our approach to promoting equality in health and social care and in tackling these inequalities that exist. That is especially important in relation to the Asian community. I am thinking in particular-the noble Lord mentioned the need to roll out initiatives-of the NHS Heath Check programme supported by the guidance on prevention issued by NICE and the Change4Life Programme, which now has a bespoke element to it targeted specifically at ethnic-minority communities.
Baroness Gardner of Parkes: My Lords, are separate statistics kept about ethnic groups? If not, would it not be an advantage to do so in terms of research, particularly as type 2 diabetes is very much dependent on diet and might be quite different in different sections of the community? What is the prevalence of diabetes in the ethnic community as opposed to other communities and what is the prevalence of type 1 diabetes as opposed to type 2 diabetes?
Earl Howe: My advice is that type 1 diabetes is not a particular issue in ethnic-minority communities. We are talking about type 2 diabetes, which is five times more common in black and ethnic-minority groups, six times more common in south Asian ethnic groups, and three times more common in areas of social deprivation than in the rest of the population. There are particular clinical risks associated with those from ethnic minority communities who have diabetes. Complications include particularly heart disease-south Asian people are 50% more likely than the general population to die prematurely from coronary heart disease-and the prevalence of stroke is also much higher in African, Caribbean and south Asian men.
Earl Howe: Exercise is recommended under the Change4Life programme and under the advice given by NICE. However, the noble Baroness is absolutely right to mention a possible genetic cause. The cause of diabetes is not fully understood and is multi-factorial. Healthy eating, weight control and exercise can help reduce the risks, but that is not the full picture. It is suspected that there is a genetic component in the case of black and ethnic-minority communities.
Baroness Howells of St Davids: My Lords, I have some of the statistics that have already been mentioned. We now know that manifestations of diabetes are three times higher among the Afro-Caribbean people
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Earl Howe: My Lords, the advice given by NICE makes 20 specific recommendations, many of which are highly relevant to the population group mentioned by the noble Baroness. She is absolutely right that there is a need to educate those in black communities about a healthy diet. There is a lot of work going on in that area, which is too detailed and complicated for me to mention at the moment, and in the area of self-education to enable patients to understand their own condition and to manage it better.
To ask Her Majesty's Government what is the present number of inmates in the Military Corrective Training Centre; and what is the average percentage of inmates who are successfully returned to their units on completion of sentence.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever): My Lords, as at 24 July there were 101 detainees at the Military Corrective Training Centre, Colchester. On average, over the past five years 56 per cent have returned to their unit to continue serving on completion of their sentence. This demonstrates that the centre is very effective and enables the Armed Forces to capitalise on the training, investment and operational experience of those individuals being retained, which otherwise might be lost.
Lord Trefgarne: My Lords, I am most grateful to my noble friend for that very reassuring reply. Are there not some lessons to be learnt in this regard, maybe in the civil sector, but particularly by the young offender centres whose performance in this area is sometimes deplorable?
Lord Astor of Hever: My Lords, I am grateful for the positive response from my noble friend. The programme of educational courses and military training that detainees undertake reinvigorates them with the military ethos. On return to their units, the vast majority go on to achieve promotion and to have a successful military career. Direct comparison with the civil sector is difficult because those in Her Majesty's Prison Service have committed criminal offences, while the majority of those at MCTC have committed non-criminal conduct offences. However, last year 13% of detainees at MCTC had previously served periods of detention whereas some 90% of those sentenced in England and Wales in Her Majesty's Prison Service had offended before.
Lord West of Spithead: My Lords, does the Minister not agree that the statistics are even better than that because quite a lot of people sent to Colchester serve time there and are then sent for discharge, so of those who are able to go back the percentage is even higher?
Lord Astor of Hever: My Lords, the noble Lord makes a very good point. Indeed, the latest report from Her Majesty's Inspectorate of Prisons is exceptionally positive and has graded the centre as good for its four tests of a healthy custodial environment: safety, respect, purposeful activity and resettlement-something that it very rarely does.
Lord Ramsbotham: My Lords, I declare two interests: one as adjutant-general, when I was responsible for the MCTC, and one as Chief Inspector of Prisons. I visited the centre when the noble Lord, Lord Howard of Lympne, sent young offenders there under the mistaken impression that it was a boot camp. In fact the experience of being in a disciplined environment, particularly in the way that they were treated by staff, was wholly positive for those young offenders sent there. Is consideration being given to sending young offenders to the MCTC as part of their sentence, particularly if they want to join the Armed Forces and their level of criminality is not great? Armed with the experience there, they are more likely to have a proper career when they join the regular services after that. If they misbehave, they can of course always be sent straight back to custody.
Lord Astor of Hever: My Lords, I am very sorry to disappoint the noble Lord but the answer is no. It has been the policy of successive Governments since 1963 that our Armed Forces are manned by volunteers. We have no shortage of applicants who have not committed any crime. In 1996, the Glasshouse was set up as a trial at MCTC for approximately 30 civilian young offenders aged 18 to 21. They underwent a military-style regime, including drill, physical training and room and kit inspections. In 1997 the Government ordered that young offenders tough enough to cope with this would be sent to MCTC, but the scheme was stopped in 1998. I understand that it was too expensive.
Lord Cormack: My Lords, there is so much sense in what the noble Lord, Lord Ramsbotham, said. Could not consideration be given to sending people from the
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Lord Rosser: My Lords, how many inmates of the Military Corrective Training Centre have been deported after sentence or at the completion of their sentence in the past two years? Of that number, how many have been charged and sentenced through the military judicial system rather than the civilian judicial system? What rights of appeal against deportation do they have, and to which individual or body?
Lord Astor of Hever: My Lords, the Ministry of Defence does not track the numbers of deportations or rights of appeal. It is a matter for the Home Office. I will undertake to get these figures for the noble Lord and write to him.
Lord Addington: My Lords, does my noble friend agree that comparing anybody in a civil prison with anybody in a military prison is very difficult because the overriding characteristic of people in a civil prison is probably that they are educational failures, usually having left education at the age of 14? That should be remembered every time we look at this.
Lord Astor of Hever: My Lords, my noble friend makes a very good point. Our objective in the military is to get these guys and girls back as quickly as possible to carry on serving in the Armed Forces.
To ask Her Majesty's Government on how many occasions since 2010 officials of HM Treasury received reports and recommended action on the operation of the K2 offshore loan tax avoidance scheme, and on tax avoidance generally.
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, HM Revenue and Customs was investigating the K2 scheme prior to recent press articles. HMRC does not report operational details on the specific schemes to HM Treasury but advises if a change in the law is needed. Since 2010, action has been taken on 26 occasions to close down avoidance schemes by legislation. The Government are consulting on a general anti-abuse rule and on extending the disclosure of tax avoidance schemes rules.
Lord Campbell-Savours: I thank the noble Lord for that Answer, and I am sure that we will be returning to this issue later in the Session. On the second part of my Question, is it not true that tax evasion through the failure of United Kingdom citizens and foreign nationals to pay tax on rental income from private residential property held within the United Kingdom is costing the country millions if not billions of pounds annually? Is there not an argument for local authorities to be required to register all private rented property in their area, with declarations of ownership accessible by HMRC?
Lord Sassoon: My Lords, the important broad picture here is that on the latest annual figures, those for 2010-11, HMRC collects approximately £469 billion a year. The estimated tax gap is 7.9%, a percentage that compares favourably with, for example, the USA at 14% and Sweden at 10%. Nevertheless, there is a gap of £35 billion and it is very important that HMRC does all that it can to close it, which is why it is prioritising this area in many respects. I hear what the noble Lord says about a specific issue and I will take his suggestion away, but I can assure the House that HMRC is prioritising it right across the board.
Lord Forsyth of Drumlean: My Lords, does my noble friend agree that if Treasury Ministers wish to minimise avoidance and maximise revenue they should leave delivering moral guidance to the church and concentrate on delivering simpler, lower, flatter taxes as our manifesto promised?
Lord Sassoon: My Lords, the lowering of the top rate of tax, for example, makes my noble friend's point very clearly. By putting the top rate of tax at 50%, the previous Government, as the analysis has now shown, delivered absolutely nothing-or very little at best-in terms of revenue, and made this country uncompetitive. So we need wherever possible lower and broader taxes. I agree with my noble friend on that.
Lord Willoughby de Broke: Could the Minister just remind the House, further to the question from the noble Lord, Lord Forsyth, that tax avoidance is not illegal-that it is legal to avoid taxes-and that when individuals see the Government wasting a lot of their hard-earned money, they have a duty to avoid those taxes?
Lord Sassoon: I can certainly confirm that tax avoidance is not illegal. I can also say, building on the figures that I gave before, that of the £35 billion tax gap, £30 billion is estimated to be evasion and a relatively small part, £5 billion, to be avoidance.
Lord Strasburger: My Lords, could my noble friend tell the House what the annual cost is to the Exchequer of the tax breaks that this country gives to non-doms? Which other countries are so generous to their rich foreign residents?
Lord Sassoon: I suspect that it would be very difficult to estimate the benefits of the non-dom tax regime. The principal benefit is that we derive an enormous amount of business and employment from the fact that this country is relatively open to non-doms, and those benefits we must retain while at the same time making the non-doms pay their fair share. That is why the annual charge of £50,000 has been introduced by this Government and why we are clamping down on areas such as avoidance of stamp duty. We need to strike the right balance.
Lord Davies of Oldham: My Lords, the House will have noted that the noble Lord who supports UKIP is in favour of rich people not paying taxes against a background of the nation expecting the Government to pursue a vigorous drive to ensure that those liable for tax pay tax. The Minister indicated somewhat complacently that at 7.9% the deficit is lower than in some other advanced countries. But would he indicate whether that figure has been going down since this Government came into office and whether he anticipates a better figure two years from now?
Lord Sassoon: My Lords, the estimate of the tax gap in 2004-05 was 8.5% and it is now 7.9%. It still means that there is a tax gap of £35 billion, which HMRC will vigorously pursue. That is why only this week we made further announcements and consultations to make sure that aggressive tax schemes and the people who market them are targeted more effectively and why HMRC has reinvested £900 million of its spending in this spending round to target this area.
Lord Phillips of Sudbury: My Lords, is it not seriously damaging to social cohesion-and demoralising in the literal sense of that word-when some of the highly paid and some would say highly overpaid public company directors are paying a much lower rate of tax on their grotesque earnings than the lowest paid employees in their companies?
Lord Sassoon: My Lords, what is important is that we have a tax system that is fair and which means that those with the broadest shoulders pay the most, which is exactly what the most recent Budget did, and that we have a tax system whereby in all parts of the earning scale people are incentivised to work. That is why raising the tax threshold on the way to our target of £10,000 is one component of making a real, radical change to the tax system in this country.
