The Lord Speaker (Baroness D'Souza): My Lords, I regret to inform the House of the death of the noble Lord, Lord Randall of St Budeaux, on August 11, and of the noble Lord, Lord Morris of Manchester, on August 12. On behalf of the House I extend our sincere condolences to the noble Lords' families and friends.
To ask Her Majesty's Government what assessment they have made of the impact of the ending of the duty exemption for biofuels and the implementation of the renewable transport fuel obligation on companies in the United Kingdom that manufacture biofuels from recycled food waste.
Earl Attlee: My Lords, the Government strongly believe that the renewable transport fuel obligation-the RTFO-delivers effective and sustainable market-based support to the biofuels industry. The RTFO provides additional support to biofuels made from waste by awarding two renewable transport fuel certificates-RTFCs-for each litre of fuel supplied. The Department for Transport has committed to a review of the double-certificate scheme and support provided under the RTFO in 2013.
Lord Kennedy of Southwark: I would like to draw the noble Earl's attention to the SME producers who recycle local food waste into biodiesel which has a remarkably low-carbon footprint. These companies have had to cope, in effect, with a 20p per litre reduction in their income because of the current value of certificates. It is clearly a difficult issue for these smaller companies, some of which have actually gone out of business. Will the noble Earl agree to facilitate a meeting between me, representatives of SME producers and the relevant Minister?
Earl Attlee: My Lords, I am well aware of the difficulties being experienced by these SMEs with their commendable work in producing biofuels. I would of course be delighted to invite the noble Lord, and any other noble Lord who would like to come along, to a meeting with the Minister and officials-the experts who understand these quite complex issues.
Lord Bradshaw: Let us bear in mind that the people who recycle the food waste to which the noble Lord opposite referred are almost all very small businesses. They are not large corporations. They go round and collect fish-and-chip oil and similar things from shops, and of course they are doing a service in that this stuff is not going to landfill. Will the Minister refocus, please, on the plight of small businesses that are being very adversely affected? The RTFO certificates to which he referred are not compensating for the reduction from the previous scheme.
Lord Palmer: My Lords, does the noble Earl agree that, in reality, the RTFO is in a complete shambles, most especially because it is answerable to four different government departments? I ought perhaps to declare an interest: along with the late Lord Carter and others, I was responsible for persuading the previous Labour Government to implement the RTFO.
Earl Attlee: My Lords, several government departments may be involved but my honourable friend Mr Norman Baker is in charge of the policy. It is complicated, but I believe that it is a good and efficient policy that provides biofuels in a most efficient way.
Lord Teverson: My Lords, making transport fuels sustainable has to be a key aim of a low-carbon economy as they account, I think, for a quarter of all carbon emissions. What research are the Government doing to make sure that we develop sustainable biofuels for the future? It is such an important area for a sustainable economy for the future.
Earl Attlee: My Lords, I do not know what research has been commissioned but I would like to inform the House of one of the difficulties with biofuels, which is some of the complex effects of indirect land use change. For instance, if you start using tallow as a biofuel then the use of certain types of tallow could increase the demand for palm oil, which could have effects on land use change far away from the United Kingdom. It is a complicated area. There is research into understanding this, but I am not sure what research the Government are directly commissioning.
Lord Davies of Oldham: My Lords, will the Government consider doing what several other European Governments are doing and separate bioethanol and biodiesel in the RTF obligation, thereby offering the possibility of avoiding exactly the problem he identified regarding what might suit large traders and significant commerce as well as the small businesses providing this very important service at a more local level?
Earl Attlee: My Lords, the danger, which we are drifting into, is providing state support for small businesses. We must provide the regime with the incentive from the renewable transport fuel obligation, but we must be careful not to provide state aid to certain types of businesses.
Earl Attlee: My Lords, to tackle drink-driving, we need to give the police effective tools and to streamline the enforcement process. Our plans include revoking the right to opt for a blood test following the breath test, as this results in delay and some offenders avoiding prosecution; re-launching the drink-drive rehabilitation scheme; streamlining the enforcement processes for the drink-drive testing regime, starting in 2014; and developing publicity about the consequences of drink-driving.
Lord Sheldon: My Lords, I thank the Minister for that very useful Answer that moderate drinking and then driving is generally reasonable. Spending on drink-driving must become acceptable; it is reasonable to expect expenditure on drink-driving.
Earl Attlee: My Lords, it is important to understand that my department is solely concerned with road vehicle safety; it is not concerned with the health aspects of drinking. However, of course, I answer on behalf of Her Majesty's Government.
Lord Taverne: My Lords, 45 years ago, as a Home Office Minister, I co-operated with the excellent Ministry for Transport of the then Secretary of State for Transport, Barbara Castle, on drink-driving legislation. She very bravely ignored all the forecasts about a violent backlash from motorists and the law is now widely accepted. As Australia, New Zealand and most of the American states have now accepted random testing, which is by far the most effective way of reducing deaths and serious injuries, will the Minister advise the present Secretary of State for Transport to show the same kind of courage that was shown by Barbara Castle 45 years ago?
Earl Attlee: My Lords, the difficulty with random testing is that it would not achieve the desired result. The object of random testing is to create an expectation among drivers but that would fail to produce results if not backed by raising the actual level of testing. This would not be cost-effective or a justified use of police resources in the current economic climate, because if most of these tests were random, they would prove to be negative.
Baroness Finlay of Llandaff: Can the Government explain why they have not considered lowering the limit from 18 milligrams per 100 millilitres of blood down to 50 or lower to bring us into line with the rest of Europe and most of the rest of the world? Why have they not considered a zero tolerance to alcohol, given that a survey by Brake showed that more than one in four people were driving the day after having consumed large amounts of alcohol and were almost certainly above the limit, although not formally tested?
Earl Attlee: My Lords, we have carefully considered this issue, and we have considered and reported back on the North report. The difficulty is that if we lower the limit to 50 milligrams, we would divert resources away from the cohort of drivers who ignore the law and drive quite often at double the legal limit. The police would be tied up with dealing with these low-level offenders and would not be dealing with the much higher-risk offenders.
Lord Berkeley: Is not the real argument that the Minister is putting forward that any reduction in the level to that of the rest of Europe goes against the total anti-Europe policy that we see across so many fronts, rather than trying to save a lot of lives on the roads by lowering the limit?
Earl Attlee: My Lords, I think I shall be having a chat with the noble Lord, Lord Kennedy of Southwark, about that matter tomorrow. It is important to understand that other European countries have a lower limit but also much milder penalties. We have a policy of a slightly higher limit, which is based on the Grand Rapids study, but with severe penalties for the slightest infringement. Our results are better than the European results. I can assure the noble Lord that it is not an anti-European policy.
Earl Attlee: My Lords, the only thing that my department is concerned about is saving lives by having an effective policy. That means correctly allocating resources and addressing the most serious problem, which is persistent unregulated drinkers who consistently flout the law and drive with very high blood-alcohol levels.
Lord Davies of Oldham: My Lords, the noble Lord has referred to the report of Sir Peter North. He stated that he thought that, if the limit were lowered from 80 milligrams to 50 milligrams, 168 deaths a year would be saved by such action. Surely, that is a compelling argument for the Government to consider.
Lord Condon: My Lords, does the Minister agree that there is merit in monitoring the impact of new legislation in France and elsewhere in Europe, which now requires motorists to carry breathalysers in their vehicles, to raise awareness of the problems and to encourage self testing by the more responsible motorists who may not know whether they are above or below the limit?
Baroness Gardner of Parkes: Having just returned from Australia, I have brought back two points about this message. I believe that random testing has a very good effect: the young change their attitude and if they are going to a party, one of them drinks nothing. My other point is that new drivers, who have the highest proportion of accidents, have a nil level for at least one year after they qualify. Will the Government consider either of those possibilities?
Earl Attlee: My Lords, on my noble friend's last point, during the passage of the Road Safety Bill under the previous Administration, that proposal was suggested. The previous Government turned it down and I believe that they were probably right to do so.
Lord Brooke of Alverthorpe: My Lords, although I recognise that the major problem that we face is dealing with repeat offenders, does the noble Earl agree that the second group with which we have the greatest problem, and who suffer the most deaths and have the most accidents, are people aged under 21? Following on from the previous question from that side of the Chamber, would the Government be prepared, among the several initiatives they are looking at, to contemplate a programme of zero tolerance for the under-21s, so that we might perhaps achieve a cultural change and so get the benefit in future generations?
Earl Attlee: The noble Lord is quite right that young drivers feature disproportionately in the statistics. A difficulty arises in initially telling youngsters that they cannot drink at all and then, at a certain point, we tell them that they can. The problem is not so much youngsters with a little bit of alcohol in them, but when they have drunk far too much.
Baroness McIntosh of Hudnall: My Lords, I am puzzled about an answer that the noble Earl gave to an earlier question concerning the impact of a 50 milligram limit in Europe. He appeared to imply that if the limit were that low or lower, penalties would have to be commensurately lower as well. I cannot entirely understand the logic of that. Why could we not have a lower limit and the same rigorous penalties?
Earl Attlee: The noble Baroness is absolutely right. She will be aware that Scotland now has the ability to set a different limit but it cannot change the penalties. If Scotland goes for a lower limit, the current penalties will apply.
To ask Her Majesty's Government what assessment they have made of the number of new business enterprises being created in the United Kingdom; and what measures they are taking to encourage more new business start-ups.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Marland): My Lords, in 2011-12, Companies House reported 450,000 newly registered companies in Great Britain, the highest number since records began. We are helping SMEs in many different ways, including providing an extensive package of advice and financial support. This includes the new start-up loan scheme and supporting high-growth potential SMEs, with over 1,000 businesses signed up to our GrowthAccelerator scheme.
Lord Bates: I thank my noble friend for that encouraging Answer, and I welcome him to his new role, to which he brings great experience. In doing so, I pay tribute to his predecessor, my noble friend Lady Wilcox, who also made a significant contribution in that role.
Is my noble friend aware that, while it is encouraging to see the number of SMEs increasing, only one in five SMEs actually exports overseas, and of that one in five only one in 10 exports to the fastest-growing parts of the global economy, in Asia, Africa and the Middle East? What steps will my noble friend take to encourage more businesses to take opportunities in those key markets for us?
My noble friend puts his finger right on the pulse; my statistics say that one in six SMEs are exporting, not one in five. We have a huge amount to do to change the attitude and incentivise people to export. That is why my noble friend Lord Green has visited 42 countries in the past 18 months. I, in my own small way, have visited 25 countries-
Lord Marland: No, listen, please. I have visited 25 countries in the past 12 months, the Prime Minister continually takes delegations of small and medium-sized businesses with him, ambassadors are being encouraged to be outward facing, and UK Trade and Investment has had £35 million of new investment, appointing representatives throughout the world. We have done this with cross-party support. I am very grateful, for example, to the noble Baroness, Lady Symons, for the work that she does; to the noble Baroness, Lady
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Lord Bilimoria: My Lords, last month I attended a conference on entrepreneurship in Sheffield called MADE, attended by 2,500 entrepreneurs and budding entrepreneurs, which is now known as the Davos-the Glastonbury-of entrepreneurship. Of course, a major topic there was the challenges of raising finance for SMEs-the Secretary of State for Business himself spoke about this. Will the Minister tell us what the levels of financing are now compared to before, with all the government schemes that are coming in? I hear from SMEs that they are still finding it difficult to raise finance. We talk about moral hazard in bailing out the banks. Surely there is a moral hazard here, when the banks are not lending to the SMEs that can generate the growth and employment that this country desperately needs.
