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House of Lords

Monday, 24 March 2014.

2.30 pm

Prayers—read by the Lord Bishop of Chester.

Flooding: Military Deployment


2.36 pm

Asked by Lord Holmes of Richmond

To ask Her Majesty’s Government what assessment they have made of the military deployment during the recent floods.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever) (Con): My Lords, our people lent invaluable support to the relief efforts, with a peak of 5,000 personnel from all three services and the reserves. They were available to provide everything from sandbagging to aerial reconnaissance, as well as highly visible reassurance to the public. Now, in the recovery phase, we still have 223 people in the field. Once the operation is complete, we will make a detailed assessment of our contribution to civil resilience within the overall national response.

Lord Holmes of Richmond (Con): I thank my noble friend for his response. As we saw with the recent flooding and with the Olympic and Paralympic Games, when we deploy our military in the appropriate civil circumstances the results are always excellent. What further plans do the Government have to review the use of our military in other potential appropriate civil circumstances?

Lord Astor of Hever: My Lords, I agree with my noble friend—the work of the Armed Forces is always excellent. The lessons learnt will provide a valuable opportunity to look at how the contribution of our Armed Forces to civil resilience can be enhanced and accelerated in future emergencies. We are working with the Treasury to consider whether there is potential for improvement to the funding processes. We routinely support civil authorities on a wide range of resilience activities, such as support in the event of industrial action by fuel tanker drivers and firefighters.

Lord Rosser (Lab): My Lords, on 12 February the Prime Minister told Parliament that money would be no object in the response to the floods and that local authorities had only to request military assistance, yet the flooding started in late December in the West Country. Why did it take not far short of two months to make that statement on money being no object, and why was it so long before the military was called in? Why was no action taken by the Government in the first week of flooding to consider and determine the potential role that the military could play? Was it because the Government were not prepared to find the

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funding to enable cash-strapped local authorities to call in the military until weeks later, or was it because the Government just did not get round to doing it?

Lord Astor of Hever: My Lords, the department received its first request for assistance on 29 January and had deployed the requested support by the following morning. As the weather continued to deteriorate, defence became increasingly involved in providing support to local authorities.

Lord Selkirk of Douglas (Con): Can the Minister confirm that the contribution made by reservists to flood relief was in this case substantial?

Lord Astor of Hever: Yes, I can assure my noble friend that that is the case. The average number of reservists employed in mid-February, at the peak of the crisis, was around 80 per day. In most cases reservists were employed on man training days—the payment method used for routine reservist activity—although there were a small number of formal mobilisations, namely of signallers and engineers. I managed to visit some of the reservists who helped with the flood work, both infantry and engineers, who told me that they were very well received by the public for the work that they did.

Lord Dannatt (CB): My Lords, would the Minister like to say a little more about the issue of funding? We are aware that when the military is called out in support of the civil power, if it is to reduce the threat to life there is no charge, but very quickly the charging becomes extremely high. That could well have been the reason why local authorities were concerned about calling the military out. That would seem to be counterproductive when trained bodies of people are available to help in civil situations. Can the Minister say what the Government are thinking of doing about that?

Lord Astor of Hever: My Lords, the noble Lord asks a good question. Certainly the perceived risk of a substantial full-costs bill at the end of an operation can be a concern to local authorities. We would like to do more to support the civil authorities, but we must ensure that the defence budget is not disadvantaged, nor indeed gains any inappropriate benefit, from so doing. The Secretary of State is currently in discussions with the Treasury, exploring the possibility of a full marginal costing recovery scheme, which would make the costing situation much clearer to all parties in advance.

Lord West of Spithead (Lab): My Lords, does the Minister agree that numbers themselves have a real strength? In our push to try to reduce the number of people in the military to get maximum efficiency, we are losing that. France in its White Paper, for example, saw the use of the military in various départements as a very important part of the whole structure. Have we really looked at this in detail? I believe that we have reduced numbers to a level at which they cannot assist the civil power where they should be able to do so, because they are formed bodies which are very often self-supporting.

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Lord Astor of Hever: My Lords, as I said in my initial Answer, we are looking at this whole process to see how to improve it in future. This is one area that we will certainly look at closely.

Lord Trefgarne (Con): Can my noble friend confirm that the deployment to which the Question and his Answer relate had no effect on routine operations?

Lord Astor of Hever: My Lords, the personnel allocated to assist with flooding were selected in such a way that their participation would have no impact on military units’ preparedness for future operations. That includes contingency operations should assistance be requested in the event of future flooding or other severe weather.

Baroness Bakewell of Hardington Mandeville (LD): My Lords, as the flood water recedes and people begin to reoccupy their homes, can the Minister say whether he anticipates that the armed services will be needed for a similar role next winter?

Lord Astor of Hever: My Lords, I cannot say that I am very good at forecasting the weather, but if the Armed Forces are called on I am sure that they will do as good a job as they did this year.

Lord Whitty (Lab): My Lords, military assistance to the emergency services in the Environment Agency was very welcome. I well recall an even more acute situation in the foot and mouth disease outbreak. However, had that outbreak occurred a few months later, the military would all have been in Iraq. It is, therefore, important to recognise that military priorities change and we need to invest in the emergency services. I have just been given information that there is to be a huge cut in West Sussex Fire and Rescue Service of about £2.5 million this year and another £1.5 million next year. We depend utterly on those emergency services; help from the Army is good, but we need to continue to fund them.

Lord Astor of Hever: My Lords, the noble Lord makes a very good point, but the Armed Forces are always ready to do what they can to help the civil authorities.



2.44 pm

Asked by Baroness Cox

To ask Her Majesty’s Government what is their assessment of the current situation in Burma with particular reference to the Rohingya, Shan and Kachin peoples.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, we welcome that the Burmese Government and ethnic armed conflict groups will establish a joint committee to draft a nationwide ceasefire text, but remain concerned by low-level fighting in Kachin state and Shan state. We

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are troubled by UN reports that at least 40 Rohingya people were killed in Rakhine state in January and by constraints imposed on Médecins sans Frontières. We have pressed for improved security and accountability, co-ordination of humanitarian assistance and a solution on Rohingya citizenship.

Baroness Cox (CB): My Lords, I thank the noble Baroness for her Answer, including her expression of concern for the suffering of the Rohingya people. Is she aware that I visited Shan state recently and Kachin state last year, and that in both states, despite ceasefires, the Burmese army continues to carry out military offensives and atrocities, including the killing, rape and torture of civilians, while the Burmese Government continue their expropriation of land, theft of natural resources and displacement of hundreds of thousands of civilians? Will Her Majesty’s Government not consider more robust responses? Many Burmese people and advocacy organisations such as Burma Campaign UK, in its recent report, Downplaying Human Rights Abuses in Burma, are concerned that the British Government are making trade and investment such a priority that the Burmese Government can continue to kill and exploit their own people with impunity.

Baroness Warsi: My Lords, as ever, the noble Baroness comes to these questions with probably the most up-to-date information available. She is absolutely right that, despite ceasefires having been signed, there is still concern about real human rights abuses happening in Shan, about fighting in Kachin and, of course, about the appalling situation in Rakhine. We take these matters very seriously. They have been raised in the most robust way at the highest level, by the Prime Minister, when President Thein Sein visited the United Kingdom, and most recently by me about a week ago, when Ministers from the national planning committee were here, as well as representatives of the chamber of commerce and the director-general responsible for all investment coming into Burma. I did not hold back in any way in making very clear to them our view that responsible business can happen in Burma only against a backdrop of human rights being observed.

Lord Avebury (LD): My Lords, have we asked the Burmese Government directly why they are not providing adequate protection and relief for the 140,000 Rohingya displaced victims of ethnic cleansing in Rakhine state but are instead expelling humanitarian organisations such as MSF, which provided health services to these victims of the Government’s failure to protect them? Secondly, why does the FCO’s quarterly report on Burma as a country of concern play down or omit these and other human rights violations, such as the tolerance of hate speech?

Baroness Warsi: I assure my noble friend that the discussions in relation to Médecins sans Frontières are ongoing. We have huge concerns about it being probably one of a handful of NGOs that are providing health support in Rakhine. Those discussions are ongoing and I will certainly report to the House once we have made some progress. The quarterly report stated:

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“More needs to be done to tackle hate speech, which continues to inspire violence and intolerance across Burma; we continue to lobby the Burmese government to tackle these underlying issues”.

We continue to raise these matters. As to humanitarian access, my noble friend will be aware that there are certain parts of the country which, unfortunately, due to fighting, we cannot access, but we continue to press the Burmese Government to allow us access in those areas where there is no fighting.

Baroness Kinnock of Holyhead (Lab): My Lords, how does the Minister respond to the report of the outgoing UN special rapporteur for human rights in Burma last week, in which he concluded that human rights violations against the Rohingya people could amount to crimes against humanity that should be the subject of an independent international inquiry? Will Her Majesty’s Government support these well founded recommendations?

Baroness Warsi: We support a lot of the work that is being done by the special rapporteur. In that report, which he presented to the Human Rights Council, he felt that technical assistance was required from the international community for any investigation to be transparent, credible and acceptable. I know that the noble Baroness does a large amount of work in this area and continues to campaign. Of course, we will continue to press the Human Rights Council for a strong resolution on human rights against Burma.

Lord Alton of Liverpool (CB): My Lords, the noble Baroness will be aware that the forthcoming census in Burma is largely funded by the United Kingdom. Has she seen the calls by a number of non-governmental organisations that it should be postponed, not least because in Rakhine state, and other states where there are large ethnic minorities, it could certainly be a flashpoint for further confrontation. Will she at the very least ensure that, should the census be conducted, it will not be used to further distort the ethnic tensions in Myanmar?

Baroness Warsi: The noble Lord is right. We have provided about £10 million to ensure that the census is conducted in a technically sound way. We have also helped with the mapping exercise. We have concerns about the census, which is due on 28 March. This Friday will be census night and there will then be a period of 10 days when enumeration will take place. We have concerns because of the 135 officially recognised ethnicities—Rohingya, for example is not included—but we take some comfort from the fact that we have gained agreement from the Burmese Government for independent observers to be mobilised during this process. We hope that the option to self-identify will be used by the Rohingya community to be properly enumerated.

Lord Triesman (Lab): My Lords, the noble Baroness has said that these issues are raised with the Burmese authorities vigorously and frequently and I know that to be the case. I am sure that these efforts are appreciated. To ensure that these issues do not drop between any cracks or rely on a single sentence to capture them, should we not adopt in the quarterly report a traffic

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light system under which countries that persistently abuse human rights are shown to all of those who read our reports around the world as red, those which are making progress as amber and others as green? As we take comfort in some progress, I sometimes feel that we have lost them on our radar.

Baroness Warsi: As the Minister with responsibility for human rights, Iconstantly keep under review how the quarterly and annual reports on human rights are presented, how we can present them better and how we can better judge countries that are making progress. I am starting to see the first drafts of the human rights reports which will be published later this year. They will include a great deal of detail on Burma, both as a country of concern and in relation to specific human rights abuses.

Israel and Palestine


2.52 pm

Asked by Baroness Tonge

To ask Her Majesty’s Government what representations they have made to the government of Israel about the actions of the Israeli Defence Force towards civilians in the Occupied Territories.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, we have serious concerns in regard to IDF actions in the Occupied Palestinian Territories, including the killing and injuring of civilians, policing of non-violent demonstrations and treatment of child detainees. We have repeatedly raised cases with the Israeli authorities, including the Ministry of Strategic Affairs, COGAT, and the National Security Council.

Baroness Tonge (Ind LD): I thank the Minister for that reply. Is she aware that since last July, 44 civilian Palestinians have been killed and many hundreds have been seriously injured? Among them, for example, 12 year-old Attah al Sabbah, now a paraplegic, was shot while collecting his school satchel; and two young footballers, Adam and Johar Halabiyeh, from Abu Dis near Jerusalem, were shot in the legs before being beaten up, one having his knee joint shattered. They were returning from football training. Will the Minister ensure that, as well as the usual ineffectual representations that our Government make to the Israeli Government, they will also ask FIFA to impose penalties on countries which allow young footballers to be treated in this way? Will she also say why it is that we are prepared to impose sanctions on Russia for breaking international law but not upon Israel, which has been breaking international law for decades?

Baroness Warsi: I thank my noble friend for that question. She comes to these matters with great expertise. She has asked a number of questions—not only Oral Questions but Written Questions—on a regular basis. I can assure her that we take these matters incredibly seriously. There has been a worrying increase in violence in the West Bank. In 2012, nine civilians were killed; in 2013, 27 civilians were killed; and the number of

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civilians who have been injured is also on the increase. Last week I raised these matters with our officials and only yesterday—Sunday— our ambassador spoke with the national security adviser and again put our concerns before him.

Lord Grocott (Lab): My Lords, it is true, is it not, that in recent weeks the international community has taken a dim view of the occupation of one country by a neighbouring country and that this has led, quite properly, to a flurry of international activity, reference and the activation of sanctions? Yet, given that this question quite rightly refers to occupied territories which have been occupied now for more than 40 years, am I right in thinking that that there is no sense whatever of the same level of urgency and commitment being given to liberating these occupied territories as there is when similar events occur in other parts of the world?

Baroness Warsi: It is important that I try to focus on this Question. I understand why people try to read across to other matters, but successive government policies on the Occupied Palestinian Territories have been clear. Successive government policies about the two-state solution based on the 1967 borders, with agreed land swaps and a settlement for refugees in Jerusalem as a shared capital, have been the same. There is a Kerry framework agreement on which we hope progress will be made and we hope that that will be done by around the end of April. We are supporting and continue to support that, and we hope that it will yield some positive results.