Lord Sassoon: My Lords, this is another area where we need to strike a fair balance. We need to encourage savings in this country; we need to get the savings rate up; and we need to make sure that people are incentivised to save for all eventualities, including their pensions.
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Baroness Northover: My Lords, my right honourable friend the Prime Minister will host a major event on hunger during the London Olympics. He will bring together leaders of Governments, business and civil society organisations to galvanise global efforts to tackle undernutrition.
Baroness Miller of Chilthorne Domer: My Lords, I thank my noble friend for her Answer. I am sure that she shares my concern that recent extreme weather events in the United States, the Ukraine and lots of other parts of the world have meant that food prices are already spiralling in anticipation of food shortages. In the light of that, will she make her best endeavour to ensure that the summit addresses the issue that at the moment lots of perfectly good food stuffs are being converted into ethanol? We really need to move to second-generation ethanol production because the need of the poor to eat must be more important than the need of the rich to drive.
Baroness Northover: The noble Baroness is right that prices for maize and soya beans have now exceeded 2007-08 highs. It is too early to say how rising world prices will affect the poor in developing countries, because production for 2012 is still expected to exceed consumption. Regarding her point on ethanol, the Government are committed to ensuring that biofuel production does not jeopardise food security in the way that she indicates. Biofuels can, of course, play a positive role in promoting development, provided their production benefits smallholder farmers. The focus of the event in August is on child malnutrition.
Lord Alton of Liverpool: My Lords, in the context where a malnourished child is eight times more likely to die than a child of normal weight, and where 3 million children are estimated to die of malnutrition every year, will the Minister undertake to look at the reports of our previous ambassador in North Korea, Peter Hughes, and our present ambassador, Karen Wolstenholme, who have reported on stunted growth, especially among children, in a country where 2 million died during the famine in the 1990s? Will she accept that, however much we may despise a particular ideology, it should be no part of our policy, or indeed that of the United States or other nations, to try to drive a country into submission by using food as a weapon of war?
Baroness Northover: The noble Lord is right to say that there is a very high level of malnutrition across the world, which has a terrible impact upon the health of children. That is why the Government have focused very much on trying to ensure that this issue is addressed.
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The Lord Bishop of Exeter: My Lords, in dealing with the challenge before us, does the Minister recognise how crucial the need is to support through both aid and trade agreements those smaller-scale ecological food production systems practised by millions of small-scale farmers and producers, many of them women, which currently deliver food for 70% of the world's peoples? They could provide more, if properly supported and protected. They could not only increase availability of food and eliminate hunger but increase equity, create employment, build community and reverse environmental degradation. What assurance can she give that this important dimension of the problem of food security will be given proper consideration by those gathered for this summit?
Baroness Northover: The right reverend Prelate is absolutely right to emphasise the need to support those working in agriculture in their various countries. It is striking that 75% of the world's population live in rural settings dependent on agriculture, and we are acutely aware that they are very vulnerable. People in developing countries spend 60% of their income on food, unlike in the UK, where the figure is about 10%, so one can see how vulnerable people are in these situations. We are targeting our support to try to help smallholding-farmer households and women in particular in those circumstances.
Lord McConnell of Glenscorrodale: My Lords, will the summit look at the consequences of conflict on food security and, in particular, the fact that the consequences of conflict can sometimes have an unintended impact in neighbouring countries, as we see today in the Sahel region of west Africa? Is it possible for the summit to look at how we address these issues of conflict in the context of dealing with food security?
Baroness Northover: All these factors interlink. The fragility of some of these countries feeds into their problems in terms of food, and that is clearly the case in the Sahel, where the United Kingdom is supporting the feeding of 400,000 people. We are well aware of how these things interlink and I am sure that that will be part of the discussions at this event.
Baroness Jenkin of Kennington: I welcome this initiative as an important part of the legacy of the Games, but is my noble friend aware that the number of obese people globally is approximately the same as the number of those who are malnourished, hungry or stunted? While the latter group is, thankfully, reducing in number, partly because of well-targeted aid, the number of obese people is growing exponentially, with enormous additional costs in relation to health and health services internationally.
Baroness Northover: That is why it is extremely important that we support education. That is what we do, as can be seen in, for example, Bangladesh. Although
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Baroness Smith of Basildon: My Lords, there are six quite complex statutory instruments here and my noble friends Lady Worthington and Lord Grantchester spoke to them in Grand Committee. Questions have been raised on a number of complex issues and I know that the Minister is always unfailingly courteous in responding to questions. I would be grateful if he could undertake to write to noble Lords to address substantive questions that were not answered. I also thank him for his courtesy in arranging for his office to send me an e-mail at around 10 o'clock last night announcing that a Written Statement would be made today on the renewables obligations banding review, which is generally welcome but there are a number of questions. The noble Lord will know that he is very popular in this House-on our side as well-which makes it all the more surprising that he chose to make a Written Statement and not, given that he is at the Dispatch Box today anyway, an Oral Statement, which we would have welcomed. I hope this is not going to be part of a trail of sneaky Statements being released. We would welcome the opportunity to ask him questions on this at the Dispatch Box.
Lord Foulkes of Cumnock: My Lords, I noticed that the last three of these statutory instruments start with the words "Green Deal". I wonder if I am being overoptimistic in anticipating that the Minister of State for Trade and Investment will come along and speak to one of them.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland): Well, I wish the noble Lord a very good Summer Recess as well. We had an extensive debate in Committee; the noble Baroness sadly was not available to be part of it. It was very satisfactory and as always I have responded in writing to the questions which sometimes, and almost often, I cannot answer. The noble Baroness knows I am committed to that and the process is in train. As to the Statement today, good news, which I am glad noble Lords welcome, should always be given at every opportunity so that everybody can go away for a wonderful Summer Recess and enjoy themselves with that good news.
Lord Marland: I guess my noble friend should just table a Motion for that debate. There have been plenty of opportunities in the last Session to discuss this subject. I am always delighted to debate it, as are all of us who have been involved in the energy side of things, and I look forward to him tabling a Motion.
Lord Teverson: My Lords, I welcome the Minister's Written Statement today about the ROCs. We need to get on with that. It is an excellent declaration. I congratulate him particularly on making sure that we have efficient onshore wind power but that it is still financially viable for investment.
Lord Marland: I was hoping to catch a plane; I think people knew it. I am very grateful to my noble friend and for all the support he has given during the last Session on energy matters; it is a civil partnership and the word "civil" is underlined.
(e) the ease with which consumers can identify and obtain services which are appropriate to their needs and represent good value for money"
Baroness Drake: My Lords, the FCA's objective to promote "effective competition" will deliver fully on the Government's commitment to putting the consumer at the heart of the financial system only if there is no ambiguity about the FCA's authority to tackle hidden and rip-off charges. The FCA can judge the effectiveness of competition only if it is explicitly required to take into account the ease with which consumers can identify and obtain services that are appropriate to their needs and represent good value for money. The amendment provides for that.
Unfortunately, experience does not reinforce such confidence. We are all too familiar with the industry's willingness to mobilise its resources to mount a legal challenge to the regulator if ambiguity exists. When the OFT decided to investigate unauthorised overdraft charges, the banks challenged its ability to do so. Two years of uncertainty, nearly £1 million in legal fees and many other resources later for the OFT, the legal case eventually concluded with a ruling that the OFT could not assess the fairness of those charges. In respect of
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The FCA is not a price regulator but that must not be interpreted as a reluctance to act on charging structures. The FCA's competition objective as drafted requires it to have regard to innovation, ease of entry to market, ease with which consumers can change providers and the consumers' need for information to make an informed choice. As is so well documented, so many consumers struggle to process the information provided and there is a danger of too much reliance on disclosure and informed choice to protect the consumer, given the systemic imbalance in knowledge and understanding between consumer and provider-a view shared in Professor Kay's recent report. Similarly, the financial needs of most people are probably pretty simple but the industry often sells the more complex products because they attract higher charges. This is not an argument against innovation but a recognition that more complex products give rise to the need to ensure that they represent good value for money.
The FCA's authority will be strengthened by such an explicit reference in its competition objective. The public's loss of trust following the litany of product mis-selling has to be addressed. Just look at some of those products. "Behind-the-scenes" prices reduce direct price competition as apparently low "headline" prices mask the true costs once ancillary charges, such as for unauthorised overdrafts or rejected transitions and default charges, are accounted for. Consumers need to be confident that once they have entered into a contract they will not be subject to any unexpected or nasty surprises. Which? recently published research which showed that banks' fee structures are so complicated that even a maths PhD student found it virtually impossible to compare charges between banks and to calculate how much a bank charges for using an unauthorised overdraft. Some particularly toxic forms of payment protection insurance paid commission rates of 87% of the premium to the bank that sold the policy. That means that if a consumer pays out £10,000 on a PPI policy, £8,700 goes back to the bank in commission.
Some consumers who took out an equity release plan at the turn of the century now face substantial early repayment charges amounting to 25% of the outstanding loan. On an equity release loan of £200,000, the consumer could now face early repayment charges of over £50,000. More recently, in the sale of products to protect small firms taking out loans against rising interest rates, the FSA found a lack of clarity about the cost of stopping a product, failure to check whether a consumer understood the risk, and selling based on personal rewards rather than on the needs of those businesses. Time and time again we see products sold to consumers that are not value for money, do not meet their needs and take advantage of their lack of understanding.
Furthermore, consumer credit regulation is to transfer to the FCA, affecting a market for consumer and small business credit of about £270 billion, where vulnerability to high charges is a significant issue. The FCA's competition objective will, I understand, apply to consumer credit products, which is another compelling reason for placing a requirement on the FCA to have regard to value for money.
Opacity and complexity in the pensions and savings market results in excessive charges, fuelled by the increasing subcontracting of investment activity to a lengthy chain of agents. Each has access to more information than the consumer, which helps them to maintain charges which deliver generous revenues for them and less real value to the customer. The recent plethora of reports on charges reiterates the evidence of a problem which we know has persisted for a long time and which the regulator has got to tackle.
The mathematics of an annual management charge is too complex for most savers. That charge is not a true statement of the total expenses ratio, and even that ratio excludes other hidden costs. As the noble Lord, Lord Turner, said in his City speech yesterday, there is far greater potential in retail services than in other sectors for producers to rip off customers. I beg to move.
Lord Peston: My Lords, this is a very important amendment. It is important in its own right, but it also exposes what is fundamentally wrong with this Bill, which is that it is based on an economics model of the rationally informed consumer.