Lord Marland: There is no doubt that the banks are not lending to the extent to which the Government would want, and this is something that we are looking at very closely. However, we cannot castigate banks and make sure that they increase their capital and at the same time ask them to increase their lending, so I understand the problem that the banks have. I could list loads of initiatives: we are spending £1 billion in the new business bank, and we have the new enterprise allowances, which are worth £80 million. We have Smart loan schemes up to £75 million, and we are mentoring people through Mentorsme. We have the growth accelerator to which I referred earlier and the enterprise finance guarantee, through which £800 million has been awarded so far. I am actually quite grateful for this question, as noble Lords can tell, and I hope that my answer satisfies the noble Lord.
Baroness Oppenheim-Barnes: My Lords, my noble friend has given the House some very good news indeed, but would he not agree that it is just as important to keep new businesses open as to open them, and to do so in many cases without the more onerous regulations under the Equality Act?
Lord Marland: There is no doubt that the two great threats to business are regulation and, of course, taxation. We are committed to reducing the level of regulation through our Red Tape Challenge. Of course, the most marvellous thing that the Lord Chancellor has done is to show a very clear pathway for the reduction in corporation tax-it is headlined down to 22% in two years' time-which will make it the lowest in the G20. That is a really significant boost to business. For SMEs it is 20%, which is a very encouraging target.
Lord Harrison: Would the Minister accept that because of the byzantine entry forms for the regional growth fund most funding went to big businesses not small ones, to the south-east and not to the other regions, and nothing much was helped to grow except the occasional passing wilting weed?
Lord Marland: It is unlike the noble Lord to be unfair, but I think he is in this case. In the north-east alone, 329 new businesses have been supported by government initiatives, and 95 have been involved in the passport to export, which is the educational programme on how to export. So it is not just the south-east and the south-west that are involved. Clearly checks and balances have to be carried out in applying for any scheme, but that is not new to this Government-it has been the case for all Governments.
Lord Naseby: Will my noble friend look at the recommendation from the Mary Portas review, which is so vital to small businesses up and down the country? In particular, will he look at the recommendations, which I think are there, about car parking for consumers and the importance of that? Reports are now coming in of local authorities hiking up car parking charges. Indeed, some of them are closing car parks.
Lord Marland: Obviously I shall discuss that with my friends in local government. It is not something for me to deal with, but it is something that the Government will look at as part of the Portas review. I take on board what my noble friend has said.
Lord Mitchell: My Lords, last week the Government announced a new partnership to help SMEs. It is hard to credit it, but their partner of choice is Barclays Bank, the number one casino bank. The Minister listed a whole load of programmes which the Government have announced, and indeed they have, but the fact is that very little of it is getting through to the SMEs themselves. When are this Government going to make sure that these programmes are much more effective?
Lord Marland: First, I welcome the noble Lord to the Front Bench. It is a pleasure to see him. I was looking up his great achievements earlier and, in addition to business and technology, I noticed that one of the things that interested him was alcohol abuse. Following what I did last night, I am thinking of putting that down as one of my interests. He raised a greater point-what the Government are doing. We are trying to make the weather and to create activity. That activity is working, which is why I was able to say that 450,000 new businesses have started in the past 12 months, the most since records were kept.
Baroness Stowell of Beeston: My Lords, I am sure the whole House will wish to join me in taking this opportunity to congratulate all our athletes who participated and won medals in the Olympic and Paralympic Games this summer, the wonderful volunteers who made the Games so special and everyone who contributed to the organisation of the Olympic and Paralympic Games.
The Government are committed to making sure that both the Olympic and Paralympic Games have a lasting legacy. Elite sport will receive £500 million over the next four years leading up to Rio. Grass-roots sport will benefit from £1 billion of investment to provide facilities and opportunities to take up sport. The UK will host a number of major sporting events and we will build upon the already successful School Games providing competitive sport in schools.
The legacy of the Games goes beyond sport and all parts of the Government will work together so that the UK as a whole takes advantage and reaps the benefit of what we achieved as a nation this summer.
Lord Giddens: My Lords, I thank the noble Baroness for that response and echo her sentiments. Does she think that the sense of solidarity and national purpose which was so visible during the Olympics can be sustained or, possibly, extended? If so, how might that be achieved?
Baroness Stowell of Beeston: I agree with what the noble Lord has outlined as being part of the success of the Games this summer. I was very proud that my noble friend Lord Coe was at the Labour Party conference last week to pay tribute to Dame Tessa Jowell for everything she did as a Minister to ensure that we succeeded in getting the Games. He made the point very clearly that to build on the success of the Games-and as I said in my previous Answer this is not just about sport, although sport is hugely important and we need to build on it-we must continue that bipartisan and cross-party approach to make sure that we take all the available benefits.
Baroness Grey-Thompson: My Lords, given the huge number who have been inspired by the extraordinary Olympic and Paralympic Games this summer, could the Minister explain how good access for disabled children to PE in schools and mainstream clubs can be ensured? This is not just about continuing to develop an elite pathway-in which I declare an interest-but about changing the whole culture towards healthier lifestyles.
Baroness Stowell of Beeston: I would like to pay particular tribute to the noble Baroness for all the vital work she did in commentating on the Paralympics-I know she also did so on the Olympics-and helping to ensure that the rest of us properly understood what was being achieved.
It is not just disabled people who are inspired by what was achieved at the Paralympics: the rest of us were, too. We need to build on the success of the Olympics by ensuring that all stages of the sporting strategy, which has been covered in great detail in a ministerial Statement which is available in the Printed Paper Office today, integrate disabled sport at all levels. I was particularly pleased to learn that when Sport England confirms its next round of investment in national governing bodies in December, it will require, for the first time, delivery of specific targets for participation of disabled people.
Baroness Anelay of St Johns: My Lords, the noble Lord, Lord Moynihan, was ready to speak on the past two occasions and gave way. We will have the opportunity to hear from the opposition Front Bench very shortly after his question.
Lord Moynihan: My Lords, I apologise for the earlier false start. In declaring my interest as the outgoing chairman of the British Olympic Association, may I thank noble Lords from all sides of this House for their consistent support for both the Olympic and Paralympic Games since we first debated them some seven years ago?
The challenge is now to turn inspiration into participation. Does the Minister agree that central to this objective is a priority focus on school sport and the establishment of new links between clubs, volunteers, governing bodies, primary, secondary and, indeed, independent schools?
Baroness Stowell of Beeston: My noble friend, to whom I owe a great deal of gratitude for everything he has done, is absolutely right, and I should make one small point. The Secretary of State for Education met representatives of some of the national governing bodies last week and is building on what is already known about in terms of strategy.
Baroness Billingham: I welcome for the first time today the face of the noble Baroness, Lady Stowell, at the Dispatch Box and I look forward to hearing from her frequently. I also pay tribute to her predecessor who worked so well at the Dispatch Box; we enjoyed listening to her. However, since they came to power, the coalition Government have cut the school sport budget by 69%. Now Michael Gove's curriculum proposals threaten to tear the rest of the heart out of school sport by ignoring the fact that sport and physical education should be part of the core curriculum. We all know that to be good at sports you have to start young. That start, as we have just heard, has to be made in primary schools. How will the Government therefore follow up all the good will that is now engendered by the Olympics by ensuring that the very people we need to make that start in primary schools are given a fair and reasonable chance?
Baroness Stowell of Beeston: Sport in schools is a vital part of our ongoing strategy for and commitment to sport, and I should just say to the noble Baroness that PE is a compulsory part of the national curriculum at all key stages of education. That is the only topic, in addition to maths, English and science, that we have made compulsory at this time.
Lord Wakeham: I thank my noble friend the Leader of the House for his reply. Might I assume from his Answer that the Government have no plans for further reform of your Lordships' House in this present Parliament?
Lord Strathclyde: My Lords, the hard work of many Members of this House and the other place to shape this Bill has of course inched us forward in this great debate, but Lords reform is now a matter for future Parliaments. I can confirm that the coalition will not be able to deliver Lords reform during this Parliament, which in a way seems extraordinary, given that more than 70% of the House of Commons voted in favour of the Bill at Second Reading.
Baroness Royall of Blaisdon: My Lords, I am grateful to noble Lord, Lord Wakeham, for tabling this PNQ but regret the fact that the Leader of the House did not make a full and proper Statement. For the Government to tell this House formally by means of a reply to a Private Notice Question that they have abandoned their legislation on further House of Lords reform is woefully inadequate. If the Lords had been sitting on 3 September, at the same time as the Commons, the Leader would have repeated the Statement.
I welcome the fact that the coalition has finally come to its senses and abandoned what was a bad Bill. I must say that for the Leader, in his piece in today's House Magazine, to lambast Labour for the Bill's failure is a bit rich. My party wants reform, but the right reform. Would the Leader agree that it is regrettable that the Deputy Prime Minister appears, in a fit of pique, to have ruled out any reforms to your Lordships' House before the next election, including the Steel Bill?
Now that the Bill has gone the Government have time on their hands, so what are we going to do? Will the Leader therefore agree to an urgent meeting of the usual channels to examine the Government's legislative programme strategically, and come up with proposals on planning and handling that will find favour with the whole House and ensure that we could respect the firm convention that this House will normally rise on legislating days by about 10 pm?
Lord Strathclyde: My Lords, I think that is a question for which the word "opportunistic" was originally coined. Lords reform was, of course, based almost entirely on Jack Straw's White Paper from 2008, when the noble Baroness stood at this Dispatch Box. No doubt historians will wish to examine exactly why the Bill fell in another place. My own view is that while the House of Commons was keen on the idea of an elected House, when Members found out what it might mean for them they became less keen. Furthermore, it required a consensus right across the parties in another place and in this House. The Labour Party was not willing to form part of that consensus in a programme Motion, demanding a referendum, the removal of the Cross Benches and the entrenchment of powers. I therefore make no apology for saying that the Labour Party was at least in part to blame for there being no further action on Lords reform.
As to the further legislative programme, Bills will be introduced. However, while there is time currently available in the House for Commons for more legislation, of course we were not expecting the House of Lords Reform Bill until the new year. We expected to be in Committee at least, and perhaps for the Session to continue well into the summer. We will now be able to finish the Session in a normal time. However, I very much welcome any discussions that the noble Baroness would like to have.
Lord Cormack: My Lords, would my noble friend accept that there are many people in this House who are delighted that the Government came to their senses on this issue? Would he assure the House that he has not ruled out the housekeeping measures which are in the Steel Bill? Will he consult with the noble Lord, Lord Steel, the noble Baroness, Lady Hayman, and others on what sensible, modest housekeeping measures can be brought forward to make this House even more effective than it is at the moment? Will he also use his very considerable influence within his own party to ensure that, at the next general election, the Conservative Party does not fight on a manifesto that has any reference at all to an elected second Chamber?
