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House of Lords

Wednesday, 28 November 2012.

3 pm

Prayers—read by the Lord Bishop of Liverpool.

Israel and Palestine: Balfour Declaration

Question

3.06 pm

Asked By Baroness Tonge

To ask Her Majesty’s Government how they marked the 95th anniversary of the Balfour Declaration; and what is their current assessment of the welfare of Israelis and Palestinians.

Lord Wallace of Saltaire: My Lords, I should perhaps explain that the noble Baroness, Lady Warsi, was taken unwell this morning and I am therefore standing in her stead at short notice. The British Government have not organised any events to mark the 95th anniversary of the Balfour Declaration. However, the Attorney-General and the British ambassador in Tel Aviv attended a dinner event on 12 November in Tel Aviv, organised by the Israel, British and the Commonwealth Association. We were deeply concerned about the welfare of both the Israelis and the Palestinians during the recent Gaza conflict. That violence only reinforces the need for urgent progress towards achieving a two-state solution to secure the long-term welfare and security of both Israelis and Palestinians.

Baroness Tonge: My Lords, I thank the Minister for that Answer. Is he aware that the Palestinians feel totally betrayed by successive British Governments since the Balfour Declaration? By making our Government’s support for tomorrow’s United Nations bid conditional on Palestine not pursuing Israel through the International Criminal Court, are the Government not admitting that Israel has committed war crimes in Gaza and the West Bank and that they are seeking impunity for that country?

Lord Wallace of Saltaire: My Lords, the Government are concerned, as far as is possible in an extremely difficult situation, to restart the process towards negotiations on a two-state solution. We recognise that this is becoming increasingly difficult; the Foreign Secretary said in his Statement in the other place only a couple of hours ago that time is running out and if we do not manage to achieve a two-state solution within the next year or two, we may find ourselves looking at some very unpalatable alternatives. That is what the Government are fixed on.

Lord Turnberg: My Lords, it is easy for supporters of Israel or the Palestinians to criticise the other side, so I will not trade missiles with the noble Baroness, Lady Tonge. Does not the noble Lord agree, however, that the important objective now is to look forward

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and bring the two sides to the negotiating table, and that efforts by the Palestinian Authority to gain recognition at the UN are more of a distraction than a help?

Lord Wallace of Saltaire: My Lords, it is very important to give some support to the Palestinian Authority. If Israeli illegal settlements continue to expand, the position of the Palestinian Authority will become impossible. Therefore, although we have done our best as a Government to dissuade the Palestinian Authority from taking this resolution to the UN General Assembly at this point, we understand why it feels it necessary to do so.

Lord Wright of Richmond: My Lords, does the Minister agree that the anniversary of the Balfour Declaration makes this an appropriate moment to recall the understanding in Mr Balfour’s letter to Lord Rothschild that,

“nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine”—

a tragic contrast to the continuing breach of Palestinian human rights caused by illegal settlements on the West Bank and by ethnic cleansing in east Jerusalem? Does the Minister also accept that, given the almost unanimous consensus to which he has himself referred, a two-state solution is the only way to resolve this long-running dispute in the interests of both Israel and Palestine? It is entirely logical and right that we should not only give unconditional support to the very modest Palestinian hopes for enhanced membership of the United Nations but encourage our friends and partners to do likewise. Finally, I understand that the Foreign Secretary made a Statement in the House of Commons this morning on this subject. I express some regret that it was not thought appropriate to repeat it here this afternoon.

Lord Wallace of Saltaire: My Lords, I reread the Balfour Declaration before I came in and it is a masterpiece of diplomatic drafting. It is not entirely clear and has a number of deliberate ambiguities within it. Her Majesty’s Government are very concerned to bring pressure to bear on all those who have a stake in the negotiations, including the Governments of Israel and the United States, to exert all their efforts now to restart the negotiations. I stress again that time is not entirely with us. We wish to avoid a situation in which opinion in the US Congress, or perhaps right-wing opinion in Israel in an election campaign, might lead to a demand for retaliation for recognition of Palestinian statehood. We are therefore doing our best to promote the two sides being brought together rather than have them score points against each other.

The Lord Bishop of Exeter: My Lords, does the Minister not recognise that, in the interests of peace in the Middle East, Palestinians need to be supported in finding legitimate, non-violent alternatives to the rockets that have been raining in from Hamas on southern Israel? Does he not see that tomorrow’s seeking of some formal recognition falls into that category? Does he not recognise that, if we are not to see Palestinians sign up to a cause to die for, we have to give them hope to live for?

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Lord Wallace of Saltaire: My Lords, we entirely understand that. We have been in active discussion with the Palestinian Authority and with other Governments over the past week about the exact text of the resolution and we are continuing those discussions. If we gain from the Palestinians the assurances that we are looking for, we will be able to vote in favour of the resolution.

Lord Triesman: My Lords, the argument for a two-state solution is one with which we are in entire agreement and continue to be so. We have also urged, and continue to urge, both sides to behave with legality, because that is a precondition for any kind of stability in the region. However, does the Minister agree that, in order to change what is going on and achieve an enhanced status for the Palestinian people, support at this time would be a very valuable step? Does he also agree that it is extremely unlikely that it would set back any part of the peace process—an argument that has been advanced in this House and which, candidly, few of us understand?

Lord Wallace of Saltaire: My Lords, we are providing very active support. My honourable friend Alistair Burt was in Gaza and the Middle East last week and we are providing a great deal of financial support both in Gaza and in the West Bank.

Baroness Falkner of Margravine: Given that the vote at the United Nations is merely symbolic and observer status, exactly like that of the Holy See—the Vatican—should not threaten anyone, will Her Majesty’s Government have conversations with the Americans to remind them of their obligations under the Oslo accords? One of three preconditions from Oslo was that the Americans had to engage positively and proactively in bringing out a two-stage solution.

Lord Wallace of Saltaire: My Lords, my noble friend knows the complexities of American politics as well as I do, and knows that the United States is in a very different position in terms of congressional politics from us in either of the two Houses here. We have actively to engage with the United States to get it to turn back and towards negotiating a peace process.


Roads: Roadworks

Question

3.15 pm

Asked By Lord Sheldon

To ask Her Majesty’s Government whether they intend to introduce legislation to give local authorities control over the digging up of streets so as to minimise disruption to both residents and traffic.

Earl Attlee: My Lords, the New Roads and Street Works Act 1991 places a duty on local authorities to co-ordinate works and on utility companies to co-operate. In addition, the Traffic Management Act 2004 allows authorities to introduce permit schemes, which better enable authorities to manage works for the benefit of

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all road users. The Government support permit schemes, which are currently in place in around a third of English authorities.

Lord Sheldon: My Lords, I will answer the Question that has been put: except in an emergency, all programmes must be approved by the council before they are undertaken and the council must ensure that congestion on the roads is kept to a minimum.

Earl Attlee: The noble Lord is quite right. At the lowest level, there are notification schemes where the contractor has to notify the local authority. Where necessary, rules are put in place. If a local authority has a permit scheme, the contractor has to have a permit before he can start work, and if he overruns he is liable for penalty charges.

Baroness Gardner of Parkes: My Lords, does the Minister remember Lord Peyton and the very effective campaigns that he ran over many years on this exact issue of work going on in the streets? Is it not a fact that over the years councils have developed many more rights; for example, charging if local people are going to be held up by these schemes?

Earl Attlee: My noble friend is quite right. The main tool for local authorities is the permit system which, as I say, has been taken up by about a third of local authorities. Some local authorities do not need to use a permit scheme because they do not have congestion problems; others are developing their schemes. In addition, we are looking at lane rental, which has been piloted in London, and at one or two other lane rental schemes as well.

Lord Lea of Crondall: My Lords, would the noble Lord like to express his condolences to Hampshire County Council for every time that it has done a major job—

Lord Barnett: My Lords—

Lord Lea of Crondall: I started first; he is a Privy Counsellor—okay.

Lord Barnett: Is the noble Earl aware that the disruption outside this House over the past couple of days has caused great difficulty for Members who have to come and go by car or taxi? I declare an interest as one of those. That disruption is as nothing compared with what Black Rod has done to Members of this House with the system that is now in place. Will the Minister ask the Leader of the House to have a word with Black Rod to revert to the previous position where Members could come and go rather more easily?

Earl Attlee: My Lords, I am sure that my noble friend the Leader of the House heard exactly what the noble Lord said. Fortunately, I am responsible for Her Majesty’s Government, not for Black Rod.

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Lord Bradshaw: The matter that causes most trouble on the roads is the fact that utility companies do not seal up the work that they do, so there is an ingress of moisture that in turn bursts the road surface. Will the Minister ask his right honourable friend in another place to see whether the agreements with the utility companies can be tightened up to ensure that they reinstate the roads properly after they do their work?

Earl Attlee: My noble friend makes an important point: reinstatement is an important issue. There are guidelines and local authorities should normally check that the whole reinstatement process is being done correctly.

Lord Lea of Crondall: My Lords, will the Minister express his condolences to Hampshire County Council, because every time it does a wonderful job in resurfacing a major road, either gas, electricity, water or telephone companies dig it up again? Are there any statistics that suggest that the Government have any reason to be complacent that we are making improvements in co-ordination rather than going backwards?

Earl Attlee: My Lords, I am sure that we are making improvements. The previous Government introduced a permit system that allows local authorities to co-ordinate roadworks as much as possible to ensure that they do not interfere with each other and that we do not have more works than are necessary. However, noble Lords have to understand that that is quite difficult when you have got telecoms going alongside water pipes and gas pipes.

Lord Wills: In pursuit of the earlier question about reinstatement, does the Minister accept that one problem is that the utility companies that do the work often do not notify the local authorities when they have finished and therefore it can take weeks for the local authorities to put right the damage that some of these utility companies have done? Can the Minister offer any reassurance about the process of notification of when works are completed?

Earl Attlee: My Lords, I am not convinced that there is the problem that the noble Lord describes. With the permit system, the contractor has to tell the local authority when the work should be completed. If it is not completed on time, the local authority can impose overrun charges. However, I will take this up with my officials and make sure that there is not an unresolved problem.

Lord Davies of Oldham: My Lords, something is wrong in the state of Denmark and on the roads of Britain, too. The noble Earl has identified the virtues of the legislation passed in 1999 and 2004. Utilities are meant to notify, and to be subject to penalties, if they do not complete the work in time. However, statistics show that road congestion due to roadworks is costing £2 billion a year. What on earth is going wrong with enforcement in this area?

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Earl Attlee: My Lords, unfortunately, my brief says that congestion costs the economy an estimated £4.2 billion a year, so we are fully aware of the problems. The permit schemes have not been adopted by all local authorities that would want to. We need to understand that we have got conflicting priorities: on the one hand we want to reduce congestion on the roads; on the other hand we want to introduce super-fast broadband—and that will require works on the roads. So we have got a problem to deal with.

EU: Scottish Independence

Question

3.22 pm

Asked By Baroness Liddell of Coatdyke

To ask Her Majesty’s Government what advice they have received on the consequences for the European Union membership of the remainder of the United Kingdom should Scotland secede.

Lord Wallace of Saltaire: My Lords, the UK Government have already confirmed that they hold legal advice on this issue. The overwhelming weight of international precedent suggests that, in the event of Scottish independence, the remainder of the UK would continue to exercise the existing UK’s international rights and obligations and that an independent Scotland would constitute a new state. The UK Government judge that this situation will be recognised by the wider international community.

Baroness Liddell of Coatdyke: I thank the Minister for that Answer. However, in view of the events over the weekend in Catalonia, it is inconceivable that the European Commission would not be looking at the consequences for member states of the secession of one member state. In Scotland we have had enormous difficulty getting straight answers as to what the consequences will be for the citizens, so we need every citizen of this country to be confident that we have genuine advice and information on what will happen. Will the Government consider the establishment of an expert panel to look at the issues around the separation of Scotland from the rest of the UK to make sure that all British citizens do not suffer as a consequence of the break-up of Britain?

Lord Wallace of Saltaire: My Lords, my noble and learned friend and colleague—and perhaps even noble kinsman—the Advocate General for Scotland has a legal forum, which met last Friday, which is considering these issues. In the course of 2013 the UK Government will publish a number of studies on some of the issues engaged. On the question of Catalonia and Spain, it is entirely clear that the Spanish Government are opposed to any idea of secession and would be likely to veto a Scottish application to join the European Union under current circumstances. There have been exchanges between the Spanish Government and the European Commission on this exact issue.

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Lord Steel of Aikwood: My Lords, does my noble friend agree that it would be quite a tall order for an independent Scotland to seek to negotiate opt-outs of both the eurozone and the Schengen agreement? While I am always very keen to see employment in the Scottish Borders, border posts were not something I ever had in mind.

Lord Wallace of Saltaire: It opens up all sorts of questions about the future of Gretna Green. There would also be a number of questions about Scotland having to negotiate for fishery quotas and for the financial contributions that Scotland would wish to make. Those who argue that it is Scotland’s oil would recognise, perhaps, that it would also be Scotland’s financial contribution.