Lord Hylton (CB): My Lords, will the Government continue to raise the use of excessive force, the lack of proportionality and the almost complete impunity of the IDF when operating in occupied zones rather more strongly and effectively than has been the case in the past? There is the particular case of Raed Zeiter, a Palestinian civilian and a Jordanian magistrate, who was killed by the Allenby Bridge. Will the Government insist on a full and independent inquiry into his death?

Baroness Warsi: The views of this House are very clear, and I will certainly make sure that the strength of feeling on this matter is fed back. Officials from our embassy in Tel Aviv have raised with the IDF the issues of the Palestinian-Jordanian judge Raed Zeiter, who was tragically shot. I understand that there has been some progress, and that Prime Minister Netanyahu has issued a public apology and announced a joint Israeli-Jordanian investigation into the incident. Anger about it has been widespread and that has been communicated to the Israeli authorities.

Lord Palmer of Childs Hill (LD): My Lords, bearing in mind the incidents that have been referred to, does my noble friend the Minister agree that the particular importance of the two-state solution should be stressed and that the consequences of not achieving an agreement should be warned against? Whatever the incidents, the only way forward is an agreement on peace and I hope that the Government will support that.

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Baroness Warsi: We are supporting the Kerry framework agreement.

Baroness Scotland of Asthal (Lab): My Lords—

Lord Turnberg (Lab): My Lords, the bad behaviour of soldiers from any country is inexcusable, but is the noble Baroness aware of the many efforts made by Israel to support the Palestinians on the other side? These efforts relate to the economy, where the GDP in the West Bank is rising by about 7% a year, to the number of Arabs in East Jerusalem and Jerusalem, which is increasing at a greater rate than that of the Jewish population, and to the large numbers of Palestinians who are being treated in Israeli hospitals across the country, as well, incidentally, as those wounded from Syria. Should the UK not be concentrating on pressure on Mr Abbas to continue negotiations so that we can get to a two-state solution that the vast majority of the population in Israel supports?

Baroness Warsi: The Government have always been quick to recognise the progress that has been made on positive action by the Israeli Government. However, that does not take away from the real and serious concerns that we have in relation to child detainees, for example, that I know the noble and learned Baroness, Lady Scotland, was trying to get in on. We have concerns about IDF actions and continue to raise them at the highest level.

Lord Dykes (LD): Does my noble friend agree that Israel is a great country with a great people, but unfortunately with a very narrow-minded and reactionary Government? Will our Government specifically seek out meetings with the Israeli human rights group B’Tselem, which has recently made strong representations to the Israeli Government about these unacceptable Palestinian casualties?

Baroness Warsi: I am not familiar with that particular human rights group but I will certainly ensure that officials are aware of the work that it is doing.

Alexander Litvinenko


2.59 pm

Asked by Lord Clinton-Davis

To ask Her Majesty’s Government whether they intend to reconsider their decision not to hold a public inquiry into the murder of Alexander Litvinenko, following the judgment by the Court of Appeal on 11 February.

The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach) (Con): My Lords, the Home Secretary has decided not to seek permission to appeal the judgment and will give fresh consideration to the exercise of her discretion to establish an inquiry. The Government continue to co-operate fully with the inquest into Mr Litvinenko’s death.

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Lord Clinton-Davis (Lab): I thank the noble Lord for his somewhat implausible Answer. The fact is that three eminent judges have concluded that the coroner was absolutely right, that the Government’s case was unconvincing and that a special inquiry was needed. As we have heard, the Government have not appealed against that. Why do the Government concede that a special inquiry might be adopted, not now but in the distant future? Is that sensible?

Lord Taylor of Holbeach: My Lords, the noble Lord is being rather uncharacteristically churlish about the Answer I gave. These are complex and sensitive issues, as I hope noble Lords will appreciate, and it is right that the Home Secretary gives proper consideration to whether or not to hold an inquiry. That is her right and we should support her in that.

Lord Elystan-Morgan (CB): My Lords, does the Minister recollect that on 11 February this year Lord Justice Richards, in giving the judgment of a unanimous and strong Court of Appeal, examined in detail each and every one of the six reasons given in the decision letter by the Home Secretary and rejected each and every one of them absolutely? He crystallised the situation with this sentence:

“If she is to maintain her refusal she will need better reasons than those given in the decision letter, so as to provide a rational basis for her decision”.

Does the Minister accept that failure to allow this matter to be properly examined under the Inquiries Act 2005 would not only be a denial of the justice that the assassinated Litvinenko deserves but a breach of the commitment that the United Kingdom has shown so honourably over the years to the rule of law?

Lord Taylor of Holbeach: My Lords, the Government have sought justice in this case ever since Mr Litvinenko died in 2006. That remains the position. This crime took place in this country and involved a British citizen. We want to see those whose arrests were sought by the Crown Prosecution Service—Andrey Lugovoy and Dmitry Kovtun—brought to and put on trial in the UK. Meanwhile, the noble Lord has emphasised why it is important that the Home Secretary gives proper consideration to the need for an inquiry.

Lord Lester of Herne Hill (LD): My Lords, the judgment of this very powerful three-judge court emphasised that the case for setting up an immediate statutory inquiry, as requested by the coroner, Sir Robert Owen, is plainly a strong one. As has just been said, the judges rejected all the reasons given by the Home Secretary for not doing so, and then said that there needed to be,

“fresh consideration to the exercise of her discretion”.

That was said in a judgment on 11 February. In the intervening weeks, has the Home Secretary given fresh consideration and can the Minister now tell the House what her reasons are for accepting or rejecting the idea of an inquiry?

Lord Taylor of Holbeach: The noble Lord is quite right. The judgment was a firm one. None the less, the decision to order an inquiry requires proper consideration. There is no deadline for this consideration but, clearly,

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the Home Secretary will seek to come to a conclusion as soon as possible. Meanwhile, the arrest of those whom we wish to see tried for this offence remains our priority.

Lord Anderson of Swansea (Lab): My Lords, does the Minister agree that there was in the past at least a scintilla of plausibility in the argument that, on prudential grounds, it was not worth provoking the Russian Federation because we needed to work with it in other areas, such as Syria and Iran, but that after Russia’s blatant invasion of Crimea, all that has gone and justice should now be done?

Lord Taylor of Holbeach: Yes, but, as I have pointed out, justice requires that those whom we wish to see put on trial in this country for this crime are brought to justice, and that requires the Russians to honour their agreement to extradite according to our request. I could not agree more with the noble Lord that our relationship with Russia has deteriorated as a result of the recent attempted annexation of Crimea. We are clearly not happy with that situation either, so it is yet another breakdown in our relationship with Russia.

Lord Pearson of Rannoch (UKIP): My Lords, instead of passing sanctions of doubtful usefulness on various Russian citizens, would it now not be better to honour the promise given personally by the Foreign Secretary to Mrs Litvinenko, and to honour the Written Answer to me of 8 July last from the Minister, and respect the basic principles of British justice with a fully open inquest or inquiry? I have not understood whether the Government are committed to that or not.

Lord Taylor of Holbeach: My Lords, I think that I have made the position quite clear. The Home Secretary is considering, in the light of circumstances, whether an inquiry is the proper course of action. Meanwhile, as noble Lords will know, the G7—not the G8—is meeting in The Hague today to consider developments as a result of Russian aggression in the Black Sea area.

Defence Reform Bill

Defence Reform

Report (First Day)

3.07 pm

Amendment 1

Moved by Baroness Miller of Chilthorne Domer

1: After Clause 8, insert the following new Clause—

“Procurement of communications systems or services

Additional arrangements relating to procurement of communications systems or services

(1) To the extent that communications systems or services are procured for defence or related purposes under this Part (whether by the Secretary of State, Scottish Ministers or officers of other states resident in the United Kingdom) and those systems or services are used or proposed to be used for the purpose of interception of communications or processing of intercepted communications, it shall be the duty of the Interception Commissioner to report on the use or proposed use of those services or systems for any activity which may be subject to the provisions of the Regulation of Investigatory Powers Act 2000.

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(2) In section 57 of the Regulation of Investigatory Powers Act 2000 (interception of communications commissioner), at the end of subsection (2) insert “; and

(e) the transmission of data through the jurisdiction and processing of data by means of any communication systems or services procured under Part 1 of the Defence Reform Act 2014 in the United Kingdom for defence (whether or not of the United Kingdom) or related purposes which has been obtained by interception, whether by—

(i) the Secretary of State or Scottish Ministers; or

(ii) officers of other states acting within the jurisdiction.””

Baroness Miller of Chilthorne Domer (LD): My Lords, I will take just a moment to remind Members of the problem that I am trying to address with this amendment—that is, that the ability to intercept communications has leapt ahead of the regulations governing them. However, that is a very broad area and I think it is generally accepted that the Regulation of Investigatory Powers Act needs a thorough overhaul. This amendment addresses just the update to governance that is needed in the area of defence procurement—the subject of this part of the Bill.

The capacity and scale of interceptions from the RAF bases used by our allies, the Americans, under the Visiting Forces Act means that Parliament must put something in place to be confident of a statutory basis for these interceptions. However, I emphasise that in no way should the amendment be seen as undermining of our relationship with our NATO allies or of the intelligence agencies—quite the reverse. It seeks to increase confidence among UK citizens that we are in compliance with international law and have a national legislative framework that respects citizens’ right to privacy while keeping abreast of threats and technological developments.

I raised this issue in Committee and, in tabling this more focused amendment, I have taken account of the Minister’s comments at that stage. Since Committee, both the Deputy Prime Minister and the shadow Home Secretary have made speeches highlighting the need to act quickly and decisively with regard to governance of the intelligence agencies and interception.

I welcome particularly my right honourable friend Nick Clegg’s announcement that the Royal United Services Institute—RUSI—has agreed to establish an expert panel to review the use of internet data for surveillance purposes. That panel will consist of a group of experts drawn from the worlds of intelligence, technology, civil liberties and the law, and it will be chaired by Professor Michael Clarke, the director-general of RUSI. The panel will look at the principles that ought to govern our use of surveillance, examine current practice and make recommendations for reform and, where necessary, new legislation. I am sure that the review will spend some time looking at the whole legislative framework.

This amendment does no more than try to plug a gap in the mean time in respect of how data are obtained from UK citizens and how they may be shared, stored and used. The DPM went to the heart of the matter in his speech to RUSI when he said:

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“it is in all our interests to ensure that we can enforce the law in the online world in the same way we enforce the law in the offline world, targeting terrorist and criminal networks and preventing attacks from taking place, precisely to safeguard the free and open society that we want”.

Yet would our laws even apply as things stand? The facts about what is intercepted and stored by, for example, the NSA as opposed to GCHQ, are a matter of conjecture to most of us, certainly to me. No doubt many interceptions are joint operations, but just how do Ministers know which are which and what is going on? It is so that Ministers are precisely aware of what is being planned that I propose in this amendment a reporting obligation relating to the procurement of communications systems or services in the area of defence.

The amendment seeks to extend the existing reporting obligations of the Interception of Communications Commissioner to report on the use of all communications systems and services procured for defence purposes. This expressly includes systems used on US bases by officers of states who are in the United Kingdom. The proposal involves extending the remit of the ICC, as I have suggested in subsection (2) in the amendment. In doing this, I sought to take into account the Minister’s careful response to the more extensive series of amendments tabled by the noble Lords, Lord Hodgson and Lord Dubs, the noble Baroness, Lady Stern, and me in Committee. In particular, I accept the argument of my noble friend Lord Astor that an entirely new scrutiny group might not be necessary, with the caveat that we must therefore build on existing mechanisms to fill the gaps in regulation and monitoring of all communications systems in the UK. This modest amendment seeks to address those different points on which my noble friend Lord Astor, through absolutely no fault of his own, given existing regulation and the remit of the Bill, was unable to reassure us.

We were informed by the Minister when this issue was last debated in Committee that,

“under the Visiting Forces Act visiting forces are subject to UK law”.

In response to an earlier version of this amendment, which also sought to provide oversight by the Interception of Communications Commissioner of the activities undertaken at US bases on UK soil, my noble friend Lord Astor added that, if the visiting forces,

“ever wanted to undertake interception activities that engage the Regulation of Investigatory Powers Act—RIPA—a proper authorisation must be obtained. All such authorisations are already overseen by the Interception of Communications Commissioner, and he reports annually to Parliament and the Prime Minister on the exercise of those powers”.—[

Official Report

, 5/2/14; col. GC 118.]

This reply puzzled me somewhat; perhaps I misunderstood it. I thought that US bodies or officers were not actually listed as those authorised under RIPA to apply for interception activity. With this in mind, I would be very grateful if my noble friend Lord Astor could explain whether and how such authorisations have been made. In addition, the reported scale of the interceptions would make the granting of such a volume of authorisations almost impossible.

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3.15 pm

The amendment would plug a gap in the oversight of these activities at such bases by providing an active duty of review to be undertaken by the ICC and his five trained specialist inspectors, who assist him in carrying out his duties. The amendment would therefore broaden the ICC’s remit, because currently, as I read it, the ICC does not have in his remit oversight of activity at US bases and looks only at,

“designated public authorities based in the UK”,

and specifically does,

“not oversee the intelligence or security services”.

By giving the ICC, who is a highly trusted commissioner who already oversees very sensitive material, responsibility for reviewing intercept data transmitted through or processed in the UK, the amendment would help us to scratch the surface of the activities being undertaken at US bases in the UK.

Whether or not the Government feel that this is the right amendment for the regulation of the interception activity, the need for action in this area is now urgent. I am sure my noble friend the Minister is aware of answers in the other place to questions asked about RAF Croughton, which the US military describes as the headquarters for the provision of,

“world-class … communications and global strike operations”.