Lord Strathclyde: My Lords, that may or may not be asking too much. Of course I am aware that this House will be very pleased with the news. Ever since the election, in every debate that we have had there has been an overwhelming majority against the proposals in the Bill. As far as the Steel Bill is concerned, this House has passed a Private Member's Bill in the name of my noble friend Lord Steel. It now languishes in the House of Commons at the back of the Private Member's Bill queue. It remains to be seen whether a Member of the House of Commons regards it as a priority and decides to pick it up. However, I will just point out that more than over 70% of the House of Commons voted in favour of an elected House. It may be a little difficult to believe that the House of Commons will now move to entrenching an appointed House so soon.
Baroness Hayman: My Lords, I am grateful to the House, and I am sure that the whole House will be grateful to the noble Lord, Lord Wakeham, for ensuring that we at least have 10 minutes to discuss this issue. Will the noble Lord the Leader of the House accept that reform and election are not synonymous? Will he also accept that two areas of consensus did emerge from the debate on the Government's Bill? First, the Bill for elections to this House was not deliverable. Secondly, there was an urgent need to make changes in the House. I must say to the noble Lord, Lord Cormack, that I have never seen myself as a modest housekeeper and am more interested in some substantive reforms that are urgent for this House. Despite the pique felt over the withdrawal of the Bill, those remain urgent priorities on which there is widespread agreement. Will the noble Lord accept that and help make some progress on it?
Lord Strathclyde: My Lords, there may well be widespread agreement in this House, but I have seen no indication that there is widespread agreement in another place. That agreement is absolutely necessary before a Bill can be passed. I urge the noble Baroness, with all her influence, and those who agree with her to discuss things further with Members of the House of Commons.
Lord Rennard: My Lords, does my noble friend the Leader of the House agree that whatever may or may not happen in the near future in relation to reform of your Lordships' House, there is now absolutely no case whatever for continuing the farcical practice of holding by-elections to replace hereditary Peers when one of their number passes away?
Lord Strathclyde: My Lords, the by-elections were never supposed to occur because the Labour Party in 2001 promised that it would come forward with proper, elected reform that did not in the event take place. The existence of the by-elections may still be a spur for further reform.
Lord Campbell-Savours: With two-thirds of the House of Commons voting in favour of an elected House, why will the Government not table a Motion for a referendum to be held at the time of the next general election, in the knowledge that when that comes to a vote in the House of Commons the Labour Benches would be required to support it because it is in our election manifesto; and Liberal Democrat MPs, along with Conservative supporters of an elected House, would also feel obliged to? The country would then decide and would lock in Parliament to a yes or no decision.
Lord Strathclyde: The Deputy Prime Minister looked at many options, including having discussions with the leader of the Labour Party. However, it was decided that moving forward would not be fruitful.
Lord Elton: My Lords, will my noble friend exercise his good offices with the Prime Minister and the commission and ask them to exercise great restraint in the appointment of new Peers until some method is devised to make room for them?
Lord Elystan-Morgan: Does the Minister accept that it will be the verdict of history that the proposed reform failed because it was fundamentally and fatally flawed? It created a situation whereby mutual strangulation would have been the order of the day between the two Houses. Will he give an undertaking to the House that any future consideration, which of course must encompass the primacy of the House of Commons, should be on the basis of a written constitution?
Lord Strathclyde: My Lords, it will certainly be for historians to take a view on what happened, not only during the past two and a half years but over the past 15 years over which the debate has raged. However, as I said, more than two-thirds of the House of Commons voted in favour of an elected second Chamber. I do not think that the Bill was fatally flawed, but I do think that there will be no further progress until the House of Commons understands the full implications of an elected House being more independent, stronger and able to hold it and the Government to account.
Lord Eatwell: My Lords, I rise to raise an important issue concerning the conduct of the Committee stage of the Bill. On 3 October-last Wednesday-I wrote to the noble Lord, Lord Sassoon, in these terms:
"The Wheatley study on the future of LIBOR has produced a series of conclusions with which the Labour Party is broadly in agreement. I congratulate both Martin Wheatley and his team for their achievement, and the Government for initiating this investigation.
I note from the statements of Treasury ministers, and from the Treasury website, that it is the Government's intention to implement the Wheatley proposals by means of amendments to the Financial Services Bill. No such amendments have been tabled as of yesterday".
"However, it is possible that you will also need to introduce amendments to clauses already debated, in which case it would be entirely inappropriate to introduce such amendments at Report. Given the importance of these issues it is imperative that the House have the opportunity to debate these matters in the freedom of Committee, rather than under the constrained rules of the Report Stage.
May I therefore have your assurance that should the Government, as a consequence of the Libor scandal and of the recommendations in the Wheatley Report, plan to introduce amendments to clauses 1 to 5, or at some later stage, amendments to clauses at that time already debated, that you will re-commit the appropriate clauses, hence ensuring that the House of Lords has the scope for full debate".
It has since become clear that the Government intend to introduce on Report all the entirely new material presaged in the Wheatley report. The noble Lord, Lord Sassoon, wrote to me on 2 October-the day before I wrote to him which was somewhat mysterious. He said:
"I do not believe that it is necessary to recommit the Bill, and see no reason why a substantive debate on the relevant clauses at Report stage would offer insufficient opportunity for scrutiny by the House.
Re-commitment would risk unnecessarily delaying the implementation of both these important reforms to LIBOR setting processes, and of the equally urgent reform of the UK's financial regulation regime which we have been debating through the Committee sessions to date".
The noble Lord's reply does not take into account what I actually asked for. First, I was not asking for total recommitment. I was asking only for the clauses which deal with entirely new material from the Wheatley report to be recommitted. Secondly, I believe very strongly that with respect to financial regulation it is not an issue of quibbling about delay but of getting it right. These enormously complex matters deserve the iterative consideration which is possible only in Committee. I remind noble Lords that on Report they can speak only once. Thirdly, it is quite wrong to deny this House the opportunity to consider entirely new and complex material within a Committee setting. I would therefore ask the noble Lord, Lord Sassoon, to reconsider his rejection of my proposal that the relevant clauses be recommitted.
If he is unwilling to do that, perhaps I may make a constructive proposal. Either he or the Chief Whip, who unfortunately is not in her place, should give an assurance that the rules of Report will be relaxed for consideration of what might be called the "Wheatley" clauses when they are introduced.
Lord Barnett: I warmly agree with my noble friend on the Front Bench, and it gives me an opportunity to refer to the noble Lord, Lord Sassoon, himself. In the
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Not only do I agree with my noble friend in the points he has made about the Bill, what is even more important is that the whole Bill should be dropped for the moment. There is no hurry for it and much of it will cause great damage to financial services in this country. As the noble Lord, in his new position, is no longer going to be quite so subservient to the Chancellor of the Exchequer, I certainly hope that he can tell us the truth, drop the Bill for the time being and, as my noble friend has suggested, come back to the House with a new one.
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I thought we were going to talk about some clauses on LIBOR, but we have now strayed, in the imaginative way that the noble Lord, Lord Barnett, does, into scrapping the Bill. I can assure the House that the Government intend to carry on with this Bill according to the timetable because it is vital that we get the financial regulatory architecture right. It is an architecture that failed us miserably in the financial crisis, so we will of course press on with the Bill.
As noble Lords know, LIBOR is the most significant interest rate benchmark used by the market-not just the UK market, but globally. It underpins contracts worth at least $300 trillion, so it is imperative that market confidence in the rate is restored quickly in order to ensure that, in the future, contributors to this benchmark act with greater integrity, promoting financial stability, legal certainty and business continuity. It is important to be clear about that. It is also important to be clear that the Government have not yet announced our response to the Wheatley review, so what the noble Lord, Lord Eatwell, raises is a somewhat hypothetical question at the moment. He notes correctly that my right honourable friend the Chancellor of the Exchequer has indicated that the Financial Services Bill is the Government's preferred legislative vehicle to implement new policy arising from the review. Should the Government decide to accept Martin Wheatley's recommendations in full, we anticipate that the clauses which would implement the review will indeed be debated at the Report stage of this Bill, and the draft clauses will be published in good time in advance of that date.
As noble Lords with longer experience of the House than me will well know, recommitment is an extremely unusual procedure. Notwithstanding what the noble Lord, Lord Eatwell, says, it would risk causing delay not only to these important reforms of the LIBOR setting processes but to the Bill itself. It is quite routinely the case that government amendments setting out new policy are tabled at the Report stage, and in this case, as the noble Lord has confirmed, there is broad cross-party consensus in favour of the policy. There has already been wide debate of the issues during the period when Mr Wheatley was carrying out his work. In the light of that, I believe that substantive debate on the relevant clauses at the Report stage will offer sufficient opportunity
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This is a significant piece of legislation, which has already benefited from a very constructive approach to scrutiny from your Lordships' House. We will do all we can to reinforce that debate including on any clauses we bring forward on LIBOR through, among other channels, briefing parliamentarians separately outside the formal debate. However, I suggest that for this afternoon it might be more productive to carry on with the sixth day of our scrutiny of the Bill.
Lord Peston: My Lords, we make the obvious point that getting it right is not the same as doing it quickly. We ought always to bear that in mind in your Lordships' House. There is a straightforward solution to this. One is my noble friend's suggestion for Report. Since I assume, particularly given the Leader of the House's remarks, that we are not imminently in danger of being abolished, that we are still a self-governing House, we can therefore decide, if we wish to, one of two things: either my noble friend's proposal, with which I strongly agree, that we would simply have Committee stage rules at Report stage for what is being proposed; the alternative is not to end the Committee stage until the Government can get their tiny mind around the Wheatley proposals and come up with their amendments.
I have read the Wheatley report. The proposals do not strike me as being intellectually very demanding-nowhere near as difficult as deciding on a railway line. Therefore, the noble Lord ought to respond positively instead of adopting this negative approach and remind himself that we will get only one chance to get this right. We ought to make sure that we do not bungle it.
Lord Eatwell: My Lords, I should make clear that I said that the Labour Party was broadly supporting the conclusions of the Wheatley report; not the Government's policy because we do not know what that is yet. We look forward to seeing it. Perhaps we will support it; perhaps we will not. On the substantive matter, I welcome what I saw was the noble Lord's support for a degree of flexibility at Report, referred to also by my noble friend Lord Peston. If it could be agreed in due course by the usual channels that for the Wheatley clauses a Committee-style procedure be permitted and the House agreed to that, then I think we could proceed with due speed.
Lord Sharkey: My Lords, this is a probing amendment. Its purpose is to allow discussion of the issues surrounding crowd funding in the United Kingdom. The informal meaning of crowd funding is probably entirely obvious. However, as far as I can tell there is no generally accepted legal or technical definition of the term. Wikipedia describes crowd funding as,
This was the meaning directly addressed in President Obama's JOBS Act of April this year which, among other things, gave the SEC 270 days to bring in appropriate regulatory regimes for crowd funding in order to encourage its take up and its expansion.
In the UK, as elsewhere, there are essentially three possible forms of crowd funding. The first is the donation model in which funders provide money to an organisation for no commercial or financial return. The second is the lending model, in which funders provide money by way of repayable interest-bearing loans. These two models are actively used in the UK and do not seem to face significant regulatory barriers, provided that loans do not involve the provision of consumer credit. However, neither of these is suited to the more speculative form of SME or start-up enterprises: donations because enthusiasm, although often surprisingly generous, will be restricted to a fan base, and lending because many organisations will be conventionally assessed as not credit-worthy.