Lord Foulkes of Cumnock: My Lords, will the Minister confirm that the corollary of his first answer—that the rest of the United Kingdom would inherit the current UK membership of the European Union and that Scotland would have to apply separately for new membership—is that Scotland would then go to the back of the queue behind Croatia, Turkey and all the other countries that are seeking membership? It would have to satisfy, in its own right, all the acquis and conditions of membership. It could take many, many years and that is yet one more really good reason why Scotland is better off as part of the United Kingdom.

Lord Wallace of Saltaire: My Lords, there is not an orderly queue for EU membership. There is a list of criteria for EU membership which applicant countries have to fulfil. Turkey applied during the 1980s, rather ahead of some of those countries that have since joined. Of course, Scotland would have to meet a whole range of criteria and there would be, no doubt, some careful and detailed negotiations. Whether or not Scotland would be allowed—as the noble Lord, Lord Steel, has already posed—to opt out of Schengen or to opt out of the euro and keep the pound is something we would have to consider.

The Duke of Montrose: My Lords, does my noble friend agree that, if Scotland is separated from the United Kingdom, the contribution the UK makes to Europe will be reduced and that any rebate that is payable to the UK at the moment would also be reduced?

Lord Wallace of Saltaire: That is a question that Her Majesty’s Government have not entirely considered yet, since we have every confidence that when it comes to a referendum the people of Scotland will vote to stay in the United Kingdom. The question of the rebate and of the United Kingdom’s financial contribution is, as Members may have noted, itself under negotiation.

Lord Soley: My Lords, do the Government also realise that it is not just Spain that is concerned about the break-up of the country, but a whole range of other countries, including France with regard to Corsica? Automatic admission as the consequence of the disintegration of an individual state would not be

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looked at happily by the European Union. My noble friend Lady Liddell made a very important point when she spoke about the importance of informing the Scottish electorate of the consequences of a division that might not be recognised by the European Union and also, if it was recognised, could still result in major differences in what it opted out of, in the way that the noble Lord, Lord Steel, mentioned. It is a profoundly important issue, not just for the rest of the United Kingdom but for the Scottish people.

Lord Wallace of Saltaire: My Lords, I can confirm all of that. It is a recognised, long established principle of public international law that when a part of a state secedes it inherits obligations under treaties but it has to apply to join international organisations. When the Soviet Union broke up, that applied to Ukraine, Belarus and others. When India broke up, it applied to Pakistan and then to Bangladesh, so this is a well established principle.

Lord Cormack: My Lords, do we know yet precisely what legal advice the Scottish Government took on this issue?

Lord Wallace of Saltaire: My Lords, we do not know. That is one of the things that everyone is longing to discover.

Lord Low of Dalston: My Lords, would the UK have a veto on a Scottish application for membership such as General de Gaulle exercised in respect of British membership in former times?

Lord Wallace of Saltaire: My Lords, we are all mongrels. My father was a Scot; there are many of us here who have mixed Scottish, English, Irish and Welsh antecedents so we all hope that this question will not come up. If it did ever lead to separation, we would, of course, have to consider it. The Irish Free State seceded from the United Kingdom in 1922. Incidentally, that was relatively peaceful—although not within Ireland itself—and Ireland had to reapply to join international organisations.

Arts Funding in North-East England

Question

3.29 pm

Asked By The Earl of Clancarty

To ask Her Majesty’s Government, in the light of Newcastle City Council’s plans to remove funding for the arts, what plans they have to safeguard arts funding in north-east England.

Viscount Younger of Leckie: Local authorities have to make difficult decisions on behalf of local taxpayers about how to deploy their budget. Sustained investment in culture has made Newcastle a centre of culture, contributing to the regional economy and quality of life. This Government are working hard to safeguard our arts infrastructure in a difficult spending review settlement where we have limited cuts to protect front-line

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organisations. We have increased the arts’ share of lottery proceeds from 16% to 20% and invested £100 million in helping arts organisations increase their fundraising capability, including organisations in the north-east.

The Earl of Clancarty: My Lords, do the Government accept that local authority funding of the arts, which has no statutory provision and is irreplaceable, is at best a hugely effective, proven means of providing arts services throughout the country and a significant factor in regional regeneration and the national economy? Witness the support given to Tyneside’s Live Theatre, which premiered “The Pitmen Painters” which went on to international success. When will the Government understand that such funding of the arts is not an add-on to be then easily removed at a stroke, but an important and necessary stimulus to the nation’s financial as well as creative growth?

Viscount Younger of Leckie: I applaud the noble Earl’s tenacity in again raising protection of the arts. He is right to do so, against continuing challenging economic conditions and particularly with his focus on Newcastle. Newcastle City Council’s plans are still consultative, and it will be up to local taxpayers to give a response. The Arts Council, which already supports 42 out of the 700 national portfolio organisations in the north-east, is working closely with Newcastle City Council to achieve a positive outcome. Finally, it is encouraging to report from the recent annual local authority arts survey that, contrary to adverse publicity, there is some stabilisation of local arts spending. For the 2012-13 year, the budgets reflect an average of £384,900 per local authority compared with £381,600 for 2011-12.

Lord Beecham: My Lords, I declare an interest as a member of Newcastle City Council and director of Newcastle’s Theatre Royal. Is not the best way to safeguard arts funding in Newcastle for the Government to reduce the requirement on the city council to cut its budget by more than a third, or £90 million a year, with devastating consequences for vital services such as adult social care and children’s services? Will the Minister use his best endeavours to persuade the Secretary of State for Communities and Local Government to ensure that the forthcoming local government finance settlement allows for a significant abatement in the expected cut?

Viscount Younger of Leckie: The point that the noble Lord makes is noted. The funding settlement for councils, as has been mentioned, will be announced later this year, but, given that councils account for a quarter of all public spending, it is vital that they continue to play their part in tackling the inherited budget deficit by making sensible savings through better procurement, greater transparency and sharing back offices. The main general grant from the Government to local authorities was on average £300 per head more in the north-east than in the south-east, with Newcastle receiving £653 per head compared to, for example, £150 per head in Windsor and Maidenhead.

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Lord Shipley: My Lords, can I draw the attention of the Minister to the latest annual report from Arts Council England, which confirms that just over half of its support to regularly funded organisations went to organisations in London? Does he agree that just a small percentage switch in the balance of funding could have a profoundly beneficial effect on the English regions and should therefore be made?

Viscount Younger of Leckie: My noble friend makes a good point, and much is being done to encourage funding in the arts outside London. I am delighted to report today that a report has been produced called Philanthropy Beyond London, written by the chair of the Birmingham Opera Company. The report makes 19 recommendations to regional cultural organisations, the Government and Arts Council England to take matters forward.

Lord Howarth of Newport: My Lords, will the Minister accept that not only culture but the economy and democracy in the north-east and all across England would flourish more if Whitehall would abandon its jealous and rigid controls over what local authorities are permitted to raise, spend and do? I encourage him to have a conversation on the subject with his noble friend Lord Heseltine.

Viscount Younger of Leckie: As mentioned before, it is not our business to interfere with how local authorities spend their funds. Arts Council England is working extremely closely with Newcastle City Council at the moment to find a way forward through the problems highlighted today by the noble Earl. The Government have a number of initiatives on the go, including the Catalyst programme which is designed to release endowments and to encourage legacy giving. There are many initiatives afoot to help the arts and culture sector.

Baroness Farrington of Ribbleton: My Lords, the Minister chose very different areas for his comparison in Maidenhead and Windsor and Newcastle upon Tyne. Will he go back and look at the disproportionate cuts for areas in the north of England as opposed to the south of England? Will he look at the apparent reported failure of many of those seeking to get young people into work, particularly in areas where the Government, contrary to the Minister’s statement, are telling local authorities what to spend, and where? If local authorities would take on, particularly, young unemployed people from an arts background, in the parks and gardens, in housing and a lot of other areas, the Government would be able to let their right hand know what their left hand was undoing.

Viscount Younger of Leckie: Funding for the arts sector is still dependent on a growing economy and while we have some way to go, we are on the right track. The economy shows signs of healing and in two years the Government have cut the deficit by a quarter. To take up the noble Baroness point, more than a million new jobs have been created in the private sector, the economy is growing and this can only be beneficial to the arts sector.

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European Union (Croatian Accession and Irish Protocol) Bill

First Reading

3.37 pm

The Bill was brought from the Commons, read a first time and ordered to be printed.

Housing Act 1996 (Additional Preference for Armed Forces) (England) Regulations 2012

Motion to Approve

3.37 pm

Moved By Baroness Hanham

That the draft regulations laid before the House on 18 October be approved.

Relevant documents: 9th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 20 November.

Motion agreed.

Contracting Out (Local Authorities Social Services Functions) (England) (Amendment) Order 2012

Motion to Approve

3.38 pm

Moved By Earl Howe

That the draft order laid before the House on 15 October be approved.

Relevant document: 8th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 20 November.

Motion agreed.

Producer Responsibility Obligations (Packaging Waste) (Amendment) Regulations 2012

Motion to Approve

3.38 pm

Moved By Lord De Mauley

That the draft regulations laid before the House on 16 October be approved.

Relevant document: 9th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 20 November.

Motion agreed.

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Protection of Freedoms Act 2012 (Disclosure and Barring Service Transfer of Functions) Order 2012

Motion to Approve

3.38 pm

Moved By Lord Taylor of Holbeach

That the draft order laid before the House on 15 October be approved.

Relevant document: 8th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 26 November.

Motion agreed.

Justice and Security Bill [HL]

Third Reading

3.39 pm

The Advocate-General for Scotland (Lord Wallace of Tankerness): My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Justice and Security Bill, has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

A privilege amendment was made.

Motion

Moved by Lord Wallace of Tankerness

That the Bill do now pass.

Lord Beecham: My Lords, I apologise for my rush to the Dispatch Box. Have the Government reached any conclusions about the amendments passed by your Lordships’ House last week in respect of which the Deputy Prime Minister and the noble and learned Lord expressed a good deal of sympathy? Is that sympathy now to be translated into an acceptance of the amendments passed—or, indeed, in the form of fresh amendments to be moved by the Government in the House of Commons; and, if so, on what lines will they be?

Lord Wallace of Tankerness: My Lords, I think that I indicated last week that the Government want to give very careful consideration to amendments that were passed by considerable majorities in your Lordships’ House on Report. The Government will address them, give them serious consideration and no doubt make their position plain in the other place, bearing in mind that the amendments were based on the recommendations of the report of the Joint Committee on Human Rights. It is certainly the Government’s intention to respond to that report in a timely way.

Bill passed and sent to the Commons.

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Financial Services Bill

Report (5th Day)

3.41 pm

Amendment 107AA

Moved by Lord Eatwell

107AA: Clause 57, page 141, line 8, at end insert—

“( ) The first case requires the Bank of England, FPC, FCA or PRA to provide the Treasury or the Secretary of State with an early warning of the possibility that a notification of a material risk to public funds may be given, and full information about the circumstance.”

Lord Eatwell: My Lords, this set of amendments is inspired by the words of the noble Lord, Lord Sassoon, in Committee. He said:

“It is clear that the success of the new regulatory structure, which, rightly, we are spending so much time debating, relies heavily on the relationship between the Treasury and the Bank of England, and I believe that the Bill provides the necessary clarity of responsibilities. However, it also depends on the personal relationships at play here, particularly between the most senior leaders of the two bodies—the Chancellor of the Exchequer and the Governor of the Bank of England. One of the major problems leading up to the financial crisis was that the tripartite committee did not meet at principals level during the previous decade”.—[Official Report, 10/7/12; cols.1051-2.]

The noble Lord’s words are an important warning to us all, in considering this part of the Bill, on the relationship between the Treasury and the Bank of England at times of crisis. That relationship will depend not only on the personalities involved, but on the statutory responsibilities which the Bill places on those personalities. This group of amendments is intended, in some parts, to extend the statutory responsibilities of the Bank and the Treasury; but, most especially, to clarify those responsibilities, so that the failures which we saw under the previous arrangements, which were due to the principals in the tripartite structure not actually meeting for a decade, will not recur.

Amendment 107AA requires the Bank to give early warnings to the Treasury of a threat to public funds. At the moment, the Bill refers to the possibility of a threat to public funds, which must be immediately notified. However, I think that this notion of possibility is far too vague. Suppose that the Bank thinks there may be a catastrophic event, with a probability of 5%. Is that a possibility? But then, what if the probability is 1%—is that a possibility? What if the probability is only 0.5%—is that a possibility? In our view, a full, continuous exchange of information between the Bank and the Treasury, and the addition of a requirement of an early warning, does just what is needed. It ensures that the Bank is required to convey the information when it first has any indication of a threat—let alone any notion of possibility, whatever “possibility” might mean. If we incorporate the idea that the Bank must give early warning to the Treasury as soon as it knows what is going on, or has some inclination of a threat, without fussing about whether it is “possible” or not, then information will flow in an appropriate way.