RAF Croughton has been reported as being linked to both covert drone strikes in Yemen and the widespread programme of NSA/GCHQ surveillance that is the subject of so much controversy in the United States and which President Obama has undertaken to take action on and, as he says, to rein in. I am not sure that the Government’s position in maintaining in their Answer that,

“There is no requirement for an additional agreement regarding the use of RAF Croughton by the United States Visiting Forces”,—[Official Report, Commons, 10/12/13; col. 196W.]

stands up. The Government have also said:

“The Ministry of Defence remains satisfied with the arrangement that is currently in place regarding the use of RAF Croughton by the US”—

I might mention also Menwith Hill—and that,

“The Department has no plans to review this arrangement nor review the activities undertaken by the US at the base”.—[Official Report, Commons, 26/11/13; col. 213W.]

In reply to my Written Question of 3 December 2013, my noble friend the Minister said:

“The requirement to monitor the compliance of US personnel at RAF Menwith Hill with the Regulation of Investigatory Powers Act 2000 is not contained within the terms of the NATO Status of Forces Agreement of 1951”.—[Official Report, 3/12/13; col. WA 41.]

Therefore, I submit that interception activity is not covered by SOFA, nor does the MoD have plans for a memorandum of understanding, which might go some way towards filling that gap.

Some of you will have read the advice of Jemima Stratford QC, which was written for members of the APPG on Drones. The advice, which I am happy to provide to any noble Lords who would like a hard copy, supports my amendment. It concludes, as do I, that,

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“pending review of the existing legislative framework, such amendments might go some way to ensuring that Ministers are informed about data passing through the UK. This, in turn, would help the government monitor compliance with UK law and make informed decisions about whether there is a need for an MoU or other multilateral agreement between NATO partners”.

I beg to move.

Lord Rosser (Lab): As the noble Baroness, Lady Miller of Chilthorne Domer, said, she also raised the issue of interception capabilities in Committee when she referred to concerns over the relevance of existing legislation in the light of rapid advancements in technology, the level of application of that technology by in particular American forces operating from UK soil and the extent to which UK law did or did not apply to them.

The amendment moved by the noble Baroness does of course refer to,

“officers of other states resident in the United Kingdom”,

and officers of other states acting within the jurisdiction.

I presume, therefore, that the amendment is nation-neutral and is intended to refer equally to other countries, although I am not sure that it is intended to cover any such activities being undertaken by, for example, embassy officials of such other countries.

As far as the United Kingdom is concerned, the Interception Commissioner, as I understand it, already monitors intercepted data, including of the Ministry of Defence, so I assume that is not the real issue since that individual reports annually to Parliament and to the Prime Minister. The Government have stated that if visiting forces want to undertake interception activities covered by the Regulation of Investigatory Powers Act a proper authorisation must be obtained, that such authorisations are overseen by the Interception of Communications Commissioner, and that covert surveillance powers are subject to separate oversight arrangements through the Chief Surveillance Commissioner.

In relation to foreign military personnel, the extent to which they are exempt from local jurisdiction is regulated through status of forces agreements negotiated between the sending and the host nation, which allow a sending state’s military forces to operate within, and at the consent of, the host state.

In 1951 NATO agreed a status of forces agreement covering hosting arrangements between the alliance’s member states, and thus from our perspective applies equally to visiting forces in the UK and to British forces based in NATO countries. The 1952 Visiting Forces Act incorporated the NATO status of forces agreement into UK law. The Act and the agreement provide for foreign laws and military discipline to apply to foreign military personnel in the UK, but such personnel are still subject to UK law, and this arrangement applies equally to our forces when they are overseas. The Armed Forces Act 1996 extended the Visiting Forces Act to third countries by Order in Council.

The Government have said that the US visiting forces are thus subject to both US and UK law. At present I believe that around 9,500 US military personnel and supporting civilian staff are permanently based at various locations throughout the United Kingdom.

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Most UK military bases involved are used by the United States Air Force, but RAF Menwith Hill is used by the US National Security Agency. The United States visiting force is responsible for internal security at the bases that have been made available to them. The parliamentary Intelligence and Security Committee has oversight of the intelligence activities undertaken by RAF Menwith Hill, and the Government have stated that the mission at RAF Menwith Hill is conducted in accordance with UK law and with the knowledge and consent of the UK Government. The United States visiting force also declares its inventory of weapons in the UK annually to the MoD, which ensures that all weapons are appropriately licensed and stored, and the storage of US munitions on bases in the UK is governed by a 1997 agreement between the UK and the US.

I listened to the concerns raised by the noble Baroness, Lady Miller of Chilthorne Domer, just as I listened to the Minister’s response in Committee, when he gave the Government’s assurance that oversight mechanisms were in place and covered any person subject to UK law performing such activities in the UK. Clearly the Government have a responsibility to make sure that appropriate arrangements are in place to ensure that we know what is going on in our own country in the field of military and security activity, including interception of communications and surveillance, and that what is happening conforms to UK law. That means that the Government have to satisfy themselves that both oversight mechanisms and the law continue to keep pace with increasingly sophisticated technological developments. I hope that in responding the Minister will be able to assure us that that is, and indeed will continue to be, the case, not only because a Government must know what is going on within their own borders in these vital areas, but to address some of the questions and concerns raised by the noble Baroness, Lady Miller, in moving her amendment today.

Lord Palmer of Childs Hill (LD): My Lords, I thank the noble Baroness, Lady Miller, for raising and giving an airing to this subject. I can only hope that this will not be the end of the discussion of this important matter. The point was made as to whether this amendment was within the remit of the Bill. I like to think that this is going to be not one that we will necessarily vote on today, but one that we will come back to in greater detail bearing in mind the reply from my noble friend the Minister.

The noble Lord, Lord Rosser, went into great detail, and I certainly do not intend to repeat his comments, but I share many of his concerns about the assurances that he seeks. Do my noble friend the Minister and the Ministry of Defence believe that, with our reduced Army, Navy and Air Force, we are more vulnerable without such interception? No one likes the breaking of privacy and no one likes secrecy, but with our Army being reduced by 20,000, our Navy by 5,000 and our RAF by 5,000 personnel, and with the increase in the Reserve Forces, which we will deal with later in the Bill, rising very slowly to reach the 30,000 level, how important is that interception, and how important is it that it is reported and transparent, as my noble friend Lady Miller asked?

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That is brought very much to the forefront of our minds with the problems in Ukraine. What help or hindrance does such interception cause in the present climate of hostilities? Overall, how should such transparency be effected on forces such as those of the United States operating on UK soil?

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever) (Con): My Lords, Amendment 1 deals with the issue of interception of communications and follows on from the amendment on the issue that we considered in Grand Committee.

As I am sure that my noble friend appreciates, the issues that she has raised this afternoon, although important and interesting, are not entirely related to the Defence Reform Bill. In fact, the Interception of Communication Commissioner’s Office—the role and powers of which are covered by the amendment—is the responsibility of the Home Office, rather than the Ministry of Defence. I hope that she will therefore understand if I do not respond to all the points that she raised. In particular, as the Prime Minister recently made clear in the House of Commons, intelligence-sharing between the UK and its allies will not be discussed in public. I will, however, try to cover those aspects of the amendment that deal with defence matters and to touch upon the wider points where I am able to do so.

I can give my noble friend and other noble Lords an unequivocal assurance that the Government are fully aware of the activities at US bases in this country and that interception activity in this country is subject to the full rigour of oversight provided under RIPA. We all know that there is intelligence co-operation between the UK and US Government and that that is a key component of our relationship with them. I will not be drawn into commenting on the specifics of that co-operation, but I can confirm that operations at the base that my noble friend mentioned are carried out in accordance with United Kingdom law.

The amendment is in two parts. The first would require the Interception Commissioner to report on the use or proposed use, subject to the Regulation of Investigatory Powers Act 2000, of services or systems procured for defence purposes. However, the Interception of Communications Commissioner is already required by Section 57 of RIPA 2000 to keep under review the issue of RIPA 2000 interception warrants. Therefore, the additional legal effect of this part of the amendment would be to impose a requirement on the commissioner potentially to be involved twice for the same interception. He would be required to comment once in reviewing the use and proposed use of equipment to intercept communications, and then again when reviewing the actual issue of any subsequent interception warrant. Therefore, this part of the amendment is unnecessary; it provides no additional scrutiny, and could, in some circumstances, introduce uncertainty and lack of clarity. This would be an unhelpful extension of the commissioner’s remit, which, as it stands, is clear and distinct.

3.30 pm

The second part of the amendment would amend Section 57 of RIPA 2000, so that the commissioner would be required to keep under review the transmission

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of data through the jurisdiction and processing of data by means of any communication obtained for defence or related purposes, by systems procured under what—I hope—will become Part 1 of the Defence Reform Act 2014. The commissioner is already required, by Section 57 of RIPA 2000, to keep under review the issue of RIPA 2000 interception warrants. It is an offence to intentionally, and without lawful authority, such as that of a warrant, intercept—at any place in the UK—any communication in the course of its transmission. This amendment would require the commissioner to keep under review a new category of non-interception activity—transmitting and processing intercept data—in respect of data that have been intercepted.

This broadening of the commissioner’s remit is undesirable for two reasons. First, the inclusion of transmission and processing material would not provide any additional scrutiny of activity. By definition, any material that is transmitted or processed must first have been intercepted, and is, therefore, already subject to the commissioner’s oversight. Any material that is processed or transmitted would either have been legally obtained under a warrant that would have been issued under the existing RIPA powers, or unlawfully obtained, in any situation where it had not been collected in accordance with a warrant or some other lawful authority. If it has been obtained lawfully, this amendment would provide no additional safeguards. If obtained unlawfully, normal criminal proceedings would apply, with no requirement for further involvement by the commissioner.

The second reason why the Government cannot accept this part of the amendment is similar to the basis on which we opposed the amendment’s first part: that it would introduce a lack of clarity into the commissioner’s role. The commissioner’s office is not currently staffed, trained, organised or equipped to monitor transmission and processing as well as the legality of the production of warrants for interception. I need to be clear that I am not arguing simply that the commissioner has not got enough money. It is a matter not of resources but of clarity of purpose. Transmission and processing are areas of activity that are very distinct from interception in the way they are carried out and scrutinised legally. Effective oversight of transmission and processing is an activity which is primarily technical, rather than legal. It is one for which the office of the commissioner would not be equipped, given its current role—which is to ensure that activities are carried out in accordance with the law.

These proposed new areas of oversight are so distinct from interception that to introduce a requirement to monitor these activities, as well as interception itself, would introduce the risk of the commissioner’s oversight losing focus, and could therefore, perversely, impair the commissioner’s ability to perform its primary role.

In conclusion, I appreciate the efforts the noble Baroness has made to tie the amendment as closely as possible to the Bill, by adjusting the wording from that which she used in Grand Committee. We have had a debate this afternoon but I hope she will understand that I cannot accept the amendment, for the reasons I have outlined. I therefore ask my noble friend to withdraw it.

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Baroness Miller of Chilthorne Domer: My Lords, first, I thank the noble Lord, Lord Rosser, for his thoughtful, thought-provoking and informative reply, from which I hope to have gained a lot more food for thought. Between us, we have managed to move the debate on this afternoon. I very much thank him for taking the time and effort to analyse the issues that we are looking it. I also thank my noble friend Lord Palmer of Childs Hill for his support because this matter really goes to the heart of that balance of which I spoke, between security and privacy.

I also warmly thank my noble friend the Minister. I realise that his reply labours under the difficulty of the amount that he is not able to say. He has given, as far as he is able to, some of the assurances that I was seeking. The difficulty is that there is so much that we cannot possibly know that it is very hard to imagine that we will ever be able to legislate adequately for the technological advances that have been made. That is the challenge before us because at some stage we are going to have to update RIPA, and even where it crosses into areas of defence it will have to be within a legislative framework.

The Minister made one particularly useful and interesting comment that I picked up on. That is the fact that some of this falls under the jurisdiction of the Home Office and some under the jurisdiction of the Ministry of Defence. Again, when we come to legislate that is a real issue because its effect is to leave a bit of a hole in the middle down which things can disappear. Also, had we had something about procurement and expanding defence capability back in about 1990, then what was going on and being built at Menwith Hill might have created a bit more of a stir about what was being procured there and for what purposes. There was some debate that it was for missile defence; I am sure that some of it is but some of it is for other purposes. The Intelligence and Security Committee may be aware of those purposes but of course many of them are poachers turned gamekeepers, which poses another challenge.

In concluding, I pay tribute to the Campaign for the Accountability of American Bases, which is based up near Menwith Hill. This is about accountability. It is not asking American bases to go home but saying that they should be accountable to the UK. Without that campaign, some of these issues would be much harder to keep our eye on from Westminster. However, I thank noble Lords for giving us the time during this important Bill and, in the mean time, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Clause 14: Regulations relating to qualifying defence contracts

Amendment 2

Moved by Lord Tunnicliffe

2: Clause 14, page 9, line 30, after “state” insert “for Business, Innovation and Skills”

Lord Tunnicliffe (Lab): My Lords, we now come on to Part 2 of the Bill. I would like to acquaint the House with my interests in this from my history. In 2008, I was working for Defence Equipment and

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Support, and I therefore tend to come at the problems being tackled in Part 2 from perhaps a wider direction than is typical.

At this point, I also thank the Government, particularly the Parliamentary Under-Secretary of State, Philip Dunne MP, the noble Baroness, Lady Jolly, and their civil servants and advisers, for the enormous amount of time that they have given to Peers in general and ourselves in particular in scrutinising Part 2. We therefore have only three groups and five amendments, because we have done all the probing—“What do these little clauses mean?”, et cetera—in those detailed meetings. The way that the Government handled that is highly commendable.