The third method of crowd funding, investment, is potentially a significant source of funds for start-ups and similar high-risk ventures but it faces regulatory problems in the United Kingdom. There are two kinds of investment crowd funding: the equity model, where investors receive shares in the company; and the collective investment scheme model, where investors receive a right to a share in profits or revenue but no shares. As a general rule, it is not possible for a company in the UK to raise money by crowd funding using either the equity or the CIS models. With some limited exceptions, both these models fall within the UK regulatory regime's prohibition of such activities. That is the problem about which I would like very much to hear the Minister's views.
Specifically, does the Minister accept that crowd funding may be a very useful way of getting substantial funds into the UK's SMEs, an area where our banks are currently underperforming? If so, does he acknowledge a degree of urgency in setting up an appropriate regulatory framework, and can he accept that the existence of high levels of risk in investing in small companies need not necessarily mean that ordinary people should not be allowed, or even encouraged, to invest their money in such enterprises? Perhaps, in this context, it is worth remembering the conclusion for the US jobs market of the Kauffman report: that for 20 of the past 27 years, all net new jobs came from start-ups.
My noble friend the Minister will know of the report published in February this year by the Association of UK Interactive Entertainment, entitled A Proposal
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Perhaps I could ask the Minister to give his views on these proposals, to consider in a general sense how we may use crowd funding to both increase and speed up the flow of funds into the SME sector, and to give some indication of the Government's intentions in this area and of timings. I beg to move.
Lord Peston: My Lords, the noble Lord has introduced his amendment as a probing amendment, which I take to mean that it is meant to be educative. My natural tendency is to agree with him, but I have great difficulty in that I do not have the faintest idea what he is talking about. In particular, I do not know what crowd funding is. The amendment says it should have,
Lord Stewartby: My Lords, I, too, would like some assistance from my noble friend. It is not easy to understand, in large parts of this Bill, what it is trying to get at. I raise this under discussion of Clause 6 because that is what permits the transfer of regulation of consumer and small business credit from the Office of Fair Trading to the new Financial Conduct Authority.
I have had an approach about this from the Finance & Leasing Association. They told me that they do not seek an amendment to the Bill, rather a commitment by the Government to a sensible timetable, to ensure the Government get the rules right and avoid the loss of important consumer protections. This is because the Government have set a very ambitious target date of April 2014 for the creation of a new regime for credit regulation. They propose a twin-track approach which will include a slimmed-down version of the Consumer Credit Act with enhanced powers. The Government say they want to transfer as much as possible of the CCA and associated OFT guidance into this new rule book by April 2014. However the detail of the new rule book will not consulted on until the second half of 2013, and the final rules will only be available in March 2014. This makes the implementation of an April 2014 date virtually impossible. I would be grateful for enlightenment and assistance from my noble friend.
Lord Barnett: My Lords, I always like to be enlightened. I agree with my noble friend and I have a tendency to agree with the noble Lord, Lord Sharkey. However on
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Lord Eatwell: My Lords, although I agree with the noble Lord, Lord Sharkey, that it is enormously important that we improve the flow of funding to small firms, particularly given the complete failure of the Government's attempts to improve the funding through banks to small firms, I believe that we should approach this proposal with great care. The problem with crowd funding is that crowds can often be subject to hysteria. We have seen hysterical funding levels in what might be deemed to be fashionable or popular companies: lastminute.com comes to mind, as does the recent launch of Facebook. In both cases, excessive hysteria associated with the popularity of the particular company led to investors losing quite a lot of money.
However in the SME sector, the fundamental problem for small investors is the risk to which they are exposed. They will necessarily have significantly less information than they would from a listed company. Given that lack of information, and the high mortality rate of small and medium-sized companies-thankfully they have a high birth-rate as well-it is likely to lead to a lot of not-very-well-off people losing significant sums of money.
Lord Sassoon: My Lords, I will put some things to one side before I deal with the main substance of my noble friend's argument in this short and interesting debate around crowd funding. First, for the help of the noble Lord, Lord Barnett, there is indeed no Section 417 because crowd funding has been introduced into this Bill by my noble friend Lord Sharkey. I am sure that in due course he will table a Section 417 which will make us all a lot clearer about the definition. However, for the interim benefit of the noble Lord, Lord Peston, and rather than me banging on about what crowd funding is and boring the rest of the House, I draw his attention to the FSA guidance on this topic put out in August this year. It gives a helpful short introduction to what it is all about.
Lord Peston: Perhaps I may interrupt the Minister. As I listened to my noble friend, it suddenly dawned on me what we were talking about. It really does mean crowd funding and, following what my noble friend said, there is a very simple answer to it: do not do it.
Lord Sassoon: That is one way of dealing with it, but it is not the way in which the Government wish to deal with it, which I shall explain in a moment. I say to
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Crowd funding is an innovative new source of funding for start-ups and other small enterprises. I share my noble friend's hope that it will continue to grow in the coming years, so my answer to his first question is a resounding yes. However, on his second question, which is the subject of the amendment, while I understand my noble friend's enthusiasm for establishing discrete legislative provision to bring this very new sector into regulation, I do not agree that it is needed at this stage and so cannot accept the amendment.
My noble friend raised the US JOBS Act. In the US, there was a very distinct problem and a pressing need, which led to the introduction of that Act. The situation is different in the UK. Among other things, there has been no clarion call from industry for more regulation. However, we should not be complacent, and the FSA is not waiting until there is a problem before doing things.
Platforms seeking to operate what are in effect collective investment schemes must obtain authorisation from the FSA. The FSA already has powers to take action against firms operating without appropriate authorisation. It is up to the FSA to work with platforms seeking to offer equity returns to their investors to ensure that they obtain relevant permissions before the activity that is most likely to apply here-arranging deals in investments-starts. This is happening already, with one such platform securing authorisation from the FSA prior to its launch.
Of course, the regulator must balance the need to allow innovative models to flourish with ensuring that consumers understand the risks involved with new platforms. In this regard, the FSA's recent guidance on crowd funding makes clear its concerns, which are evidently shared by the noble Lord, Lord Peston. This is the right sort of regulatory response. It shows that we should not rush to create new regulated activities here.
I am also concerned that amending the Bill in this way could create confusion that stifled the growth of the new sector. There are currently many forms of crowd funding. We do not yet know precisely what definition my noble friend had in mind, but the vast majority of these platforms ask customers to make donations rather than investments. They have been very successful in doing that. The world's largest crowd-fundng site, Kickstarter, for example, which will launch in the UK very soon, raised more than $100 million for creative projects in the past year. A platform such as that does not pose the same risks to investors, who expect no money in return for their donation, so we have to be mindful of the risk of legislating in a way that does not fully take account of the breadth of the businesses in this new area.
In conclusion, although industry standards and further FSA and FCA guidance may have an important role to play in future, my view is that the regulatory structure proposed in the Bill is suitably flexible to support the growth of the full variety of crowd-funding
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Lord Sharkey: I thank the noble Lord for his answer. The noble Lord, Lord Peston, invited me to extend his education, but I think I should decline any such attempt. The noble Lord, Lord Barnett, did not believe that there was a definition there, and he was right-there is no definition. I shall not do it again now, but I did try to explain what forms crowd funding currently takes. Perhaps I did not give a clear impression of how important or what size it currently is, and that is my fault, but crowd funding exists and plays quite a large part in the landscape of small companies, both in the United States and already here in the United Kingdom.
I think I noticed an expression of perhaps amazement on the face of the noble Lord, Lord Peston, at the notion that people should donate $100 million to commercial enterprises for no return at all-an aspect of crowd funding that clearly he was not familiar with.
Lord Peston: I take it that if the thing goes ahead, it will be made clear to people putting money into this sort of thing that they are essentially going to a betting shop, where they may win or lose. That is what it is about. Since our country appears to be gambling mad at the moment, there seems no reason to prevent this new form of gambling from being introduced. However, as someone who knows-coming, as I have said before, from a large family of gamblers-that gambling is a total mug's game, I hope there is someone around who tells people that crowd funding is a mug's game.
Lord Sharkey: It is nice to know that the noble Lord, Lord Peston, approves of gambling. Returning to the Minister's response to the amendment, I note the objections that he raises, some of which were raised by the noble Lord, Lord Peston, as well. I accept that this is a new area that is full of dangers for unwary investors, and I also accept the dangers of regulating an infant industry too early. However, we are about to see a significant expansion in this area, which we should all keep an eye on for the future. Having said that, I beg leave to withdraw the amendment.
(2) Debt-adjusting is, in relation to debts due under regulated credit agreements or contracts for the hire of goods, negotiating with the creditor or owner, on behalf of the debtor or hirer, terms for the discharge of a debt, or taking over, in return for payments by the debtor or hirer, his obligation to discharge a debt, or any similar activity concerned with the liquidation of a debt.
Lord Stevenson of Balmacara: My Lords, I declare an interest as chair of the Consumer Credit Counselling Service, a leading debt advice and debt provision charity. Currently, Clause 6 extends the scope of FiSMA by including credit information services. They are already regulated under the Consumer Credit Act 1974, but an amendment is needed to bring them into FiSMA. Clause 6 also changes the current definition of credit contracts to include both unsecured and secured loans, and other forms of credit, and includes hire agreements as a regulated activity.
Our Amendment 147L seeks to include debt adjustment and debt management services in the Bill. This issue has already been raised several times during the passage of the Bill, and we will return to it on subsequent Committee days. The Government have given reassurances that the existing text allows debt management to be included and that they intend it to be included. Perhaps the Minister will confirm this again when he comes to respond. However, this is a permissive approach and we feel that it might not be sufficient in this case. There is a case for debt management to be mentioned in the Bill, and I will run over one or two points in support of that.
The UK's free, independent debt advice and charity sector helps to ensure that clients pay less and are able to repay their debts more quickly compared to those clients who choose a fee-charging route. Recent figures on this are illustrative. A fee-charging company will typically involve total payments of about £35,900 on a £30,000 debt, including up-front fees and a monthly administration charge. It will therefore take nearly 10 years to wipe out the debt. On the other hand, a debt charity will repay the full amount of £30,000 in full, with no additional charges made to the client, in just over eight years.
Now, the OFT has recently looked at the practices of debt management companies in this area in relation to the guidance that it already issues. It regards misleading advertising by fee chargers as the most significant area of non-compliance with its guidance. In its 2010 review of the sector, it highlighted the fact that many firms claim their services to be free when they are patently not free. We believe that regulation is urgently needed here so that there is transparency about charges. At the same time, we also think that there should be an obligation for fee-charging services to inform potential clients of the availability of free advice services. This, again, is mentioned in the OFT's debt management guidance; it is not thought to be widely adhered to.
The practice of charging up-front fees itself supports a business model that has pernicious consequences for people trying to repay their debts. Fees undermine the capacity for borrowers to make repayments and, as I have tried to show, that extends the timescales. Advice provided by fee-charging companies is inevitably-and, I suppose, naturally-skewed towards debt management plans and individual voluntary arrangements that generate a revenue stream for those companies. As a result, people struggling with debt often end up with the wrong solution.
The Government have proposed a DMP protocol setting out what all parties can expect from a debt management plan, and the hope is that this will ensure that debtors are treated more consistently, both by creditors and by fee-charging DMP providers. However, progress on this seems to have stalled. In any case, it is no real substitute for the strong regulation that this sector now needs.