No one doubts that there are large numbers of rationally informed consumers out there, able to take optimal decisions, but a vast amount of research has been undertaken in recent years that shows that there are considerable numbers of consumers who are not best described as part of the rationally well informed model. Indeed, one can go further. I have seen research papers that show that even for what one might call brilliant consumers, the complexity of the instruments they are dealing with is so great that it would take them several years to do all the calculations required to make an informed decision. Therefore, what is wrong with this part of the Bill is its fundamental philosophy of the rationally informed consumer.
The other point to bear in mind is that the objective of the financial intermediaries that this applies to is not, in any sense, to be helpful to anybody. Their objective is to make money. What they are looking for are instruments, some of which are so complex-like CDOs, and so on-that you have to be a genius to understand what they amount to in the first place. There are several other examples of that that have got my head spinning.
What this leads us to is a matter that arose the last time that the Committee met and the subject of duty of care was raised. You will not find anything like that in this Bill or any of the philosophy behind it. What is required in the Bill is that everybody acting as a financial intermediary should be instructed that they have a duty of care. That duty of care should involve presenting information in a way that quite ordinary people can understand and pointing out the perils of all the mistakes that can be made.
I myself am not that rational a consumer in this regard. As for the idea that I would look at every bank and work out the optimal one that I should deal with, I take the view that there is more to life. If I end up paying rather more for any financial intermediation that I am involved with, I have to bear that cost because there are other things I want to do with my time. Then again, I am not badly off and I can afford to do that. But very poor consumers need something much more. I repeat that what needs to be in the Bill is the equivalent of a duty of care on the part of all financial intermediaries dealing with ordinary consumers and an acceptance of responsibility for what they are offering them.
Lord Phillips of Sudbury: My Lords, I support the purport of the amendment moved very effectively by the noble Baroness, Lady Drake, and supported entirely fairly by the noble Lord, Lord Peston. I confess that for 26 years I tried to deal with the British public's legal problems as the legal eagle on the "Jimmy Young Show". I suppose that I take a particular interest in the effect of legislation such as this on the ordinary consumer. There are a number of practices at large these days in what I call big business that leave the individual consumer way behind in terms of any fairness of dealing. The big battalions will call in aid lawyers, often paid on a conditional fee basis, and it is frankly terrifying if you are a small bloke and have a dispute with a large company. You will quickly be given the clear indication by the large company that if you do not buckle and pay up you will be crushed. I put that a little dramatically, but not much.
As it happens, I have been dealing with one of the large energy companies lately over a disputed electricity Bill. I have been astonished at the general tenor of the dealings and the way in which it so organises its affairs that if I were not an old fart of a lawyer I would easily have been overborne by its tactics and approach.
I appreciate that the Minister has, at all stages along the way, tried to protect the Treasury, the FCA and so forth against all these vague and difficult notions of fairness. Indeed, he might like to clarify in summing up whether he thinks that the ill to which the amendment addresses itself could be healed by the integrity objective. The amendment is to the competition objective, but the integrity objective could enable the FCA to take account of the matters raised by the noble Baroness, Lady Drake, in order to improve things. But I seem to recollect from one of the amendments in my name and that of my colleagues that the Government think that the integrity objective is not about fairness: it is about the mechanics of the system, if I can put it that way. I have the same general misgiving as the noble Lord, Lord Peston, and many others in the House, that the Bill does not address issues of fundamental fairness that affect ordinary citizens. I shall be very interested if there is any consolation that my noble friend can give.
Lord McFall of Alcluith: I support the amendment in the name of my noble friend Lady Drake. JK Galbraith said a number of years ago in one of his books that there is nothing about money that the ordinary person of reasonable intelligence and diligence cannot understand. That proposition has been turned on its head by the financial services industry over the past 20 years or so, and now not many of us can understand it. Somebody mentioned CDOs. The noble Lord, Lord Smith of Kelvin, as an accountant, asked me, "Do you know how many pages are in an ordinary CDO, John? There are 350 pages". Who can understand it? The ordinary person cannot understand it. Worse still, the people making it up cannot understand it. That is why we are in a financial crisis today. The core of this amendment is to rebalance the asymmetric relationship between the industry and the consumer. The Government have paid insufficient attention to that issue and it will come back and haunt the Government and haunt the political classes in the future if we do not pay attention to it and get it right.
I will give an example of my own. In 2005-the year of the general election, which I won in my constituency-I crashed my car, so I decided that I needed another one. I went into my then bank, Barclays, and asked for a loan. Although the counter staff were very courteous and offered me the loan, they also said, "Sir, we advise you to take out PPI-payment protection insurance". I asked what the payment protection insurance was for. "Well", they said, "if you become unemployed this could be paid out". It was the Victoria branch. I pointed over to the Houses of Parliament and said, "Look, I'm in there for the next five years, whether I turn up or not, so my money is secure until the next general election. I do not need PPI. Thank you, sir". I then received eight letters pointing out the folly of my mistake in not taking PPI. The lesson I learnt from that is that the industry knew that there was a problem. It knew that this was unsuitable for certain consumers, but there were good returns, so it kept on going.
Subsequently, the chairman of one of the major banks spoke to me confidentially, shook his head in amazement and anger and said, "With any product line which is getting a profit of more than 80%, surely someone should have asked the question: 'Is this a product which is operating in a fair market? Is it doing justice to the people who are buying the product?'". The answer, he said, was no, but the industry kept going. I was chairman of the Treasury Committee at the time. We referred it to the Competition Commission and then the OFT in 2005 and yet, three years later, the industry was still trying to sell it. I know from talking to some non-executives that executives were even bullying or trying to bully non-executives to maintain the product line-the combined rage of the consumers, the politicians and the regulators meant nothing to them.
This is all about imbalance, asymmetry of knowledge and value for money. The Government need to see this amendment as iconic in terms of that relationship and ensure that, before we get this on to the statute book, the consumer can at least start to get a fair deal.
Lord Lucas: My Lords, I very much support the spirit of this amendment; I will let my noble friend on the Front Bench answer for the technicalities. We have got ourselves into a position in which people do not trust the financial system and it is immensely damaging for us. It means that people cannot save in a sensible way; they do not want to expose their savings to what they believe to be a bad and unsafe part of the financial system, and with good reason. When one looks at what the banks have been up to, one just thinks that they have lost their sense of judgment as to what is right and proper and how things work in the long term. The things that have been going on at HSBC and Barclays, pensions mis-selling, the problems with PPI and these extraordinary financial products which were sold to small businesses all speak of a complete lack of interest in being trusted.
We must get back to a state where the financial system enjoys a proper level of trust. Otherwise, when people come to choose where to save their money, they will divert it into the likes of houses and push house prices ever further up. They will be tempted into deeply unsuitable investments because they cannot trust what is going on in the mainstream. That is all deeply undesirable. Getting back to us trusting them by the banks' own actions will be difficult; they have blotted their copybook to such an extent. We are relying on the FCA to be an effective regulator and ensure that, if there are problems in the works of the likes of PPI, they do not go on for years, so that when they burst they are enormous headline issues affecting millions of people, but are picked up early and the banks are politely requested to mend their ways, perhaps without most of us knowing what is going on.
We need a regulator that is quicker and more effective at picking such things up early if we are to restore confidence in the system. We know that there are problems out there which have not been dealt with. There are pension funds charging 4% a year to people investing in them for managing the funds. That is a continuing iniquity which needs to be dealt with. The amendment is aimed squarely at such practice: at ensuring that what is offered to consumers, when one takes all the hidden charges into account, is fair and good value for money and that people are being invited to take proper decisions.
Lord Barnett: I strongly support the amendment moved by my noble friend Lady Drake. As usual, my noble friend Lord Peston spoke about the average consumer and the complexity of the Bill. I doubt that an average consumer will ever read the Bill. This is not an ordinary Bill. I do not pretend that the FSA was perfect, but we are now to have an FCA. I think it is in Clause 5-although that itself is not easy to find-but then it is in proposed new Section 1E. You and I may find that easy-I do not, because this is the most complex Bill I have read. I apologise, because over five years I introduced many complex Finance Bills-two a year on average-so I know about complex Bills and have dealt with them both in government and in opposition, but I find this one incredible.
The Bill is about the competition objective and helping the consumer. The amendment is modest. If the noble Lord, Lord Sassoon, is in a good mood-I see that he is not; he is shaking his head-he should look at the amendment to see whether it would do any harm to the consumer. I should have thought that it might help them. The consumer will not read it, but the new FCA would have to read it and be responsible for it. First, the noble Lord must be in favour of good value for money-he is nodding. The last phrase of the amendment is that it should be "good value for money". It deals with,
That cannot do any harm to the Bill and the idea of helping consumers. Even if the noble Lord is in a bad mood today, as he indicated, I hope that he will see the amendment not in principle but in fact. It is a very modest amendment asking for very little.
The noble Lord, Lord Sassoon, does not always answer my questions positively, but this one is simple. This is not my question but that of my noble friend Lady Drake in her excellent introduction to the amendment. Is the amendment going to do any harm to the Bill? Is it going to help the FCA to help the consumer? If the answer is yes, can the Minister say that he will at least examine the Bill, take the amendment away and look at it with a view to including it at Report? That is all I ask, and I am sure that that is what my noble friend Lady Drake asks. I hope that he feels in a better mood when he comes to reply.
Viscount Trenchard: My Lords, I also recognise the good intention of the noble Baroness, Lady Drake, in moving this amendment. However, I think that the FCA is best helped to help the consumer by having clear objectives and principles, or matters to which they must have regard in pursuing the objectives. I worry that this is becoming overcomplicated.
Those two concepts are not defined and may be interpreted in very different ways by different consumers. Who is to say what represents good value for money? The important thing, which has been much too lacking in recent years, is that we should have complete transparency. However, I would like to hear the Minister's view on this.
mean that the FCA is prohibited from having regard to other matters, or is this intended to restrict-or to broaden-the matters to which the FCA can have
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Baroness Noakes: My Lords, the noble Baroness, Lady Drake, has made a powerful case for her amendment. I think that it is widely acknowledged that the needs of consumers require greater emphasis in the financial services industry as it moves forward, and I believe that that is why the consumer is being placed at the heart of the FCA. However, I am puzzled that the noble Baroness, Lady Drake, has chosen to put her amendment within the competition objective for the FCA. It seems to me that what she was talking about is quintessentially part of the consumer protection objective, which is in new Section 1C. A number of things are already listed within that consumer protection objective, including,
Lord Whitty: My Lords, I support my noble friend's amendment and much of what has been said about it. I would also like to counter what the noble Lord, Lord Flight, said because the amendment goes much further than providing information to consumers.
