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House of Lords

Tuesday, 8 April 2014.

2.30 pm

Prayers—read by the Lord Bishop of Bristol.

Northern Ireland: On-the-runs


2.38 pm

Asked by Lord Lexden

To ask Her Majesty’s Government whether fresh evidence is being sought by the police on any of the persons on the list of “on the runs” submitted by Sinn Fein to the Northern Ireland Office who have been sent letters informing them that they are not currently wanted for questioning, arrest or prosecution.

The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD): My Lords, responsibility for the investigation and prosecution of individuals rests with the police and prosecuting authorities. The right honourable Lady Justice Hallett DBE has been appointed to conduct an independent review of the administrative scheme to deal with so-called on-the-runs. This inquiry will provide a full public account of the operation and extent of the scheme. I expect the report to be completed by the end of June 2014 for the purpose of its full publication.

Lord Lexden (Con): I know that my noble friend fully understands the sense of shock and outrage which now exists as a result of the revelation a few weeks ago that the previous Government arranged for secret letters to be sent to more than 150 terrorist suspects at the behest of Sinn Fein. Mr Gerry Adams said that,

“it would be better if there was an invisible process”—

words quoted at the recent Downey trial before its collapse. Why on earth did this Government continue the shameful collusion with Sinn Fein by allowing more letters to be sent out by officials at the Northern Ireland Office until the end of 2012? The Government have made it clear that the letters confer no permanent immunity from prosecution. Will my noble friend give us an absolute assurance that the police in all parts of our country are fully aware that we want them to gather evidence and bring terrorists to justice for their shameful crimes?

Baroness Randerson: My Lords, if at any time we had been presented with a scheme that amounted to immunity, exemption or amnesty, we would have stopped it, consistent with the opposition of both coalition parties to the previous Government’s Northern Ireland (Offences) Bill in 2005, which proposed an amnesty. The current Government continued the scheme on the basis of continuing with existing cases to the overwhelming part until 2012, and continued work on it until the early part of 2013. Noble Lords must wait for the outcome of the review to know the full details.

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Lord Shutt of Greetland (LD): My Lords, the noble Baroness has given two sets of Answers to Written Questions recently and made clear that the inquiry to be conducted by Lady Justice Hallett has no power of compulsion. Why is that? Why is Lady Justice Hallett constrained and not holding an inquiry under the Inquiries Act 2005?

Baroness Randerson: My Lords, it is an administrative review and will not be conducted according to the 2005 Act. This Government have always been clear that we have reservations about the use of public inquiries to deal with the past. There is an issue about the length of time that many of them take and there is in this case a clear public interest in early publication of the report.

Lord Trimble (Con): My Lords, I wonder whether the Government intend that the inquiry—or review, as it is now termed—will go ahead without having heard from the people who designed the process, the then Secretary of State and Mr Gerard Adams. Is it satisfactory to try to operate without having the power to compel Mr Adams to come to give evidence?

Baroness Randerson: My Lords, government officials will of course appear before the inquiry and will give evidence. Others will be invited to do so. It is entirely up to Lady Justice Hallett how she reads her remit in that regard, from whom she will request evidence and how far she takes the scope of her inquiry, but, for the reasons to which I have already referred, she is asked to report by the end of June at the latest.

Lord Elystan-Morgan (CB): My Lords, I raise a matter which does not seek to touch on the merits or the demerits of the scheme: a purely technical, legal matter. Is any person who has received a letter as described in the Question in any way protected from the law of citizen’s arrest, or would it in fact need legislation to produce such a result?

Baroness Randerson: The intention of the letters was to present a statement of fact at a point in time. As such, they did not grant immunity, exemption or amnesty. To do that would have required legislation.

Lord McAvoy (Lab): My Lords, we should never forget those members of our Armed Forces who lost their lives in the Hyde Park bombing, their families and all victims of the other atrocities associated with the Troubles in Northern Ireland.