Before we move on to the amendments, it would be useful to pause and look at the problem that we are trying to fix. The Ministry of Defence procures between £6 billion and £8 billion-worth of equipment each year through contracts which are sourced by a single-source supplier. Why does it do this? It does it for the harsh practical reason that, in order to secure sovereignty, it has to cede monopoly. Why does it have to do this? It has to do this because defence technology cannot be this much-dreamed-about, off-the-shelf idea; you need your technology to be at the leading edge, and frequently the only people you can buy leading-edge technology from are your own suppliers. You use your own suppliers to assure security of supply.

The problem with these large contracts is that any vestige of competition recedes as the contract proceeds. The world changes and the Ministry of Defence is left with the harsh choice either to cancel or to pay more. These contracts are also very big. Taxpayers, not unreasonably, often feel that they have got a bad deal. This is compounded by the fact that contracts are frequently obscure and opaque—they are certainly not transparent. I would, en passant, like to commend the Government for the provisions in Part 2 that relate to the reporting regime, which we completely support and believe is an important step forward.

As I say, the people who tend to get blamed for this are the Ministry of Defence, civil servants and serving personnel who work in DE&S. We have to see the size of the problem of managing contracts of enormous size, difficulty and complexity over many years. The Government’s reaction to this was to ask the noble Lord, Lord Currie of Marylebone, to produce a report—which I have read and commend—and to invite a team of civil servants and at least one adviser to produce legislation to address the issue. That legislation is Part 2 of the Bill.

What Part 2 is trying to do is neatly summed up in the provisions referring to the Single Source Regulations Office: the aim is to ensure,

“that good value for money is obtained in government expenditure”,


“that persons … who are parties to qualifying defence contracts are paid a fair and reasonable price”.

That is the objective, and the Opposition commend the Government’s efforts in this area. We support the generality. Part 2 is a good attempt but not good enough. That is why we have three groups of amendments

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on Part 2, which will focus on: the independence of the Single Source Regulations Office; the misuse of target cost incentive fees; and the focus on allowable costs.

Amendment 2 relates to the independence of the Single Source Regulations Office, or at least our solution to what we think is not its independence but its apparent independence. It is important to understand how Part 2 works. My interpretation of the way Part 2 works—probably the Government will put me right in a minute or two—is that it puts a straitjacket or constraint or series of rules on how government can behave in these contracts and hence prevent itself by law from being bullied by big suppliers. It is quite a complicated thing to do. You would think, “Well, why don’t you just tell them not to be bullied?”. Of course, in the heat of the moment, when an urgent requirement is coming through, when you have got to do the deal, when it is a matter of national security, it is very difficult to resist the bullying of a big and powerful supplier. The essence of Part 2, as I read it, is to create this framework or the straitjacket that officials will have to work within when they complete these qualifying contracts.

Right at the centre of Part 2 is the Single Source Regulations Office, the SSRO, which has an immensely important role. The two aspects that I would pick out are its responsibility for analysing the data—overlooking the contracts and creating some of the parameters within which they are created—and making rulings. This analysis and these rulings are very significant for the financial impact on the contractor and, conversely, the other side of the coin, on the taxpayer. The SSRO stands between the MoD and the contractor, and its very essence is that not only is it independent but it must be seen to be independent. It is the Opposition’s contention that it is not independent enough and certainly not seen to be independent enough.

3.45 pm

I will constrain myself to proving my points, because we had a very good debate about this in Committee. I commend to anyone who wants to see the sources of the comments that I am going to make—and I do not think that the Government will challenge any of them—the Hansard of the Grand Committee of 25 February. The essence of the issue is that the Secretary of State appoints the non-executive chairman through a process that involves: asking a panel to seek to recruit capable people; from those capable people, the panel determines those who are sufficiently good to do the job; a list of names is then given to the Secretary of State, and he then chooses the chairman. The appointment is within his discretion, once the individuals have passed the appropriate fitness test. He also appoints the other non-executive members of the board; he decides on the reappointment or not of the chairman and the non-executive members; he decides their pay; he approves executive appointments; and he determines the SSRO’s budget. While technically he does not control the pay of its staff, one of the two very useful letters from the noble Baroness, Lady Jolly, on 4 March 2014, says:

“The Bill does not impose any legal constraints on pay for the SSRO employees but, as with all non-departmental public bodies, the Government would expect the SSRO to comply with the relevant Cabinet Office guidelines”.

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I ask noble Lords to imagine a situation where they are standing between two very powerful bodies, the industry and the Government. The difference between these two parties is that the individual responsible for the department spending between £6 billion and £8 billion, on which your rulings will have significant impact, appoints you, pays you and decides your budget, whether you are reappointed, who your people are, how big your budget is and, effectively, influences how much you pay people. In my view, this is not sufficiently independent.

We had some debates on this topic in Grand Committee. I commend the noble Baroness, Lady Jolly, on making the unambiguous statement:

“The creation of an independent body is absolutely central to the success and longevity of the framework”.

I could not agree with her more. She made a series of statements to try to make me feel good about it. There was a lovely little paragraph at the end:

“There will be a framework agreement established between the MoD and the SSRO that sets its budget, in accordance with HMT’s guidelines in Managing Public Money and performance targets”.—[Official Report, 25/2/14; cols. GC 330-31.]

What those performance targets are going to look like I do not know. One has a slight, itsy-bitsy worry that the Treasury might have as a performance target, “Try minimising the cost to the Treasury”, which of course would not make it very independent.

An area where I probed a little in Committee was whether the Ministry of Defence was going to put in place any mechanisms to try to put some space between the SSRO and the Ministry of Defence. I do not work in the City, but I will risk the term “Chinese wall” type things. You need to have control of the communications. I posed the question: what would be the characteristics of the communication between the Secretary of State, his staff and the chair of the SSRO, the chief executive officer and the staff of the SSRO? The noble Baroness, Lady Jolly, did not produce a response at the time but went away and carefully thought about it and produced a response in her letter of 4 March 2014. In the letter addressed to me, she said:

“Specifically, you asked if the Secretary of State or MOD staff would be able to communicate with the Chair of the SSRO, or his/her staff. I can confirm that we do not envisage any bar on communication between the Department and the SSRO, indeed, we would see regular exchanges as a positive and constructive development … I suspect that it would be a relatively infrequent event for the Secretary of State to write directly to the SSRO … but I do not accept that such correspondence would be harmful or an indication of the Secretary of State seeking to influence the SSRO unduly”.

The SSRO, we are told, is a small organisation—I got the impression that it would be something like 30 to 50 people. What are they going to talk about, with regard to an organisation of 30 to 50 people, other than the rulings and analysis that the SRRO generates? If your boss talks to you about the rulings you produce, how can that not be a situation in which you do not feel influence?

As if to really cheer me up, the noble Baroness, Lady Jolly goes on—she writes a lovely letter, I must say—to state:

“I suspect”—

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not “guarantee”; not “assure”—

“that the Chair will be energetic in defending both the reality and the perception of independence on behalf of the new body in order to underpin its credibility”.

Given the power of the SSRO, I contend that, sat in the MoD with the Secretary of State having this range of powers, it is not sufficiently independent.

We looked at some of the other solutions in government, and there are a variety of solutions, although I did not research them in any great depth. I believe that the Comptroller and Auditor-General of the National Audit Office is appointed for only one term of 10 years, so he is not very susceptible to influence. I think the Governor of the Bank of England was going to be something like eight years, but the new governor said that he wanted only four, or something like that. Nevertheless, there is a mechanism in that Act to give the individual a sense of security. The OBR, I believe, has some mechanism related to the Select Committee. We looked at this range of options but ultimately felt that we should go for a simple option that had already been considered by the noble Lord, Lord Currie, and, as far as I can see, was rejected only because the department in question said that it did not want to do it: putting this organisation in another part of government. Therefore, our recommendation is that the SSRO be placed in the Department for Business, Innovation and Skills.

We have done this because BIS is a big department with experience of regulation. It presently has the Competition and Markets Authority in it—the Office of Fair Trading is morphing into that together with the Competition Commission and the Competition Service. It has this type of experience of balancing regulation. It has some involvement with defence through UKTI. It has tribunal experience. It actually has 49 agencies and public bodies, including the Central Arbitration Committee, the Competition Appeal Tribunal, the Copyright Tribunal et cetera. It has adjudication experience. It is responsible for the Groceries Code Adjudicator. We thought it was a simple solution to recommend that the SSRO be placed in the Department for Business, Innovation and Skills.

The other amendment in this group is Amendment 3, which speaks to Clause 14(7). Here, we just want to put into law the very straightforward assurance that the noble Baroness, Lady Jolly, gave in Grand Committee:

“To summarise, we expect the Secretary of State to use his exemption power only in exceptional cases”.—[Official Report, 25/2/14; col. GC 340.]

I lighted upon Clause 14(7) because it is one of those very typical subsections that government puts in legislation, which, roughly speaking, say, “Notwithstanding the above, the Secretary of State can exempt everything”. We have had an assurance that the exemptions will be exceptional; we would like to put that in the Bill, and we commend that to the House.

We have also had some discussions about exemptions, which were put on the record in Grand Committee. However, a specific set of exemptions was sought by industry, to which the noble Baroness, Lady Jolly, responded in her letter of 19 March. Those exemptions relate to that exemption being used in the case of—for want of a better term—call-off contracts: things which

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have a determined external price. That seems to be a perfectly good exemption. Perhaps the Minister could say a little more to reinforce that it will be used in that entirely practical area, which is an area where industry would value a little additional exemption. I beg to move.

Lord Palmer of Childs Hill: My Lords, I welcomed the letter from the Minister. It gave a lot of confidence, which is needed not only by Members of your Lordships’ House but by contractors, who I am sure were worried about changes in circumstance and the new organisations that they would have to deal with.

These sections of the Bill talk about how both the Government and the contractor cannot be bullied; the question is whether they have the correct balance. The balance is pretty good. I have great confidence in my right honourable friend the Secretary of State for Business, Innovation and Skills, who I am sure would deal with this admirably within his department. However, these contracts are very MoD-based, and there ought to be the ability within the MoD to deal with this probably in a better manner than the Department for Business, Innovation and Skills.

Who should deal with defence: the MoD or Business, Innovation and Skills? I would like the Minister to take back to his department the question of whether there should be more co-operation between Business, Innovation and Skills and the MoD. There are skills in that department which the MoD would do well to emulate, such as regarding how contracts under EU regulations are dealt with. BIS deals with that better than does the MoD.

As regards inserting an organisation other than the MoD in the management appointment of SSRO, I understand the fears. There is a fear when the organisation that is appointing you is the one you are criticising—that point was well made. However, someone has to be in that role, and there is no better organisation for it than the Ministry of Defence.

4 pm

Baroness Jolly (LD): My Lords, as the noble Lord, Lord Tunnicliffe, explained, the intent behind the proposed amendment is to increase the independence of the SSRO by giving BIS responsibility for the regulations relating to qualifying defence contracts. As we have made clear on countless occasions during the progress of the Bill, and indeed in positive meetings with noble Lords—we have met quite frequently to discuss this, so I am glad the noble Lord found that helpful—the Government are fully committed to the independence of the SSRO in order to achieve value for money for the taxpayer. The SSRO will succeed only if it is, and is seen to be, fair to both parties. If it is too biased towards the MoD we risk driving the best suppliers out of the market. It is precisely the need for an independent moderating authority that led the MoD to propose the creation of the SSRO in the first place.

In Committee the noble Lord, Lord Tunnicliffe, pointed out that the SSRO chair and other non-executive directors are appointed and potentially reappointed by the Secretary of State. The Secretary of State sets

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the budget for the SSRO and can abolish it if he, or she in the future, so wishes. The noble Lord considers that that gives the Secretary of State considerable leverage. It would perhaps help if I were to explain in detail the context of our approach to the SSRO. In framing the legislation, we wanted to give the SSRO as much freedom as possible, including the ability to recruit its own staff. We did not want the SSRO to be a servant or agent of the Crown. These requirements have led to it being designated a non-departmental public body—NDPB.

Considerable public attention has been paid to NDPBs over the past few years, and substantial guidance has been developed. This includes the requirement that they must be allocated to a department, and the Secretary of State of that department must appoint the chair and the non-executives of that body. This department must also pay for the NDPB, which is why the MoD must set the budget for the SSRO. As to the ability to abolish the SSRO, this has been included in Clause 40 which relates to the termination of the whole of Part 2. This power will be used only if there is a desire to repeal the entire framework and revert to a non-statutory approach. In either case, the SSRO will no longer have a role, so the power will exert no leverage over the SSRO.

I turn now to what we have done to ensure the independence of the SSRO. The independence of the chair and other board members is essential, so I hope that noble Lords will forgive me if I describe the recruitment process in detail. To ensure that this appointment will result in a suitably independent and unbiased person, we are running the process in full accordance with the guidelines of the Office of the Commissioner of Public Appointments—OCPA. The recruitment panel for the chair is headed by a public appointments assessor, who has been chosen for us by OCPA. Also on the recruitment panel is an independent person suggested by OCPA and approved by the public appointments assessor. There are two others on the panel—one MoD official, and a representative from industry, Mr Paul Everitt, the CEO of ADS, one of the industry trade bodies for the defence sector—so only one of the four members of the interview panel will be from the Government.

A similar recruitment panel, with the addition of the chair, will be used to select the other non-executive directors. There are additional requirements for suitable candidates. They must not have come recently from the MoD or a defence supplier. Together they must represent a balance of private and public sector experience. They must have between them a variety of relevant experience: for example, legal or regulatory expertise, and experience of acquisition within the price sector. This is a rigorous appointment process, and I am confident that the result will be an independent SSRO board.