3.45 pm

Amendment 107AB is consequential but Amendment 107AC is substantial. It adds new triggers to the warning process. A peculiarity of this section of the Bill on

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Bank and Treasury co-operation is the limitation on the requirements on the Bank to give warnings. That is, the Bank is required to give a warning when there is a possible need for public funds. This is excessively constrained. What if the Bank detects a set of circumstances that poses a serious and likely threat to the financial system, but not to public funds? Should it then keep quiet? Does it then have a statutory responsibility to convey information? Surely the Bank should convey that information in the public interest. It might be argued that any major economic disruption would result in some threat to public finances. For example, if there was a major failure within some payment system, that might result in a fall in tax revenues, or some other impact on public finances. However, that would be a rather strained interpretation to place on “need for public funds”. It certainly does not accord with the common-sense use of language, which should refer to the impact on markets and regulated persons, as set out in the amendment. Noble Lords will have already noticed that our amendment derives its new triggers for the Bank to inform the Treasury from the objectives of the various regulators; it is hence in accord with the rest of the Bill.

I shall jump over the consequential amendments to Amendment 107AF, which is an extension of the same logic. It strengthens the triggers to be included in the memorandum of understanding. The triggers are not just the need for public funds; they are the threat to financial markets.

Amendment 107AG has a rather different provenance. In addition to the insights provided back in July by the noble Lord, Lord Sassoon, which I cited earlier, it is stimulated by a Written Statement by the Treasury, quoted in the Financial Times on 31 October this year. Note that it was not written by a reporter; it was a Written Statement by the Treasury. Referring to the Bank’s work on economic forecasting, and specifically dealing with the forecast of February 2012—that is, with a past event—the official wrote,

“There is no statutory requirement on the BoE to provide this information”—

that is, information to the Treasury—

“and disclosure would discourage the BoE from sharing information with the UK government”.

A Treasury official is saying that the Bank of England does not need to share information with an organisation called the UK Government. This is simply outrageous. The Bank and the Treasury are both public institutions; their staff are employed by the public. The fact that one of these institutions should conceal data from the other is totally unacceptable. The insertion of “comprehensive”, as this amendment would require, will put a stop to that sort of nonsense for good.

Amendment 107AH is, again, slightly different but still fits into the general issue of information sharing. It deals with the accountability to Parliament of that crucial document, the memorandum of understanding between the Treasury and the Bank. Given the important observations about the lack of communication so clearly set out by the noble Lord, Lord Sassoon, it is surely appropriate that Parliament does not simply have sight of the memorandum of understanding but the opportunity to opine upon it.

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This set of amendments, as I said in my introductory remarks, both strengthens the statutory requirement for communication between the Bank of England and the Treasury and clarifies the circumstances in which communication must take place. I beg to move.

Lord Newby: My Lords, this group of amendments was debated at length in Committee. I am sure that, like the noble Lord, Lord Eatwell, many of us were indeed inspired by the way that my noble friend Lord Sassoon sought to reject them. Amendments 107AA and 107AB, and Amendments 107AD and 107AE, attempt to create an early warning system for public funds notifications. I understand that this reflects a concern on the Benches opposite that the drafting of the Bill—specifically, the legal effect of the term “material risk”—does not require the Bank to notify the Treasury in enough cases, even those in which there is a very low probability of public funds interventions being required.

After our debate in Committee, my noble friend Lord Sassoon asked Treasury officials and legal advisers to look again at the material risk wording to make absolutely clear that it delivers the low bar that we are looking for: a possibility test rather than a probability test. Our officials have concluded that the legal effect of the existing wording is indeed to require the Bank to notify the Treasury where there is a realistic possibility of circumstances arising in the future in which public funds could be put at risk. I do not think it would be appropriate to lower the bar even further from “material risk”. The result of doing so would be to require the Bank to notify relatively trivial and implausible risks, which could mean the Treasury receiving a large number of notifications of far-fetched risks that require no action or engagement from the Treasury whatever. I am satisfied that the material risk terminology will give us the right result.

Let me reassure the House that I agree entirely that the Treasury must be informed well in advance of a risk to public funds crystallising in order fully to consider and evaluate different options for managing or mitigating the risk and, ultimately, with a view to avoiding entirely any recourse to public funds. As my noble friend Lord Sassoon said in Committee, no one would be keener than us to have an early notification mechanism in place if we believed it necessary to achieve this aim. However, I am confident that the existing trigger in Clause 57 already sets the very low bar that we need.

The other aspect of these amendments is to extend the duty to notify to the PRA, FCA and FPC. I feel strongly that diluting accountability in this way would be a mistake. As we saw with the failed tripartite system, the clear disadvantage of spreading responsibility across several different organisations is that each can blame the others when things go wrong and risks can fall between the gaps. I believe that the system set out in the Bill, which makes the Bank the single point of responsibility for financial stability and crisis management, is the correct approach to eliminate confusion and overlap and ensure that the Treasury is always informed of risks to public funds.

In a similar vein, Amendments 107AC and 107AF seek to add references to risks to the objectives of the PRA and FCA into the notification duty. I can reassure

28 Nov 2012 : Column 200

the noble Lord that any risks that arise in the spheres of responsibility of the PRA and FCA that could potentially pose a threat to public funds must be notified to the Treasury by the Bank in the normal way. As was made clear in Committee, the duty to notify the Treasury of risks to public funds will require the Bank and its senior management to identify and evaluate risks emanating from all parts of the financial sector, working closely with the PRA and the FCA. The Bill itself places duties on the PRA and the FCA to co-ordinate with the Bank in this work. New Section 3P(1)(b) of FiSMA, as inserted by Clause 6 of the Bill, requires the regulators to take steps to co-operate with the Bank in connection with its duty to notify the Treasury of risks to public funds. We believe that that is an adequate provision.

Amendment 107AG would add “comprehensive” to the requirement that the crisis management MoU make provision regarding the obtaining and sharing of information. I do not quite see what “comprehensive” would add. Surely the most sensible approach here is for the Treasury and the Bank to agree between themselves what information the Treasury would find useful, including the format of the information and its frequency. That is exactly the approach taken in the MoU. Paragraph 18 makes it clear that the Treasury and the Bank will determine between themselves a suitable frequency for updates on each different risk, reflecting the severity and immediacy of the risk to public funds. Paragraph 21 states:

“The Bank will provide the Treasury with information needed on the options for managing the situation, including on options commissioned by the Treasury”.

I therefore do not think that Amendment 107AG is necessary.

Amendment 107AH attempts to turn the MoU into a piece of secondary legislation, subject to parliamentary approval via the affirmative process. I agree with the noble Lord that the MoU is a very important document, which sets out how the Bank and Treasury will interact in a crisis, to a level of detail and in a style that simply would not be possible in legislation, either primary or secondary. Having looked again at the MoU, I continue to believe that its content and style make it unsuitable for inclusion in secondary legislation. I would be loath to lose the level of nuance and detail that is currently included in the draft MoU but which is not legislative in nature. It would also make the MoU less flexible and make it more difficult for the Bank and Treasury to adapt or change the MoU to reflect changing circumstances. On the basis of these explanations, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Eatwell: Will the Minister explain why he always qualified the notion of “threat” as a threat to public funds and failed to accept the argument of serious threats to the financial system that do not necessarily pose a direct threat to public funds?

Lord Newby: The reference in the Bill to public funds goes to the heart of the Treasury’s responsibility vis-à-vis the regulators in managing the financial services sector, and we have been very clear that we want to do

28 Nov 2012 : Column 201

that. On the more general issues that the Bank may want to raise with the Treasury, which go beyond a risk to public funds, the Bank and the Treasury are in regular contact via non-statutory routes, as it were, which give ample opportunity for the two to discuss at great length and with great frequency any emerging issues that they feel the other should be aware of.

4 pm

Lord Eatwell: My Lords, we have seen a display of remarkable complacency from the Minister, even in his final remark suggesting that the Bank and the Treasury can informally arrange regular contact. I remind him that the head of the FSA and the head of the Bank did not meet for a decade within the tripartite structure. Now we are going to have a structure of not just three regulators but five or six regulators and he is not even willing to contemplate ensuring a statutory requirement for them to provide a suitable exchange of information.

I am sure that the noble Lord’s officials assured him that the term “material risk” was satisfactory. It would not be surprising as they drafted the legislation. It would be nice to hear that some independent opinion had been taken. He said that our amendments would lead to the Bank notifying “trivial and implausible risks”. Yes, trivial and implausible risks, such as credit default swaps, might fail to transfer risk. Those were trivial and implausible. There was the trivial and implausible risk that an economy of just 2% of the eurozone—the Greek economy—would lead to stagnation in the whole zone. There is another trivial and implausible risk.

The extreme complacency being displayed by the Government over these arrangements really beggars belief. With respect to the amendment which would insert the word “comprehensive” before “sharing of information”, “Oh, it’s unnecessary. We know that they will exchange all the necessary information”—just like they did not do in the past. Why can we not create a proper statutory requirement when there has clearly been such a deficiency in these procedures in the past? That, after all, is what this Bill should be for.

Having said that, and I hope having established some matters for discussion at Third Reading, I beg leave to withdraw the amendment.

Amendment 107AA withdrawn.

Amendments 107AB to 107AE not moved.

Clause 64 : Memorandum of understanding: crisis management

Amendment 107F not moved.

Amendment 107AG

Moved by Lord Eatwell

107AG: Clause 64, page 145, line 3, after “and” insert “comprehensive”

28 Nov 2012 : Column 202

Lord Eatwell: My Lords, Amendment 107AG is very simple. It seeks to insert the word “comprehensive” before “sharing of information”. The very least we can do to ensure that there is proper exchange of information between the Bank and the Treasury, particularly given the comments by the Treasury official that such information exchange does not take place, is to take this amendment seriously. I should like to test the opinion of the House.

4.02 pm

Division on Amendment 107AG

Contents 201; Not-Contents 242. [The Tellers for the Contents reported 201 votes; the Clerks recorded 200 names.]

Amendment 107AG disagreed.

Division No.  1

CONTENTS

Adams of Craigielea, B.

Adonis, L.

Ahmed, L.

Allenby of Megiddo, V.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Bach, L.

Bakewell, B.

Barnett, L.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Bew, L.

Bilston, L.

Boateng, L.

Borrie, L.

Boyce, L.

Bradley, L.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Belmont, L.

Browne of Ladyton, L.

Campbell-Savours, L.

Christopher, L.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clinton-Davis, L.

Cobbold, L.

Cohen of Pimlico, B.

Collins of Highbury, L.

Corston, B.

Coussins, B.

Crawley, B.

Davies of Coity, L.

Davies of Oldham, L.

Davies of Stamford, L.

Dean of Thornton-le-Fylde, B.

Desai, L.

Donaghy, B.

Donoughue, L.

Dubs, L.

Eatwell, L.

Elder, L.

Elis-Thomas, L.

Elystan-Morgan, L.

Evans of Parkside, L.

Evans of Temple Guiting, L.

Evans of Watford, L.

Falkland, V.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Filkin, L.

Ford, B.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Gale, B.

Gibson of Market Rasen, B.

Giddens, L.

Glasman, L.

Golding, B.

Gordon of Strathblane, L.

Goudie, B.

Gould of Potternewton, B.

Grantchester, L.

Grenfell, L.

Grey-Thompson, B.

Griffiths of Burry Port, L.

Grocott, L.

Hanworth, V.

Harris of Haringey, L.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Haworth, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollis of Heigham, B.

Howarth of Newport, L.

Howells of St Davids, B.

Howie of Troon, L.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Hunt of Kings Heath, L.

Irvine of Lairg, L.

Janner of Braunstone, L.

Jay of Paddington, B.

Jones, L.

Jones of Whitchurch, B.

Judd, L.

Kennedy of Southwark, L.

Kilclooney, L.

King of Bow, B.

King of West Bromwich, L.

Kinnock, L.

28 Nov 2012 : Column 203

Kinnock of Holyhead, B.

Kirkhill, L.

Knight of Weymouth, L.

Lea of Crondall, L.

Leitch, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Low of Dalston, L.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

McKenzie of Luton, L.

Mallalieu, B.

Martin of Springburn, L.

Massey of Darwen, B.

Maxton, L.

Meacher, B.

Mitchell, L.

Monks, L.

Montgomery of Alamein, V.

Moonie, L.

Morgan, L.

Morris of Aberavon, L.

Morris of Handsworth, L.

Morris of Yardley, B.

Morrow, L.

Myners, L.

Noon, L.

O'Loan, B.

O'Neill of Clackmannan, L.

Ouseley, L.

Parekh, L.

Patel of Blackburn, L.

Patel of Bradford, L.

Pendry, L.

Peston, L.

Plant of Highfield, L.

Ponsonby of Shulbrede, L.

Prescott, L.

Prosser, B.

Quin, B.

Radice, L.

Reid of Cardowan, L.

Rendell of Babergh, B.

Richard, L.

Rooker, L.

Rosser, L.

Rowe-Beddoe, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scotland of Asthal, B.

Sheldon, L.

Sherlock, B.

Simon, V.

Singh of Wimbledon, L.

Slim, V.

Smith of Basildon, B.

Smith of Finsbury, L.

Snape, L.

Soley, L.

Stern, B.

Stevenson of Balmacara, L.

Stoddart of Swindon, L.

Stone of Blackheath, L.

Symons of Vernham Dean, B.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Temple-Morris, L.

Thomas of Swynnerton, L.

Thornton, B.

Tomlinson, L.

Touhig, L.

Triesman, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Uddin, B.

Walpole, L.

Warner, L.

Warnock, B.