As part of a complex process that made peace and stability in Northern Ireland possible, the previous Labour Government issued on-the-run letters to people who had reason to believe that they might be under investigation. As stated by both the Opposition and the Government, that was not an amnesty and letters made clear to recipients that, should evidence come to light in future, they could be prosecuted. However, the scheme once again draws attention to the need for long-term solutions on issues of the past. Can the Minister reassure the House that she still believes that a positive outcome will be reached from the ongoing all-party talks, and are the Government fully engaged in trying to make that happen?

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Baroness Randerson: I share the noble Lord’s sentiments in relation to sympathies towards the families of victims—indeed, towards victims throughout the Troubles. I understand entirely the considerable anger that the events of the past few weeks have stirred among them and among others in the community in Northern Ireland. I am sure that those who were in government during the early years of the on-the-runs scheme will welcome the opportunity in due course to give evidence. There are five inquiries of various sorts being undertaken into this process and I am sure that they will welcome that opportunity. I can confirm that the Government are committed to ensuring that there is a long-term solution to the problems of the past in Northern Ireland.

Lord Tebbit (Con): My Lords, will my noble friend consider extending the terms of this inquiry so that we can know whether there were any letters or similar inducements given to assist the progress of the ceasefire talks which led eventually to the Good Friday agreement? It is my understanding that certain proceedings were held up to assist that process. It would be interesting to know whether that is indeed true.

Baroness Randerson: The terms of reference of Lady Justice Hallett’s inquiry have been set out. Indeed, work has started on it. However, I am sure that if she were to come upon evidence that led her to be concerned about issues of the nature that my noble friend has referred to, it would be within her remit for her to make recommendations on that for the future.

Education: Black British Students


2.46 pm

Asked by Baroness Benjamin

To ask Her Majesty’s Government what steps they are taking to raise the academic attainment levels of black British students, and especially those of Caribbean descent.

The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con): My Lords, the Government aim to improve education for all and our policies to achieve this are working. Attainment for black pupils is increasing strongly while performance gaps have closed and are narrowing substantially. In the past five years, we have seen a 17% increase in black Caribbean pupils attaining five GCSEs, including English and maths; it has gone up from 36% to 53%. For black African pupils the achievement rate now stands at 61.2%, which is above the national average of 60.6%.

Baroness Benjamin (LD): My Lords, students of Caribbean heritage are at the very bottom of the attainment league table. Chinese and Indian students are at the top yet they are always lumped together as if they are one group, giving the impression that ethnic minority students are outperforming white students. Can my noble friend the Minister tell the House what is being done to ensure that Caribbean-heritage students are attaining the Government’s GCSE benchmark and

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going on to further and higher education? How is the Education Endowment Foundation being encouraged to use its substantial government funds to address this problem?

Lord Nash: I assure my noble friend that we publish detailed attainment data by specific ethnic category and that schools and Ofsted study their internal data on this carefully to ensure that all pupils are making good progress. Sponsored academies have substantially higher intakes of black pupils than the rest of the state sector, and those pupils are significantly outperforming pupils from similar backgrounds in maintained schools. Sponsored secondary academies have 79% more black Caribbean pupils and are increasing their performance at double that of other state schools, while sponsored primary academies have 38% more black Caribbean pupils and are increasing their performance at three times that of other state schools. Disadvantaged black Caribbean pupils are also outperforming the disadvantaged group as a whole: 45% are achieving the GCSE measure compared to the national average of 41%, while it is 33% for white disadvantaged pupils. Through the pupil premium we are providing £2.5 billion this year, which will benefit more than half of black pupils, while the EEF is funding a number of projects including an increasing pupil motivation project to help black pupils.

Baroness Massey of Darwen (Lab): My Lords, does the Minister agree that teacher expectation is one of the things that has the greatest impact on pupil achievement? Apart from what is going on in schools, does he also agree that mentoring schemes such as those of the Amos Bursary or ASCL can have a huge impact on the achievement of pupils through their one-to-one programmes?

Lord Nash: I agree entirely with the noble Baroness on both points. I like to think that low teacher expectations, particularly for black pupils, are a thing of the past; that is certainly proven in sponsored academies. I agree entirely with her about mentoring schemes. My own school participates in the mayor’s mentoring programme, which provides mentoring relationships for 1,000 black boys across the capital. Chance UK is an excellent charity providing mentoring, while Think Forward, which was founded by the Private Equity Foundation and funded by the EEF, provides highly trained coaches to work with disadvantaged 14 year-olds in schools in east London.