Having a suitably independent and strong chair will safeguard the independence of the framework, and we have tried our best to achieve this. This is further backed up by guaranteed freedoms. The SSRO is largely free to determine its own procedures, including making committees. The exceptions to this are where procedures are laid out in the Bill, and the requirement

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to run a full public consultation in support of the quinquennial review, which will be included in the framework document between the MoD and the SSRO.

In addition, the SSRO, like all public bodies, will be subject to external scrutiny by organisations such as the Competition and Markets Authority and the National Audit Office. Moreover, the SSRO chair can be brought before a parliamentary committee at any time. All these points highlight the considerable efforts we have made to ensure that the SSRO will be independent and subject to appropriate public and parliamentary scrutiny. The fact that the Secretary of State appoints the chair and that he can dissolve it are not what will determine the independence and impartiality of the SSRO. While we fully share with the noble Lord his aspiration of protecting the independence of the SSRO and the framework, we do not believe that this amendment is a necessary or effective means of achieving it.

In terms of practicalities, the Ministry of Defence will be the sole government user of the single-source procurement framework. It already has the technical expertise, the understanding and the necessary contacts with the defence industry to understand how the framework will operate in the real world. While the Department for Business, Innovation and Skills would undoubtedly be able to develop the required level of knowledge and expertise, it would take considerable time, effort and cost to create and would, in effect, duplicate the existing capability of the Ministry of Defence.

Moreover, it is normally the case that a single government department acts as the sponsor for a regulatory authority. This amendment would have the effect of splitting this between BIS, which would be responsible for the regulations relating to qualifying defence contracts, and the Ministry of Defence, which would be responsible for all other aspects, including the application of civil penalties. This would create an unhelpful degree of confusion and inconsistency, especially with regard to relations between the Government and the SSRO.

By creating the SSRO, we will increase the number of parties involved in single-source procurement from two—the MoD and the supplier—to three. Adding BIS as a fourth party would add confusion. For example, a supplier might lobby BIS for a change rather than the SSRO, and BIS might seek the MoD’s opinion on a matter rather than trust the SSRO’s recommendations. It is true that BIS has a similar role with regard to other regulators, such as Ofcom, but in such cases BIS is acting as a moderating body between the privatised suppliers and the public. In the case of the SSRO, however, the proposed amendment would place BIS in the position of setting statutory pricing and procurement rules of which the MoD is the sole user. BIS would thereby become the moderating body between private industry and another government department. This would create a potentially unhelpful relationship.

I will make a final point on premises and the issue of independence. I reaffirm what I said in Committee, which was that the SSRO, although it will be on government estate, will not be co-located within the Ministry of Defence. In developing this piece of legislation, the MoD has consulted extensively with industry over

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a prolonged period. There has been no suggestion from industry that it would see any advantage in having BIS own these regulations. Indeed, the Minister for Defence Equipment, Support and Technology, Mr Philip Dunne, recently met with Mr Paul Everitt of ADS, who said that industry no longer had any concerns over the independence of the SSRO.

The noble Lord, Lord Tunnicliffe, asked about a couple of points, including performance targets. Targets are there to ensure the efficient operation of the framework and the organisation. They are likely to relate to how quickly the SSRO responds to opinions or determinations made by the MoD or the supplier. He requested clarification on communications between the Secretary of State and the SSRO. If they are not on ruling, what sort of communications will they be? The SSRO will be responsible for keeping the framework under review and this will require communication with the Secretary of State or his officials to discuss any matters relating to the performance of the framework of the SSRO. The SSRO will have similar communications with industry.

On Amendment 3, as I stated, the purpose behind Part 2 is to ensure that in exchange for providing suppliers with a fair and reasonable price, the MoD will receive value for money for the goods and services it obtains through single-source procurement. Here we are in complete agreement. This works in two ways. First, it does this by establishing pricing rules that must be followed by the MoD and suppliers and by giving the SSRO the power to adjust the contract price if these rules are not complied with. This places a direct obligation on suppliers to use only appropriate and reasonable pricing assumptions.

Secondly, the Bill imposes transparency requirements which will allow the MoD to monitor suppliers’ costs: for example, ensuring that cost increases are highlighted in good time. These transparency provisions will allow the department, over time, to generate pricing benchmarks for goods and services. In turn, this will help the MoD to negotiate with industry over prices and to press for tough but reasonable efficiency targets. As it is in the interests of the MoD that these two features are applied as widely as possible, we fully expect that the Secretary of State for Defence will use the powers of exemption set out in Clause 14(7) only on an infrequent basis.

In Committee, I provided examples of where we envisage that the use of exemptions might be justified. However, I will summarise them again for the benefit of the House. The first circumstance is where there is no market failure. The framework addresses the situation where a contract price is not subject to the competitive pressures of the market. If those pressures are evident in the contract price, the framework is not required. An example is the purchase of additional items that are already available in the civil market, such as computers.

The second circumstance is one of national security. The Bill provides for some categories of contracts to be automatically excluded from the framework. One of the categories identified in the draft regulations is when the contract is for the purpose of intelligence activities. These exclusions apply only if the whole contract is covered by one or other of the excluded

24 Mar 2014 : Column 375

categories. So in the case where a significant part, but not all, of the contract is for intelligence activities, the contract would not be automatically excluded from the framework. As transparency is a significant part of the framework this is unlikely to be appropriate, so the whole contract may require exemption by the Secretary of State.

The third circumstance concerns our relations with other nations. Some of the standard reports would give us sight of a supplier’s plans for the key industrial sites sustained by MoD’s single-source procurement, which could result in a supplier having to reveal the forecast throughput assumptions of facilities that are used predominantly by a foreign Government, thereby exposing that country’s defence planning assumptions. This is likely to be treated with considerable reluctance by the foreign Government and therefore may require use of the exemption.

These are strong, valid reasons for the Secretary of State requiring this exemption power. However, not all the potential cases might be classed as being exceptional, as set out in the proposed amendment. Let us take, for example, the case where the market failures addressed by the framework are not present. It might be useful if I quoted the hypothetical but plausible example of where the department wishes to buy additional desktop computers. In the interests of operating only a single type, an open competition might be undesirable. However, in this example we do not need the full protections Part 2 offers to confirm that the price being offered to the department is fair and reasonable; we can simply compare it with the market price. This may be an unusual case as it requires a contract to be single-sourced yet fully priced using market prices. There would be a valid case for using the exemption powers, but it would be hard to argue that this constitutes exceptional circumstances.

We do not wish the Secretary of State to be constrained by how the new regime is applied in this way, but given that it is in the department’s interests that as much single-source procurement activity as possible is covered by the framework, the fewer exemptions there are, the greater the benefits there will be to the MoD.

I hope that this explains our position and therefore I urge the noble Lord to withdraw his amendment.

Lord Tunnicliffe: My Lords, I thank all Peers who took part in this debate, and in particular the Minister for her various assurances. I have faith that the people currently in the Ministry of Defence will undoubtedly use the right mechanisms to select the chairman of the SSRO and the individuals who are its non-executive directors. The pressure, which I am sure the present Administration would not bring to bear on the SSRO, will nevertheless come from all the subtleties. I speak as somebody who has chaired a nationalised industry, and who has been the chief executive of one and therefore on its board. The most subtle pressure comes from something that is entirely within the discretion of the appropriate Secretary of State. The Commissioner for Public Appointments, whom the Minister quoted, stated in a recent press release:

“The Public Appointments Commissioner plays no part in a decision not to re-appoint someone at the end of their term of office. That is a matter for Government”.

24 Mar 2014 : Column 376

As we have seen recently in the case of Ofsted, the Government exercised that privilege without recourse to any mechanisms or checks. Everybody will try to do the right thing in these circumstances, but at the end of the day “not being reappointed” is a code for being fired, and being fired can engage the mind rather firmly. I believe that we should do more to distance the SSRO from the Ministry of Defence; the solution that we have chosen is the best one, and because it is important that the Government understand the wisdom of our words, I beg leave to test the opinion of the House.

4.17 pm

Division on Amendment 2

Contents 169; Not-Contents 227.

Amendment 2 disagreed.

Division No.  1


Adams of Craigielea, B.

Adonis, L.

Ahmed, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Bach, L.

Bakewell, B.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Bhatia, L.

Bhattacharyya, L.

Billingham, B.

Blood, B.

Borrie, L.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Ladyton, L.

Campbell-Savours, L.

Chandos, V.

Clarke of Hampstead, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Cox, B.

Cunningham of Felling, L.

Davies of Oldham, L.

Davies of Stamford, L.

Desai, L.

Donaghy, B.

Drake, B.

Dubs, L.

Elder, L.

Elystan-Morgan, L.

Erroll, E.

Evans of Temple Guiting, L.

Evans of Watford, L.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Flather, B.

Ford, B.

Foulkes of Cumnock, L.

Gale, B.

Gavron, L.

Gibson of Market Rasen, B.

Giddens, L.

Glasman, L.

Golding, B.

Gordon of Strathblane, L.

Goudie, B.

Gould of Potternewton, B.

Grenfell, L.

Griffiths of Burry Port, L.

Grocott, L.

Hanworth, V.

Hardie, L.

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.

Hollick, L.

Hollis of Heigham, B.

Howarth of Newport, L.

Howe of Idlicote, B.

Hoyle, L.

Hughes of Woodside, L.

Hunt of Kings Heath, L.

Irvine of Lairg, L.

Jay of Paddington, B.

Jones, L.

Jones of Whitchurch, B.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

King of Bow, B.

Kingsmill, B.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkhill, L.

Knight of Weymouth, L.

Lawrence of Clarendon, B.

Layard, L.

Lea of Crondall, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Lister of Burtersett, B.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of Tradeston, L.

24 Mar 2014 : Column 377

McFall of Alcluith, L.

McIntosh of Hudnall, B.

McKenzie of Luton, L.

Mallalieu, B.

Massey of Darwen, B.

Maxton, L.

Meacher, B.

Mendelsohn, L.

Monks, L.

Moonie, L.

Morgan, L.

Morgan of Drefelin, B.

Morgan of Ely, B.

Morgan of Huyton, B.

Morris of Aberavon, L.

Morris of Handsworth, L.

Morris of Yardley, B.

O'Neill of Clackmannan, L.

Patel of Blackburn, L.

Patel of Bradford, L.

Pendry, L.

Pitkeathley, B.

Plant of Highfield, L.

Ponsonby of Shulbrede, L.

Prosser, B.

Puttnam, L.

Quin, B.

Quirk, L.

Radice, L.

Ramsay of Cartvale, B.

Rea, L.

Reid of Cardowan, L.

Rendell of Babergh, B.

Rosser, L.

Rowlands, L.

Sawyer, L.

Scotland of Asthal, B.

Sherlock, B.

Simon, V.

Smith of Basildon, B.

Smith of Finsbury, L.

Smith of Gilmorehill, B.

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.

Tomlinson, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Uddin, B.

Wall of New Barnet, B.

Warner, L.

Warnock, B.

Watson of Invergowrie, L.

West of Spithead, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wilkins, B.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.


Aberdare, L.

Addington, L.

Ahmad of Wimbledon, L.

Allenby of Megiddo, V.

Anelay of St Johns, B. [Teller]

Astor of Hever, L.

Attlee, E.

Bakewell of Hardington Mandeville, B.

Balfe, L.

Bates, L.

Benjamin, B.

Berridge, B.

Best, L.

Borwick, L.

Bourne of Aberystwyth, L.

Bowness, L.

Boyce, L.

Brabazon of Tara, L.

Bradshaw, L.

Brinton, B.

Brooke of Sutton Mandeville, L.

Brookeborough, V.

Brougham and Vaux, L.

Browne of Belmont, L.

Browning, B.

Caithness, E.

Campbell of Surbiton, B.

Carrington of Fulham, L.

Cathcart, E.

Chadlington, L.

Chalker of Wallasey, B.

Chester, Bp.

Chidgey, L.

Clancarty, E.

Clement-Jones, L.

Colwyn, L.

Condon, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Coussins, B.

Craig of Radley, L.

Craigavon, V.

Crickhowell, L.

Dannatt, L.

De Mauley, L.

Deben, L.

Deighton, L.

Dholakia, L.

Dixon-Smith, L.

Dobbs, L.

Doocey, B.

Dykes, L.

Eaton, B.

Eccles, V.

Elton, L.

Empey, L.

Falkland, V.

Faulks, L.

Fearn, L.

Fellowes, L.

Fink, L.

Finkelstein, L.

Fookes, B.

Forsyth of Drumlean, L.

Framlingham, L.

Freeman, L.

Freud, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Geddes, L.

German, L.

Glasgow, E.

Glenarthur, L.

Gold, L.

Greengross, B.

24 Mar 2014 : Column 378

Greenway, L.

Griffiths of Fforestfach, L.

Hamilton of Epsom, L.

Hamwee, B.

Hannay of Chiswick, L.

Harries of Pentregarth, L.

Heyhoe Flint, B.

Higgins, L.

Hill of Oareford, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Holmes of Richmond, L.

Hooper, B.

Horam, L.

Howard of Lympne, L.

Howarth of Breckland, B.

Howe, E.

Howe of Aberavon, L.

Humphreys, B.

Hunt of Wirral, L.

Hussain, L.

Hussein-Ece, B.

Hylton, L.

Jenkin of Kennington, B.

Jenkin of Roding, L.

Jolly, B.

Jones of Cheltenham, L.

Jopling, L.

Kakkar, L.

Kalms, L.

Kerr of Kinlochard, L.

Knight of Collingtree, B.

Kramer, B.

Laming, L.

Lane-Fox of Soho, B.

Lang of Monkton, L.

Lawson of Blaby, L.

Lester of Herne Hill, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Listowel, E.

Liverpool, E.