Watson of Invergowrie, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Wilkins, B.

Williams of Baglan, L.

Williams of Elvel, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.

Young of Hornsey, B.

Young of Norwood Green, L.

NOT CONTENTS

Aberdare, L.

Addington, L.

Ahmad of Wimbledon, L.

Alderdice, L.

Allan of Hallam, L.

Anelay of St Johns, B. [Teller]

Armstrong of Ilminster, L.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Avebury, L.

Baker of Dorking, L.

Barker, B.

Bates, L.

Berridge, B.

Best, L.

Bichard, L.

Black of Brentwood, L.

Blencathra, L.

Bonham-Carter of Yarnbury, B.

Boothroyd, B.

Bottomley of Nettlestone, B.

Bowness, L.

Brabazon of Tara, L.

Bridgeman, V.

Brinton, B.

Brittan of Spennithorne, L.

Broers, L.

Browning, B.

Burnett, L.

Buscombe, B.

Butler-Sloss, B.

Byford, B.

Campbell of Alloway, L.

Carlile of Berriew, L.

Cathcart, E.

Cavendish of Furness, L.

Chidgey, L.

Colville of Culross, V.

Colwyn, L.

Condon, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Crickhowell, L.

Cumberlege, B.

28 Nov 2012 : Column 204

De Mauley, L.

Dear, L.

Dholakia, L.

Dixon-Smith, L.

Dobbs, L.

Doocey, B.

Durham, Bp.

Dykes, L.

Eames, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Eden of Winton, L.

Edmiston, L.

Empey, L.

Falkner of Margravine, B.

Faulks, L.

Fellowes, L.

Fellowes of West Stafford, L.

Flight, L.

Fookes, B.

Fowler, L.

Framlingham, L.

Fraser of Carmyllie, L.

Freeman, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Garel-Jones, L.

Geddes, L.

German, L.

Glasgow, E.

Glenarthur, L.

Glentoran, L.

Goodhart, L.

Goodlad, L.

Greaves, L.

Greengross, B.

Greenway, L.

Griffiths of Fforestfach, L.

Hamwee, B.

Hanham, B.

Hannay of Chiswick, L.

Harries of Pentregarth, L.

Henley, L.

Heyhoe Flint, B.

Hill of Oareford, L.

Hodgson of Astley Abbotts, L.

Hollins, B.

Howard of Lympne, L.

Howard of Rising, L.

Howe, E.

Howe of Aberavon, L.

Howe of Idlicote, B.

Howell of Guildford, L.

Hurd of Westwell, L.

Hussain, L.

Hussein-Ece, B.

Inglewood, L.

James of Blackheath, L.

Jenkin of Kennington, B.

Jolly, B.

Jopling, L.

Kakkar, L.

King of Bridgwater, L.

Kirkham, L.

Knight of Collingtree, B.

Kramer, B.

Laming, L.

Lang of Monkton, L.

Lawson of Blaby, L.

Lee of Trafford, L.

Lester of Herne Hill, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Linklater of Butterstone, B.

Listowel, E.

Liverpool, E.

Luce, L.

Luke, L.

Lytton, E.

McColl of Dulwich, L.

Macfarlane of Bearsden, L.

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Magan of Castletown, L.

Mancroft, L.

Mar, C.

Mar and Kellie, E.

Marks of Henley-on-Thames, L.

Marland, L.

Marlesford, L.

Masham of Ilton, B.

Mayhew of Twysden, L.

Miller of Hendon, B.

Montrose, D.

Moore of Lower Marsh, L.

Moynihan, L.

Naseby, L.

Neuberger, B.

Neville-Jones, B.

Newby, L. [Teller]

Noakes, B.

Northbrook, L.

Northover, B.

Norton of Louth, L.

O'Cathain, B.

O'Neill of Bengarve, B.

Palmer, L.

Palmer of Childs Hill, L.

Pannick, L.

Parkinson, L.

Parminter, B.

Patel, L.

Patten, L.

Perry of Southwark, B.

Phillips of Sudbury, L.

Popat, L.

Quirk, L.

Ramsbotham, L.

Rana, L.

Randerson, B.

Rawlings, B.

Razzall, L.

Redesdale, L.

Rees-Mogg, L.

Renfrew of Kaimsthorn, L.

Renton of Mount Harry, L.

Ripon and Leeds, Bp.

Risby, L.

Roberts of Conwy, L.

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Rogan, L.

Roper, L.

Rotherwick, L.

St John of Bletso, L.

Sanderson of Bowden, L.

Sassoon, L.

Scott of Needham Market, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Shackleton of Belgravia, B.

Sharkey, L.

Sharman, L.

Sharp of Guildford, B.

Sharples, B.

Shaw of Northstead, L.

28 Nov 2012 : Column 205

Sheikh, L.

Shephard of Northwold, B.

Shutt of Greetland, L.

Skelmersdale, L.

Smith of Clifton, L.

Soulsby of Swaffham Prior, L.

Spicer, L.

Stedman-Scott, B.

Steel of Aikwood, L.

Stephen, L.

Stewartby, L.

Stirrup, L.

Stoneham of Droxford, L.

Stowell of Beeston, B.

Strasburger, L.

Strathclyde, L.

Sutherland of Houndwood, L.

Swinfen, L.

Taylor of Goss Moor, L.

Taylor of Holbeach, L.

Tenby, V.

Tonge, B.

Trefgarne, L.

Trenchard, V.

Trimble, L.

True, L.

Trumpington, B.

Tugendhat, L.

Tyler, L.

Ullswater, V.

Verma, B.

Wakeham, L.

Waldegrave of North Hill, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Wasserman, L.

Wei, L.

Wheatcroft, B.

Wilcox, B.

Williamson of Horton, L.

Younger of Leckie, V.

4.15 pm

Amendment 107AH not moved.

Clause 76 : Power of Treasury to require FCA or PRA to undertake investigation

Amendment 107B

Moved by Lord Sassoon

107B: Clause 76, page 152, line 6, leave out from beginning to “give” in line 7 and insert—

“(1) This section applies where—

(a) the Treasury consider that it is in the public interest that either regulator should undertake an investigation into any relevant events, and

(b) it does not appear to the Treasury that the regulator has undertaken or is undertaking an investigation (under this Part or otherwise) into those events.

(1A) The Treasury must”

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, this group of amendments concerns Part 5, which is concerned with inquiries and investigations. It carries forward provisions relating to independent inquiries called by the Treasury and applies these powers to both the PRA and the FCA, also introducing a number of new provisions for the regulators to carry out investigations when regulatory failure has occurred, or may have occurred. As such, Part 5 is a very important part of the Bill, as indeed my noble friend Lady Noakes noted when she described the provisions in it as “crucial to the Bill” when we last discussed these matters on 25 October. During our discussions on that day, I indicated that I would go away and consider carefully the important points made by my noble friend and the noble Lord, Lord Davies of Oldham. I also promised to reflect further on a topic on which we have spent many a happy hour—namely, the uses of “may” and “must” in the Bill.

I hope that noble Lords will be pleased to note that the Government are bringing forward a number of amendments informed by our previous discussion of Part 5. Amendments 107B and 107C amend Clause 76, which provides the Treasury with a power to require

28 Nov 2012 : Column 206

either regulator to carry out an investigation when the Treasury considers it in the public interest for the regulator to do so. The current drafting of Clause 76 provides that in such circumstances the Treasury may order an investigation. Amendment 107B changes this discretion to a duty by changing “may” to “must”, and Amendment 107C is consequential on Amendment 107B. The Government agree with the points made that when the public interest test is met, surely the Treasury must require an investigation. Changing “may” to “must” is the right course of action. If an investigation by the regulator is in the public interest, and the regulator is not already carrying one out, then it is right that the Treasury should be required to order an investigation.

Amendment 107D responds to issues raised by the noble Lord, Lord Davies of Oldham, in Committee. The amendment provides that where the Treasury directs either regulator not to carry out an investigation into possible regulatory failure or otherwise gives a direction to the regulator as to how it should carry out such an investigation, then such a direction should be laid before Parliament. The amendment also provides that the Treasury should do so as soon as is practicable after issuing the direction. I share the view of those contributing to debate in Committee that this will increase transparency and therefore confidence in the regulatory regime. However, in recognition of the fact that there may sometimes be circumstances where laying the direction before Parliament could have negative and unintended consequences, the amendment provides that the Treasury need not lay the direction before Parliament if doing so would be against the public interest. I beg to move.

Lord Barnett: It behoves me to say thank you to the noble Lord. It is hard to believe that the amendment that my noble friend and I tabled has now been accepted. I do not know what to say. Thank you is the only thing I can say.

Lord Davies of Oldham: My Lords, given the persistence of my noble friends in debates throughout the Bill as regards “may” and “must”, I imagined that their efforts would result in one signal victory, and this is it. We appreciate the Government’s movement on this point.

I accept what the noble Lord, Lord Sassoon, said about the public interest being considered before a matter is laid before Parliament, but that in normal circumstances Parliament should be informed. I am very grateful to him for the fact that the assurances which he gave in Committee have been amply fulfilled with these amendments.

Lord Peston: My Lords, my remarks will change the atmosphere of “love fest” between the two Front Benches with regard to the “may/must” question. There seems to be a semantic problem here in that “must” appears in new Section (2) proposed by Amendment 107D, which one could interpret to mean must. Unfortunately, however, new Section (3) proposed by the same amendment converts “must” into “may”, because it says that if the measure is not in the public interest the “must” does not apply. That shows how difficult it is

28 Nov 2012 : Column 207

to draft Bills, particularly in circumstances such as these. I assume that lawyers will flourish when they read “must” in proposed new Section (2) and then discover that the Treasury has decided that it is not in the public interest to publish a direction, and therefore “must” no longer applies. I thought that I ought to add that to the otherwise very pleasant interchange to which I have been listening.

Amendment 107B agreed.

Amendments 107C to 114

Moved by Lord Sassoon

107C: Clause 76, page 152, line 18, leave out “(1)” and insert “(1A)”

107D: After Clause 79, insert the following new Clause—

“Publication of directions

(1) This section applies to a direction given by the Treasury under any of the following provisions—

(a) section 72(4);

(b) section 73(5);

(c) section 77(5).

(2) As soon as practicable after giving the direction, the Treasury must—

(a) lay before Parliament a copy of the direction, and

(b) publish the direction in such manner as the Treasury think fit.

(3) Subsection (2) does not apply where the Treasury consider that publication of the direction would be against the public interest.”

108: After Clause 86, insert the following new Clause—

“PART 6AOffences relating to financial services

Misleading statements

(1) Subsection (2) applies to a person (“P”) who—

(a) makes a statement which P knows to be false or misleading in a material respect,

(b) makes a statement which is false or misleading in a material respect, being reckless as to whether it is, or

(c) dishonestly conceals any material facts whether in connection with a statement made by P or otherwise.

(2) P commits an offence if P makes the statement or conceals the facts with the intention of inducing, or is reckless as to whether making it or concealing them may induce, another person (whether or not the person to whom the statement is made)—

(a) to enter into or offer to enter into, or to refrain from entering or offering to enter into, a relevant agreement, or

(b) to exercise, or refrain from exercising, any rights conferred by a relevant investment.

(3) In proceedings for an offence under subsection (2) brought against a person to whom that subsection applies as a result of paragraph (a) of subsection (1), it is a defence for the person charged (“D”) to show that the statement was made in conformity with—

(a) price stabilising rules,

(b) control of information rules, or

(c) the relevant provisions of Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments.

28 Nov 2012 : Column 208

(4) Subsections (1) and (2) do not apply unless—

(a) the statement is made in or from, or the facts are concealed in or from, the United Kingdom or arrangements are made in or from the United Kingdom for the statement to be made or the facts to be concealed,

(b) the person on whom the inducement is intended to or may have effect is in the United Kingdom, or

(c) the agreement is or would be entered into or the rights are or would be exercised in the United Kingdom.”

109: After Clause 86, insert the following new Clause—

“Misleading impressions

(1) A person (“P”) who does any act or engages in any course of conduct which creates a false or misleading impression as to the market in or the price or value of any relevant investments commits an offence if—

(a) P intends to create the impression, and

(b) the case falls within subsection (2) or (3) (or both).

(2) The case falls within this subsection if P intends, by creating the impression, to induce another person to acquire, dispose of, subscribe for or underwrite the investments or to refrain from doing so or to exercise or refrain from exercising any rights conferred by the investments.

(3) The case falls within this subsection if—

(a) P knows that the impression is false or misleading or is reckless as to whether it is, and

(b) P intends by creating the impression to produce any of the results in subsection (4) or is aware that creating the impression is likely to produce any of the results in that subsection.

(4) Those results are—

(a) the making of a gain for P or another, or

(b) the causing of loss to another person or the exposing of another person to the risk of loss.

(5) References in subsection (4) to gain or loss are to be read in accordance with subsections (6) to (8).

(6) “Gain” and “loss”—

(a) extend only to gain or loss in money or other property of any kind;

(b) include such gain or loss whether temporary or permanent.

(7) “Gain” includes a gain by keeping what one has, as well as a gain by getting what one does not have.

(8) “Loss” includes a loss by not getting what one might get, as well as a loss by parting with what one has.