The Lord Bishop of St Albans: My Lords, what assessment have Her Majesty’s Government made of the impact on educational attainment of the absorption of the Ethnic Minority Achievement Awards into the dedicated schools grant, which was done some months ago?

Lord Nash: The impact was substantial. I will have to write to the right reverend Prelate to give him more details.

Baroness Lawrence of Clarendon (Lab): My Lords—

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Lord Morgan (Lab): My Lords, an important—

Noble Lords: Lawrence!

Baroness Lawrence of Clarendon: My Lords, what happens after school and university is equally important. The latest figures show that 45% of young black people in the UK are unemployed. What steps are the Government taking to stop the overrepresentation of young black African and Caribbean people among the unemployed?

Lord Nash: Our apprenticeships programme is very much aimed at this. We have also reformed vocational qualifications. In the past, too many of these qualifications had no real job value but were overpromoted in equivalence tables. Alison Wolf did a study on this, and we have dramatically reduced the number of equivalent vocational qualifications that count, which will be of much more value to all pupils and I think will particularly help black pupils.

Baroness Hussein-Ece (LD): My Lords, is the Minister aware that a recent study by the Institute of Education found that one of the major concerns of black parents was that teachers generally predetermined the kind of pupils—

Noble Lords: Reading!

A noble Lord: So was the noble Baroness, Lady Lawrence.

Baroness Hussein-Ece:—who were capable of academic success, that some teachers had lower expectations of black and minority ethnic students and that black pupils were more likely to be entered for lower-tier exams, meaning that these students were able to achieve only a C or D grade as a maximum?

Lord Nash: As I say, I would like to think that this was a thing of the past. However, in order to improve teaching leaders—

Lord Foulkes of Cumnock (Lab): Reading!

Lord Nash: One could say that was a fair cop, but I think I am entitled to. The Teach First programme, which we have quadrupled, the Teaching Leaders scheme and the Future Leaders scheme, along with the Talented Leaders programme that we are shortly to introduce, should all ensure that we raise the standard of teaching and that any prejudice in this regard is a thing of the past.

Israel and Palestine


2.54 pm

Asked by Lord Hylton

To ask Her Majesty’s Government what discussions they have had with Israel and Palestine about the consequences of the failure of the current negotiations to make substantial progress by the end of April.

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The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, we have made clear to both parties that the current negotiations represent a unique opportunity to achieve a just and lasting solution to the conflict. As the Prime Minister said during his recent visit to the region, we need to keep our eyes firmly fixed on the prize of peace: a secure Israel safe inside her borders and a state of Palestine living alongside, with all the benefits that that would bring.

Lord Hylton (CB): Is it not shameful that, 40 years after the last international war in the region and 20 years after the Oslo agreements, there is still no final status agreement? Will the Government insist that the Government of Israel make their own proposals for ending the blockade of Gaza and the military and colonial occupation of the West Bank, otherwise world opinion will insist on boycott, disinvestment and sanctions? Will Europe and the Middle East use their economic power to counterbalance the huge strength of Israel? Will Her Majesty’s Government discuss this urgently?

Baroness Warsi: I know the noble Lord has written to me on a number of occasions in relation to this matter. Like him and all Members of this House, I would like the Middle East peace process resolved. We would like to see a secure Israel living alongside a secure and viable Palestinian state. We continue to urge that negotiations are the best route to achieve a solution that ends the conflict once and for all. Secretary Kerry’s tireless efforts provide a real opportunity to achieve that goal. Therefore, we are urging both parties to show the leadership that is needed to seize this moment.

Lord Phillips of Sudbury (LD): Does my noble friend accept that the negotiations are doomed, and that Mr Netanyahu and his Cabinet know that they are doomed, so long as Israel goes on colonising the West Bank illegally and relentlessly? Is that not the reality, and what are we going to do about it?