Amendment 147M would add claim management regulation to the scope of the FCA. No one-in this House, particularly-will have failed to notice the growth in CMCs recently, particularly those touting for business in relation to financial services, such as claims for mis-sold PPI in particular. I have never taken out a PPI, but ironically I had a text just before I came into the Chamber this afternoon explaining that I was missing out on £2,737, which was waiting for me simply by return through a text service. Indeed, I have had several phone calls in the past week or two.
It might just be a temporary phenomenon, and existing arrangements might well be the same, but I have my doubts. The problems that are often reported to us are aggressive or illegal marketing practices such as cold calling and unsolicited text marketing; persuading people to divulge their payment card details and then using this to take unauthorised payments for service; and failing to inform people that a claim might actually be settled on a non-cash basis, where there is an offset against a remainder debt, leaving that person with no money to pay the fees that are going to be charged.
Claims management companies are not currently unregulated; they are already covered by the claims management regulator, which is part of the Ministry of Justice. There is a statutory scheme set out in the Compensation Act 2006, and regulations and rules are made under this. Quite apart from the need to question why this area is being retained within government when we are actually setting up a new regulatory structure, there is also a question about why the Ministry of Justice has not been able to get on top of the problems that I mentioned earlier. The claims management regulator within the MoJ is actually currently consulting on current practices, but there is a long way to go.
While it may be possible for these issues to be dealt with, possibly through an order such as the regulated activities order, quite serious points continue to operate to the detriment of the consumers who are involved in this area. Bringing the CMCs, as with the debt management companies, under the supervision of the FCA is surely the right way forward. I beg to move.
Baroness Sherlock: I will ask a couple of questions on Amendment 147M, and in doing so I remind the House of my registered interest as a senior independent director of the Financial Ombudsman Service. I am grateful to my noble friend for raising the question of claims management companies and their regulation, something that we have come to in this House once or twice in recent months.
The problem is significant. I ask two questions, one of my noble friend and one of the Minister. Can my noble friend reflect on what would happen if and when claims management companies might move on from their current obsession with the financial services
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However, in the past the companies have focused, for example, on people who have-or fancy that they might have-sustained personal injuries such as whiplash in car accidents. In future, they might move on to other areas. I wonder, therefore, whether we could reflect on what the best way might be to regulate this industry when in fact the target could move. It is the activity itself that needs regulation, rather than necessarily the sector.
This highlights the particular problem that we have: that the activity of claims management companies-particularly the bad activity of the minority that are doing the kind of things described by my noble friend-needs addressing. In this I wonder whether the Minister could help us out. Could he tell the House very quickly what steps the Government are taking to improve the regulation of CMCs? For as long as this activity remains within the Ministry of Justice, can he assure the House that adequate resources and powers will be made available to those doing this job to redress the kind of unpleasant practices and considerable detriment that has been created on top of the original detriment that has been done?
Lord McFall of Alcluith: I support my colleague's comments on this clause. Only last week I received a text saying that there was £2,200 waiting for me to claim as a result of that; I think, therefore, that something needs to be done. In relation to PPI, only six weeks ago both the banks and the consumer organisations had a meeting to sort out the problem with claims management simply because they said that the Ministry of Justice is not fit to look at it at this time. There are big problems here for the Minister; there needs to be consultation. If he gave us an indication today that the department was engaging in that, it would give some reassurance to those who are plagued by claims management companies at the moment.
Lord Sassoon: My Lords, my comments on Amendments 147L and 147M will be brief, because we discussed both issues in some depth in earlier sessions of the Committee. Amendment 147L seeks to enable the activities of debt adjusting and debt management to be regulated under the Financial Services and Markets Act. I can reassure the Committee on this point. The effect of Amendment 147L is already achieved by Clause 6, which enables all activities currently regulated by the Office of Fair Trading under the Consumer Credit Act to be transferred to the FCA under FiSMA. I hope that is a very clear answer and the direct reassurance for which the noble Lord, Lord Stevenson of Balmacara, was asking.
I will not be quite as brief on Amendment 147M; this continues to be an important area even though we have discussed it before. The amendment seeks to add
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I agree, of course, with the noble Lord, Lord Stevenson of Balmacara, that there are a lot of detrimental practices in the sector that need to be tackled. I reiterate that work that is already under way to strengthen the existing regime for the regulation of claims management companies. Before the summer, I flagged that the claims management unit at the Ministry of Justice was doing work to strengthen the conduct of rules governing the sector. That work is proceeding apace and further steps are being taken. I will take back the noble Baroness's comment about resources but I have no evidence that this work is being hampered by inadequate resources.
Baroness Sherlock: I am very grateful to the Minister. If the barrier is not resources, will he advise the Committee of what he thinks it is? If there is no problem, is he satisfied with the regulation at present?
Lord Sassoon: I am not satisfied with the conduct in the industry, which is why in August, since we last debated these matters, as the noble Baroness I am sure is aware, the Ministry of Justice announced that, from April 2013, claims management companies will be banned from offering financial rewards or similar benefits as an inducement to make a claim. I understand why there are concerns but, since we last discussed these matters, there has been significant progress.
As has already been noted in this debate, proposals have been consulted on to tighten the conduct rules with which all claims management companies must comply as a condition of their licence. The consultation closed on 3 October and the responses are now being considered. Again, the target date for implementation is April 2013. Also from 2013, the Government intend to extend the Legal Ombudsman's jurisdiction to provide an independent complaints and redress service for clients dissatisfied with the service provided to them by the claims management companies with which they have contracted.
I believe that significant and important work is going on, and that that is the right approach. I hope I have been clear on why I cannot support proposals to make the FCA responsible for claims management regulation, which applies as much now as it will in future. The Government will therefore not be including the activities of claims management companies in the
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Lord Stevenson of Balmacara: I thank the Minister for his response. I accept his assurances on Amendment 147L, and I am grateful to him for making it very explicit that the intention and the practice will be that debt management companies will clearly come under the scope of FiSMA and therefore the FCA. Perhaps I may leave with him the thought that there may be a slight divergence of view, unlikely as that may seem, within the Government. As I mentioned in my introductory speech, there is still an ongoing commitment by the Department for Business, Innovation and Skills to produce some sort of protocol which will affect all DMPs. I may write to the Minister about this but it seems to me that where we have an assurance on his behalf that there will be full coverage of DMPs within the scope of the current Bill, as he mentioned, it is not quite clear where BIS and its draft protocol will lie. I should like some assurance on that but I will not contest this on that point.
If I understood the Minister correctly, I think he was making three points on Amendment 147M. The first is that, in a way that is clear to him but not, I am afraid, to me, claims management companies are not financial services companies. If they are dealing with claims, they are dealing in some sense with a form of financial service. The examples we have had, which move away from pure financial services, concerned whiplash injuries. It seems to me that these companies would not be involved if there was no money somewhere in the circuit. Therefore, if that money is available to an individual who wishes to claim for it and is being assisted by a CMC, under a very broad definition, that would be a financial service.
Lord Sassoon: I do not want to be picky on this point but would the noble Lord, Lord Stevenson of Balmacara, contend that the legal profession, which deals with claims all day every day to recover money for people, should be brought within the regulation of the FCA? I clearly said that at the moment it is dealing with some very important matters which are financial services matters but that is very different from defining a claims management company as a financial service. Is the noble Lord suggesting that lawyers and all sorts of other people who deal with money should be defined as such?
Lord Stevenson of Balmacara: It is not for me to suggest anything. I simply wish to draw out that, simply because of the name or the fact that, on occasion, these companies do not deal strictly with financial services, they are somehow excluded from any regulatory oversight of their activities. Yes, to extend the point as the Minister does makes it seem unlikely, but they deal with financial services at the moment and are unregulated in that sense. I just want to make clear our feeling that this is something to which we may have to return.
My second point is that the Minister said that detrimental practices exist in the sector and that he was not satisfied with the situation, yet he has decided that there is no need for any further action in the Bill. That seems a little unrelated to the facts as we understand them.
Thirdly, he made the point, which we accept, that there are other activities going on here. Indeed, we hear that there will be a report shortly on the result of the consultation done by the Ministry of Justice and we may be able to look forward to action in April 2013. Therefore, I think that we need to keep this under review to see whether the movement is in the direction that we wish it to be to focus more clearly on where claims management companies are operating within the financial sector, and that the detrimental practices get sorted out. With those thoughts in mind, I beg leave to withdraw the amendment.
Baroness Noakes: My Lords, I apologise to the Committee for not having formally given notice that I wish to speak on Clause 6 standing part of the Bill. I discovered my omission only at the weekend, but I have ascertained that it is in order for me to speak at this point and I have informed the Minister's officials, so the Minister should be forearmed. I apologise also to my noble friend Lord Stewartby-had he seen that I wished to debate whether Clause 6 should stand part of the Bill, he might not have digressed earlier into the issues I wish to raise. I also apologise if there is a little repetition of what my noble friend said earlier in what I am about to say.
I want to talk about the timetable for the transfer of credit regulation activities from the OFT to the FCA which is effected by Clause 6. The issue is not the fact of the transfer-about which I do not think there is any serious concern-but the timing of the changes. I should say that these issues have been raised by the Finance and Leasing Association and I am grateful for its briefing. As I understand it, the Government wish to go live with the FCA taking responsibility with effect from April 2014. They wish at that date to transfer as much as possible of the Consumer Credit Act and the OFT's related guidance into a new rulebook issued by the FCA under FiSMA, as amended by the Bill. This is causing problems to the industry because the new rulebook will not be consulted on until the second half of 2013, with the final rules available only in March 2014. That simply gives the industry too little time to gear up for going live one month later. This is partly a question of time-the industry obviously has to make sure that its processes, its systems and, of course, its staff are prepared for any changes that come out of a new rulebook. I am sure that the Minister will agree that while a lot of preparation can happen during a consultation period, companies cannot deliver final changes until they are clear about what the final changes will be-if, indeed, there are any. One month, as I have said, seems excessively and unreasonably tight.
In addition, the conversion of the existing rules and guidance might not be as simple as it seems on the surface. Consumer protection under FiSMA and the Consumer Credit Act start from slightly different positions. A lot of FiSMA is about protecting depositors and investors from losing their money when the organisations to which they have entrusted their funds get into difficulty. The Consumer Credit Act places a different kind of risk on the lender-it is starting from a different end of the process. The Consumer Credit Act guidance has been built up over a very considerable period of time-more than 30 years. The concerns are about the sheer time that it would take to convert a pre-existing regime into a new one.
I understand that the Government have said that they expect most of those changes to be transferred over without significant substantive changes, but if any substantive changes are made, in addition to the question of redrafting into a different format, it is important the consultative process should continue over a proper timescale. For example, I am told that there is a possibility that the appointed representative regime might be applied to consumer credit intermediaries. If that happened-and I am not saying that it is a good or bad thing-it would take the responsibilities of lenders way beyond where they are at the moment. If changes were made, there would be significant implications for the current business model of this kind of lending, which relies on point-of-sale credit transactions through thousands, or hundreds of thousands, of high street retailers and motor dealerships. It is possible that if changes like that were made it could even threaten the existence of this kind of consumer credit business because the model may not be sustainable if the burdens became too great. That would not necessarily be a good thing, because this form of credit is valuable not only to small retailers but also to their customers.