Livingston of Parkhead, L.

Loomba, L.

Lothian, M.

Luce, L.

Luke, L.

Lytton, E.

McColl of Dulwich, L.

Macfarlane of Bearsden, L.

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

MacLaurin of Knebworth, L.

McNally, L.

Maddock, B.

Magan of Castletown, L.

Mar, C.

Marks of Henley-on-Thames, L.

Marland, L.

Marlesford, L.

Martin of Springburn, L.

Masham of Ilton, B.

Mayhew of Twysden, L.

Miller of Chilthorne Domer, B.

Montagu of Beaulieu, L.

Morris of Bolton, B.

Moynihan, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newby, L. [Teller]

Nicholson of Winterbourne, B.

Noakes, B.

Northover, B.

O'Cathain, B.

O'Neill of Bengarve, B.

Paddick, L.

Palmer, L.

Palmer of Childs Hill, L.

Pannick, L.

Parminter, B.

Perry of Southwark, B.

Peterborough, Bp.

Phillips of Sudbury, L.

Popat, L.

Randerson, B.

Rawlings, B.

Rennard, L.

Ribeiro, L.

Risby, L.

Roberts of Llandudno, L.

Roper, L.

Rowe-Beddoe, L.

Scott of Needham Market, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Sharkey, L.

Sharples, B.

Shaw of Northstead, L.

Sheikh, L.

Sherbourne of Didsbury, L.

Shipley, L.

Shrewsbury, E.

Shutt of Greetland, L.

Skelmersdale, L.

Slim, V.

Smith of Clifton, L.

Stedman-Scott, B.

Stewartby, L.

Stirrup, L.

Stoneham of Droxford, L.

Storey, L.

Stowell of Beeston, B.

Suttie, B.

Swinfen, L.

Taverne, L.

Taylor of Goss Moor, L.

Taylor of Holbeach, L.

Tenby, V.

Tonge, B.

Tope, L.

Trenchard, V.

True, L.

Truscott, L.

Tugendhat, L.

Tyler, L.

Tyler of Enfield, B.

Ullswater, V.

Valentine, B.

Verma, B.

Wakeham, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walpole, L.

Walton of Detchant, L.

Warsi, B.

Wei, L.

Wheatcroft, B.

Whitby, L.

Wilcox, B.

Williams of Crosby, B.

Williams of Trafford, B.

Willis of Knaresborough, L.

Wilson of Tillyorn, L.

Young of Hornsey, B.

Younger of Leckie, V.

24 Mar 2014 : Column 379

4.31 pm

Amendment 3 not moved.

Housing: Inherited Social Housing Tenancies


4.31 pm

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con): My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend the Minister of State for Employment, Esther McVey, in the House of Commons earlier today. The Statement is as follows.

“Mr Speaker, the Urgent Question called by the honourable Member for Rhondda is not a new one but part of the 1996 provisions which impacted on the spare room subsidy legislation in 2012 and one that we have debated in the House before.

Upon investigation early this year, it would appear that some claimants may have been unintentionally protected from the effects of the removal of the spare room subsidy, including those who have been in receipt of continuous housing benefit since 1 January 1996 and have lived in the same property since that date, unless the move was due to a natural disaster, fire, flood and so on. A grace period of four weeks—or 52 weeks if the claimant or their partner is a welfare-to-work beneficiary—applies. For example, housing benefit would be classed as continuous if the break is less than four weeks, or 52 weeks for welfare-to-work recipients. Where a claimant dies, the partner or an adult child can inherit the protection, but it must be in respect of the same dwelling and they must qualify for housing benefit.

The issue about inheritance of housing benefit has always been part of our understanding about what the loophole meant. This was also part of the guidance issued to local authorities some weeks ago. The loophole derives from a very narrow but complex set of regulations dating back to 1 January 1996, when local reference rent rules were introduced.

In January 1996, transitional protection was offered to existing claimants, which could, and still can, be inherited if the claimant dies; for example, by a partner, or, where there is no partner, by adult children, and the protection only applied in respect of the same dwelling. Therefore, partners or adult children must continue to live in that property and only if they qualified for housing benefit. This protection ends if housing benefit ceased or they moved address.

With hindsight, the protection offered by the regulations could have been time-limited, but it was not; it has lain dormant for 17 years. The effect is that it has now unintentionally been applied to a group of people who were not financially affected by the local reference rent rules. In fact, in the previous debate, my honourable friend for Hitchin and Harpenden, who was Secretary of State at the time, said clearly that this exemption was never intended to be the case. This matter was fully debated and voted upon on 26 February 2014 to approve amendment regulations to close the loophole. Clearly, the House has already spoken on this issue.

24 Mar 2014 : Column 380

As guidance was sent out a few weeks ago, I would suggest that this is not the appropriate time or place to discuss any questions local authorities may have, and that there are clear channels for them to do so. However, our experience with local authorities at the moment is that they know what they need to do, and are just getting on with it”.

4.35 pm

Baroness Sherlock (Lab): My Lords, I thank the Minister for that Answer—I think. Obviously, this House has not discussed the regulations concerned, although a regret Motion is coming up. I want to ask the Minister two questions, the first on numbers. He has told the House previously that the number of people affected by this loophole in the bedroom tax is small—the DWP says 3,000 to 5,000—but figures obtained under FOI by Labour show that, with more than a third of councils still to reply, already well over 23,000 people are likely to be affected. The new guidance, to which I think the Minister referred, may increase the number still further. Can he therefore tell the House precisely how many people will be affected by the loophole?

Secondly, I want to put to the noble Lord the following statement:

“I worry about what Labour chooses to call the bedroom tax, because so often what is a spare room is in fact a vital part of looking after an elderly person. It enables their relatives to come, it enables carers to be there … I think we introduced that rather without thinking it through very well, and I think that’s costing us”.

It is costing all of us, in discretionary housing payments, in rent arrears and in human misery. Surely the Minister agrees.

Lord Freud: My Lords, as I have said in this House previously, the numbers involved with this particular loophole are small. This particular inheritance issue does not change our estimates. A figure of around 5,000 has been attributed to the DWP in defining “small”.

On the FOI figures, it is worth making the point that local authorities are now getting to grips with the actual numbers. The Birmingham figures were quoted quite extensively. It was reported that Birmingham alone had 2,100 cases, the significance being that they make up a large proportion of the figure that we have been looking at. More recently, Birmingham put out a clarification, saying:

“We haven’t finished identifying them at Birmingham so can’t give you an exact number, but the number of possible cases has dropped substantially below the 2100 that was reported in the papers.”

So we can see that some of the FOI responses to which the noble Baroness referred—if that was an example—may be clarified.

We have a process for supporting local authorities and people to make the adjustments through discretionary housing payments, which we have increased in recent years from £20 million to £180 million in the current year—indeed, the signs are that that figure will be underspent. The number of people being affected is coming down reasonably rapidly; it is now below half a million.

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Lord German (LD): Can my noble friend tell the House roughly how many people in this country are living in overcrowded conditions or are on housing waiting lists? Can he also put on the record the number of new social houses being built by this Government and compare that with the number built by the previous Government, because, clearly, housebuilding and social housebuilding are crucial?

Lord Freud: My noble friend draws the comparison between the amount of capacity that we have in this country and the demand for it. The number of people on the waiting list is 1.8 million, with the figure for overcrowding running at 250,000 on some estimates and 400,000 on others.

When this Government took office, we were left with the lowest level of peacetime housebuilding that this country had seen since the 1920s. Since then we have delivered nearly 400,000 new homes and put in very substantial investment. There is £11.5 billion public investment to boost housing supply over the four years of the spending review, and this is meant to lever in more private investment. The volume of housebuilding is now picking up. The starts in the quarter to December were up 20% compared with the same period last year.

Baroness Hollis of Heigham (Lab): My Lords, every stat I have heard from the Government is either misleading or wrong. The bedroom tax will not help the waiting list because they too want smaller accommodation. It will not much help overcrowding as most families who are overcrowded do not live in the places where there are underoccupied houses. It will not make government savings. As we see, the GHP figures keep going up but the savings stay the same—false. Had the Government followed their own precedent of 1996 of transitional protection for the private rented sector, or had they followed what we did in 2008 by protecting existing tenants in the private rented sector, we would not have the calamity, misery and distress facing so many vulnerable and disabled people in this country. It is shameful.

Lord Freud: My Lords, the figures show that there is a reasonable balance around the county; there is not one place with overcrowding and another with waiting lists. We are staying with the estimate of roughly £500 million a year in savings. On transitional protection, we have given even more notice on the changes coming through than we gave on the LHA changes at the emergency Budget of 2010.

Baroness Quin (Lab): My Lords, will the Minister tell us when the review on the bedroom tax will be published? In the mean time, will he undertake to meet many of the people who have been personally affected by this tax, and whose lives have been turned upside down as a result?

Lord Freud: We are conducting a review on the spare room subsidy; those figures will be published in the final review next year, and we have an interim publication later this year. I meet a lot of people all the time on this issue—in particular, I am seeing a large number of local authorities and holding discussions with them.

24 Mar 2014 : Column 382

Lord Campbell-Savours (Lab): The Minister says that he is seeing a large number of local authorities. Is he actually meeting people who have been affected by this tax? If he has, where has he met them—in what part of the country, in what boroughs? Perhaps he might tell us when. Also, he refers to 400,000 houses built since the last election in 2010—he mentioned 400,000 in his brief, which he read to the House. How many of those were started under the previous Labour Government? It was the Minister who was playing politics with the stats.

Lord Freud: I do not have to hand the number of starts. All I can say is that the number of completions in that last year—the handover year—was the lowest level of building in peacetime since the 1920s, which is a pretty shameful performance from a Government who saw a very long boom. I would like to be able to answer the question, but if I am not allowed to I will not.

Lord Martin of Springburn (CB): There are communities where, unfortunately, the housing estates are known as hard-to-let properties. If the noble Lord, through legislation, is forcing families out of those houses, it is not necessarily the case that those who are on the waiting list will take up those houses. There is a danger that the people who are fighting hard to keep up the morale of the community in hard-to-let housing areas will see empty property vandalised, will despair and will leave the housing estate where they have worked so hard to keep up appearances.

Lord Freud: Local authorities clearly have a duty here and interest in their local areas to manage them. We are making sure that they have those resources in discretionary housing payments. Indeed, I have been very keen to spend the extra £20 million of funding on discretionary housing payments. It is a balance of maintaining the housing stock and the people in it with the right people in it. There are always isolated cases where the management of particular estates is tough; those are issues for the local areas.

Railways: High Speed 2


4.46 pm

The Minister of State, Department for Transport (Baroness Kramer) (LD): My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend the Secretary of State for Transport in another place. The Statement is as follows:

“Mr Speaker, the past few days have brought important proposals to make the most of High Speed 2. They will help us to build the line better, bring benefits to the north sooner and support job creation and economic growth. I want to update the House at the first opportunity, and I am sorry that, for unavoidable reasons, I was not able to do that last week.

The proposals are welcome, because HS2 is a vital project. It can do for future generations what Victorian railways did for previous generations and the motorways

24 Mar 2014 : Column 383

for ours. That is why it has the strong support of the Government, and it is why cities in the Midlands and the north are calling for its benefits to be spread as widely as possible.

We must heed that call, but for this to happen we also need to get the basics right: stick to cost, plan well, listen, respect the environment, build what really works and what we really need for the future and, of course, make sure that people get the benefits as quickly as possible.

I know, too, that HS2 is just part—but a vital part—of our long-term economic plan, one that will see better infrastructure for all parts of the country. It is a clear and ambitious plan, a plan that is already paying dividends—shown by last week’s welcome decision by Hitachi, the company that invented the bullet train, to move its global rail headquarters to Britain. That is the sort of opportunity presented by HS2.

First, let me respond to the report by Sir David Higgins. He began work as chairman of HS2 in January. The first task that I set was to look at how to maximise the benefits of HS2 and manage the costs. Last year, Parliament backed the principle of a high-speed rail link to the north with 350 votes in favour and only 34 against. Now it is up to us to make it happen. Given his great track record, there is no one better suited to the job than Sir David.

I turn to his proposals. First, on costs, Sir David has reviewed the cost estimates for constructing phase 1 and confirmed that they are realistic. The budget set by the Government in 2013 stands. As experience shows, in Britain we can build great projects on time and on budget, such as High Speed 1 and Crossrail. However, at this early stage, before Parliament has considered the hybrid Bill, we must include a proper contingency. Of course, for popularity’s sake, one option would be to slash the contingency and claim it as a saving. Sir David says that would be the wrong thing to do. I agree, but, as he also says, with growing certainty comes growing confidence. There will be the stage when we can bring the contingency down.

Let me turn to his second proposal. I have heard many honourable Members ask why we cannot build in the north sooner. I agree: we can. His report suggests opening the line to a new hub station in Crewe six years earlier than planned. Direct trains will of course be able to run off HS2 lines to serve places such as Stoke, Liverpool, Manchester, north Wales—and Scotland—faster too. A line to Crewe sooner would mean shorter journeys than with just the current phase 1: quicker to Manchester, quicker to Liverpool, quicker to Scotland.

This is a welcome proposal and I am commissioning HS2 Ltd to undertake work to allow it to be considered in detail. However, this must be seen as an acceleration of phase 2, not an alternative. Sir David said that we must make the most of this investment so that as many towns and cities as possible benefit. I agree, and we will make sure that happens.

With the third proposal—for the southern end of the line—our priority must be to get the benefits to the Midlands and the north as soon as possible. In short, we must put our money and time where it can do most

24 Mar 2014 : Column 384

good. Sir David is clear that he does not think existing proposals for the HS2-HS1 link meet that test. The HS2-HS1 link proposed in the hybrid Bill has not secured a consensus. The link requires too many compromises in terms of impacts on freight, passengers and the community in Camden. I therefore intend to remove the link from the hybrid Bill and withdraw safeguarding as soon as possible. I will also commission a study into options for improving connections to the continent which could be built once the initial stages of HS2 are complete.