Baroness Warsi: My Lords, the situation on the ground continues to change. That is why I have stood at this Dispatch Box on a number of occasions over the past 12 months and said that this provides a unique opportunity to try to make progress. We support the discussions that Secretary Kerry is leading, and we urge both sides, who have said that they are still prepared to talk, to get back to the table to try to achieve a resolution.

Lord Wood of Anfield (Lab): What explanation have Her Majesty’s Government received from the Israeli Government about why they did not release the fourth group of Palestinian prisoners last week?

Baroness Warsi: The noble Lord will be aware that this was the fourth tranche of the prisoner releases that were agreed last year. The first three have taken place; the fourth has been delayed. The noble Lord will be aware that there is a difference of opinion

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about how these matters are seen. Israel felt that these prisoner releases were directly linked to the peace talks. The Palestinians believed that they were directly linked to no further action at the UN. Clearly, the discussions that took place at that stage were vague. I take comfort from both parties having indicated that they are prepared to come back to the negotiating table because that is where progress will be made.

Lord Leigh of Hurley (Con): My Lords, does the Minister agree that unilateral Palestinian action at the UN and other international organisations has been very counterproductive? Does she agree that it is surprising that the EU has not used further efforts to bring Mr Abbas back to the table, given the €5.6 billion in aid that has gone to the Palestinian Authority in the past 10 years?

Baroness Warsi: It is not the Government’s decision to be taking sides in this matter. There have been counterproductive actions on both sides. There are things that both sides agreed to that have not been delivered. That is why we are stressing, once again, that they need to get back to the negotiating table because that is the only place where a long, true settlement will be made.

Lord Wright of Richmond (CB): My Lords, I thank the Minister for her written response to a question I asked in a recent debate about demolitions and settlements in the Occupied Palestinian Territories. Did the Prime Minister raise these questions with Mr Netanyahu when he visited Israel? If he did, what was Mr Netanyahu’s justification for continuing these illegal breaches of Palestinian human rights?

Baroness Warsi: The issue of human rights was raised by my right honourable friend the Prime Minister on his visit to Israel and the Occupied Territories in mid-March. I do not know what the response was. If I get it, I will write to the noble Lord.

Lord Turnberg (Lab): My Lords, it is extremely unfortunate, if unsurprising, that the talks seem to be breaking down. Instead of the blame game that will undoubtedly follow, with the Palestinians blaming the Israelis for not releasing prisoners and continuing to build on the West Bank, and Israel accusing the Palestinians of going to the UN before they have agreed to go and not agreeing that the Jewish state exists, should we not be thinking of a plan B? Are the Government thinking of any advice they can give to both parties to bring them to some sort of agreement, at least in the interim?

Baroness Warsi: My right honourable friend the Foreign Secretary spoke to President Abbas last week, and is hoping to speak to the Israelis later this week. There has been an unprecedented EU package, in which we have played a part, which is on the table—socially, economically, politically and developmentally—if this peace deal were to be reached. That is why we keep stressing to both parties that this is not about the

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blame game; I agree with the noble Lord. This is about continuing to support a process which, at this stage, is still on the table.

Lord Hussain (LD): Since the resumption of talks between the Palestinians and Israelis last year, how many times have the Government of Israel announced new settlements in the occupied areas? How is that helping the negotiations?

Baroness Warsi: There have been further settlement announcements since negotiations resumed last year: first, on 8 August last year, secondly on 30 October, thirdly on 3 November and then on 6 January this year. As I said, this is not an issue of playing the blame game. Both sides are doing things that were not agreed to, which is why we want them to get back to the negotiating table and do what was agreed.

Muslim Brotherhood


3.01 pm

Asked by Baroness Falkner of Margravine

To ask Her Majesty’s Government on what basis they have established an investigation into the Muslim Brotherhood’s activities in the United Kingdom.

The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach) (Con): My Lords, the Prime Minister’s decision to commission a review was taken on the grounds of national interest against a backdrop of substantial recent change, particularly in the Middle East and north Africa. The review will make sure that we have a thorough understanding of the Muslim Brotherhood, its impact and influence on our national security and interests, and on stability and prosperity in the Middle East.