My point is that this cannot necessarily be rushed through-certainly not with a consultation in late 2013, with the rules issued in March 2014 and implemented one month later. That timetable is entirely in the Government's hands. There are extensive powers under Clause 91 to allow the Government to transfer the Consumer Credit Act powers to the FSA pretty much in whatever way they want to do it, and it is entirely possible to transfer the responsibility to the FCA from 2014, with the existing rules-they can go with new enforcement powers under the Bill-but not to make substantial changes to those rules or convert them to a new FiSMA-style rulebook. That could happen in April 2014, leaving a new rulebook to be developed over a period that allows proper consultation and consideration if any issues arise that would affect the provision of consumer credit in practice. I hope that my noble friend can reassure me that the Government will not let an artificial timetable produce the wrong result in this case.
Lord Sassoon: I am grateful to my noble friend Lady Noakes for raising questions about timetabling. I am very aware that we are putting an enormous burden on industry with many aspects of the
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Before I deal briefly with the specifics on consumer credit, it may be worth confirming, or announcing, the Government's plans on the cutover date between the FSA and the new authorities. That is something that it is necessary for the industry to have certainty about, even before you get on to consumer credit. To provide the certainty that enables industry and the new authorities to proceed with their planning, we are now sufficiently advanced in the Bill process to announce that our intention is to deliver cutover to the new authorities created by the Bill on 1 April 2013.
When it comes to consumer credit, we are aware of the need to allow both the FCA and the many firms involved to manage the transition smoothly. We will continue to work closely with the FSA, the OFT and all stakeholders to identify the best approach to implementing the new regime and will consider phased introduction of any new requirements. As my noble friend rightly identifies, Clause 91 allows for significant flexibility in the approach to implementation. We will consider the best approach. As my noble friend knows, we are not final in our thinking on this. We are considering options which could involve temporary grandfathering of firms with a licence under the Consumer Credit Act who wish to transfer to the new FiSMA regime. That would deal with some of the concerns by giving both firms and the regulator more time to prepare. We will, of course, consult on the transition arrangements as well as the detailed proposals for the new FCA regime early in 2013.
I hope I have been able to reassure my noble friend that we do indeed take seriously these concerns and the timing of the basic cutover. That is why we have put flexibility into the Bill and we will use it for this purpose.
"( ) a draft of the order has been consulted upon with such persons as the Treasury considers appropriate,"
Lord McFall of Alcluith: My Lords, I will be brief and precise on Amendments 148, 149 and 174 which require consultation by the Treasury on draft orders. Clause 7(3) provides for parliamentary control in relation to the proposed orders under Section 22 of the Financial Services and Markets Act 2000 and proposed new sub-paragraph (2) says that no order should be made before Parliament unless approved by resolution of each House. Given the complexity of the Financial Services Bill and the capacity for muddle and wrong-headedness by all Governments over the past years, I think there is a case for enlarging the consultation.
In the 1990s, we were in Opposition in the House of Commons and recommended pre-legislative scrutiny. A number of Ministers took up the concept and it worked. I remember being involved in a three-clause Bill in Scotland that related to raves-clubs where young people found themselves dehydrated and where a number of lives were lost. The main clause in that Bill was Clause 2. We did pre-legislative scrutiny and visited many areas of Scotland. We came back and the then Minister, the noble Lord, Lord Selkirk of Douglas, said that the Government had reflected on the matter and that Clause 2 would be removed and redrafted. The lesson is that politicians can frequently get things wrong. Why do we not get this right by taking a little bit more time and extending the consultation? That is the thrust of this amendment.
Lord Peston: My Lords, I am a bit puzzled about the wording in the relevant paragraph. Of course, I agree with what my noble friend says about consultation. However, can the Minister explain why the word "would" appears in line 5 rather than "should"? Even if the Treasury thinks the order would have the described effect, it must certainly believe that it should have the effect. What is the point of the order if it does not achieve what it is trying to achieve? I am a bit puzzled about the word "would". My noble friend's amendment would make much more sense if "should" were inserted instead of "would".
That leads me to my attempt to get my mind around what would actually happen in this case. It is immensely difficult because the provision substitutes material in this Bill for material in legislation that we do not have before us, which is always a problem. However, if we ask ourselves, "When would any of this order-making process occur?", presumably the answer would be that it would occur when various outside bodies say that this matter is not being regulated, but must be regulated. In other words, what precedes the consultation is the fact that it is not certain at all that the Treasury would take the initiative in this. It is the acting body and is therefore the one that has to act when it comes to producing the orders.
Therefore, the built-in logic behind the entire new paragraph is the consultation process. Indeed, it is also part of the spirit of the age. One can go further and say that not merely is consultation part of the spirit of the age, but that interested bodies would undoubtedly be aware of these orders. Even if the Treasury does not consult them, those bodies will ensure that the Treasury knows what they think because they will get in touch with the Treasury and say either, "What you are doing is a good thing and we would like to support you", or, "You do not know what you are doing and you ought to do it in a different way". What my noble friend is putting forward helps the Bill to become much more sensible in practical terms, and it would become a fortiori more sensible if we were allowed to amend the language by inserting "should" for "would". I think that would make infinitely more sense.
Lord Davies of Oldham: My Lords, I am grateful to both my noble friends who have spoken on this issue and very much agree with the arguments they presented.
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Lord Sassoon: My Lords, I shall try to assure the Committee that none of the amendments is necessary or appropriate. If the noble Lord, Lord Peston, will forgive me, I am not sure that we have a procedure for oral amendments. No doubt we shall have some interesting discussions about "must" and "may" later in this Committee session. Looking at this paragraph, in my opinion, x or y "will" be the case and, when written the other way, the word turns into "would". If an opinion is that something will be the case, then "would" rather than "should" is entirely appropriate here. However, I have now fallen into the trap of getting into a debate on this non-amendment. Of course, if the noble Lord really insists, what can I do but give way?
That can make sense only if the word "should" is used. It cannot possibly be a meaningful part of the Bill if the word "would" is used. The Treasury must believe that there is a reason of urgency for this to take place and so we infer that "should" is the right word. Otherwise, reasons do not apply, and it reads more like something happening by chance, so let it happen. However, that is not what this bit of the Bill is about. I hate to tell the noble Lord, but on this point I think I understand his Bill better than he does.
Lord Sassoon: On this occasion, I am quite confident in my use of the English language, even if the noble Lord understands the Bill better. Outside the Chamber we can debate who understands the Bill better. I am quite clear that "would" is the correct word here because it refers to something which is expected to have the effect of extending regulation. I shall not detain the Committee on what we are not discussing, so let us talk about what we are discussing.
Amendment 148 would require the Treasury to consult on the order made under Section 22 where it would result in an unregulated activity becoming regulated. The Government recognise the best practice established in this area by the Department for Business's code of practice on consultation. I can assure the Committee that the Government will continue to observe the code wherever possible when conducting formal written consultations. However, I do not think that it would be
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Amendment 149 would require the Treasury to consult on the first Section 22A order and any subsequent orders which amend the scope of PRA regulation or which amend primary legislation. The Section 22A order sets out the scope of PRA regulation. Here, too, the Government agree-and I am happy to restate it-that it is preferable to consult, and indeed the Treasury will be consulting on a draft of the Section 22A order shortly. I do not think it is necessary to write such requirements into legislation.
It is also worth the Committee noting that both of these types of orders would be subject to the affirmative procedure in all cases. Parliament will always have the chance to consider these amendments, and to consider whether the Government have presented suitable evidence-through a consultation in the normal event-of the need for any change. I think that that backstop is an important point here.
I turn now to Amendment 149AB in the name of the noble Lord, Lord Davies of Oldham. Although he has tabled, I think, only one amendment out of the many hundreds that this Committee has already considered and because I made a concession on it, his batting order is going down from a 100% to a 50% success rate at a stroke. I agree with the noble Lord that orders made by the Treasury that amend Schedule 6 should be subject to the affirmative procedure as they concern changes to the PRA's and FCA's threshold conditions, which are the cornerstones of each authority's regulatory approach. However, we have already provided for this. Clause 46(2) of the Bill, on page 130, includes orders made under Section 55C in the list of orders that should be subject to the affirmative procedure. Therefore it is a simple matter to understand that Amendment 149AB is not needed.
I move to Amendment 174, tabled by the noble Lord, Lord McFall of Alcluith. I will briefly explain the purpose of new Section 141A of FSMA. It gives the Treasury and the Secretary of State a narrow and technical order-making power to amend legislation that makes reference to the rules of either regulator or to guidance issued by the FCA where the regulator has altered or revoked its rules. This is a sensible approach to ensuring that references to rules and guidance made by the regulator in legislation remain accurate and up to date.
It would not be appropriate to require the Treasury or the Secretary of State to engage in consultations before making amendments to legislation that are a direct consequence of changes to rules or guidance made by the regulator. This would cause unhelpful delays to the process of updating the affected legislation, causing possible confusion and uncertainty for firms
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Lord McFall of Alcluith: My Lords, it was not my primary aim to promote a deeper understanding of the English language but I did enjoy the exchanges. However, I now beg leave to withdraw the amendment.
"( ) The regulators must co-ordinate their procedures for, and provide clear and detailed guidance on, the processes for applying for, varying and cancelling permission that are applicable to authorised persons regulated by both PRA and the FCA."
Lord Eatwell: My Lords, I will speak also to Amendment 149AC. Both amendments concern the process of applying to carry on regulated activities. I am sure that the Minister is aware that there is considerable disquiet at the moment about the very long delays associated with the application to carry on regulated activities. Undoubtedly this is having a deleterious areas effect on competition in financial services, and on what we might call the reformation of the financial services industry.
No doubt these delays are partly as a result of the fact that the legislation that will cover these organisations is in process, and therefore the appropriate officials at the FSA feel somewhat constrained in their ability to make decisions on what can sometimes be quite sensitive and contentious issues. None the less, those delays are very unfortunate. The two amendments are designed to facilitate the process of application and to ensure that it will be rather more efficient when the duties are passed over to the FCA and/or the PRA on what I have noticed is, rather unfortunately, All Fools Day.
Amendment 149AA calls for co-ordination between the FCA and the PRA when processing applications for permission to carry out regulated activities, in particular giving clear and detailed guidance-something that is not always in evidence at the moment-on applying for, varying or cancelling permission. I am particularly concerned about applying for permission.
It is important that when the responsibility is split, as it must inevitably be between the regulator responsible for risk, the PRA, and the regulator responsible for conduct of business, the FCA, that the co-ordination
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Amendment 149AC seeks to modernise and future-proof elements of the application process. The Bill does not refer to decisions previously made by the European Union regulatory authorities when referring to non-EEA firms and the weight to be attached to opinions on any non-EEA firms wishing to operate in this jurisdiction. The European Union regulatory authorities are going to be the major regulatory rule makers in this area, so leaving them out at this stage will limit and inhibit operation of the Bill in the future. We know that the European authorities will become important in this respect. Surely it is therefore imperative that some weight be given in the Bill to their opinion when non-EEA firms are likely to be offered the privilege of acting within this jurisdiction. I beg to move.