When faced with issues of consumer care and consumer protection, the FSA, in its early days and for much of its time, tended to resort to stipulating the information that the consumer needed to be given. By the time that had gone through the corporate lawyers of the various banks and insurance companies, it amounted to five, six or sometimes 25 pages of close 10-point type, which was even more difficult for the average consumer to understand than it is for the average Member of the House of Lords to understand this Bill.
That is a very passive form of consumer protection and it is a very passive definition of customer care. The amendment attempts to put an obligation on the FCA to ensure that companies operating in this sector operate positive customer care, not simply passive provision of information which a large number of consumers cannot understand. To answer the noble Baroness, Lady Noakes, one reason why I believe that it is appropriate for it to be in the competition area is that when the FCA looks at where competition is succeeding, one of the measures of the proper outcome
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Competition is not an end in itself. Competition policy and the enforcement of competition should protect and enhance benefit to consumers. One of those benefits is that the truly competitive company looks after its customers in a positive way and competes with its competitors in that regard. The passive provision of information is not customer care. This clause goes a significant way towards ensuring that customer care is seen as an objective both of consumer protection and of competition policy.
Baroness Hayter of Kentish Town: My Lords, along with most other speakers, I support the amendment moved by my noble friend Lady Drake. As I have argued in Committee before, it is no good having a competitive market for banking and insurance-not that we have one-if consumers effectively cannot enter the market, if they cannot identify what they need and if they cannot get value for money. As we have heard, all sorts of people find it challenging to know what services are suitable for them. How else could HSBC have sold bonds designed to be held for five and more years to 2,500 with an average age of 83. It is a little like people trying to sell PPI to my noble friend Lord McFall, or Barclay, HSBC, Lloyds and RBS mis-selling interest rate swaps to 28,000 businesses.
My hope is that Amendment 117 will give the FCA an explicit mandate to put a stop to unfair overdraft charges, excessive fees and complicated price structures, all of which hinder competition, which is probably why I think the amendment belongs within this area. The FCA has to be able to tackle hidden charges if it is to promote effective competition, given, as we have heard, individual consumers simply cannot do this for themselves. If we, as consumers, buy a theatre or an airline ticket, there is a pernicious little booking fee-at least we can see it. I have just had to pay £2 on a £10 ticket to go to the Noel Coward Theatre, which seems a bit high. At least we can see such a charge and we can choose whether to pay it or not to go to the theatre, but that is not the case with bank charges.
A recent Which? survey found that 60% of those polled said that they paid what they felt to be an unfair bank charge and half paid a charge which they thought was disproportionate to whatever benefit they received. It is not clear, from the current language in the Bill, that the FCA will have the necessary mandate to tackle hidden charges. I know-and my noble friend Lady Drake quoted it earlier-that the Financial Secretary in the other place said that the FCA had,
The Financial Secretary argued that the FCA does not need these bespoke powers, given that it can take action under the competition and consumer protection objective. However, a Queen's Counsel advised Which? that the current wording of the objective could allow the industry to challenge the FCA's mandate to tackle hidden charges, which could lead to a repeat of those failed and expensive test cases to which my noble friend referred. Any such uncertainty would make the FCA very risk-averse; it would be reluctant to take
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The amendment is simple; and can only promote confidence in the industry. Who, after all, could argue with appropriate services and value for money? Not even, I think, the Minister. We need to get back to trusting the banks and the pension providers, as the noble Lord, Lord Lucas, said. Therefore we trust that the Minister will accept Amendment 117. In the words of my noble friend Lord Barnett, it can do no harm; it can do good.
Lord Sassoon: My Lords, this has been an interesting and wide-ranging debate to kick off today's Committee session. I will deal first with the amendment on its own terms and then pick up some of the wider important points, although perhaps they may not be directly relevant to the key reason why I cannot accept it.
As we have heard, this amendment seeks to add a new have-regard to the FCA's competition objective. I know that it has been promoted by the consumer group Which?. As we have heard, it drives at the same issues as a number of amendments discussed in another place-namely, that the FCA should have, in the words of Which?-which were quoted by the noble Baroness, Lady Hayter of Kentish Town-an explicit mandate to,
I agree, of course, with what lies behind this amendment. Consumers should have access to the right financial services and products; they should be able to buy in the confidence that they know what they are getting and what they are paying for. That must be clear and transparent; there ought to be no place in financial services for a culture where consumers are kept in the dark.
However, let me put on the record what the Government have said a number of times before-both in publications and during discussions in another place-which is that if the FCA finds problems in pricing, charging or in the ability of the consumer to obtain value for money that cause it concern, it will have the mandate and the powers to act. It has the mandate both under the effective competition and the consumer protection objectives, a point that has been made by a number of my noble friends and other noble Lords in this debate. It can apply its extensive regulatory toolkit in pursuit of price intervention, should it think it appropriate to do so. The FCA does not need new powers nor do its objectives need expanding. We simply do not agree with Which?'s legal analysis. Fundamentally, it is a narrow legal point.
Having said that, a range of important issues have been raised which I will spend a minute or two addressing. The noble Baroness, Lady Drake, in introducing this amendment, talked among other things about the OFT bank charges case. It is important that the Committee understands that the powers available to the FCA are far broader than those available to the OFT at the time of the bank charges case. The OFT was in fact relying on the Unfair Terms in Consumer Contract Regulations. I suggest it is incorrect to draw a line somehow between what the OFT was or was not able to do and what the FCA will be able to do, because the FCA has much wider powers.
In terms of what the FSA can do now and what the FCA might do in future, first, as we discussed in Committee on previous occasions, the FCA will have additional product intervention powers. The noble Baroness I think gave an example of a low headline price to attract new customers that is then offset by high ancillary charges. That is a very good example-and one that I might have given if challenged-of precisely the sort of situation where the FCA might well intervene and where the FSA has already begun to take a similar approach, as set out for example in its consultation paper on the mortgage market review. I do not think there should be anything between us there.
Looking more widely, I think the noble Baroness said at one point that the FCA "must" be required to have regard to ease of access to value for money. However, the amendment does not achieve this-it simply adds to the list of matters to which the FCA may have regard. Linked to that, I can assure my noble friend Lord Trenchard that the have-regards listed in this new Section 1E are of course not exhaustive. The FCA is not precluded from taking other matters into account in assessing the effectiveness of competition. That takes me to the point made by the noble Lord, Lord Barnett, where we would get into difficulties. The easiest thing would be to say, "I agree with the sentiment behind this, let's put it in". One of the arguments in favour of putting it in is that the FCA would be vulnerable to legal challenge if it is left out. However, as I have clearly stated, our legal analysis is simply different-I have not seen what lies behind Which?'s legal analysis but we disagree on that. If we were to go down the line of putting in a longer list of have-regards, we get more and more into the difficulty of suggesting somehow that the list is exhaustive and that the FCA cannot do things that are left off the list. Potentially, the more we add to the list, we risk getting into legal difficulties that we are not in at the moment, because the FCA will have all the legal powers it needs. The noble Lord, Lord Barnett, put it as a reasonable challenge, as he always does to me, but I think there is a danger in going down the route of this amendment.
there is no danger of the kind he suggested in the amendment of the noble Lord, Lord Barnett. This is because there is the crucial word "include" at the end of the preamble to the new section, which states:
Lord Sassoon: My Lords, my clear legal advice is that the FCA does not require this additional "have regard" and that there is, notwithstanding the wording to which my noble friend draws attention, a danger that if the list becomes longer and suggestive that it is intended to be exhaustive, that may give rise to legal challenge. That is the advice that I have received from the best legal advisers that the Government have to hand and it is all that I can say on the matter.
I want to wrap up this discussion by going back to some of the things that noble Lords have drawn attention to in new Section 1C on the consumer protection objective. The noble Lord, Lord Peston, for example, is of course quite right to say that some or the majority of consumers of financial services are not "rationally well informed," to use his term. This is precisely why, among other things, new Section 1C(2)(b) refers to,
This is also why, among other things, we have discussed the important work of the Money Advice Service in improving the ability of consumers to make informed choices, which we will come back to. I therefore agree with the noble Lord's starting position, but I suggest that the way to deal with it is not through this amendment. I could point to a number of the other provisions in the consumer protection objective which go to the heart of many of the concerns raised in this debate. Coming back to my fundamental analysis that the legal analysis on which this is based is, in the view of the Government, flawed, I ask the noble Baroness to withdraw her amendment.
Lord Peston: I am full of despair because the noble Lord seems to have missed the whole point of what we are discussing. He keeps going back to technicalities, which is exactly the wrong way to view this matter. I think it was the noble Lord, Lord Lucas, who focused on why this Bill is a wasted opportunity, particularly in the way that it is being handled by Ministers. The real disaster that has hit this country is the destruction of the reputation of the financial intermediary sector. We in your Lordships' House have a chance to do something about that. The way to do this is not to talk about technicalities and to say, "My lawyers say this, and your lawyers say that". The way to do it is to place in the Bill a particular amendment-I do not really care where it is put. I will not object if the Minister does not like the wording as long as he makes the wording better. We have a chance to save the reputation of an industry which matters enormously to this country.
I find it very upsetting that in the last opinion poll I saw, the financial intermediaries had fallen nearly as low as politicians in terms of their public reputation-we
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Lord Sassoon: My Lords, we are in Committee and discussing a very specific amendment. I therefore make absolutely no apology to the noble Lord, Lord Peston, who raises extremely important Second Reading-type debating points.
Lord Sassoon: I will not give away again to the noble Lord for a minute, if he will forgive me. We are discussing a very specific amendment. I have explained why I believe it is defective. The sentiment underlying that is completely shared by the Government: we do not believe it is necessary. The noble Lord raised matters which, although somewhat different, are also related to the capabilities of consumers. I have attempted to address a very serious point by pointing out that his concern will be at the heart, right at the centre, of the new regulatory body's objective and thinking.
When it comes to his new point, which is not the one I was addressing before, about the standing of the industry, again, I completely agree with him. However, we are now talking about a regulatory structure. The Joint Committee of both Houses has been set up and will look very quickly at some of the wider questions of integrity and standards in the industry. This morning, I am trying to focus on the specific matter of this amendment.
Lord Peston: My Lords, I find it almost impossible to cope with the way in which the Committee stage of this Bill has been handled. It is completely different to any other Bill which I have taken part in. My point was not a Second Reading point. It was germane to this specific amendment, to what lies behind it, and to the philosophy of it. The Minister's absolute refusal to even say, "Some good points have been made and I would like to go away and think about them some more", is what annoys me about this Committee. My experience with the Ministers that I have usually dealt is that when a good point has been made, they always say, "I will go away and think about it some more", without making any promises. However, the noble Lord, Lord Sassoon, never says anything like that. I have not heard him once in five days suggest that there is anything wrong with this Bill, or that he would like to think again. There comes a point when one has to say that, in order that people know that their Lordships have rather high standards.