Baroness Falkner of Margravine (LD): My noble friend will be aware that the Muslim Brotherhood is a pan-Islamic organisation which takes very different forms in different countries. If the Government believe that the brotherhood might be involved in violent extremism, why do they not use existing counterterrorism laws to prosecute it in the courts? If, on the other hand, this inquiry is being driven at the behest of Saudi Arabia to discredit the brotherhood, I respectfully suggest to my noble friend that it is the United Kingdom’s Government and its foreign policy which risk being discredited, by portraying the brotherhood in the eyes of its many Muslim supporters around the world as victims of a politically motivated Government acting at the behest of an authoritarian foreign power: Saudi Arabia. Can the Minister tell the House whether the results of the inquiry will be made public?

Lord Taylor of Holbeach: My Lords, my Answer made it quite clear that this is about the UK’s national interest and the UK Government forming their own view. The review will make sure that we have a thorough understanding of the Muslim Brotherhood, its impact

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and influence on our national security and other national interests, and on stability and prosperity in the Middle East. We are not talking about the view of another Government; we are talking about this Government. The review will consult widely with experts, regional Governments, the EU and US partners. The UK Government will make up their own mind.

Lord Wright of Richmond (CB): My Lords, if press reports are correct, this review is being headed by Her Britannic Majesty’s ambassador to Saudi Arabia. Does this not put Sir John Jenkins in an extremely invidious position, given that the Government to whom he is accredited take every possible step, as the noble Baroness has said, to discredit and to destroy the Muslim Brotherhood?

Lord Taylor of Holbeach: I cannot agree with the noble Lord, although he speaks with a great deal of authority. He will know that Sir John Jenkins has been asked to lead the review because he is one of our most senior diplomats, with extensive knowledge of the Arab world, and his role is to serve Her Majesty’s Government. He was not chosen because of his current role as ambassador to Saudi Arabia. He is not working alone, and will draw on independent advice from other places.

Baroness Smith of Basildon (Lab): My Lords, the Minister referred to a review, but the Prime Minister used the words “an investigation” or “an inquiry”, and there may be some difference. It would be helpful if we could have some information on that. Has he taken the opportunity to talk about this to the noble Baroness, Lady Warsi, who always impresses your Lordships’ House with her knowledge of such issues? A report in the Financial Times says that a senior government figure reported on “tensions” between the Foreign and Commonwealth Office and the Prime Minister’s Office on this, saying:

“This cuts against what the FCO has already been doing in this area, both domestically and in the Middle East. It risks turning supporters of a moderate, non-violent organisation that campaigns for democracy into radicals”.

Is there a tension at the heart of the Government, and is this a review or an investigation?

Lord Taylor of Holbeach: Not at all, my Lords. My noble friend and I are at one on the issue.

Lord Elton (Con): My Lords, can my noble friend tell me and the House whether the ambassador will go on being an ambassador while he is also leading the inquiry, and if so, is there not a conflict of interest?

Lord Taylor of Holbeach: I am sure that ways will be found whereby his duties as ambassador can be delegated where necessary. However, he has been appointed to that role as an ambassador, and will continue to undertake that role. I see no conflict of interest. As the noble Lord, Lord Wright, recognised, the diplomatic skills that Sir John Jenkins has are essential for a proper understanding of the situation.

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Lord West of Spithead (Lab): My Lords, can the Minister tell us how many other reviews or investigations have been conducted in this manner into groups we have been concerned about? I cannot remember that we undertook any reviews or investigations in this manner of the groups that we were worried about during the three years that I was a Minister.

Lord Taylor of Holbeach: That was a decision for the previous Government. This Government have made up their own mind that they want to know more about the Muslim Brotherhood and its influence on politics and groups in this country. I hope that noble Lords will understand that this is a British review conducted by the British Government. I was asked earlier and did not give an answer—this is obviously an internal review for the Government themselves. However, it is expected that Sir John Jenkins and the group will want to make some of their findings public.

Lord Wright of Richmond: My Lords—

Lord Dykes (LD): As this is manifestly a sordid plot from Saudi Arabia, would it not be more interesting if HMG had conversations with the Saudi Government about allowing women to drive cars in that country?