Baroness Kramer: My Lords, I want to speak very briefly to Amendment 150B in this group. As your Lordships will know, the Bill amends Section 55 of FiSMA. Section 55Q as now in the Bill refers to the,
I would like the Minister to clarify the definition of "overseas regulator" because neither I nor some of those who are much more sophisticated than me in trying to understand regulation are fully certain whether that definition would include an agency or instrumentality of the European Union such as the three supervisory authorities-the ESMA, the EBA and the EIOPA-which have direct regulatory powers in their own right. All I am asking for at this point is some clarification as to whether these EU agencies or instrumentalities are encompassed in this and if they are not, why not.
Lord McFall of Alcluith: I will briefly refer to Amendments 151 and 152. They oblige the regulator to have regard to those associated with a person who has applied for, or has been given, permission. We realise that proposed new Section 55R provides that when considering previous issues the regulator may have regard to the applicants' relationship. I suggest that this provision should be mandatory rather than discretionary and that relationships should be defined as including family, business or other associations. It would bring more clarity to the interpretation of this clause.
Lord Newby: My Lords, I agree strongly with the motivation behind the amendments of the noble Lord, Lord Eatwell. The process for approving new entrants to the market should be streamlined to the maximum possible extent because it is clearly a flaw in the current financial services market that while in many sectors there is strong competition, in some, particularly banking, we wish to see significantly more competition. In terms of giving an impetus to the speedy processing
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Those who are applying to become a dual-regulated firm are required to make a single application for authorisation to the PRA, and there will be a single administrative process. The PRA and the FCA will be under a duty to co-ordinate which will cover all of their functions, including those related to authorisations. They are under a duty to set out in their memorandum of understanding, in high level terms, how that co-ordination will be delivered. To deliver the duty to co-ordinate, the two authorities are required to put processes in place that will allow for efficient co-ordination. They also need to establish a process for authorisation and variation of permission, and to communicate that to firms. The FSA does this at present, and guidance is available on authorisation from its website. I do not think there is a need for an express requirement in legislation about exactly what the regulators should publish.
I shall move on to Amendment 149AC. We are aware that the ESAs are to assist in preparing equivalence decisions relating to supervisor regimes in third countries under relevant sectoral legislation, such as Article 33 of the ESMA regulation. Where EU law provides for the ESAs to have a role in determining equivalence of an overseas regulator, of course the regulators must comply with EU law and recognise that decision. However, we believe that it would be inappropriate to extend the role of the ESAs by requiring our regulators to have regard to any equivalence decisions they make in contexts that are not required by EU law. But, of course, the question is really one of whether the regulatory bodies are going to take account of the overseas regulators supervising those firms which are applying for passporting into the UK. When the FCA or the PRA is assessing a firm seeking to passport in to the UK from outside the EEA, the opinion of an overseas regulator that knows the firm, its operations and its management extremely well is quite likely to be helpful. The FCA and the PRA must also consider how the overseas regulator supervises the firm and take this into account, but in doing so, they may well wish to consider any view that the EU regulatory authorities may have about the overseas regulator.
I turn now to Amendment 150B, spoken to by my noble friend Lady Kramer. The Bill already provides that the regulators may exercise their powers of intervention, including the power to vary permission, at the request of an overseas regulator. In considering any such request, the regulators are required to have regard to whether they are required by EU law to assist the overseas regulator. The relations between the FCA and PRA and the European supervisory authorities, which are not technically regulators in the same way, are set out comprehensively in primary EU law. For example, Regulation 1093/2010/EU establishing the
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We now come to Amendment 151 tabled by the noble Lord, Lord McFall of Alcluith, which, sadly, takes us back to a discussion of the use of the English language. I say sadly because the debate about whether "may" or "must" should be used has exercised some of the finest brains in the Treasury to a greater extent than almost any other provision in the Bill. I found myself getting drawn into the debate and I became extremely enthusiastic about something that I was then persuaded was not of as much significance as I had originally thought.
Amendment 151 is one of the cases where we have looked very carefully at whether we should change "may" to "must". We have come to the conclusion that to do so would impose a disproportionate and unnecessary burden on the regulator and, indirectly, on existing and potential authorised persons. The reason for this conclusion is that the amendment taken literally-and people do sometimes take these things extremely literally-would require the regulator to consider, when taking a decision on an application for permission or whether to vary or cancel a permission or to impose a requirement on a firm, each relationship which was "relevant" to the matter in hand. The amendment does not introduce any kind of materiality thresholds; all relevant relationships would have to be considered.
Even for a relatively simple provider such as a sole trader IFA, the range of relationships that are potentially relevant to the matter could be very significant. For a complex firm such as Barclays, the range of relevant relationships would be absolutely mind-boggling. Therefore, we think it is very important to retain the "may" to keep proportionality to the level of relationships that would have to be investigated.
Lord Peston: My Lords, am I right that in thinking that the noble Lord is talking about the "may" on line 27 and that he is well aware that there is a "must" on line 33? I get a bit bored with mays and musts although, I have had my fair share of them. However, I cannot make any sense of them, and if I switched them around, the Bill would look to me just as sensible or not. Could he tell us why the "must" is there?
My other question relates to the point that my noble friend Lord Eatwell made on the importance of regulatory authorities abroad. Is the position at present symmetric? In their regulations and regulated activities elsewhere, do they have a series of mays and musts to take account of what our regulatory authorities say about our firms? In other words, is there any danger that people overseas will prevent our firms competing with their firms under regulations where we are following
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Lord Newby: My Lords, I can deal with the first part of that intervention more quickly and easily than the second. The first "must" in subsection (2) is there because it is an EU legal requirement. If we are asked to do something, we have to do it; we do not have the option of not doing it. There is a good reason for a "must" there.
With regard to the noble Lord's second point, I was speculating about the Romanian or Hungarian or Finnish languages as he was speaking and wondering whether there was the same absolute distinction between "may" and "must" in every case. I am not an expert in every bit of regulation in every member state. I realise that this is a major deficiency but I do not think that it pertains very strongly to the amendments before us today. For the second time, the noble Lord has raised a potential other amendment that is not on the Marshalled List. If he will excuse me, I will go back to concentrating on the ones that are.
Lord Desai: Perhaps I may say one word in favour of my noble friend's amendment. It strikes me that there may be what we call a multicultural problem here, that in an investment situation relatives are defined much more broadly in certain communities than others. The noble Lord may be right that "may" will do and "must" will not do, but I have been asked to be non-executive director of some Indian companies and the number of relations they ask me to certify who do not hold assets in that company runs to something like 30. I hope that the regulators are aware that "must" may be a better word than "may", but I concede the point, as long as the noble Lord assures me that the regulators are aware of the multicultural problem.
Lord Newby: I am sure that the regulators are aware of the multicultural problem, but the example given by the noble Lord absolutely exemplifies the problem. If one had a single-trader IFA who came from a particular culture and had a very large extended family, it would be at a disproportionate cost that the regulator looked at every single relationship that he or she had, which could run to many hundreds.
Lord Newby: That is why the regulator has to look at relevant and appropriate relationships rather than everybody who could be conceivably considered to have a relationship with that regulated entity or individual.
Amendment 152 was also put forward by the noble Lord, Lord McFall. I hope that I can persuade the Committee that, again, this is unnecessary. It is important that those to whom permission is granted are not subject to influences that may act in a way which is not in the best interests of potential clients. That is why new Section 55R(1) is in the Bill. The
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However, I assure the noble Lord, Lord McFall, that the specific types of relationships to which his amendments refer will be among those considered by the regulator and will be looked at where appropriate. Therefore, I hope that the noble Lord will be satisfied that the amendments are unnecessary.
Lord Eatwell: My Lords, I welcome the noble Lord, Lord Newby, to the consideration of the Bill but I suggest that he has failed to take the point of Amendment 149AA. His argument consisted of two points. First, he argued that there was sufficient requirement for the PRA and the FCA to work together in giving permissions under new Sections 55E, 55F and 55G. Secondly, he argued, extraordinarily, that it was not the task of the Bill to require either the PRA or the FCA to publish guidance on these matters. One of the great failures in the current process in giving permissions is the inadequate guidance which firms have in preparing their permissions. It is one reason why the permission process has become so extended and has so limited the development of competition in financial services which we would all like to see. In particular-
Lord Newby: What I said was that at present the FSA does make guidance available on its website. The new regulators intend to do the same. For that reason, I did not think there was a need for an express requirement in the Bill to do so.
Lord Eatwell: They may intend to do lots of things, but it would be nice if the Bill could actually require them to do so in this particular case. However, the more important point I would like the noble Lord to help me with is that Amendment 149A requires the collaborative activity of the FCA and the PRA to publish guidance for applicants, so that an applicant is not caught between two stools, continuously going backwards and forwards between one and the other in the application process. If this is already in new Sections 55E, 55F, and 55G, can the noble Lord point out to me precisely where this requirement appears?
Lord Newby: The PRA and FCA are under a duty to co-ordinate covering all their functions, including those related to authorisations. They are under a duty to set out in their MoU how that co-ordination will be delivered. Therefore, the noble Lord's concern that there will not be adequate co-ordination, and that
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Lord Eatwell: Pushing things into the MoU is unsatisfactory, particularly when the noble Lord pleaded in aid new Sections 55E, 55F, 55G, and so on. It does seem that there is a problem with the whole current application process. Anybody who has been involved with, or been approached by, people involved in the application process knows that as it stands it is not working very well. Once we have two regulators responsible for the approval of applications, there is the possibility that it will work less well, which will not be good for the health and vitality of financial services, particularly banking, in this country. However, we will no doubt return to this matter at a later stage. In the mean time, I beg leave to withdraw the amendment.
Lord Flight: My Lords, I have previously raised the issue of the potential costs of the regulatory regime, which will ultimately fall on clients. I have also raised the common sense aspect. I suggest in part a reply to the very fair points raised by the noble Lord, Lord Eatwell: why on earth should both regulators have to be involved with the approval of a bank? Approval of a bank is fundamentally about its capital, the soundness of its shareholders and the propriety of its directors. The approval stage is not really about whether what it intends to do meets all the potential consumer interest elements; it is about its safety and its propriety.
In essence, the amendments in my name would remove the need for the PRA to consult the FCA over the authorising of a bank. The subsequent amendments make corresponding alteration to the regulatory actions, such as variation of permission, cancellation of permission and imposition of requirements.
I think that I may be the only Member of this House present today who has been through a bank application process with the FSA, having had responsibility for steering the Metro Bank application. That is an issue on which I could speak in greater depth. I was surprised to find someone from BIS contact me and ask whether they could come along and talk to me about it. In many ways, the crisis was at its height at that time and one can understand the FSA being extremely cautious and changing its approach, but taking a year and a half was quite excessive. There is already much improvement in the way in which the FSA is looking to deal with banking applications, but involving another organisation that does not have
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Lord Sassoon: As my noble friend Lord Flight has explained, his amendments would remove the requirement for the FCA to consent to authorisation decisions taken by the PRA relating to banks and other deposit-takers, including the decision to grant or remove permission. I should say at the outset that I cannot accept this group of amendments.