(9) In proceedings brought against any person (“D”) for an offence under subsection (1) it is a defence for D to show—

(a) to the extent that the offence results from subsection (2), that D reasonably believed that D’s conduct would not create an impression that was false or misleading as to the matters mentioned in subsection (1),

(b) that D acted or engaged in the conduct—

(i) for the purpose of stabilising the price of investments, and

(ii) in conformity with price stabilising rules,

(c) that D acted or engaged in the conduct in conformity with control of information rules, or

(d) that D acted or engaged in the conduct in conformity with the relevant provisions of Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments.

(10) This section does not apply unless—

(a) the act is done, or the course of conduct is engaged in, in the United Kingdom, or

(b) the false or misleading impression is created there.”

28 Nov 2012 : Column 209

110: After Clause 86, insert the following new Clause—

“Misleading statements etc in relation to benchmarks

(1) A person (“A”) who makes to another person (“B”) a false or misleading statement commits an offence if—

(a) A makes the statement in the course of arrangements for the setting of a relevant benchmark,

(b) A intends that the statement should be used by B for the purpose of the setting of a relevant benchmark, and

(c) A knows that the statement is false or misleading or is reckless as to whether it is.

(2) A person (“C”) who does any act or engages in any course of conduct which creates a false or misleading impression as to the price or value of any investment or as to the interest rate appropriate to any transaction commits an offence if—

(a) C intends to create the impression,

(b) the impression may affect the setting of a relevant benchmark,

(c) C knows that the impression is false or misleading or is reckless as to whether it is, and

(d) C knows that the impression may affect the setting of a relevant benchmark.

(3) In proceedings for an offence under subsection (1), it is a defence for the person charged (“D”) to show that the statement was made in conformity with—

(a) price stabilising rules,

(b) control of information rules, or

(c) the relevant provisions of Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments.

(4) In proceedings brought against any person (“D”) for an offence under subsection (2) it is a defence for D to show—

(a) that D acted or engaged in the conduct—

(i) for the purpose of stabilising the price of investments, and

(ii) in conformity with price stabilising rules,

(b) that D acted or engaged in the conduct in conformity with control of information rules, or

(c) that D acted or engaged in the conduct in conformity with the relevant provisions of Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments.

(5) Subsection (1) does not apply unless the statement is made in or from the United Kingdom or to a person in the United Kingdom.

(6) Subsection (2) does not apply unless—

(a) the act is done, or the course of conduct is engaged in, in the United Kingdom, or

(b) the false or misleading impression is created there.”

111: After Clause 86, insert the following new Clause—

“Penalties

(1) A person guilty of an offence under this Part is liable—

(a) on summary conviction, to imprisonment for a term not exceeding the applicable maximum term or a fine not exceeding the statutory maximum, or both;

(b) on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or both.

(2) For the purpose of subsection (1)(a) “the applicable maximum term” is—

(a) in England and Wales, 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003);

(b) in Scotland, 12 months;

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(c) in Northern Ireland, 6 months.”

112: After Clause 86, insert the following new Clause—

“Interpretation of Part 6A

(1) This section has effect for the interpretation of this Part.

(2) “Investment” includes any asset, right or interest.

(3) “Relevant agreement” means an agreement—

(a) the entering into or performance of which by either party constitutes an activity of a kind specified in an order made by the Treasury, and

(b) which relates to a relevant investment.

(4) “Relevant benchmark” means a benchmark of a kind specified in an order made by the Treasury.

(5) “Relevant investment” means an investment of a kind specified in an order made by the Treasury.

(6) Schedule 2 to FSMA 2000 (except paragraphs 25 and 26) applies for the purposes of subsections (3) and (5) with references to section 22 of that Act being read as references to each of those subsections.

(7) Nothing in Schedule 2 to FSMA 2000, as applied by subsection (6), limits the power conferred by subsection (3) or (5).

(8) “Price stabilising rules” and “control of information rules” have the same meaning as in FSMA 2000.

(9) In this section “benchmark” has the meaning given in section 22(6) of FSMA 2000.”

113: After Clause 86, insert the following new Clause—

“Affirmative procedure for certain orders

(1) This section applies to the first order made under section (“Interpretation of Part 6A”).

(2) This section also applies to any subsequent order made under that section which contains a statement by the Treasury that the effect of the proposed order would include one or more of the following—

(a) that an activity which is not specified for the purposes of subsection (2)(a) of that section would become one so specified,

(b) that an investment which is not a relevant investment would become a relevant investment;

(c) that a benchmark which is not a relevant benchmark would become a relevant benchmark.

(3) A statutory instrument containing (alone or with other provisions) an order to which this section applies may not be made unless a draft of the instrument has been laid before Parliament and approved by a resolution of each House.”

114: After Clause 86, insert the following new Clause—

“Consequential repeal

Section 397 of FSMA 2000 (which relates to misleading statements and practices and is superseded by the provisions of this Part) is repealed.”

Amendments 107C to 114 agreed.

Clause 98 : Power to make further provision about regulation of consumer credit

Amendments 114A to 114C

Moved by Lord Sassoon

114A: Clause 98, page 186, line 37, at end insert—

“(fa) provide for any provision of sections 162 to 165 and 174A of CCA 1974 which relates to—

(i) the powers of a local weights and measures authority in Great Britain or the Department of Enterprise, Trade and Investment in Northern Ireland in relation to compliance with any provision made by or under CCA 1974,

28 Nov 2012 : Column 211

(ii) the powers of such an authority or that Department in relation to the commission or suspected commission of offences under any provision made by or under CCA 1974,

(iii) the powers that may be conferred by warrant on an officer of such an authority or that Department, or

(iv) things done in the exercise of any of those powers,

to apply in relation to compliance with FSMA 2000 so far as relating to relevant regulated activities, in relation to the commission or suspected commission of a relevant offence or in relation to things done in the exercise of any of those powers as applied by the order;”

114B: Clause 98, page 187, line 8, leave out from “subsection” to “by” in line 10 and insert “(2)(fa) to (h)—

(a) “relevant regulated activity” means an activity that is a regulated activity for the purposes of FSMA 2000”

114C: Clause 98, page 187, line 14, at end insert—

“(b) “relevant offence” means an offence under FSMA 2000 committed in relation to such an activity.”

Amendments 114A to 114C agreed.


Amendment 114D

Moved by Lord Mitchell

114D: After Clause 98, insert the following new Clause—

“Power of the FCA to make further provision about regulation of consumer credit

(1) The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment.

(2) This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.”

Lord Mitchell: My Lords, yesterday I had tea with a dear friend here in your Lordships’ House. Unsurprisingly, the subject of payday loans came into the conversation. He told me about his son, who has mild attention deficit disorder, is frequently unemployed and had taken out two payday loans. The loans were for £800. His son could not pay them back and, to cover his embarrassment, rolled them over several times. In a few months, the amount due to be repaid had escalated to £5,000. My friend reluctantly had to settle the bill. That is the essence of the amendment that I put down at Committee stage, and which I have put down today. It is this that we are seeking to control.

Ten years ago, this amendment probably would not have been tabled, but today it is very much of the hour. The fact is that legalised loan-sharking, or payday lending—call it what you will—has gone viral. It is out of control, dangerous and is causing great distress to many vulnerable people. Two developments have come together to cause the rapid growth of this lending industry. The first is the dreadful state of the economy. People are desperate for money and they will take it from whatever source they can, whatever the price. Take a walk down any high street, particularly in deprived areas—payday loan shops are abundant. Recently, I went to Walthamstow with my honourable friend Stella Creasy MP and my right honourable friend Ed Miliband. There, on the high street, we saw more than 15 money shops of one form or another. Business was brisk.

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The second development has been the astronomic growth of online lending. As I said in Committee, I went on to one of the most successful websites and what struck me was the slickness of the process: just some cursory information to fill in and the money would have been in my bank in 15 minutes. It is simply too easy. A straitened economy and the ease of usage of online lending have combined to create this booming business sector.

One online company—Wonga—is projected to be making more than £70 million profit this year, probably valuing the company well in excess of £1 billion if it were to go public. The annual size of the payday lending industry is at least £2 billion; it is growing at a fast clip and in time will become a major source of consumer credit in this country. I do not understand why this Government—who are determined to reduce personal indebtedness at the macro level—are at the same time allowing this sector to grow unchecked. I would have thought that both parties opposite would be encouraging me on this amendment, rather than opposing this very important piece of legislation. Perhaps the Minister will have some good news for me when he replies.

Payday loan customers, by their very nature, are people with very low credit ratings, who have no other options open to them. They borrow money on an unsecured basis at extortionate rates of interest. Does this not strike a familiar chord? Uncontrolled lending to people who are barely able to meet their repayments in a marketplace that is expanding at a massive rate: does that not sound like what happened in the United States with sub-prime lending? Sub-prime was off everybody’s radar screen until it hit the US and world economy like a hurricane. It was the initial cause of the financial crash of 2007 and few saw it coming. If Her Majesty’s Treasury does not buy into the moral repugnance that most of us feel about the dangers of payday lending, at least it should be on its guard about the economic consequences of this ticking bomb.

However, it is the moral argument that concerns us this afternoon. I am delighted that the right reverend Prelate the Bishop of Durham has added his name to this amendment. He has spoken previously on this subject and I am sure he will be making his views very clear. I am pleased that the noble Baronesses, Lady Howe of Idlicote and Lady Grey-Thompson, have also added their names to this amendment. Both have long records of standing up for the vulnerable and I await their speeches with anticipation.

I want to make one point very clear. This amendment does not seek to ban payday lending; it seeks to give the FCA the power to cap interest rates when they are causing consumer detriment. It is a “may”, not a “must”. It puts the responsibility squarely into the hands of the FCA. I will go further: we need payday lenders; they fulfil a vital role. There are many people who cannot get credit from traditional sources, and without legalised payday lenders, their alternative is the backstreet loan sharks whose penalty for non-payment is often pretty brutal.

Payday lenders fill a vital gap, but they need to be controlled. Interest rates charged by many payday lenders go well beyond the obscene. Any lender is

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bound by law to display the annual percentage rate—the APR—that it is charging. In many cases, payday lenders are charging an APR in excess of 4,000%. These lenders avoid the use of the term APR whenever they can; they say it is not appropriate for a short-term loan. I have heard them say to me that quoting APR on a payday loan is as relevant as quoting APR if you hire a car for a week or stay in a hotel for a similar period. We must not buy this argument and we must not let them get off the hook. Hiring a car or staying in a hotel is a rental of an asset and its associated services. It incurs no repayment of principal and is not a loan.

Payday lenders say that quoting APR on a short-term loan is inappropriate—how can you use the word “annualised” to measure something that lasts just a few weeks? That is exactly what the finance industry does every day. If one bank borrows £100 million from the money market on an overnight basis, the charge is quoted as an annualised interest rate. Stating that APR is the wrong measure is simply disingenuous. APR is there for an express purpose and in my opinion it should be included in all advertising, but that is a debate for another time.

Last Sunday, we saw an interesting development. In an article in the Sunday Telegraph, Wonga was reported as saying that its rate of interest is equal to 1% per day. This is a big change from a company which has previously refused to admit that its repayments should be quoted as a rate of interest. What it says is true—it does charge 1% per day, or thereabouts—but it is playing games. If you borrow £100 from Wonga for seven days, the simple interest that you pay will be 1.82% per day. If you borrow £100 for a month, the simple interest will be 1.21% per day. For its maximum of 43 days, it will be 1.16% per day. The game it is playing is that this is calculated on the basis of simple interest, but interest is seldom calculated on a simple basis. The accepted measure is of course compound interest. A loan that costs just 1% per day becomes 4,000% per annum when aggregated in compound interest terms, which is exactly what APR is all about.

4.30 pm

Other countries do not have the payday loan free-for-all that we do. In the United States, rules on payday lending vary state by state. By and large, they restrict the permitted interest component to 15% and the rollovers are very tightly controlled. Many UK lenders exceed 22%. The state with the best record is Florida. There, the maximum amount of interest is 10% of the loan amount, plus a $5 verification fee. The maximum number of loans that a customer can have outstanding is one, and the verification fee is used to pay for the computer systems that monitor all payday loans state-wide. Loan terms are between seven and 31 days, and all this prevents long-term dependency on credit.

The results in Florida are staggering. Of 6.8 million loans in 2009-10, not a single one was extended beyond the contract for additional fees. Ninety per cent of borrowers repaid these loans within 30 days of the due dates, and 70% of customers repaid the loans on the contract end date. Complaints about interest rates have all but disappeared and, most impressive of all,

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in the whole state not one borrower was indebted by more than $500 at any time. It has been a huge success and, in my personal view, a pointer to how we should proceed in our country.

Last week, the Office of Fair Trading published its interim report into payday lending. Its investigation was not directed at interest caps but it highlights aspects of payday lending behaviour which are disturbing. It found the following. Lenders have a higher level of compliance where statutory requirements are more prescriptive—for example, in advertising—but where obligations are set out in guidance only, compliance is much lower. Examples are credit checks made on lenders, loans not repaid on time, frequency of rollover and lack of forbearance when borrowers get into difficulty.