Lord Taylor of Holbeach: That question is not worthy of my noble friend. The noble Lord, Lord Wright, was trying to get in, as I had named him.

Lord Wright of Richmond: With the permission of the House I wish to make a very brief remark. As a former ambassador to Saudi Arabia, I would find it extremely difficult if anyone were to ask me to head this review.

Lord Taylor of Holbeach: In answer to that, I can say only that I am very pleased that Sir John Jenkins has not found it so. I am sure that he will do an excellent job in the national interest.

Arrangement of Business


3.08 pm

Lord Gardiner of Kimble (Con): My Lords, our first business this afternoon is consideration of the Commons Reason on the Pensions Bill. After useful discussions in the usual channels, I hope that that business can be concluded by 4 pm. If not, I will at that point move that the House do adjourn until 5 pm to enable Members of this House with tickets to attend the address by the President of Ireland in the Royal Gallery. If we manage to finish the Pensions Bill before 4 pm, we will return at 5 pm for the Third Reading of the Water Bill.

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Pensions Bill

Commons Reason

3.09 pm


Moved by Lord Freud

That this House do not insist on its Amendment 1, to which the Commons have disagreed for their Reason 1A.

Lords Amendment 1: Clause 2, page 2, line 5, at end insert—

“( ) Regulations may provide for circumstances in which a person may opt to have a year treated as a qualifying year if by aggregating income from two or more jobs, that person’s earnings are equal to or greater than the lower earnings level for that year.”

Commons Disagreement and Reason

The Commons disagree to Lords Amendment No. 1 for the following Reason—

1A: Because it would alter the financial arrangements made by the Commons, and theCommons do not offer any further Reason, trusting that this Reason may be deemedsufficient.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con): My Lords, this amendment is the one outstanding issue of a Pensions Bill that will radically reform the state pension system, providing a clear, simple platform on which to save for retirement. This Government want people to build up a full entitlement to this new pension, to give them this platform and then to take them above the level of the basic means test. This is why we have a comprehensive and recently reformed crediting system, which covers those looking after children or elderly relatives and people claiming JSA and ESA. Those in universal credit households will also get credits so that, in time, at least a further 800,000 people will gain a qualifying year. It is why during this Parliament we have introduced a credit for adult carers of children, commonly known as the “grandparents’ credit” and, with thanks to Members of this House, we will now be extending credits for partners of members of the Armed Forces on overseas postings to have retrospective effect.

On Report, we had a good debate about whether the national insurance system is failing those who have more than one job and are earning enough to pay national insurance or be credited into the system but do not reach the required thresholds in any one of their employments. This is an area that the noble Baroness, Lady Hollis, has been campaigning on for some time and I pay tribute to her tenacity. It is clear to us that people are in that situation. Our own evidence suggests that around 50,000 people in 2012-13 had more than one job with combined earnings above the lower earnings limit and yet did not get a qualifying year for the purposes of the state pension. What is less clear is whether that will affect their state pension. The system allows people to have gaps in their records over their working lives. For those with a typical working life, they might be able to have gaps for 10 or 15 years and still get the 35 qualifying years that they need for a

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full single-tier state pension. For those in this situation for a short period of time, there is no reason to expect an impact on their pension.

What we heard from the noble Baroness on Report was that having more than one job was not a temporary situation for some people and that there is evidence to suggest that this is a growing phenomenon. While the current evidence that we have does not suggest a growing problem, the Minister for Pensions and I would like to acquire a greater understanding of the scale of the issue, who is being affected and at what point in their lifetime. For this reason, as the Minister for Pensions announced last month, the department will be updating and doing more detailed analysis and will be working with stakeholders to build its evidence base in this area. As the noble Baroness, Lady Hollis, herself said, the implications for individuals’ state pension entitlement have perhaps been neglected in recent debates about the labour market, so I am pleased that we now have the opportunity to shine some light on this area.