My noble friend spoke about his direct personal experience, of which I am aware, of going through an authorisation with the FSA. He will understand from that that, when the FSA approaches the authorisation of a bank or other deposit-taker, it now looks both at matters that will be within the ambit of the PRA and at matters that will be within the ambit of the FCA. As he will understand, if it was to be a matter only for the PRA, it would be an authorisation process that dropped a certain amount of what is done at the moment. I know full well that the FSA's authorisation processes were becoming very slow. I am glad that my noble friend acknowledged that it has worked hard at improving them because it is important that the barriers to new entry are lowered as far as possible.
However, I should explain why I believe that it would be unsafe to drop the FCA leg of the authorisation process. Yes, the process should be improved in the way that is happening already, but half of it should not be dropped. The PRA will be responsible, as we know, for the prudential regulation of deposit-takers, including banks, but with the FCA being responsible for the conduct regulation of such firms. The authorisation process for a deposit-taker will be led by the PRA, but the FCA's consent will be required before an approval can be granted and before a firm can acquire permission for any new activities once it has been authorised. It will be a dual authorisation and regulation process, as we know.
It is right that these matters should be looked at before a firm starts to get into business, rather than leaving it, as my noble friend suggests, to afterwards, because it is going to be much more costly to address issues within firms following authorisation if they were to engage in activities that the FCA believed to be inappropriate in any way. This is particularly important for the FCA, which is going to be looking at many more firms than the PRA. It is not only for the safety of the system but it will ultimately lower the cost in terms of the regulatory burden on firms and, as my noble friend says, in the end on the users of financial services if problems can be nipped in the bud or sorted out before they become an issue.
One only has to look at and think about the example of PPI. I know that it is not precisely the point that my noble friend makes, but PPI shows, lest we forget it, that deposit-takers can put consumers at much as risk as any other part of the industry, if their conduct is not appropriate. The FCA will have a significant role in the authorisation process, in assessing the range of products being proposed by the applicant, its systems and controls, and its processes for treating customers fairly, including dealing with complaints, ensuring that
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The Government believe that these issues need to be addressed up front as an absolute requirement. As a practical matter, if we went down the route that my noble friend suggests, dealing with problems as they came up afterwards, it not only would be to the detriment of consumers but would ultimately be more costly in terms of the regulatory burden. I hope that with those explanations my noble friend will be able to withdraw his amendment.
Lord Flight: My Lords, I suggest that the areas that the Minister referred to are already in the rulebook and in the legislation. Anyone going into business knows that they have to be good boys and behave appropriately. Authorisation of a bank at the beginning is concerned with the essentials: is there enough capital, is the banking plan safe and are the proposed directors proper people? That is what the FSA has now pulled itself back to looking at. I do not think that the FSA-while it still exists-is looking at all these other issues; it is looking at the fundamentals of a bank.
In my view, there is a muddle between the ongoing regulation and what matters up front. I remain of the view that there is a very strong common-sense and functional case for limiting the approval and granting of licences for banks to the PRA. I will add that I have found that a number of heavies, from both the regulatory world and related territories, strongly agree with this point and perceive dualling it up as adding to both costs and complications. However, I am sure that we can return to this matter on Report and hope I may persuade the noble Lord to think again on this point. On that basis, I beg leave to withdraw.
"(6A) Without prejudice to the generality of subsections (1) and (2), the FCA may, in relation to an authorised person who has permission to carry on the regulated activity specified in article 24A of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (which relates to bids in emission allowance auctions), exercise its power under this section to vary the Part 4A permission of the person concerned by removing that activity from those to which the permission relates if it appears to the FCA that the person has seriously and systematically infringed the provisions of paragraph 2 or 3 of Article 59 of the emission allowance auctioning regulation."
Lord Newby: My Lords, this is a small group of minor and technical government amendments. They serve, among other things, to update the Bill to reflect European legislation and update the schedule that makes consequential amendments to legislation as a result of the changes introduced by the Bill.
Perhaps I may speak briefly about two sets of amendments in this group. The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment)
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Amendments 149H, 173ZAA, 173AAA, 183ZA, 183ZB, 183ZC and 183ZD amend the Bill to ensure that where the order has amended FiSMA, those provisions are reflected in the Bill. Amendments 187TB, 187TC, and 187TD make some technical clarifications to the provisions in FiSMA relating to the Lloyd's insurance market. They make no changes of substance; there are no underlying changes in policy. Amendment 187TD replaces a reference to Part 10 of FiSMA with a reference to Part 9A of FiSMA. Clause 22 of the Bill replaces the rule-making provisions of Part 10 of FiSMA with new provisions in a new Part 9A of FiSMA. This amendment simply updates a cross-reference to those provisions in Section 316.
Government Amendment 187VA is a minor and technical amendment which maintains the current position under FiSMA whereby the FSA may disclose information obtained by HMRC for the purposes of a criminal prosecution without the consent of HMRC. Government Amendment 193B is a minor technical amendment to remove an unnecessary reference to Section 328 of FiSMA. Government Amendments 193C and 193D make minor changes to the technical provisions of the Bill relating to the special resolution regime and bank administration. Specifically, Amendment 193C relates to a situation where the holding company of a failing bank has been taken into public ownership. The amendment will allow shares that have been transferred, whether within public ownership or to a private sector purchaser, to be transferred back to their original ownership.
Amendment 193D is a consequential amendment, reflecting the insertion of a new Section 81A into the Banking Act by Clause 86(2). Amendments 198A, 200A and 200B amend Schedule 18 to include further consequential amendments required by the Bill. They amend references to the FSA and to Part 4 of FiSMA, which is repealed by this Bill.
Amendment 198A is a consequential amendment to the Lloyd's Act 1982. The Act currently lists FSA-approved persons as one of a list of specified persons who may sit on the disciplinary committee. The amendment replaces FSA approval with FCA or PRA approval.
Amendment 200A makes a consequential amendment to the Charities and Trustee Investment (Scotland) Act 2005 to update the reference to Part 4 of FiSMA, with the new Part 4A. Finally, Amendment 200B adds the Prudential Regulation Authority and the Financial Conduct Authority to the list of bodies that are required to comply with standards of record keeping in the Welsh language. The Bank of England is already listed. Noble Lords will be relieved to hear that I do not plan to attempt to pronounce the translation of the two authorities to the House. I beg to move.
Lord Tunnicliffe: My Lords, we are very happy, in a sense, to accept the blanket assurance that these amendments are minor and technical and we will not probe them in any detail. However, we are going to have a host of government amendments to the Bill, as was discussed earlier. We did, on this first day back, request a written explanation of this group of amendments so that we could study them at our leisure before the Committee met. Unfortunately, there has been no response to that request. It is important that the Government get into the habit of extremely comprehensive supporting documentation for their amendments. Therefore, I will study with care what the noble Lord has said and make sure that I can be comfortable that they are minor and technical, but it would have been much better if we had had a response to our request. I would value an assurance from the noble Lord that, as these amendments come along over the rest of the Bill-we will all try to work together to ensure the success of debates about new government amendments-the Government will facilitate those debates by providing proper documentary support.
Lord Newby: I hope I can give the noble Lord two assurances. First, I can assure him that the amendments are indeed technical and have no policy substance attached to them. I also assure him that, wherever possible, we will make available adequate written information about government amendments in good time so that people can look at them and ensure they are what they say on the tin.
Lord McFall of Alcluith: My Lords, there are 14 amendments in total here, and I will not be speaking to them all; but if I could characterise them, the three words I would use would be investigation, consultation and reasons for the Financial Conduct Authority. Underpinning that are the concepts of natural justice and the law of judicial review. Given the problems that the FCA has experienced with investigations in the past, both with the Royal Bank of Scotland and the HBOS decision, there are many questions arising from that, not least on the HBOS decision. The FCA needs to be clearer and have more consultation on its relations with financial service companies because the status of the FCA is at stake here. These amendments refer to FCA investigations and providing the reasons and the consultation for them.
Baroness Hayter of Kentish Town: My Lords, I rise to speak on the amendments in this group, and in particular on Amendment 165ZA, standing in the name of my noble friend Lord Davies of Oldham, and Amendment 170ZA in my name. As my noble friend Lord McFall has said, these amendments are essentially about transparency, before and after the event, and consultation. They are also about the publication of findings and reasons, including to Parliament.
Amendment 165ZA would require, where a prohibition order is made, that the regulator publish the reasons for this and that the individual appears on the list of people subject to prohibition orders on the Treasury website. This is key. It is not simply to promote good practice by making clear what constitutes the contrary, but also to enable investors and others easily to identify who has been subject to such an order.
My family recently had to check out a hitherto chartered accountant, only to find it impossible to discover from the ICAEW's website whether he had actually been removed from the register-which, in fact, he had been. The institute finally said it would sell us a list of those who had been so removed, but it should not really be necessary to go through that to discover who has been struck off. We certainly do not want that sort of opacity from the new regulators.
The amendment is really about open access. I assume that it will not divide us across the Committee. On this very proposal, Matthew Hancock-admittedly before he was a Minister, albeit that he was very close to a certain senior one-in the other place said that,
Amendment 170ZA in my name requires the FCA to give a copy of its policy on penalties relating to the discipline of sponsors not just to the Treasury but also to Parliament. Clearly, this is about improving parliamentary accountability and scrutiny of the FCA, its reports and how it carries out its functions. It is not enough to leave the FCA or the Treasury to publish statements to the wider public without laying them before the public's elected representatives in Parliament. Furthermore, we do not want the new regulators simply to become creatures of the Treasury but we want to submit their work also to parliamentary scrutiny.
The amendments in the name of my noble friend Lord McFall of Alcluith are similarly about openness and transparency. They require appropriate consultation by the authorities, proper investigation before action is taken and then explanations provided in due course. We commend these amendments to the Committee. There is also an amendment in this group in the name of the noble Lord, Lord Hodgson, which appears to make good sense. We look forward to the Minister's response to that.
Lord Newby: My Lords, as both noble Lords have said, these amendments are about fairness and transparency. The regulators will have wide powers to take action against firms. Therefore, it is right to be sure that the Bill requires the regulators to use those powers in a fair and proper manner. I therefore very much agree with the thinking behind the majority, if not all, of these amendments. Perhaps noble Lords will forgive me if I explain why I think that they are either unnecessary or inappropriate.
Let me deal first with Amendments 150, 165, 168, 171, 173, 177 and 178, which are all in the name of the noble Lord, Lord McFall. These amendments would require the regulator to carry out an investigation before taking regulatory action. I agree that the regulators should not take invasive regulatory action against a firm unless they have carried out a thorough investigation. I also agree with the thinking behind Amendments 169, 170, 172, 175, 179 and 180; namely, that the regulator should give a statement of reasons when it takes regulatory action. However, these amendments are unnecessary as these are already requirements under existing law and the Financial Services Bill will not change that position.
First, as a matter of ordinary administrative law, a regulator could not take action against any person unless it had sufficient evidence for doing so. This would normally mean that it had undertaken an investigation or an inquiry of some kind. The regulator cannot act on a whim. The FSA's enforcement manual sets out at great length how its investigation procedures are fair and appropriate.
Secondly, Sections 387 and 388 of FiSMA already require warning and decision notices to give the regulator's reasons for the action it proposes or the decision it has taken. There are similar requirements in the new provisions inserted by this Bill for other notices where that is appropriate. Of course, if the person concerned disagreed with the reasons that the regulator gave, he or she could challenge the action or decision before the tribunal.
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