I also agree with the report that much more can be made of Euston station—not just to build something we can be proud of but to maximise the economic potential of the line and use a site which has been neglected, and to generate private sector investment which can reduce the overall burden on taxpayers. I will, therefore, ask HS2 Ltd and Network Rail to develop comprehensive proposals for the redevelopment of Euston. Our ambitions for Euston must not, however, conflict with our commitment to control costs. I want to see substantive private sector investment to ensure this.

Secondly, I turn to the report from the growth task force published last week. It is from an impressive panel, including business leaders such as Sir John Rose, Alison Nimmo and Ray O’Rourke, city leaders such as Julie Dore from Sheffield, and the general secretary of the TUC, Frances O’Grady. I thank everyone involved and in particular the Commercial Secretary for his committed leadership. Their message is clear: we need HS2 and we need to act now to squeeze the most from it in terms of jobs, skills and growth.

The task force’s recommendations are plain common sense: things that business, government and cities can do together, and must start doing now. In relation to skills, this means proper training to ensure that our young people get the best jobs on the project. In relation to planning, it is ensuring that the line brings new strength to our cities. On transport it is ensuring that we link the existing road and rail network properly to HS2, and plan investment in them together. Regeneration and economic growth are vital parts of HS2.

City leaders have already started to put plans in place, but government has a role to play as well. That is why I am asking HS2 Ltd, and London and Continental Railways—which developed the King’s Cross St Pancras site—to come forward with proposals for a regeneration company that will respond to the growth task force’s recommendations on regeneration. This matters because, as I have said before, HS2 is a project that will be built over many Parliaments—and no doubt Governments too—and it will serve people through many generations. It is not the only answer to our transport needs but it is a central part of the answer. That means designing it carefully and building it right: building something that works, that we can be proud of, and that benefits as many people and places as possible for the lowest cost. We are on schedule to open the line in 2026—which, by the way, is exactly the date the previous Government set in 2010—or ahead of that date in the case of the Crewe proposal.

The Government are keen to rise to the challenge. I hope that honourable Members on all sides of the House will do the same”.

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4.55 pm

Lord Davies of Oldham (Lab): My Lords, I thank the Minister for repeating the Statement. None of us underestimates its significance. We should begin by congratulating Sir David Higgins and the noble Lord, Lord Deighton, on their substantial and very thorough reports. Significantly increasing capacity south of Birmingham and improving connectivity north of Birmingham are vital and will transform our great cities. I am glad that the penny has at last dropped and that the emphasis is being put on the real role of HS2, which is significantly to increase capacity in our crowded stations and not to reduce journey times from Birmingham to London by 20 minutes for businessmen. It is not that that reduction is unwelcome but it is not as important as the other concepts.

We will of course continue to hold the Government to account for keeping costs down on the project. One of the issues which Sir David Higgins emphasised is that significant savings will be made if the Government set about reducing delays. Therefore, I ask the obvious questions. Where is the hybrid Bill? When will we be able to consider it? What steps is the Secretary of State taking to ensure that we consider the Bill at the earliest possible time? Delay costs money.

I am also glad that one significant objection, which was the concern of a very large number of people, has been allayed by agreeing to scrap the link between HS1 and HS2. That link was always fraught and it brought immense troubles to very large numbers of residents in the London Borough of Camden, while effecting the link on that route looked to be a matter which would be subject to great challenges during the passage of any hybrid Bill. Given the acute affordable housing crisis in Camden, a significant proportion of any new housing must be social housing. There will still be consequences for Camden from the fact that Euston is to be significantly enlarged, even though the link is not to be pursued. At Old Oak Common, where significant regeneration is planned, there is no decision yet from the Government about the relocation of the First Great Western and Heathrow Express train depots. That is of considerable significance to this project and we want to see a decision and proposals on that as soon as possible.

This means that the Government have to put themselves out and talk to the local authorities concerned, as indeed they need to talk constructively to the local authorities that govern our great cities in the Midlands and to the north of London, which will welcome the suggestion that Crewe should be developed several years ahead of what was forecast earlier. However, there are significant implications for our northern cities, which have every right to be prioritised for integration as much as elsewhere in the country. We want a coherent transport plan for the north, which of course has been historically underfunded. We are all too well aware that the Government committed the sin only a couple of years ago of transferring excellent rolling stock from the north to Thameslink. It is not surprising therefore that northern cities think that their needs take a lower priority than they ought.

We need a rebalancing of railway investment into the regions in order to close the economic divide. Even the Government, despite their commitment to government

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having little role to play in huge areas in the economy and everything being left to the market, recognise that we cannot afford such a significant and drastic difference between the growth of London and the growth prospects of our other major cities. We welcome the proposal on Crewe and the faster construction of phase 2 that is promised.

There is a great deal of consultation to be done. When will the Government announce their response to the phase 2 route consultation? Time means money with such a project in which so many resources are invested. I hope also that there will soon be an announcement of the site of the HS2 skills college. We have seen from the construction of Crossrail the stimulus that is given to high-level skills. We have also seen the difficulty of our own people being able to respond at the relevant level of skills in all aspects. It would be tragic if we did not ensure that the benefits of the construction of HS2 were directed towards the British people from the very construction of the lines.

We must also learn lessons from Crossrail on SME procurement. Contract numbers are high in volume, but the total value of the contracts is uncertain. We must ensure that the high speed pound reaches all parts of the United Kingdom. It is vital that we maximise the opportunity that this new north/south line can bring to the whole of our country. Of course we support the project, but we wait for the Government to rise to the challenge.

5.02 pm

Baroness Kramer: My Lords, there is clearly a great deal of consensus across the Benches in this House. I very much welcome that because, as the Secretary of State said in his Statement, this project will span many Parliaments and inevitably a number of Governments. Therefore, that consensus is absolutely vital.

I thank the noble Lord, Lord Davies, and I welcome the comments that he made. I did not identify many questions within his comments. I found one to which I think he wanted a response, which concerned when we would respond to the consultation on HS2. We expect that to be in the autumn. There have been a very substantial number of responses. We need to go through those in a great deal of detail and we need to pay a great deal of attention to them. That is a complex process.

I assure the noble Lord that we have long recognised the importance of the Midlands and the north. In this process I have been spending a great deal of time myself in the north. I welcomed the growth task force report in Manchester with the leaders of Manchester council, the former leader of Trafford, and a number of other representatives of local communities. I underscore that importance and look forward to further questions from other Members of this House.

5.04 pm

Lord Berkeley (Lab): My Lords, I congratulate Sir David Higgins and the noble Lord, Lord Deighton, on their two reports. I am very pleased that the Government have accepted them. They are a breath of fresh air. I look forward to continuing to work on the project.

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I am particularly pleased that the HS1 link has been removed as it was not fit for purpose, but can the Minister encourage her ministerial colleagues not to be too negative about that? She may know that there is already a link with HS1—it was built with HS1—on to the North London Line and the west coast main line which could be used to run Eurostars north of London. It needs signalling—they have forgotten to do that—but that is a minor detail. The trains are operating in France but they could operate in Birmingham and Manchester very quickly and provide that link if there was a demand. I hope that she will take that back to stop any negativity coming from the northern part of the route and the claims that cancelling the HS1 link is a disaster. It is not.

Baroness Kramer: I fully agree with the noble Lord’s comments about the HS1/HS2 link, and those were indeed the comments of Sir David Higgins. It is something that could technically have been done but, given the impact that it would have had not just on the community but on passengers and freight traffic, trains would have travelled at 20 miles per hour on that particular link and no more of them than three an hour, at that, so it was not fit for purpose.

However, I give assurances, as the Secretary of State has said, that there will be an important study to look at how to connect the north through to the continent as HS2 progresses. We recognise the importance of that; it is a significant and serious piece of work. Sir David Higgins has recently welcomed proposals from others who understand transport and community issues, and the department had done so previously. We will continue to appreciate the input that comes in, and that expertise.

The Lord Bishop of Chester: My Lords, the spirit of the Statement is in for a penny, in for pound—a lot of pounds, of course—but if it is to be done, it should be done well and quicker. I particularly welcome the extension to Crewe, which is in my diocese, so much sooner; I am sure that the people of Crewe, that noble old railway city, will welcome that warmly.

I notice in the Statement, though, that direct trains will be able to run off HS2 to serve north Wales. I have always assumed that the trains on the high-speed rail link will be electric. Does this mean that the Government are announcing plans to electrify the railways beyond Crewe to Chester and into north Wales? If so, when is that going to happen?

Baroness Kramer: My Lords, the line will be able to take classic-compatibles immediately, which will provide a great deal of the flexibility that is needed. Obviously there is a wide programme of electrification already under way. I can take a look again at the route that he has just suggested and come back to him with comments on it but, essentially, the way in which the line is being designed does not just mean that HS2 trains themselves will be able to run up and down it but ensures that it can be used by classic-compatibles that can go on to a wide range of other destinations.

Lord Bradshaw (LD): My Lords, I wonder whether I can start with a question: can anything be done to expedite the tortuous Bill procedure in both Houses?

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This is a matter for the Government and the House authorities, but we really should not wait for years and years while the Bill waits at the convenience of the House—or, rather, the convenience of the nation.

We have already been told that the fares policy will encourage use rather than deter it. I agree that the HS1/HS2 link as tabled is not very satisfactory, but we need a modern transport link between Kings Cross, St Pancras and Euston. I regretted to see in the report the issue of one stop on the Underground. That would mean carting your cases, luggage and everything down to where it is very congested. The time has come to bite the bullet and make a proper link. If these stations were an airport, they would be one terminal; the distance is very short.

I am most interested in what has been said about the north. I think that the north has been done badly to by successive Governments. The most recent bad thing that was done was when the noble Lord, Lord Adonis, cancelled an order for 200 new diesel trains that would have improved the services there. The north must have decent rolling stock, not the cast-offs from other railways and certainly not antiquated stock. Every city in the north needs its local enterprise partnership to get down now to planning how they will link supporting services into the stations that are served.

Lastly, I challenge the Government on the consistent reports I have seen for years that there is no business case for investing in the north. I think that the reason is that, with the present trains and present service, it is difficult to see why people should use the railway. However, we are looking at a new era, and I am sure that there will be a business case for investing properly in the north.

Baroness Kramer: We absolutely agree that we are looking at a new era. It is frankly inspiring to meet the city leaders, businesses and other stakeholders of the great cities of the north and the Midlands, who are coming together to create a sort of common strategy for maximising the benefits of HS2 by building interconnectivity between them. That is absolutely crucial. My noble friend may be hinting at a rolling stock issue in the north. That is an immediate problem that the department has said that it will find a way to resolve no matter what, but it has not yet found an absolute answer.

Parliamentary procedure is a matter for the two Houses. I am sure, though, that with the good will of Members of both Houses, we can encourage the process to move according to the speediest possible timetable. It is important that people who are petitioning are properly heard and listened to; I would not want to cut short the opportunity for that proper interface.

On fares policy, we have said that this will not be a premium service. There will be many ways to link Euston and St Pancras. They have to be looked at. Travelators have been mentioned; there is one stop on the Northern line.

Lord Jenkin of Roding (Con): My Lords—

Lord Snape (Lab): My Lords, this side.

Noble Lords: This side!

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Lord Popat (Con): Order, please. I think it is my noble friend Lord Jenkin, then it will be the noble Lord’s turn.

Noble Lords: No! This side!

Lord Popat: Okay, I will accept that.

Lord Snape: My Lords, I am grateful that the normal procedures of the House are being abided by. I strike a discordant note, as a supporter of this project, to say how disappointed I am—as I am sure many people in the Midlands and north will be—at the abandonment of the link between HS1 and HS2. Thirty years ago, during the passage of the Channel Tunnel Act, we were told that there would be through trains from Paris, Brussels and other continental cities to our great cities of the Midlands and the north. This was, at least, a chance for those through trains to run between those cities. How does the Minister suggest that a businessperson coming from the continent to the Midlands or the north gets between Euston and St Pancras? Do they take the Victoria or the Northern line? Or will they pull their luggage along Euston Road? Will the Minister accept from me that there will be a great deal of disquiet in many parts of the country about the abandonment of this link?

Baroness Kramer: Many of the cities in the north and the Midlands accept that the link as it was designed did not fit the purpose that they saw for it. It simply was not adequate in the role that it played. We will be looking at many more trains going to many more destinations out of Kings Cross and St Pancras. There has to be a much better way to create a link between HS1 and HS2. That will be a major study. It is a piece of work and it needs to be of the standard that a high-speed intercontinental link deserves.

In the short term, we will need a way to get between Euston and St Pancras. As I say, that will be looked at. The distance, as other people have said, is very limited; I walked between the two in four minutes yesterday. However, it will be important to make sure that that is an efficient and effective link and not a matter of trundling down the street.

Lord Jenkin of Roding: My Lords, on this question of the HS1/HS2 link, there could be an additional dimension. I have had discussions with Sir Howard Davies who, with his commission, is currently looking at whether a Thames estuary airport could be a realistic addition to the shortlist of options that will be given to the Government after the next election. If, indeed, it becomes a realistic option—which is not impossible at all—then the question of a link from the north will become absolutely vital. People must have a way of travelling down on the HS2 and going on the HS1, with a link to the airport at the Isle of Grain if that is the one which is approved. That would be almost more important than a direct rail link to the continent.