The OFT recommends that lenders do more to comply with the letter and spirit of the law. In several cases, it questions the fitness of lenders to hold a consumer credit licence. The action it is taking includes warning the majority of the firms inspected that they must improve how they treat customers, and conducting formal investigations into firms where it has concluded that, based on the evidence, their fitness to hold a licence may be called into question. However, most damning of all, the OFT has said that the relevant trade associations need to improve standards of compliance with the law, as well as guidance on advertising. The OFT is too polite to say so but it seems that it is really saying that this is an industry run by cowboys who are constantly operating on the fringes of legality.

Another report has come from Which?, which states the following, based on a survey it conducted: half of payday loan users have taken out credit that it turned out they could not afford to repay; 29% of payday loan users have taken out credit that they absolutely knew they could not repay; 43% of payday loan users said it was too easy to get credit; 20% have been hit by unexpected charges; 24% spent their loans to repay other debts; and most worrying of all, 38% spent their loans on essentials such as food and fuel.

Mr Richard Lloyd, the executive director of Which? stated:

“It’s shocking that half of all people taking out payday loans have been unable to repay debts and it’s a depressing sign of the times that almost a third were hassled by debt collectors in the past year. Payday loans are leaving many people caught in a spiral of debt and taking out more loans just to get by. That’s when they’re hit by excessive penalty charges and roll over fees”.

We have an industry flying by the seat of its pants, observing at best the flimsiest requirements of the law and its own pathetic codes of conduct. It needs to be much more closely controlled. In my opinion we could do a lot worse than emulate the success story that we have seen in Florida. We can start this afternoon by supporting my amendment. As I have said, payday lenders need to exist. The FCA will need to strike a difficult balance between capping the interest rates that these companies can charge, while allowing them to earn enough profit so that they can still produce a proportionate return. It will not be easy, but the FCA requires the tools to start the process and this amendment will provide it with what it needs. I beg to move.

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Lord Sassoon: My Lords, it may be helpful to the House if I speak early in this debate. The amendment explores how the FCA will regulate the payday lending sector. The Government have been clear from the outset that the FCA should be able to take action to address the problems that are rife in the payday loans sector and, indeed, in the consumer credit sector more widely. That is why the Bill in its current form already empowers the FCA to make rules regarding the regulation of payday loans when credit regulation is transferred to the FCA in 2014.

I welcome the opportunity to debate this important issue. The Government are, like all of us, concerned about the appalling behaviour of some firms in this sector and the harm that vulnerable consumers suffer as a result. I shall say up front that, if the noble Lord agrees to withdraw this amendment, I will table a government amendment for debate at Third Reading that will address the issues raised by the noble Lord. The Government will go further, not only embedding stronger payday loan regulation in primary legislation but ironing out the potential weaknesses that they see in today’s amendment.

I cannot accept the noble Lord’s amendment as I think that the Government can, with the additional resources provided by officials and parliamentary counsel, improve on it in a number of ways. But, first, allow me to put on record three important points about the problems in the payday loans sector and how the Government will ensure that the FCA will be able to address these problems. Just last week, the OFT set out a wide range of concerns about detrimental practices in the payday loans sector, from firms failing to perform adequate checks that customers can afford a loan to a lack of forbearance when consumers are in financial difficulty. While restrictions imposed on the cost and duration of credit may address some of these problems, it is clear that regulation of the high-cost credit market as a whole needs to improve. Compared to the current regulatory regime under the OFT, the FCA will have a broader and more effective toolkit to monitor and tackle developments in the market and to supervise practice among firms. Its consumer protection objective provides the FCA with the mandate to use those powers and tools.

Secondly, capping the cost of credit and the number of times the loan can be rolled over is a major market intervention. It could bring huge benefits for consumers, as a recent study in Japan has indicated, but experience in Germany and France has shown that there can be equally momentous unintended consequences, including reduced access to credit for the poorest and most vulnerable consumers, even driving them to illegal loan sharks. These international lessons demonstrate that we need robust evidence to support any decision to introduce such a cap.

As noble Lords may be aware, the Department for Business, Innovation and Skills has commissioned research from Bristol University into the impact of a cap on the total cost of credit. This is one of the most comprehensive pieces of research undertaken into the UK high-cost credit market. I am pleased to confirm that the research will be published in the next few weeks and will enable the Government and, in future,

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the FCA to take an evidence-based approach to regulating the high-cost credit market and, in particular, to assess the pros and cons of a cap on the cost of credit.

However, we need to ensure that the FCA grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and to ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution. In this, I am entirely in agreement with the noble Lord. So, while I support the spirit of the amendment, I cannot accept it as it is framed as it may have unintended consequences and introduce loopholes which could be exploited by unscrupulous firms. For example, the amendment refers to the,

“maximum duration of a supply of a product or service”.

Firms might offer an ostensibly new product or agreement in order to circumvent the cap on the duration of the agreement. The amendment also focuses on the terms of the credit agreement and does not pick up charges imposed under connected agreements, which may often be significant. Again, this would open up a potential loophole for firms to exploit.

However, the Government believe that there is scope to go further than this amendment and to put in place stronger, automatic consumer protections and make the deterrent effect more robust by providing that a breach of these rules would make the agreement unenforceable by the lender. I will draft an amendment and discuss it with the noble Lord, Lord Mitchell, to ensure that it fully meets his concerns, as I believe it will—I believe it will go further—and I can confirm explicitly that it will cover both the total cost and total duration of credit.

Lord Peston: My Lords—

Lord Sassoon: If the noble Lord will permit me, I will allow him to intervene in a moment, but let me conclude my argument.

Our objectives here are the same: they are to ensure that consumers of financial services have access to credit when they need it and at a price they can afford; and to ensure that the regulator is under a clear obligation, and fully empowered, to ensure that consumers are protected. I hope and expect, therefore, that when the noble Lord, Lord Mitchell, sees the draft amendment he will feel able to add his name to what the Government propose.

Lord Peston: What the noble Lord said is extremely welcome and conciliatory to all of us. However, he left out one part: when will the rest of us get to see this draft amendment—I believe it is proposed that Third Reading should be next Wednesday—so that we, too, can scrutinise it to see whether it meets the requirement? One of the most compelling parts of the noble Lord’s argument was how difficult this area is—I thought it was all very simple—and he outlined a series of problems which he claims that he and his officials will solve. Has he actually solved them? Does the draft amendment exist and will we see it no later than, say, this Friday?

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Lord Sassoon: I assure the House that I will get the amendment drafted as soon as we possibly can. I have given as clear a commitment as I can give to the House that the amendment will cover the two specific points that the noble Lord, Lord Mitchell, and the other noble Lords who have put their names to the amendment are looking for. However, we want to go further. If we are going to do this, we should get it right. This is a critical area which needs cleaning up and I am fully confident that when your Lordships see the draft amendment it will command the acceptance of the House.

In conclusion, I hope that the noble Lord will feel able to withdraw his amendment. I look forward to further debate on this important issue at Third Reading and on the stronger and more effective amendment that we will bring forward.

4.45 pm

Lord Kirkwood of Kirkhope: My Lords, if I may interrupt the exchanges between the two Front Benches, this is a very welcome development from the Government. I absolutely support the course of action that is being taken and I can assure the noble Lord, Lord Mitchell, that I have the same concerns as him in terms of the argument he mounted, but this is a more sensible way to proceed.

I was pleased that the noble Lord, Lord Mitchell emphasised the fact that access to credit for low-income households is an important part of some of the changes we are introducing to the benefit system over the next five to 10 years. As we know, because colleagues have had important discussions about this matter, one of the changes brought into being by universal credit is that credit for all benefits taken together is paid, not weekly or fortnightly—as we have been used to in the past—but monthly. It will be a dramatic change for many low-income households that are used to weekly or fortnightly management of cash budgets in order to get through payment of their weekly responsibilities without getting into debt. When universal credit is fully rolled out in 2018—so we have a little time to get this right—I am absolutely certain that families will need access to small amounts of money to see them through when benefits either run out or, as I think is inevitable, fail to be paid. At the moment, if you do not get your housing benefit, your jobseeker’s allowance can tide you through. If you do not get your universal credit, you get nothing. If you get nothing for one month it is really serious; if you do not get the benefit paid for two months, you are in penury. Controlled access to this kind of loan is an important part of the process and we must not throw the baby out with the bathwater.

I know, as well as anybody in this House, the effect of loan sharks and the many sharp practices which must be controlled. What I cannot understand—this is the reason why I rose at this moment, to say to my noble friend that his suggestion is very welcome—is why we do not have a statutory code of conduct for licensed practitioners who are members of the Consumer Finance Association. If they had licences and they breached the code of conduct, whether it was about inappropriate, usurious rates of interest or criminal

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methods of collecting outstanding amounts of money, their licence would be withdrawn. I am just about to finish a period as a lay member of the General Medical Council so I know what a regulator can do and what fitness to practise means to a medical practitioner who is on the shady end of clinical practice, and it works.

In taking away this amendment, I hope the noble Lord, Lord Mitchell, will look at the Bristol work, which is a serious piece of work—I know because I have checked—that will contribute a lot to the debate and which many colleagues in this House might like to get access to before they make a final decision on this matter. I hope that he will weigh that in the balance. I hope the Minister, when he comes to recast the amendment—bilaterally, I trust—will think seriously about whether there could be some way of at least not ruling out the FCA adopting a statutory code of practice which would meet all the legitimate concerns that are coming from all sides of the House. I hope common sense will prevail and I hope that the noble Lord, Lord Mitchell, feels able, in all conscience, to withdraw the amendment. I can assure him that there will be as much pressure put on from this side of the House as is coming from that side to get this thing right before the Bill is passed.

The Lord Bishop of Durham: My Lords, I welcome with other Members of the House the statement made by the noble Lord, Lord Sassoon. One of the points made by the noble Lord, Lord Mitchell, in his excellent speech was about the dysfunctionality of the market. As was said, interference and capping of interest rates normally drive people towards loan sharks with unintended consequences of a very serious order, as we see in many parts of the country at the moment. However, if you look at the profits being earned in this market, it is clear that the barriers to entry are so high that there is absolutely no way in which people can come in and start shaving off the abnormal rates being achieved through participation in this market. If it was working, the interest rates would drop—it is as simple as that. The rates are clearly usurious—to use an old-fashioned expression. It used to be said in the old days that you could not take away people’s beds and cloaks because they were essential for life—that is the Hebrew Scriptures; today, equivalent things are being taken away as a result of those very high rates of interest. It is a moral case, and it is bad for the clients and bad for all of us in this country when it is permitted to happen.

I hope that over the next few years, thanks to two other amendments that have been agreed by the Government over the past few weeks during the Report stage—one puts an obligation on the FCA to look at access to finance in areas of deprivation and the other, through other means, will enable the FCA to know exactly what is happening in terms of lending in areas of deprivation—we will put together in this House a package of measures that will enable this market to be effective. But that will take time. The proposed amendment that will come next week will be permissive, not obligatory, and will enable regulatory authorities to ensure that, in the interim, there is not this abnormal rate seeking which has been so damaging in so many of our areas, including many in my own diocese.

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Baroness Howe of Idlicote: My Lords, I thank the noble Lord, Lord Sassoon, for what he has said; it sounds like an interesting and potentially successful solution, but I am still quite confused as to whether we will get to the right conclusion on time. I thank the noble Lord, Lord Mitchell, and congratulate him on tabling his amendment, to which several of us have added our name. I am glad to have been able to hear the comments of the right reverend Prelate the Bishop of Durham, because he gained great expertise in financial matters in his career before he joined the Church.

There has been plenty of support for the amendment of the noble Lord, Lord Mitchell, from other areas around the country, from councillors and from MPs. For my own part, having sat through the Welfare Reform Bill, with its drastic consequences for the poor and disabled, and subsequently witnessed for the same group the extent to which voluntary legal aid and advice services were being curtailed so that they were not getting the help that they had had in the past, my first reaction to the amendment was that it was far too weak. However, I have listened to what people have said and accept that consumers without bank accounts or with no credit history—that is some 25% of credit users and 23% of payday loan users, I was amazed to find—have no choice when facing a financial crisis but to resort to these loans. Nor should we forget, as has been pointed out by the noble Lord, Lord Mitchell, and by Which?reports, that some 78% of payday loans are used for basic essentials such as food or household bills. So if these organisations—I am tempted to call them by less pleasant names—are to stay, undoubtedly the amendment of the noble Lord, Lord Mitchell, will be a huge help. It may be that it will be a reserve weapon, as it were, but it will nevertheless be a very important weapon. I hope that I can feel confident at the end of our discussions. I want reassurance from the noble Lord, Lord Mitchell, that he is sufficiently satisfied with what he has heard, that otherwise he will bring back further amendments at a later stage, and that that will be acceptable to the whole House.

Lord Davies of Stamford: My Lords, it is a pleasure to speak after the noble Baroness, Lady Howe. Like her, I felt that the amendment of the noble Lord, Lord Mitchell, was the very least that we should be doing in this area and I would have been happy with something even stronger. I congratulate her, my noble friend Lord Mitchell and the right reverend Prelate on their initiative in bringing this matter before the House and, indeed, before the country.