Lord Sassoon: Does the noble Lord, Lord Peston, agree that the Government came forward with a package of very substantial amendments that have already been discussed in Committee? I refer the noble Lord to the number of government amendments that have
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Lord McFall of Alcluith: Can I suggest that the noble Lord does not get so het up? There are issues and principles here, and we want to tie them down. Looking at Amendment 117, if I am correct, it is for the FCA to include,
This goes to the heart of consumer interest. Given the Minister's position-and let us get rid of the legalese jargon-does he think that this Bill, in this area or elsewhere, ensures that the type of scandals which we have seen going on for years and years without being addressed will be nipped in the bud by the new powers? Will we see the FCA step in straightaway, without prolonged pain for both the industry and consumers? That is what is behind the amendment and the points put by Members.
Lord Sassoon: My Lords, all I can usefully say is that while I believe that this amendment is well meant, it is based on a legal construction that the Government do not accept. The FCA has all the powers that it needs and there are some dangers in putting this amendment in. That is what we are discussing.
Baroness Drake: My Lords, perhaps I might respond to some of the issues that have arisen in the debate and in the reply from the noble Lord, Lord Sassoon. The Minister is arguing that the FCA has a sufficient mandate through the competition and consumer objectives, as drafted, to tackle these matters. My problem is that I do not share that confidence in the absence of the amendment to the competition objective that I seek. I accept his point that the FCA's powers are much broader than those of the OFT, but with the bank charges case I was trying to illustrate the disposition of the industry to mobilise quite effectively if there is ambiguity in the statutory or regulated provisions. Rather than arguing whose legal advice is better, I was seeking simply to nail this issue by saying clearly that effective competition means that consumers have to be able to identify whether services are appropriate to their needs and represent good value for money. The lawyers could then argue as much as they like, but that provision of what effective competition embraces would be laid out in the Bill.
The Minister made too much of my use of "must" in my speech, rather than "may" as it is in the Bill. I am seeking not to challenge the word "may" but to establish with clarity that competition cannot be effective without it being value for money for the consumer. My amendment does not seek to establish a long list but it seeks to give clarity on a very important issue, which goes to the heart of what effective competition is. I think that 20 million people out there are with me, based on their personal experiences of the financial services sector in recent times.
In response to the noble Baroness, Lady Noakes, in my own defence I have tabled amendments to both the consumer and competition objectives. My noble friend Lord Whitty very ably answered the question in part. However, I am seeking an amendment to the competition objective because on this occasion, at the risk of repetition, I am trying to give clarity to the definition of effective competition in terms of the matters that the FCA has to have regard to which, I reiterate, is the ability of consumers to identify what is appropriate to their needs and represents good value. At the heart of my argument is that the FCA cannot judge effective competition unless it has regard to those matters. I feel they are so fundamental to a judgment of effective competition that they are worthy of being spelt out in the Bill as a matter to which the FCA may have regard.
On the market integrity point, there is consistency in my amendment in terms of what I am arguing in respect of both market integrity and the competition objective. My argument would be that a key characteristic of well functioning markets is that they can provide consumers with products and services having value for money. The wording of the market integrity clause does not address or mitigate my concern, hence the amendment I have tabled.
The chair of the FSA made a powerful speech yesterday in the City and the Law Commission is today putting forward its own proposals on rip-off charges, so I am not alone in expressing these concerns. I agree wholeheartedly with the noble Lord, Lord Lucas, that the series of mis-selling scandals has now reached such a level that there is a danger of there being so much cynicism out there that people do not expect anything different from the financial sector anymore, and that the reputation of the sector and the City will become almost irretrievable. There is an element of enlightened self-interest for the sector in supporting this amendment, in that sense.
The Minister referred frequently to Which?. Openly and honestly, I come with form in terms of arguing for the consumer interest and I do not feel apologetic if I deployed some of the Which? arguments. I deploy arguments from many sources, so I do not feel defensive on that point. The consumer voice in this country is not particularly strong at the moment. However, I hear what the Minister says. We will probably return to this matter on Report and I hope that he will reflect on the points made in the arguments because millions of people will not understand why the opportunity is not taken in this Bill to address, in the Bill rather than by the implication of other powers or legal advice, a fundamental issue of what effective competition looks like for the consumer. On that basis, I beg leave-
Lord Lucas: Before the noble Baroness withdraws her amendment, I wonder if I might take the opportunity to make a couple of points to my noble friend on the Front Bench. He has been saying that his lawyers are better than theirs, which I of course accept, but it really is not a matter for either set of lawyers. It is for the lawyers that the FCA will have when it comes into existence to interpret this Bill. One problem with the FSA is that the limitations it imposed on itself as to the speed and determination with which it has pursued some of these other problems have resulted in them ending up much worse than they might have been.
It would help if my noble friend was prepared either to say now or to consider allowing me to give him an opportunity to say on Report that the sentiments expressed by this amendment-indeed, the particular courses of action envisaged by it-are ones that he would expect the FCA to undertake on the basis of the powers that it already has in the Bill and that he would expect it to act quickly, as the noble Lord, Lord Peston said, to nip things in the bud rather than waiting until it is absolutely sure that it has identified the exact nature of the problem. In other words, it should be able to take swift and pre-emptive action. If nothing else, under Pepper v Hart this would give the FCA's lawyers some comfort when they come to interpret the Bill in future.
Lord Sassoon: My Lords, I briefly draw my noble friend's attention to a couple of things that I have already highlighted this morning. First, there are the additional product intervention powers that the FCA will have, as opposed to those which the FSA has had. Those go to the heart of his concerns, because we are certainly not giving those powers to the FCA, and it is not receiving them, without an intention to use them. Secondly, I drew attention to the consultation on the mortgage review, which indicates a developing line of thinking that goes precisely to his points. The evidence points in the direction that my noble friend is looking for.
(c) the content of the communication is for the purposes of a social investment.""
Baroness Kramer: My Lords, this amendment takes us back to social impact investments. In moving Amendment 118AZA, I also very much support Amendment 121A in the name of my noble friend Lord Hodgson; it is also in mine. However, I know that he will speak eloquently to that amendment so I ask noble Lords to assume my support in the interests of the time pressures that we have today, and I will confine myself to speaking to the first amendment in this group.
Again in the interests of time, I will not go through the issues that define why social impact investment is so important and so beneficial, yet it currently feels very constrained. That has been done already, very eloquently, by my noble friends Lord Phillips and Lord Hodgson, both of whom are in their places here today, so I will talk within the narrower terms.
I want to make two points about social impact bonds, which are the primary form of social impact investment under general discussion. These bonds are, by definition, small. If the sector develops as it hopes, the range typically will be £1 million to £5 million. The bonds are small because they deal with very specific, local social problems, which might include building new social housing within a particular community or the resettlement of prisoners from a particular prison. That small size is key to understanding the regulatory environment in which these bonds need to live and thrive.
Secondly, qualified investors are not likely to provide a very large market for social investment bonds. Certainly the one that has been offered in Peterborough for prisoner resettlement is indeed funded by qualified investors, but that will be a less frequent occurrence. The real market for these bonds is people who live in the community and whose primary objective in purchasing the bonds is social good, with a financial return being secondary. That is the market that has to be reached if we are to develop this sector effectively.
That brings me to the problem that is addressed by this amendment, which is Clause 21 of FiSMA on the financial promotions order that sits underneath it. Under these rules a financial instrument cannot, in effect, be marketed except by an authorised person. Under the order there are a few exceptions but they do not apply at present to social impact investments. To become an authorised person requires going through a process that costs some £150,000. We have talked directly with the FSA and the FCA, with independent financial advisers and with others who do structuring, and there is a general consensus around that number. In a traditional investment, which might include a fund for £20 million, £30 million or £40 million, £150,000 is nothing. However, for a bond issue of £1 million, £2 million or £5 million, £150,000 is a very large amount of money and effectively makes it impossible to develop the instrument and market it to the general public. Therefore the rules as they stand make it impossible, in practical terms, for social impact bonds to actually be marketed to their primary would-be buyers, who are the general public.
That strikes all of us, I think, as a real flaw in this legislation and it has to be tackled. We have the irony that a charity could come to any Member of this
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I say to the Government, to the Minister and even to the Bill team that, since the Government themselves are considering whether they should enter the field of promoting social impact bonds, I would hate to see members of the Civil Service finding themselves serving at Her Majesty's pleasure as the consequence of having promoted these kinds of investments. It is an anomaly, and we seek to address it by this amendment. I will not pretend that the amendment is brilliantly crafted, but our goal is to get the Government to sort this problem out before the law of unintended consequences has a severe impact. This rule is already inhibiting the development of this market for no good purpose. It needs to be dealt with promptly, and I ask the Government to consider this issue seriously.
Lord Hodgson of Astley Abbotts: My Lords, I proposed Amendment 121A in this group. I am grateful to my noble friend Lady Kramer for her support. She has covered some of the ground that I wish to cover, and I will endeavour not to repeat the very powerful arguments that she has made. My amendment proposes inserting into the Bill a new clause with a further consumer protection objective, as stated in its subsection (a), in situations where consumers are,
My report, published a week ago, ran to 159 pages and contained 130 recommendations, a large number of which-15 or 20 or so-were concerned with social investment. I think that there is a great opportunity here, as my noble friend mentioned, and we are in danger of missing it.
So far my noble friend Lord Sassoon's comments on this, no doubt written for him by the Treasury, are disappointing. As my noble friend Lady Kramer pointed out, we have this counterintuitive situation where you can give money but you cannot invest it. As long as you give it away and cannot possibly get it back, you are fine. However, you cannot say, "I will give you this money. I might lose it but I might get it back, and I might get it back with a small incremental return", perhaps linked to gilts. You cannot do that, which must be counterintuitive. As the Government seek to develop social impact bonds-covering school exclusion, prisoner reoffending, getting people back into work-where charities and voluntary groups can do better
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As we said in earlier debates, this idea is at an early stage, and there are many challenges. The first, not least, is to find some corporate form that can encompass all the different strands of funding: the charity itself, other funding charities, the Government and the private sector, which subdivides into corporate investors and individual investors. All these have different timescales, different legal requirements, different tax structures and different objectives. It is on the last of these-in particular, the objectives of private individuals-that I think we should focus and that my amendment seeks to focus.
Research suggests that if people could invest relatively modest sums-say, £500 or £1,000-in a social investment proposal with which they sympathised, with the possibility of getting their money back but no certainty, and perhaps with a modest incremental return, it would attract substantial support from across our society. One would hope that successful operators in this field might create a record of success that would enable them to raise larger sums of money and provide increasing services in the future.