Baroness Kramer: My Lords, none of us is attempting to second-guess what the conclusions of the Davies report will be, or the conclusions of the Government of the day that will make the final decision. At that time it will be appropriate to take a look and work out

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how links can be created if they will be relevant to whatever the major airport will be for the south-east, and to the high-speed line. However, to attempt to do so at this point would delay HS2, which we want to get into the ground by 2017 to deliver the benefits which we all discussed earlier. That is absolutely crucial.

Lord Foulkes of Cumnock (Lab): My Lords, I was very glad that the Statement mentioned Scotland on a couple of occasions. However, in her replies to all the previous questions, the noble Baroness mentioned just the Midlands and the north—she is reverting back to that again. Will she confirm that the best part of the whole economic case is regarding journeys between London and Scotland, and that that also frees the existing lines to have more stops at intermediate stations in England? Will she therefore initiate discussions with the Scottish Government as quickly as possible to ensure that work is under way to determine the route to Scotland, to start to think about the funding and to start working on dates for construction? Unless she and the Government do that, we will not think that they are being serious about Scotland.

Baroness Kramer: I am delighted to say that the department is somewhat ahead of the game. I have already commissioned a report and consultants have been retained; we expect a preliminary response on how to take the benefits of high-speed rail to Scotland. We will get our interim response in July, and that will be a very important document in being able to identify the future. Of course, HS2—even the “Y” that is currently planned—will help to bring journey times to Glasgow and Edinburgh down to less than three hours.

Lord Shutt of Greetland (LD): My Lords, I welcome this report; I am in favour of HS2. However, I am rather more in favour of the “plus”. In this report, one word which bellows out is “connectivity”. In the foreword it says that there is,

“poor connectivity in the North”.

It wants us to be,

“more ambitious … about producing a coherent transport plan for the North”.

On page 9, the report states:

“In contrast, connectivity in the North is poor”.

I agree.

I do not want to detract from what has been said about getting to Crewe earlier, and the connectivity in the north-west. However, I want to speak about the other leg, from Birmingham up into Yorkshire, and the possibilities beyond that. The original proposals in January 2013 propose a terminal station in Leeds—what I describe as a “hammerhead terminus”—where the only connectivity is a long walk. That might suit Leeds but it is useless for connectivity for anywhere else, such as Huddersfield, Halifax, Bradford, Keighley, Skipton, Ilkley, going back round to Wakefield, or further connectivity to York, the north-east and Scotland.

Does the Minister agree that connectivity will be achieved if, in Leeds, we get a new station parallel to the Leeds City station of today, not a station that is a hammerhead terminus, which would mean that people would have to leg it such a long way, and the detraction that that would bring?

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Baroness Kramer: Yes; I can reassure my noble friend that we are looking very closely at all the proposals that have come in through the consultation, and more generally we are going back to look at all the detailed elements of the second phase of HS2. The issues he raised have been raised with the department and will be looked at, as will other proposals. As I said, we will come back with our conclusions in the autumn.

Lord Beecham (Lab): My Lords, I declare an interest in HS2. Unfortunately, it is likely to be a post-mortem interest because by the time it reaches Newcastle I will have long since been dead and buried. The urgent need is for investment now, or as soon as possible, in the north-east in the intra-regional rail infrastructure and indeed, that which will extend across the Pennines to the north-west. It is a very poor route and service at the moment. Can the Minister give any assurance that investment will take place sooner rather than later in those regards, irrespective of what happens in the timing of the HS2 project as such? After all, the north-east has a mere fraction of the per capita expenditure on transport infrastructure, particularly of the south-east, but also in relation to many other regions in the country.

Baroness Kramer: The noble Lord will be aware that spending on transport in the next Parliament is to be £73 billion, of which only £17 billion will be on HS2. There will be a very substantial spend on other transport services, including upgrading and improvement of rail, electrification, and so on. I could go on with a very long list. I can assure the noble Lord that that is not being ignored. There are also great opportunities with the local growth fund, which is a £2 billion-a-year fund for stakeholders to bring forward plans that they see linking into and maximising the benefits to HS2, so that they can go ahead in preparation for the arrival of HS2. I expect many of the cities and communities in the Midlands and the north to be doing exactly that.

Lord Brooke of Sutton Mandeville (Con): Does my noble friend share my enhanced confidence in recent developments from the fact that the growth task force is chaired by our noble friend the Commercial Secretary, following his remarkable achievements on the infrastructure of the London Olympics, in particular?

Baroness Kramer: The noble Lord, Lord Deighton, has brought so much to this issue, not just his experience. The House will be aware that some years ago transport was looked at primarily in silos. It was about how to get people or freight from one place to another. It is now seen as inherently part of an economic development strategy. Local connectivity and integration with the rest of the network now have an importance that perhaps they once did not have. The noble Lord, Lord Deighton, has been very instrumental, with others, in making sure that we have those thoughts right at the forefront of the HS2 scheme.

Lord Clark of Windermere (Lab): My Lords, I greatly appreciate the Statement today, but when we talk about the great cities of the north, are we including cities such as Preston or Carlisle, which almost certainly will end up with an inferior rail service to the capital in

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London unless we get the connectivity right, as the noble Lord, Lord Shutt, has wisely drawn our attention to? There is no sign of that at the moment. For example, in a Parliamentary Question in the past few months, I was told that there was not even a business case made for high-speed trains from Wigan, which was to be the terminal to Glasgow. I find that incredible. I am also told that the high-speed trains will not run on the high-speed line, so the tilting trains will be providing an inferior service down the conventional west coast line.

Baroness Kramer: I am not sure that I fully understood the noble Lord’s last point. There will be the fast, specially designed HS2 trains, but the line can also take the classic-compatibles—diesel or otherwise—that can go off to a whole variety of other connections on the west coast main line and other routes. This frees up the west coast main line, the east coast main line and the Midland main line to take a whole complexity of other services. That issue has been raised by others on the Floor today. The expectation of an enhanced service from a much greater number of cities than those absolutely directly connected to HS2 is entirely viable. We just have to make sure that it is deeply embedded in our planning.

Lord Grocott (Lab): My Lords, I warmly welcome the Statement, representing as it does an increased and restated commitment to this project from the Government, added to by my noble friend Lord Davies, who spoke for the Opposition. It is extremely important that it is restated in that way, and it is encouraging to see what questions have been asked as well. However, I share some of the concerns raised by my noble friend Lord Snape. I certainly do not wish to delay anything—the quicker the better, in terms of preparing the scheme and getting it going. However, with regard to the statement:

“I will also commission a study into options for ways to improve connections to the continent which could be built once the initial stages of HS2 are complete”,

I would like it to be spelt out in a little more detail what this commission is going to do and within what timescale, and I would like just a clue as to what the other conceivable options would be if there were not to be a direct link between HS1 and HS2, because that must be a concern for those of us in the Midlands and the north.

Baroness Kramer: The decision to not develop the proposed HS1-HS2 link is very recent. A lot of work and thought needs to go into framing the study. As soon as we are able to do that, I will be glad to share it with the House.

Defence Reform Bill

Report (1st Day) (Continued)

5.26 pm

Clause 16: Pricing of contracts: supplementary

Amendment 4

Moved by Lord Tunnicliffe

4: Clause 16, leave out Clause 16

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Lord Tunnicliffe (Lab): My Lords, I am pleased to see the noble Baroness, Lady Jolly, in her seat. I would feel inhibited in quoting extensively from her letters, as I intend to do, in her absence. As I mentioned earlier, my vision of Part 2 is essentially that it delivers value by forcing the Government into the constraints that the legislation will spell out once it becomes law. Broadly speaking, what it will do, I hope, is to force agreements into a shape whereby a price is set in one form or another and the excesses or losses that actually occur in practice are handled by Clause 21 entitled “Final price adjustment”. The concept seems to be very sound. You have to go into the regulations to understand it but, broadly speaking, if the actual outturn cost goes up, then pound for pound the contractor makes a loss until the cost becomes excessive, and then, by a formula, the loss starts to be shared with the MoD, eventually on a 50:50 basis. Similarly, if the actual cost goes down because of the efficiency of the contractor, initially all that efficiency and improvement falls to the contractor. Only when the profits start to become excessive is there any clawback to the MoD. It looks to be a good idea that contracts can be forced into that by law. We will wait to see whether that comes off but it is a good aspiration, which we support.

As I mentioned earlier, the Government facilitated extensive discussions on the contract. Of course, when everyone sees a formula, one at least takes some interest in how one would get round it, because that is what people will try to do. As an example, I examined the Statement on carriers made by the Secretary of State for Defence on 6 November in the House of Commons, in column 251 of Hansard. He criticised extensively the previous deal, which was for the carrier but then went on to be a deal which I will call a critical industrial capacity deal. In other words, it was a deal, quite complicated in nature, that essentially paid BAE Systems to do nothing if it had nothing to do in order to retain the essential workforce, facilities and so on. It is a very uncomfortable deal but nevertheless you can see the wisdom of it. Our Government made such deals, this Government have made a similar deal, and despite all the wonderful planning in the world I suspect that future Governments may have to make a similar deal. We agreed with BAE on 6 November.

5.30 pm

Perhaps I may comment on a sentence or two of the statement. Crucially, under the new agreement, any variation above or below that price—£6.2 billion in the paragraph—will be shared on a 50:50 basis between government and industry. That looks like a good target-cost incentive fee, which is the second big way in which the Bill envisages that business will be done. In other words, if the outturn cost is £100 million higher, then government stump up £50 million and BAE loses £50 million profit. If it is lower, the extra profit or surplus is shared 50:50 with BAE. So far so good. However, the next few words are,

“until all the contractor’s profit is lost”. [

Official Report,

Commons, 6/11/13; col. 251.]

So suddenly the sharing is 0:100. This means that 100% of the excess cost once the contactor’s profit is lost is paid for by government. This does not seem to fit with any of the models in the Bill.

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I raised this issue in Committee and the noble Baroness, Lady Jolly, was kind enough to write to me. In her letter she said, “You speculated that although this agreement”—the agreement to which I have just spoken—“deals with an area concerned with single source procurement, deals of this type could not be covered by the new framework and therefore would be exempted under Clause 14(7)”. That is the clause we were talking about earlier which states that the Secretary of State could exclude contracts but, the Government have assured us, only under exceptional circumstances. The letter continues, “Obviously, in this particular case the new framework has not yet commenced and the provisions are not retrospective”. So the new framework will not cover this agreement. It goes on, “Moreover, although this is a very complex agreement covering a range of issues such as redundancies and policies, were a similar agreement to be reached in the future then there is no reason why such an agreement should not be covered by Part 2 of the Bill. There is no expectation that it will be exempted under Clause 14(7). The principles underlying Part 2 would be as relevant in the application of such an agreement as any other single source contract between MoD and industry”. That is great. That is good. In future we are going to work within the limitations of the new framework.

At a subsequent meeting I said that that was a great assurance but how do we accommodate the point where the deal just concluded goes into a sharing of 100% of the losses being picked up by government and 0% of the losses above that point being the responsibility of BAE Systems? The Government drew breath and said that they would write again. When they wrote again the letter stated, “As I explained to you in my last letter, our initial assumption is that in future any single source contract negotiations will be on the basis that the resulting contract will be a qualifying defence contract as defined in Part 2 of the Bill. It is also our assumption that the Secretary of State will only be required to use his exemption powers on very rare occasions. We do accept that there may be situations, such as where there is a very large element of risk involved in a major project, where it makes sense for the MoD to accept the potential liability for a larger proportion of the costs. In this case, however, there will no requirement to invoke the Secretary of State’s exemption powers. Clause 16”—which is the subject of this debate—“provides the department with the flexibility to make target-cost incentive fee arrangements with industry, allowing us to specify arrangements where we share a greater proportion of potential gains and losses than is the case under the final price adjustment”, which I have previously described.

I do not know about your Lordships, but “target-cost incentive” means that there is an incentive. Every pound that you lose, being wholly paid for by the Government, does not seem to be an incentive at all. This seems to be a complete misuse of Clause 16, which was designed to keep an incentive on the contractor throughout the contract to the very end. I cannot claim that use of this clause in this way is contrary to the wording, but I do claim that it is contrary to the clause’s intention, which was to create a framework for a target-cost incentive fee arrangement—in other words a proper incentive running all the time.

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I believe that the use of this clause to legitimise a large and complex deal, whereby all losses are picked by government, is an improper argument. We support the generality of this Bill, but I would like to hear what the Government will do about the use of this clause, which will allow a coach and horses to be driven through this otherwise well crafted part of the Bill; we believe that that is wrong. We would like to hear what the Government are going to do about it and that is why we have put forward this amendment that the clause be deleted. I beg to move.

Baroness Jolly (LD): My Lords, this amendment seeks to remove Clause 16 of the Bill.

The clause is essential to ensure the consistent and widespread application of the new framework to all types of contracts used by the Government in single-source procurement. The purpose of Clause 16 is to allow for qualifying defence contracts that use a target price rather than a fixed price. These target-price contracts include sharing arrangements in the event of cost overruns or underruns. The benefits of any cost reductions are shared by the MoD and the supplier, as are the risks of costs being greater than anticipated. They are usually referred to as target-price incentive fee contracts, as the noble Lord has said. This kind of contracting approach is a model often used in high- value single-source MoD procurements where there is insufficient pricing certainty to make a firm or fixed-price contract a sensible option. In the past they have accounted for approximately 40% of our single-source contracts by value.

The Typhoon-availability contract, which provides support to the RAF’s Typhoon fleet, is one such contract. We want to retain the ability to use these target-cost contracts. We also do not want these contracts to be excluded from all the protections offered to both parties by Part 2. Clause 16 ensures that such target-cost incentive fee contracts, or indeed any other pain/gain share models based on a target price, can benefit from all the protections of the new regime.