I am going to say something which I think needs to be said this afternoon and is probably best said from the Back Benches—that is, I think the Government should be hanging their head in shame. They have had many months to prepare the Bill and bring it forward and have not brought forward the clause that they are now promising, although they had every opportunity to do so. It is only because of the determination and initiative of my noble friend and his colleagues and the great moral force brought to this matter by the right reverend Prelate that, at the last minute, the Government have decided that they have no alternative but to do the right thing for once. That needed to be said; this has been a very dramatic afternoon when we have seen a U-turn.

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This evil we have been talking about—and it is an evil—has, of course, got worse, for the reasons given by my noble friend, over the past two years, but it has been with us for a long time. It is an evil that I was well aware of when I was a Member of the House of Commons; most people with constituency experience came across it. The normal trick of loan sharks is to persuade people to borrow so much money at such a high rate of interest that they can never get around to repaying the principal because any cash they happen to have simply goes to servicing the debt by paying the interest. Essentially, they lend someone £500 and have their thugs go around every week, or every two weeks, collecting at their door whatever the poor family concerned can pay—£20 here, £30 there—which all goes towards the interest. The interest piles up and the principal is never going to be repaid but the lender makes a return on his capital of hundreds, maybe thousands of per cent every year.

I remember coming across a particularly nasty scam in my constituency, which I fear may still be going on. It is the targeting of people who have some equity in their house but very low cash flow in relation to their debts and persuading them to consolidate their unsecured debt into a secured loan, something one should never do, in principle, except in very exceptional circumstances. These people are, generally, financially very naive and agree to do it; they take out a secured loan of whatever amount, but they can never afford to service it at an APR of, perhaps, 20%. The lender knows perfectly well that they will default, that they do not have the cash flow to service the loan, but he has security of several thousand pounds of equity in the house and he puts into the loan agreement enormously expensive penal clauses, so that, in the event of default, thousands of pounds will be paid by way of compensation or penalty interest. He knows, of course, that the borrower is going to default; he hopes that the borrower will default at the first interest payment date, not the second or the third, because that way he turns his capital over more quickly. As soon as the borrower defaults the lender forecloses on the loan and takes all his additional thousands of pounds in penalty interest, a very large slice of the remaining equity in the house. It is extraordinarily cynical, extraordinarily cruel, and this kind of scam and others like it thrive in what we like to think of as our civilised and humane society.

We need to do something about this very rapidly indeed. What has been put forward this afternoon is an absolute minimum; I would have been much happier with something along the lines of the anti-usury laws. I am so glad that the right reverend Prelate is a churchman and not afraid to use old-fashioned but eternal concepts such as usury. I would have been happy with the sort of anti-usury laws that some American states have. We are not going to go that far this afternoon. I hope that the government amendment lives up to the promises that have been made this afternoon by the Minister.

5 pm

Lord Flight: My Lords, first, I congratulate the noble Lord, Lord Mitchell, on raising this issue and, as a result, getting something done about it, and on his

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research in the territory. Also, I greatly welcome the Minister’s response and I look forward to government proposals that address the problem.

I shall make one or two focused points. The right reverend Prelate the Bishop of Durham made the point that we used to have anti-usury laws. We used to have a money-lending licence. When I started my career, there were rules about the maximum rate of interest that you could charge. All that had been in place going back more than 100 years. I assume that it all disappeared with the big bang, but it is a failure of regulation that the problem has been growing and getting worse with technology, but no regulator, as far as I am aware, has been suggesting to this Government or the previous Government that it needed addressing.

It is in part for that reason that I have reservations about letting the regulator just get on with running it. There need to be written in law caps on the maximum rate of interest. They could be related to the rate of inflation, to deal with that obvious problem. I do not trust the regulator to get to grips with the problem by itself.

My next point is that it illustrates the shame that we go on turning generation after generation out of schools who are financially illiterate, who do not understand what they are taking on. I remember talking to a young lady at university and asking how she was going to fund herself. She said that she had so much by way of a student loan and the rest on a credit card. I said, “How on earth are you going to pay back the credit card?”. She said, “Oh, do you have to do that?”. It is astonishing that people simply do not understand finance. Until we get financial literacy into the national curriculum, people will go on being ignorant and unable to look after themselves adequately.

It is a moral issue. I object to usury. I am sure that if my noble friend Lady Thatcher were in the Chamber, she would speak more strongly than anyone in objection to usury. We dealt with it in the past; let us get on with dealing with it again.

Baroness Coussins: My Lords, I add my support to the amendment introduced by the noble Lord, Lord Mitchell. I declare an interest as president of the Money Advice Trust, which is a charity that helps people across the UK to manage their debts. It does that by offering free advice through the National Debtline and by supporting advisers in the free advice sector.

So far this year, the National Debtline has taken more than 15,000 calls already from people struggling to repay payday loans. In the whole of 2011, it took 10,000 calls for help with payday loans, so that represents a staggering growth rate. Indeed, over the past two years, there has been an increase of 268% in the number of callers asking for help on payday loans. A telephone survey conducted by National Debtline also showed that the OFT guidance is not being followed, notably the part that states that creditors should make a reasonable assessment of whether a borrower can afford to meet repayments in a sustainable manner. The same survey showed that 66% of clients said that their lender had not conducted an affordability assessment.

This is not the right time to go into detail about what the FCA rules should be, but I suggest that they should certainly include a mandatory breathing space,

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with a freeze on interest and charges, if people are experiencing financial difficulty and have notified their payday lender that they are seeking support from a debt advice agency. In practice, by contrast, there is evidence of letters and requests to cancel CPAs or to freeze interest and charges being ignored, and debt advice agencies bypassed. The recent Citizens Advice conference highlighted examples where payday lenders had routinely refused to engage with advice agencies, had not answered letters, had refused to freeze charges and had not stopped CPAs even when requested to do so. I have sat in as an observer on calls to the National Debtline and witnessed the distress of people in debt as a result of payday loans. The powers for the FSA being sought by this amendment would be a small but very important contribution to the prevention of yet more unaffordable debt that ruins lives.

Baroness Kramer: My Lords, almost without exception this House has spoken and is speaking with one voice on this issue. In the United States it is quite common, when an important piece of legislation goes through, to name it after its sponsors. Whether this is the Mitchell-Sassoon amendment or the Sassoon-Mitchell amendment, it will have a very big impact on people’s lives.

However, it is important that the FCA, in the language that is already in the Bill, has the powers to do the acts for which the amendment calls. An amendment such as this ensures that the point is highlighted—that it is understood and not lost—because the FCA will have a wide range of areas to address. In the Bristol study that was commissioned and which we will be reporting in the next few weeks, the FCA and the Government demonstrated a very high level of concern around this issue, and the need to get underneath it to really understand the dynamics.

The importance of ensuring that the clause is an enabling one was well illustrated by the noble Baroness, Lady Coussins, a moment ago. There are many very complex issues around this that will need very direct attention. The devil will be in the detail to ensure that the amendment is effective in the way that the House desires, and that it does not create the opportunity for loopholes. We are talking about an industry that will game legislation if it has the opportunity.

I will pick up the issue that was addressed by the right reverend Prelate the Bishop of Durham, because it is hugely important. Almost all of this will be for naught if we do not ensure that there are appropriate sources of credit for those who need it at a reasonable price. The issue that the House is facing today has been neglected over decades; it is a challenge that the Government are picking up. It means that the clauses have to stand together with those that lower barriers to entry and which enable the community—whether social enterprises, charities, businesses, local authorities or whatever—to come together and take the initiative to build up the sources of finance that exist in many other countries.

The noble Lord, Lord Mitchell, talked about the constraints on payday lenders in the United States. One of the most powerful constraints is that there are community banks where individuals can get credit on reasonable terms. That is a far stronger constraint on

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any payday lenders in the United States than legislation could be. That is what we need here: the opportunity for market constraint. However, I congratulate all sides on coming together to be effective for some of the most vulnerable people in our community.

Lord Kennedy of Southwark: My Lords, I, too, congratulate my noble friend Lord Mitchell, the right reverend Prelate and other noble Lords for bringing forward this amendment today. I also pay tribute to the Member for Walthamstow in the other place, who has done more than anybody else to bring forward this issue. I would like clarification from the Government on the amendment that they will bring forward at Third Reading. Will it enable interest rates to be capped? That is key here; the cost of the charges and the interest rates levied are the nub of the issue. If that matter is not dealt with, we will unfortunately be back here at Third Reading and all sides will be very cross about it. Will the Minister clarify that?

Lord Sassoon: Yes, it will be dealt with.

The Lord Bishop of Ripon and Leeds: My Lords, I share the gratitude of the House to the noble Lord, Lord Mitchell, to my right reverend friend the Bishop of Durham and to others for bringing forward the amendment, and to the Minister for his response. I could talk about examples in Leeds very similar to those which people have raised. However, I will raise two particular points. The one point at which I was concerned at the Minister’s response was when he talked about the danger—which I acknowledge—of driving people into the murky world of illegal loan sharks. That is true and it can happen, but it is very important that we do not allow it to dominate the way in which we establish these provisions.

Where illegal lending is taking place, it needs to be dealt with by prosecution. We need to encourage the police to take action. That should not prevent us from being very firm in the way in which we—the law—control the debt industry. The Minister cited Japan as a good example of a society where that control appears to have worked. It would be interesting to see what contrasts there are between Japan, France and Germany, to ensure that we provide proper control and do not give in to illegal loan sharks because of their power.

I am grateful to the noble Baroness, Lady Kramer, for raising the point that there needs to be credit available. One thing that I have not heard very much about in these debates, although we talked about it often in the past, is the role of credit unions. Those unions seek to tackle debt but their growth has been sadly limited in this country and they appear to be unable to provide the necessary cover to give security to those struggling in our society, although the work that they do is excellent. I hope that as we go forward in discussing the issue of debt, we shall encourage credit unions to play a much greater part in providing a way forward and one answer to the major issues that we face.

Baroness Grey-Thompson: My Lords, I very much welcome the words of the Minister as I, too, put my name to the amendment. It is essential that we get this

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right because it is about people who are already in very difficult financial situations. The UK has one of the largest consumer lending markets in Europe, alongside those of France and Germany, but they have their rates capped. I will say a few words on the scale of the issue, which is important. There are 1.75 million people without transactional bank accounts and 7.7 million accounts without credit facilities, so it is very easy to see why people resort to payday loans.

One of the starkest things I read was that between April and May 2011 there was a 58% rise in people applying for payday loans via moneysupermarket.com, which means that an estimated 4 million people are using these loans, with the amount advanced exceeding £2 billion per year. In 2004, that amount was £100 million. Nobody wants to see more people in poverty. The noble Baroness, Lady Kramer, is absolutely right that the devil is in the detail. I look forward to the response of the noble Lord, Lord Mitchell.

Lord Glasman: My Lords, I will declare an interest. I was involved in the anti-usury campaign with London Citizens after the crash of 2008. I very much want to acknowledge the work of Stella Creasy in intensifying and continuing the campaign, which was based on the common good—on an alliance between the secular and those of faith to talk about a basic issue. Before we get too carried away, I will say that not since 1854 have there been any statutory constraints on interest rates. Everything else was voluntary but, in 1854, Bentham’s influence led to that. It followed the changes in abolishing usury laws in the Long Parliament in the 1630s, so we have to say that we are at an absolutely exceptional moment. There is a consensus on a cap on interest rates, which has not existed in our country for 400 years.

What it brings to our attention, and what I wish to share in honouring my noble friend Lord Mitchell for raising this historic amendment and the Government for responding to it, is the terrible condition of the poor. To quote someone who has not always been popular in this House, the Pope, usury is a way in which the rich prey upon the misfortune and troubles of the poor. I want to share with your Lordships that this is urgent; it is happening again and Christmas is coming. Overwhelmingly, it is not the unemployed but the working poor who are taking these loans.

I will raise two issues for future discussion, as we have reached such a fantastic moment of consensus. The first is in relation to credit unions, which the right reverend Prelate the Bishop of Durham mentioned, and regional banking. The proposal that London Citizens put forward, which I do not think sounds outlandish now, is that 5% of the bailout should be used to endow local, non-usurious lending institutions. The way in which the burdens of the crash have fallen on the poor is indecent, and we have to look at credit arrangements. I acknowledge what the Government have done in freeing up credit unions, but they do not have adequate resources or reach, and the establishment of new, non-usurious lending institutions in the regions of our country is the only way forward.

The other important issue—if I might interrupt the Minister’s conversation—is that data show that there is more illegal lending in Britain than in Germany.

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There is a 20% cap in Germany. I am not going to be bounced into any position, but it is still the case that if you put any constraints on the power of money, it automatically leads to illegal lending.

The other thing that we need to address is a living wage. When people work, they should be paid enough not to have to go into poverty. We have to build on this and intensify the conversation and the common good between secular and faith institutions. I commend the lead taken on this because the fundamental issue of our time is that the biggest growth area in our economy is debt, and overwhelmingly it falls on poor families. We need to address it as a matter of intensity and urgency.

5.15 pm

Lord Ramsbotham: My Lords, I support the noble Lord, Lord Mitchell, and all those who put their names to the amendment. I hope very much that another government ministry will support this amendment—the Ministry of Justice. Nowhere is the misery caused by these loan sharks felt more keenly than by the prison population and their families. The damage done to potential rehabilitation suggests to me that if the MoJ is serious about the “rehabilitation revolution” that it commends, it should support the amendment to the hilt.