So what are the problems? Well, there are many of them, including the approach of investment managers and advisers, and that of the actuarial and accounting professions; pricing of the initial risk; and providing interim valuations. At the heart and more important than any others is the prospectus directive. As the noble Baroness pointed out, that prohibits offering investments other than to a very limited number of people, unless that is accompanied by a full Companies Act prospectus, which she also pointed out is very expensive. By the time you have provided warranted indemnities and for financial advisers, lawyers and accountants, there is easily no change from half a million pounds, and very often it costs much more. That does not fit with small schemes of the sort that the market now needs and can now bear. The market is not mature enough to take on the very large schemes that a full Companies Act prospectus would justify.
There is a way in which we can get round this in the short term. As the noble Baroness pointed out, the Financial Service and Markets Act 2000 (Financial Promotion) Order has very wide and quite appropriate prohibitions on people being communicated with on schemes unless they are in a position to understand the risks that they are undertaking. The order has in it some exceptions already-for example, when an offer is made to an individual who has reasonable grounds to believe that he is a certified "high net worth individual". That in turn means that the recipient understands that in the words of the order:
"The content of this promotion has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000. Reliance on this promotion for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all of the property or other assets invested".
In order to achieve that, the person becomes what is called a "sophisticated investor". He self-certifies that he is knowingly taking on a higher degree of risk and undertaking therefore a greater degree of responsibility.
If we can conceive-and have already introduced into law-the idea of a self-certified sophisticated investor, why can we not have a self-certified social investor? It would be somebody who understands that what he is taking on is not financially oriented alone but is aimed at providing a social benefit. If we could do that, it would begin to break the logjam, which is statutory, regulatory and administrative and is holding up the development of this movement.
If the Government could see some way in which to accept an amendment such as Amendment 121A, it would enable the consumer protection objective to be met but would empower and require the FCA to have regard to the possibility of creating the social investor alongside the sophisticated investor that currently exists. It does not require the Treasury to do anything now but enables it to make changes in future and gets the issue of social investment on to the face of the Bill. My noble friend Lord Phillips of Sudbury and the noble Baroness, Lady Kramer, proposed some amendments late the other night which were what I would regard as a full-frontal assault on the castle. This is more a way of creeping round the back to provide the Treasury with opportunities in the future.
My noble friend should consider a further argument. Interest in social investment is rising around the world, and the UK has played a leading role in the developments in that sector so far, undertaking a lot of the intellectual heavy lifting required. We are now beginning to move to the implementation phase, and this amendment would be a modest first step towards making the UK and London a centre of excellence for this new activity and ensuring that the UK is best in class in its delivery.
Lord Phillips of Sudbury: My Lords, I support totally the tenor of the amendments in this group, which have been so well spoken to. I add some practical examples of where I believe that these amendments or amendments like them would be of immense social utility. It is generally accepted that community life in our dear land is breaking down everywhere. At the same time, there is a general perception and I think agreement that anything that can be done by a community or a group within a community to shore up its social assets is doubly valuable against the background. For example, a local scouts organisation might want to build a new hut; a local sports club may want to build a pavilion or buy some boats or a bus to take teams away; or a local amenities society may want to improve a local building or acquire one. A local church might want to do something. One can go on and on. Local organisations every day of every week in every part of the land want funds to do something that they all agree would be of great benefit to that community. At present, the regime that my noble friend Lady Kramer so vividly described is a complete road block against having a general appeal to the community to chip in perhaps £10, £20 or £100-it need not be £500 or £1,000.
What is needed is for my Government to be imaginative enough, although I realise that the Treasury is not the homeland of social imagination, to see that if we could amend the arrangements provided for by this Bill, realising that one size does not fit all, we could unleash an unpredictable but extraordinary outpouring of funds. Many will be reluctant to give but much readier to lend, even though they appreciate that the basis on which they lend is somewhat uncertain. As my noble friend Lady Kramer said, the upfront costs of having to comply with the present regime are simply prohibitive. She mentioned social impact bonds of £1 million to £5 million, but I am talking about appeals of £50,000.
The value of those small local appeals, which can be met by people lending in small amounts but large numbers, is double. They provide badly needed social facilities and, in the process, bring the community together and give them the sense of achievement. They shore up community and are of inestimable public benefit. My noble friend the Minister has had a horrendous job steering this Bill through its stages and has dealt with it in an exemplary fashion. I hope that the Government will think again over the two next months and come back in the autumn realising that they have to make major concessions on this part of the Bill for the good of us all.
Lord Tunnicliffe: My Lords, I hope to set a precedent whereby the commitment of our Benches is not necessarily proportionate to the length of the speech. I support the amendment in the names of the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer. Social enterprises are businesses that trade to tackle social problems and improve communities, people's life chances or the environment. They make their money from selling goods and services on the open market and reinvest their profits back into the business of the local community. When they profit, society profits. We believe that Amendment 118AZA would contribute to their formation and therefore we support it.
On our Amendment 128AA, in the names of the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter, we believe that given the consensus in at least part of this Chamber that social investment is a good thing, it would be appropriate for the FCA to have a social investment panel that would sit alongside the small business and market practitioners and consumer panels. The FCA would have a duty to consult. The panel would represent the interests of organisations that specialise wholly or mainly in social finance or investment. Today's debate has shown that if we can persuade government to go into this area it will be complex and will need an appropriate panel to help to develop the regulations around it.
Lord Flight: My Lords, I support the common sense of these amendments. However, charities are regulated by the Charity Commission. Although one hopes that all these social endeavours are extremely honest and properly run, it is important to be clear about what charges are involved, and that the people organising them are fit and proper people. There is a very real issue to address here. It would be fine to say,
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Lord Sassoon: My Lords, we have already, quite reasonably, spent considerable amounts of time discussing issues of social finance and social investment. I want to reiterate, at the start of my response, that I do share the aims of those who wish to nurture the social investment sector and see it grow. I am pleased that there are plans for some of the noble Lords who are interested in these matters to have a discussion with the Bill team over the recess. I am happy to encourage that to happen. There are a couple of other ways to address this issue, which I will refer to as I proceed. So I hope that the Committee will bear with me for a moment or two. I will explain why I think that Amendment 118AZA and Amendment 121A are not appropriate; but there is another channel as well as further discussions between me and the Bill team where it might be possible to make some progress during the summer on practical steps. So I ask noble Lords to bear with me for a couple of minutes.
I am, of course, aware that my noble friend Lady Kramer had a meeting with the FSA on this matter two weeks ago, which she was good enough to tell me about. Those discussions informed Amendment 118AZA. I completely agree that if we are to help social investment grow we must make it possible for social investment vehicles, and in particular smaller schemes, to market themselves. I take her point about costs. In parenthesis, when my noble friend Lord Hodgson of Astley Abbotts talks about the costs being high, they are high. I do not challenge my noble friend Lady Kramer's numbers; but when my noble friend Lord Hodgson of Astley Abbotts talks about the prospectus directive and half a million pounds, we are in the territory of listed investments, which are rather beyond the sorts of investment fund we want to target. I am sure he wants to target them initially, but I accept the costs are high.
The effect of this amendment and why I cannot support it is that it would have the effect of making all financial promotions that relate to social investment exempt from all the requirements placed on firms and investment schemes, about how they can market their products and investments. I agree with my noble friend Lord Flight that we need to be careful. An essential component of a successful financial services sector, as came up in the discussion of the previous group, is that of trust. We already know what a huge job there is for the sector to rebuild trust. We do not want to undermine trust in the social investment space, because an advertisement or a financial promotion might well be the first point at which matters go wrong if a consumer buys a product or service on false or misleading information. So we do have to make sure that the marketing of financial services is regulated; that financial promotions are clear, fair, and not misleading, whether they are related to social investment or to any other product. In particular, we want to make sure that unscrupulous providers do not see some wide exemption in this area as a loophole-my noble friend is nodding in agreement. We must ensure that there is not a loophole to exploit consumers by offering products
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To illustrate the point for the benefit of the Committee, Members may have seen a report in the Guardian just last week of the case of a firm advertising a very high guaranteed return bond, generated through investment in social enterprises. The provider in question is registered with the FSA as an industrial and provident society, but not authorised. It does not appear to have permission to offer bonds with the exact characteristics of those it promotes; operating without such permission is a criminal offence under Section 23 of FiSMA. Any investors in such an operation as is being promoted would be left entirely without protection should it collapse. That particular case is being looked into by the FSA. However, it represents a timely reminder that we have to proceed with great care in this space. So I oppose this amendment and also, for similar reasons, Amendment 121A. However, I think we have an opportunity here. As my noble friends may well be aware, the Red Tape Challenge, which seeks to reduce the burden of regulation right across the entire regulated space, is currently looking at civil society. We do want, under the Red Tape Challenge-which is open to submissions at the moment-to see what specific ideas there may be, to changes to the financial promotions order or other regulations-
Lord Hodgson of Astley Abbotts: I am extremely grateful to the Minister for suggesting that we might be able to make some progress over the summer. His example of an industrial and provident society underlines exactly the point we are making. That is one of the areas that falls between the stools. At the moment it is neither a charity nor a proper regulated body, and this is exactly what we are trying to get at. We are trying to get our arms around this space in a way for which the present regulations do not provide coverage as regards the IPSs.
Lord Sassoon: I entirely accept that. However, the effect of these particular amendments would be to take away all regulation and protection. We certainly do not want to go from the current situation, which it appears people are already seeking to exploit, to one where merely because the apparent purposes of the investment were perfectly worthy and the overwhelming majority of promoters would obviously be people of the highest standing, others would be allowed to fly under their banner.
Lord Sassoon: Perhaps I may make one other point and then I will let my noble friend in. My noble friend Lord Hodgson mentioned the exceptions to the financial promotions order for sophisticated persons. Although I should not discuss the advice I gave Ministers in my previous life as an official, all I would say is that I am extremely familiar with the construction of that order
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Lord Phillips of Sudbury: In his final remarks, my noble friend pre-empted what I was going to ask him, which was to confirm that it is not beyond the wit of this House to take account of the very proper points he raises and, at the same time, to take account of this big, potentially vital sector of social investment. However, I think that he has already impliedly agreed with that.
Lord Sassoon: I have drawn the Committee's attention to the opportunity that exists at the moment, and of course the Red Tape Challenge is a cross-government initiative. No. 10 and others take it very seriously; it is not simply a Treasury matter; and it goes with the wider drive in this area. I shall leave it at that.