Lord Hodgson of Astley Abbotts: My Lords, it is greatly to the credit of the noble Lord, Lord Mitchell, that he has not ducked the challenge of balancing the accessibility and availability of credit with its affordability and the terms on which it is made available. A number of noble Lords have made it clear, as indeed has the noble Baroness, that the availability and accessibility of credit is important. My noble friend on the Front Bench made a powerful intervention; he indicated a number of ways in which the amendment could be got around because of the gaps in it. It is important that we get this right and make it bullet-proof. For example, some of his thoughts about—if I heard him right—making a contract unenforceable under certain circumstances would add a great deal of power to this. I hope very much that we will be able to have a period of reflection and ensure that the unintended consequences that could come about, as evidenced by my noble friend’s speech, are avoided and we get something that stands the test of time.

Lord Barnett: My Lords, I have a couple of points. Throughout the Bill, my noble friend Lord Peston and I have constantly raised the question of “may” and “must”. That question arises in this amendment, too. The amendment, moved so wonderfully by my noble friend, states:

“The FCA may make rules”.

That could be “must” because the amendment is already constrained by the end of that sentence,

“on terms that the FCA judge to cause consumer detriment”.

That is why it is so important, as my noble friend Lord Peston said, that we see the Minister’s amendment as soon as possible. I am not a lawyer but I do not distrust them; however, the lawyers who advise Governments can make mistakes, which are usually

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resolved by lawyers on both sides eventually having an argument, at great cost to everyone including the courts, until someone decides in court who was right. On this occasion we have to try to get it absolutely right. I regard what the Minister said as very helpful.

My noble friend said that we must see the amendments as soon as possible. However, nothing is built in stone. No law states that we have to have Third Reading next Wednesday. If necessary it could be delayed a little. The important thing is to get it right. I hope that the noble Lord, Lord Sassoon, will consider having a discussion with the authorities, or with the Leader of the House or whoever, about whether, if we do not get sight of the amendments as soon as possible, we should delay Third Reading until we are sure that we have got it right. That is crucial. I hope that the noble Lord, Lord Sassoon, can inform us that he will do that.

Lord Mitchell: My Lords, I thank all noble Lords who took part in this discussion, particularly those who are co-signees of the amendment. It has been a powerful and focused debate and I hope that the payday lending companies are listening. My guess is that they are glued to their screens.

The Minister has made a welcome statement of intent and to be honest that is as much as we could have hoped for. With the Government’s cast-iron acceptance of the principle of my amendments, as well as the effective force of veto that the three other signatories to the amendment will have over the revised amendment at Third Reading, this issue is now where it should be: beyond party politics. The winners are those who have tirelessly campaigned for this change in the law. I must mention my honourable friend Stella Creasy MP, who has been relentless in her pursuit of justice.

The other most welcome winners are those who live in the hellhole of grinding debt. Their lives will become a little easier. The losers are clearly the loan sharks and the payday lending companies. They have tried every trick in the book to keep this legislation from being approved and they have failed. Their failure is our victory. On the basis of the Government’s assurances, I beg leave to withdraw the amendment.

Amendment 114D withdrawn.

Amendments 115 and 116

Moved by Lord Sassoon

115: After Clause 99, insert the following new Clause—

“Payment to Treasury of penalties received by Financial Services Authority

(1) The Financial Services Authority (“the FSA”) must in respect of its financial year beginning with 1 April 2012 and each subsequent financial year pay to the Treasury its penalty receipts after deducting its enforcement costs.

(2) The FSA’s “penalty receipts” in respect of a financial year are any amounts received by it during the year by way of penalties imposed under FSMA 2000.

(3) The FSA’s “enforcement costs” in respect of a financial year are the expenses incurred by it during the year in connection with—

(a) the exercise, or consideration of the possible exercise, of any of its enforcement powers in particular cases, or

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(b) the recovery of penalties imposed under FSMA 2000.

(4) For this purpose the FSA’s enforcement powers are—

(a) its powers under any of the provisions mentioned in subsection (5),

(b) its powers under any other enactment specified by the Treasury by order,

(c) its powers in relation to the investigation of relevant offences, and

(d) its powers in England and Wales or Northern Ireland in relation to the prosecution of relevant offences.

(5) The provisions referred to in subsection (4)(a) are the following provisions of FSMA 2000—

(a) section 56 (prohibition orders),

(b) section 63A (penalties relating to performance of controlled functions without approval),

(c) section 66 (disciplinary powers in relation to approved persons),

(d) section 87M (public censure of issuer),

(e) section 89 (public censure of sponsor),

(f) section 89K (public censure of issuer),

(g) section 91 (penalties for breach of Part 6 rules),

(h) section 123 (penalties in case of market abuse),

(i) section 131G (short selling etc: power to impose penalty or issue censure),

(j) sections 205, 206 and 206A (disciplinary measures),

(k) section 249 (disqualification of auditor for breach of trust scheme rules),

(l) section 345 (disqualification of auditor or actuary), and

(m) Part 25 (injunctions and restitution).

(6) “Relevant offences” are—

(a) offences under FSMA 2000,

(b) offences under subordinate legislation made under that Act,

(c) offences falling within section 402(1) of that Act, and

(d) any other offences specified by the Treasury by order.

(7) The Treasury may give directions to the FSA as to how the FSA is to comply with its duty under subsection (1).

(8) The directions may in particular—

(a) specify descriptions of expenditure that are, or are not, to be regarded as incurred in connection with either of the matters mentioned in subsection (3),

(b) relate to the calculation and timing of the deduction in respect of the FSA’s enforcement costs, and

(c) specify the time when any payment is required to be made to the Treasury.

(9) The directions may also require the FSA to provide the Treasury at specified times with information relating to—

(a) penalties that the FSA has imposed under FSMA 2000, or

(b) the FSA’s enforcement costs.

(10) The Treasury must pay into the Consolidated Fund any sums received by them under this section.

(11) The scheme operated by the FSA under paragraph 16 of Schedule 1 to FSMA 2000 is, in the case of penalties received by the FSA on or after 1 April 2012, to apply only in relation to sums retained by the FSA as a result of the deduction for which subsection (1) provides.

(12) When section 6(2) is fully in force, the Treasury may by order repeal this section.”

116: After Clause 99, insert the following new Clause—

“Payment to Treasury of penalties received by Bank of England

(1) The Bank of England (“the Bank”) must in respect of each of its financial years pay to the Treasury its penalty receipts after deducting its enforcement costs.

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(2) The Bank’s “penalty receipts” in respect of a financial year are any amounts received by the Bank during the year by way of penalties imposed under any of the following provisions—

(a) sections 192K and 312F of FSMA 2000, and

(b) section 198 of the Banking Act 2009.

(3) The Bank’s “enforcement costs” in respect of a financial year are the expenses incurred by it during the year in connection with—

(a) the exercise, or consideration of the possible exercise, of any of its enforcement powers in particular cases, or

(b) the recovery of penalties imposed under any of the provisions mentioned in subsection (2).

(4) For this purpose the Bank’s enforcement powers are—

(a) its powers under any of the provisions mentioned in subsection (5),

(b) its powers under any other enactment specified by the Treasury by order,

(c) its powers in relation to the investigation of offences under FSMA 2000 or of any other offences specified by the Treasury by order, and

(d) its powers in England and Wales or Northern Ireland in relation to the prosecution of offences under FSMA 2000 or of any other offences specified by the Treasury by order.

(5) The provisions referred to in subsection (4)(a) are as follows—

(a) sections 192K to 192N of FSMA 2000 (parent undertakings), as applied to the Bank by Schedule 17A to that Act,

(b) sections 312E and 312F of that Act (disciplinary measures in relation to clearing houses),

(c) sections 380, 382 and 384 of that Act (injunctions and restitution), as applied to the Bank by Schedule 17A to that Act, and

(d) sections 197 to 200 and 202A of the Banking Act 2009 (inter-bank payment systems).

(6) The Treasury may give directions to the Bank as to how the Bank is to comply with its duty under subsection (1).

(7) The directions may in particular—

(a) specify descriptions of expenditure that are, or are not, to be regarded as incurred in connection with either of the matters mentioned in subsection (3),

(b) relate to the calculation and timing of the deduction in respect of the Bank’s enforcement costs, and

(c) specify the time when any payment is required to be made to the Treasury.

(8) The directions may also require the Bank to provide the Treasury at specified times with specified information relating to—

(a) penalties that the Bank has imposed under the provisions mentioned in subsection (2), or

(b) the Bank’s enforcement costs.

(9) The Treasury must pay into the Consolidated Fund any sums received by them under this section.”

Amendments 115 and 116 agreed.

Amendment 116ZA

Moved by Lord Tunnicliffe

116ZA: After Clause 99, insert the following new Clause—

“Power of the FCA to make provision about regulation of commercial debt management

The FCA may make rules or apply a sanction to authorised persons who offer debt management services on commercial terms, or on terms that the FCA judge to cause consumer detriment.”

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Lord Tunnicliffe: My Lords, I rise to move Amendment 116ZA on behalf of my noble friend Lord Stevenson, and I hope for a response from the government Benches which produces as much happiness as we have just enjoyed.

We considered the question of regulating debt management companies in Committee, but I make no apology for returning to this issue. We estimate that there are some 6.2 million families in this country in financial jeopardy and all the signs are that increasing numbers will need help, advice and solutions to their unmanageable debts over the next period.

At present there are a variety of providers. A number of companies operating on a strictly commercial basis compete for business with the free services provided by the charitable sector. While it is right that consumers have choice, it is important that those who need independent debt advice get it in a timely way; that it is transparent, with no hidden fees or payments; and all within a regulatory environment that ensures that all providers are working to the same high standards. The Money Advice Service has a great deal to do in this area, working with the existing major players.

This amendment calls on the FCA to ensure that our regulatory structures in this area are ready as soon as responsibility for this area transfers from the OFT; that they look forward as well as back; and that we do not miss the opportunity to protect consumers from the new problems as well as learning lessons from the past.

The Bill now contains good provisions for the transfer of consumer credit regulation from the OFT to the FCA. Despite the excellent work done to date by the OFT, the current licensing regime has arguably not provided consumers with enough protection, not least because the OFT has not been given the resources properly to police the industry. It has been argued that powers already exist in primary legislation, but that does not mean that the FCA will be ready and willing to move into these areas with the speed that may be required.

We are looking for a firm commitment in the Bill that the FCA will regulate commercial debt management companies along the following lines. The Money Advice Service needs to co-operate with stakeholders, where they share joint aims, forming partnerships to improve the long-term availability, quality, consistency, efficiency and effectiveness of the advice available. The FCA must ensure that the MAS is providing clear and directly enforceable standards for business conduct and the design of products. The FCA needs to set threshold conditions that will keep rogue firms and harmful business models out of the market. There need to be tougher sanctions, including unlimited financial penalties, enabling the FCA to build a credible deterrence strategy against bad practice. There needs to be more effective supervision and enforcement. The FCA needs the power to order firms directly to compensate their customers for losses arising from business conduct that falls below required standards and to ban misleading advertising, which the OFT has found is one of the main areas of concern in this

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market. We think that good commercial debt management firms would welcome such an approach. I beg to move.

Lord Borrie: My Lords, I congratulate my noble friend Lord Stevenson on putting forward this amendment —and, indeed, my noble friend Lord Tunnicliffe, who has taken his place today. As we discussed at some length on the previous amendment, self-regulation has been attempted in the field of debt management, but with only questionable effect. Multiple debtors can, of course, be tremendously assisted by debt management companies arranging how the debts can be paid off over a period in amounts that the debtor can afford. The debtor often cannot manage their cycle of debt sufficiently, so needs assistance. Some commercial operators have sought as best they can to raise their game, but only last week, the Office of Fair Trading decided to revoke the licence of First Step Finance, a member of the Debt Resolution Forum, which runs one of these debt management self-regulation schemes. I expect that responsible operators—they do exist—and consumers would benefit a great deal from a regulatory structure under the aegis of the Financial Conduct Authority in the new legislation.

In Committee, I made an intervention about debt management that I followed up with a letter to the Minister setting out my concerns. I had an extremely helpful response from him. He pointed to the powers that the FCA will have in 2014 to make rules of conduct on matters falling under its remit. In his letter, the Minister said:

“The FCA could, for example, impose restrictions or requirements on debt management plans where it considers that such rules are necessary or expedient to advance the consumer protection or competition objectives … Under the new regulatory regime, the Government will look in the first instance to the FCA as an independent and expert regulator able to put in place the right framework for debt management plans”.

5.30 pm

As I understand it, the Minister would like us to leave it at that at this point. I can understand, but not necessarily agree with, the Government’s reluctance to put anything in this area in the Bill. However, the Minister could take advantage of this debate to put on the parliamentary record a useful clarification that FCA rules should require, for example, that fees charged by debt management companies must be reasonable and not excessive, as currently is seen in the marketplace, and that they should not be front-loaded. I would also argue that FCA rules in this area should specify that any advice given by debt management companies to vulnerable consumers should be subject to rigorous, independent and regular audit.