I should say just a little about Amendment 128AA. I do not believe that the FCA needs to have a dedicated panel for representatives of social investors. As the FSA's panels already do, the FCA's panels will advise on a wide range of policies and regulations from a broad range of perspectives, and I do not believe that it is necessary or proportionate to establish another panel, at additional cost, purely to represent the interests of social investors and social sector firms. Social sector organisations will be able to feed in their views through public consultations. The interests of socially oriented financial services firms can be adequately represented by the Practitioner Panel and Smaller Businesses Practitioner Panel, and many of the FSA's Practitioner Panel members belong to firms which are involved in social investment.
However, again in the spirit of wanting to be helpful in response to the amendment, and accepting that the interests of smaller specialist firms also need to be appropriately represented, I have sought and gained assurance from the FSA that from now on it will approach trade associations which represent social investors, such as the UK Sustainable Investment and Finance Association, asking them to put forward nominations to the Smaller Businesses Practitioner Panel. I hope that that will give additional reassurance to the noble Lord, Lord Tunnicliffe, about the approach in this area. Given all that, I ask my noble friend to withdraw her amendment.
Lord Lucas: My Lords, all of us in this House wish for that sort of reply from my noble friend, although some of us are not so lucky. I am sorry that the noble Lord, Lord Peston, was not present to hear that so that his scepticism on this matter might have been calmed. It was indeed an excellent reply from my noble friend and I very much hope that my colleagues will be able to take advantage of it.
Perhaps I may draw my noble friend's attention to an organisation called lendwithcare.org, which is an excellent example of how to do things right in this area. It is concentrating on micro-lending in the third world but the pattern it follows would fit very well the sort of projects that my noble friend Lady Kramer and others have outlined. It takes proper steps to make it absolutely clear to those who lend that there is a serious chance that they will never get back any money. That is crucial. There is far too much opportunity here to induce in those who sell something as a loan the idea that they have a reasonable chance of getting their money back, and that can be very dangerous in unregulated investment.
Baroness Kramer: I join in thanking the Minister for a very positive reply. It sounds as though we have real hope of making progress in this area. I very much appreciate the process that the Government have gone through to get to this point.
I also appreciate the comments of my noble friend Lord Phillips. I read into them that, with his legal-eagle mind, he and some of his colleagues may now be turning to this clause and to this area of the legislation to work out an amendment which, if properly drafted, could both address the issues which I, together with my noble friends Lord Hodgson and Lord Phillips and others, have raised and cover the absolutely fair and relevant point made by the Minister, which is that we have no wish to expose people to scams or to create an opportunity for this to be used as a back door to taking unfair advantage. That is extremely important.
"( ) money laundering and the financing of terrorism"
Lord Davies of Oldham: My Lords, I beg to move Amendment 118F tabled by my noble friends Lord Eatwell and Lady Hayter. I assure the Committee that, as time is pressing, this contribution will be brief. We are rather more interested in the Government's response at this stage, which we hope will be as positive as their responses have been to the last few amendments, and I hope that I can ride that happy tide until lunchtime.
There was cross-party agreement on terrorist asset-freezing during the passage of the Bill passed at the beginning of this Parliament. It had a considerable genesis in the work which Labour Ministers had done in the previous Government but the Bill was taken through by the Conservative Government and of course we fully supported it so that it became an Act. The Act's purpose was to continue the asset-freezing regime that we had previously sought to put in place. Of course, this amendment is moved two days after the allegations of money-laundering activity at HSBC made in a Senate committee hearing led to a matter that has exercised this House over the past couple of days-that is, the position of the Trade Minister. I do not want to dwell on that-it is something to be dealt with on other occasions-but the issue is clearly pertinent, and terrorism is bound to be at the forefront of all our minds against the backdrop of the enormous security arrangements which we are obliged to make for the Olympic Games.
The Bill seeks to define financial crime and lists three categories of crime, which I am sure the noble Lord will say are not meant to be totally exhaustive. However, the list surely ought to contain the two issues to which I have given expression and which are contained in the amendment. Why refer to fraud and dishonesty but not to money-laundering or the financing of terrorism? I am sure that the Minister has thought about these issues deeply and will have a convincing reply. However, it may just be that on this occasion he will say that he will consider the matter further and that we can come back to it on Report. I beg to move.
Lord Sassoon: My Lords, I can be brief on this. As the noble Lord, Lord Davies of Oldham, has explained, the amendment seeks to add money-laundering and the financing of terrorism to the list of matters that are considered to constitute financial crime. First, I should make it clear that the FSA is already able to take action in both these areas because the definition here is broad and the list of matters is indicative and not exhaustive.
Turning to the next part of the amendment, it struck me as somewhat odd that the definition of financial crime did not list as major an element as terrorist financing. It seemed a strange omission. I did a bit of research and actually the definition, which is picked up in the draft Bill, stems from FiSMA, the previous Government's Bill drafted in the late 1990s. I do not intend to be critical of the drafting of the previous Bill but it was drafted when terrorist financing was not as significant a concern as it has since become. I think it would be a good thing to include terrorist financing in the non-exhaustive list in this Bill. The
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I am sorry that the noble Lord, Lord Davies of Oldham, seemed to think that I would not pick up his excellent suggestion that we have a look at this again. I am very receptive to all good ideas from the Committee, big and small. I am very sorry that the noble Lord, Lord Peston, is not in his seat because this is one of many concessions and willingnesses to listen to arguments. I should make it clear that I cannot promise that I will continue in this end-of-term spirit for the rest of the day. Even though this will make no substantive changes to the duties and objectives of the FCA, I am grateful to the noble Lord for drawing it to the attention of the Committee and I would ask him to withdraw his amendment of the basis of the assurance I have given him.
Lord Davies of Oldham: My Lords, there is a character in "Cabaret" who expresses herself with "I am overwhelmed." and that is the only phrase I can think of that is apposite at this moment. I am very glad that I am able to catch the Minister in his wonderfully benign mood. If he can just sustain it to the end of the day we can probably deliver this part of the Committee stage by 7 pm. He has given warning that not all amendments will commend themselves to this extent but I am glad that this one has. I am grateful for his response and I beg leave to withdraw the amendment.
Our vision for the criminal justice system is that is able to respond in a flexible way to the needs of victims and the communities it serves. This must include proper protection and support for victims to help them recover and to overcome the effects of crime. In some instances, financial assistance will play a part in this recovery process. Successive Administrations have grappled with these schemes. Our system of criminal injuries compensation goes as far back as 1964 when awards were made on the basis of common law damages. When the then Home Secretary, Michael Howard, broke the link with common law damages some 30 years
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We are still resolving claims from before 1996 that were made under the pre-tariff system. When this Government came into office there were estimated liabilities of nearly £400 million. This Administration are now tackling this and are allocating funding to cases so that awards are paid as these remaining cases come to an end. Last year about £237 million was paid in such cases. A total of £449 million was paid in compensation last year-the largest ever in a single year-after the Criminal Injuries Compensation Authority was provided with additional funding. This includes payments to cases under the current scheme and also to pre-tariff cases.
However, despite this cash injection, total liabilities currently stand at around £532 million. This includes an estimate of the cases that are likely to fall due in the future but have not yet been lodged with the Criminal Injuries Compensation Authority. It also includes the remaining rump of pre-tariff cases. Nevertheless, with new liabilities arising at around £200 million each year under the 2008 scheme, this simply is not sustainable in the current economic climate. The revised domestic scheme will focus, as the Government were considering focusing in 2005, scarce resources on those victims most seriously affected by the injuries they suffer as a result of deliberate, violent crime committed in England, Wales and Scotland. This is part of a long-term aim to put this scheme on a more sustainable footing.
We envisage that the cumulative effect of these changes should help deliver savings of an estimated £50 million a year to the taxpayer. This does not mean we are reducing the overall spend on victims. The Government are committed to substantially increasing the amount offenders contribute to victims' services. In England and Wales, we intend to raise up to an additional £50 million a year through the victim surcharge and other financial impositions, investing this money in support services for victims.
The noble Baroness, Lady Royall of Blaisdon, will speak to her amendment shortly but I would like to make it clear that our proposals will protect injury payments to victims with the most serious injuries. In addition we are protecting payments to the bereaved, to all rape victims, to victims of any other sexual assault and to those, including victims of domestic violence and children, who are subjected to a repeated pattern of abuse. We are removing payments from those with less serious injuries.
The additional money that we will raise from offenders will be used to pay for new services for victims. We believe that it is much better to use this money quickly to support victims who are trying to cope with the impact of crime than to give people small amounts of money for minor injuries some time after the event.
Noble Lords will have seen a number of briefings about the reforms to the scheme including on behalf of postal workers and shop workers. I want to
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We have listened to those who responded to our consultation and have made changes to some of our proposals as a result, as set out in the Government's response. Notably we have changed our original proposals relating to payment for those with criminal convictions and to establishing a connection to the UK.
Let me make the House aware of the changes that we are making-first, on eligibility. Eligibility is tightly defined in the draft scheme so that only those direct and blameless victims of crime who fully co-operate with the criminal justice process may obtain compensation under the scheme. We will continue to pay secondary victims under the scheme in certain circumstances. Applicants will need to be able to demonstrate a connection to the UK through one of a number of factors, though as a result of consultation responses, we have removed the original requirement that an applicant be resident in the UK for six months prior to the incident that led to their injury. Bereaved relatives of victims who die as a result of their injuries will also continue to be able to apply as long as they meet the revised eligibility criteria. Those with unspent convictions will not be able to claim if they have been sentenced to a community order or have been imprisoned. Those with other unspent convictions will be able to receive an award only in exceptional circumstances. This is a change from the options put forward at consultation, following comments made by respondents. These changes to eligibility are in line with the core purpose of the scheme of compensating blameless victims of violent crime.
Secondly, on the tariff, we want to strike the right balance between protecting the most seriously injured and making reductions to the overall cost of the scheme. So tariff payments will be available only to those most seriously affected by their injuries and for those who have been the victim of the most distressing crimes. What this means in practice is that bands 1 to 5 of the current scheme have been removed; bands 6 to 12 have been reduced; and bands 13 and upwards-to band 25-are protected in their entirety at their current levels. Tariff awards for fatal cases, sexual offences, patterns of physical abuse and loss of a foetus are also being protected at their current levels-no matter where they currently appear in the tariff. As a result of a consultation response from the First-tier Tribunal we have also broken down some of the payments made for degrees of paralysis with the aim of ensuring that we avoid both over and undercompensation in these very difficult cases.
Thirdly, let me turn to loss of earnings. These payments do not currently reflect actual loss for all applicants, being capped at a salary of one and a half times the median gross weekly earnings but already making up a significant proportion of the costs of the scheme. The new calculation will be a flat rate based on statutory sick pay which should be simpler to administer. Payments will no longer be subject to
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Fourthly, there are no major changes to these special expenses payments. They will continue to be available for the same categories as under the current scheme, with the exception of private healthcare. We chose to retain these payments because they are generally awarded to those who suffer the most serious injury. However, we have made it clear that the scheme should be one of last resort in relation to special expenses, and that payments will be made only if the claim is reasonable. Fifthly, with regard to payments in fatal cases, we are protecting the awards for bereavement and parental services payments. In the interests of consistency and fairness, dependency payments in fatal cases will be made in line with the revised plans for loss of earnings. The scheme can never compensate someone fully for the death of a loved one but we believe that some financial compensation is appropriate in these cases. Reasonable funeral payments will be made up to a maximum of £5,000.
Finally, I turn to the process. One of the aims of this reform is to make the scheme easier for applicants to understand. For the first time the evidence required to make a claim is being put on the face of the scheme. We are tightening the circumstances in which the authority will meet the costs of obtaining medical evidence and reducing the timescales for submission of review and appeal applications.
I now turn to the other order before us on victims of overseas terrorism. We are introducing the first ever state-funded statutory compensation scheme for British victims of overseas terrorism resident in the UK. I fully acknowledge that this was brought forward by the previous Administration, and I am pleased that this policy has had cross- party support. Terrorism is unique in the public consciousness. Intended as a political statement and attack on the state, it has ramifications beyond those who are directly affected by it. It is therefore right that we should show solidarity with these victims. The scheme will be largely based on the revised domestic scheme, albeit with stricter residence requirements, but with the same levels of compensation being made available-placing those affected by overseas terrorism on a par with victims affected by terrorism in Great Britain. It builds on the support that we have made available under an ex gratia scheme which opened on 16 April this year for victims of attacks going back to January 2002.
The draft domestic scheme before us today provides the most coherent and fairest way of focusing payments towards those most seriously affected by their injuries within an affordable budget. The domestic scheme also takes into account the considerable progress that has been made in improving services for victims and witnesses, despite the shortfalls in the system. We also cannot ignore the tight fiscal backdrop and the need to reduce public expenditure. These reforms will deliver savings of around £50 million which will significantly reduce the burden on the taxpayer. The scheme for
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As an amendment to the above Motion, at end to insert, "but that this House regrets that, despite the Government's claims to be on the side of victims, this scheme would actually cut financial compensation for an estimated 92 per cent of victims of crime, many of whom will be considerably worse off through no fault of their own and will find redress much more difficult in the future because of cuts to legal aid; and also expresses concern over the ability of the Government to levy a substantial surcharge on offenders".
Baroness Royall of Blaisdon: My Lords, I will also speak briefly to the draft Victims of Overseas Terrorism Compensation Scheme 2012. I am grateful to the Minister for his presentation of the two draft instruments before us. I am also grateful to the Association of Personal Injury Lawyers, the trade unions-USDAW and the CWU-and the Association of Convenience Stores for their excellent briefings, all of which expressed deep concerns.
The Minister said that we needed a system able to respond to the needs of victims, and then he made it sound like a very reasonable step to cut £50 million from the criminal injuries compensation scheme. He did not say so, but I suggest that the catalyst for the proposed changes is the cuts faced by the justice department and the notion that we are all in it together. As is evident from the amendment, we on these Benches fundamentally disagree. Victims do not choose to be victims; they have suffered through no fault of their own, and in proposing the draft Criminal Injuries Compensation Scheme 2012 the Government are putting deficit reduction before humanity. I do not underestimate the need to reduce the deficit, although the Government have cut too far and too fast. Nor do I dismiss the need to introduce changes to the scheme from time to time. As the noble Lord rightly said, my own Government considered changes but we chose not to make them. I am sure that when the noble Lord was himself in opposition, he applauded that fact.
Why are the Government seeking to exclude 42% of innocent victims of crime from the scheme and making life more difficult for those who might still be eligible? Like the Association of Personal Injury Lawyers, I believe that the withdrawal of compensation from innocent victims of crime goes against the very purpose of criminal injuries compensation and ignores a view held by successive Governments for decades that victims of crime deserve more than words. What is happening to similar schemes in other European countries that are also coping with a financial crisis? Are they cutting entitlements for victims or do they regard compensation
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In the foreword to the Government's consultation on the criminal injuries compensation scheme-CICS-the Lord Chancellor and Secretary of State for Justice says that the current scheme for providing compensation to victims of violent crime,
and must be put on a "sustainable footing". As the Minister said today, the document painted a picture of schemes that were not sustainable and had historic liabilities of nearly £400 million. However, as he will know, these figures are disputed.
The 2011-12 accounts, together with an analysis of the previous three years' figures, show that the scheme is both stable and sustainable, with an average annual cost to the MoJ of existing tariffs of £192 million, and that historic liabilities have been reduced to 73 cases, estimated at less than £153 million. So why is the budget being cut by £50 million? In relation to the consultation, I also take issue with the very partial and extraordinarily subjective references to the results of the consultation in the explanatory memorandum, which do not reflect many of the real concerns expressed during the consultation.
The noble Lord gave a clear explanation of the CICS and the band system, but frankly it is not acceptable that the first five bands, which represent almost 50% of all payments, are going to be cut. They will be not cut just a little, but abolished. In human terms this means that more than 18,000 people a year who have quite serious and permanent injuries will receive nothing.
These include injuries such as partial deafness, post-traumatic epileptic fits, and burns and scarring causing minor facial disfigurement. To date these people, if their claims are successful-which is not easy-might receive between £1,000 and £2,500 compensation. The Minister said this is a small amount. Indeed, for some of us it is, but for others this money is not just compensation and recognition of an injury. It means being able to cope, not having to cross the line into a personal financial crisis, and retaining the dignity and self-esteem that enables them to continue to work or to seek work.
Among the people we are talking about are shop workers, far too many of whom are subject to physical assault, and the thousands of post men and women who are attacked by dogs every year. Of course, the other bands are not unscathed. Indeed, compensation for claims between £2,500 and £11,000 would be slashed by up to 60%. These claims are for injuries such as permanent brain injury resulting in impaired balance and headaches, fractured joints resulting in continually significant disability, and punctured lungs.
In addition, victims of violent crime who are still eligible for compensation under the new scheme and who are unable to work due to their injuries will also suffer as a result of changes to the scheme. The Minister suggested that changes along these lines were necessary for simplification. However, people will be worse off due to the changes in the arrangements for future loss of earnings, which will now only pay statutory sick pay-currently £85.85 a week. If someone were to
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Then, there is the failure to take into account the current employment market. To be eligible for a loss of earnings payment, the victim will have to have been in regular paid work for at least three years immediately before the date of the incident giving rise to the injury. What would happen to a person who sustained the injury while moving between temporary jobs, or who had a period of unemployment in those three years?
I recognise that, as the noble Lord, Lord McNally, said, the Government have proposed to retain awards at their current level in respect of domestic violence, sexual offences and physical abuse, and I welcome that. But what compensation would a woman be entitled to if, for example, she were the victim of rape and other physical abuse such as a broken arm and the loss of an eye? Would she be entitled to compensation for rape and each of the other two injuries sustained?
There are many questions to be answered about the proposed new scheme, but most importantly I believe that thousands of innocent victims of crime will be considerably worse off through no fault of their own, and because of the pernicious cuts in legal aid that have been debated long and hard in this House they will find redress much more difficult in future. For these reasons, I hope that noble Lords will support my amendment.
I turn briefly to the draft Victims of Overseas Terrorism Compensation Scheme, which is welcome, and I endorse the views expressed by the Minister. I am glad that the Government intend to show solidarity with British and European Union victims who are part of our community and have been caught up in acts of terrorism overseas, by making payments to those who have been seriously injured and who could not have reasonably anticipated the significant threat to their safety or security when travelling abroad.
I pay tribute to my noble friend Lord Brennan, who cannot be in his place today, who introduced a Private Member's Bill in 2007 which led to a section on victims of overseas terrorism in the Crime and Security Act 2010, and as a consequence, as the Minister said, to the statutory instrument before us today.
One important question for the Minister is: why is the scheme not retrospective, so that payment can be made to the victims of acts of terrorism in Bali, Sharm el-Sheikh and Mumbai? I understand that the cost of such payments would be between £3 million and £5 million, and to exempt the victims would seem to me rather mean-spirited. However, the Minister said that there would be an ex-gratia scheme backdated to 2002. I would be grateful if he could give me some further information on that point. I look forward to the answers from the Minister, and I beg to move.
I am driven to the belief that the proposed cuts in the draft Criminal Injuries Compensation Scheme 2012 are another example of the most vulnerable people in our society being expected to make the greatest sacrifices.
Before coming to your Lordships' House 15 years ago, I was an officer of USDAW, the Union of Shop, Distributive and Allied Workers, for 28 years, the last 12 of which were as general secretary. Then as now the retail sector was dominated by women workers, a large number of whom were part-time workers struggling to combine employment and home responsibilities and duties. All these workers are in the front line when criminal activity is perpetrated by the most vicious of criminals. Yet this coalition Government are now going to deny criminal injuries compensation to many of these workers.
The Union of Shop, Distributive and Allied Workers, which has never merged and has represented shop workers for over 150 years, demonstrates that this Government have ignored in their consultation all opposition to these proposed cuts. Some 50% of victims currently eligible for compensation will receive nothing if these cuts go through. Over 40% of the remainder would see their compensation reduced by £1,500 to £2,000. This is not a great sum for a millionaire, but by any standard a great sum to a shop worker already on low wages and injured by vicious criminals. If this proposal goes through, what next, I ask? Child labour, then slavery?
Lord Howe of Aberavon: My Lords, I rise to make perhaps a selfish contribution and not to invite the House one way or the other on the issue that has just been raised with some vigour. I speak because of an egocentric pleasure in the existence of the scheme and in the fact that it exists at all. It takes my mind back almost exactly half a century to the annual conference of the Conservative Party at Brighton in 1961. At that conference at that time, on behalf of the Aberavon Conservative Association, modest though that organisation was, I tabled an amendment for consideration challenging hanging and flogging and urging instead a liberal motion calling for a prison-building programme, strengthened probation services, longer sentences and, crucially, the establishment of a scheme to compensate the victims of violent crime.
To my surprise, some weeks later when we were on our Norman holiday near Coutances, a telegram came inviting me to ring up the then deputy chairman of the party, Sir Toby Low, or Lord Aldington, as he is better known to us. I wondered what on earth he wanted. He asked me whether I would be willing to move my motion as an amendment to the usual hanging and flogging motion. I was flattered to be involved with such a question. But he added, "The people here would be much happier if you dropped the last bit about compensation for violence". The Treasury was worried about the cost, the Home Office about the principle and so forth.
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