The department will update its analysis based on the latest data and will look to identify the characteristics of those affected. We are keen to bring other interested parties on board. As well collating the relevant findings from think tanks and research organisations, we will be convening a forum to discuss this evidence base before the Summer Recess. We are hoping that, among others, the Pensions Policy Institute, the Chartered Institute of Personnel and Development, the Resolution Foundation and, of course, the noble Baroness, will attend this forum. I am pleased to say that the Institute for Fiscal Studies has agreed in principle to chair it. This event will allow the department and interested parties to consider the available evidence in order to answer three main questions. First, what is the current evidence base? Secondly, is the number of individuals in this situation likely to change? Thirdly, what is the impact on their state pension outcomes? I believe that this work will get us to a place where we will understand whether there is a problem and, if there is an issue, will provide some pointers as to how it might be addressed.

I turn briefly to why this Government do not believe that we should insert a power in the Bill ahead of the conclusion of this work. Put simply, we already have the powers we need. The Social Security Contributions and Benefits Act contains broad powers to create new national insurance credits and to adjust the way voluntary national insurance contributions work—two possible options suggested by the noble Baroness on Report. There could, of course, be other options that we do not have the powers for, but I am sure noble Lords will understand that we cannot simply give ourselves a sweeping power to make regulations both to introduce any possible solution and to amend existing primary legislation where necessary.

I hope that I have made my position clear. I again thank the noble Baroness for her work on this issue. She has highlighted the need for us to dig deeper and that is what we shall do. Building the evidence base will give us a clearer sense of whether people working in multiple jobs are at risk of losing out on state pension and who these people are. I look forward to reporting back to the House on the results of this work and, in the mean time, I beg to move.

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3.15 pm

Baroness Hollis of Heigham (Lab): My Lords, first, I thank the Minister and his honourable friend in the other place, Steve Webb, for briefing me on their position before our amendment went to the Commons to be overturned. I appreciated their courtesy then in the same way that I appreciate the Minister’s generosity today. I also appreciate above all—that is what matters—their recognition—sort of, at any rate—that this issue is not going to go away. Obviously, my regret is that the Minister did not feel able to come back with an appropriate amendment in lieu, but of course I welcome the detailed review announced today.

What was the point of the original amendment? The state pension has been a national insurance pension built on men’s full-time working lives, where wives and widows largely derived their state pension entitlement through him. However, as family structures have changed, as motherhood has become divorced from marriage, as disabled people have lived into retirement, as mothers have joined the labour force, as grandparents in their 50s have become carers of even frailer parents in their 80s, so governments over the years have credited those in unwaged work—mainly women—into the NI system. Noble Lords—many of whom are here today—have helped enormously to make all that possible.

However, though the state pension has responded flexibly and appropriately to the changes in our demography, in my view it has failed to respond flexibly and appropriately to similarly profound changes in the labour market, such as the growth in self-employment, part-time work, agency work, zero-hours contracts, the 24/7 working world and the fact that nearly 40% of all people in the labour force no longer work a standard labour contract, on which our pensions are still largely based.

We have, alongside the US, probably the most flexible and deregulated labour market in the developed world—for good and for bad—but our pension structures have not caught up. Therefore, along with insecurity, uncertain income and hours, issues of sick pay, holiday pay and childcare needs—the dark side of the flexible labour market—almost always overlooked is, for some, the lack of pension entitlement. We who benefit from the labour market, including me, should ensure that appropriate safety nets are in place.

After all, if you are unemployed and on JSA, you are in the national insurance system and build a pension; if you are on disability benefit, you are in NI; if you are a carer of children or frail elderly relatives, you are in NI; if in future you are self-employed, you are in NI; and if you work 20 hours a week on the minimum wage in a single job, you are in NI and you build a pension. That is good. However, if you are in a non-standard work pattern, working 30 hours a week on the minimum wage but with two 15-hour jobs or three 10-hour jobs, you are excluded from national insurance.

If your earnings fluctuate across the year, when you can be sent home 10 minutes before your shift starts, you may not even know whether at year’s end you have crossed the LEL line and built your pension. If you strive to come off JSA, as we would wish, by patching together mini-jobs, which may be all that is available and with all the effort, travel costs and risk that that

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requires, you may get punished for it by losing the state pension that you would have got by simply staying on JSA. That is perverse. We are punishing people for doing what is right—those who are taking risks to do what is right—and public policy which does that must be wrong.

A woman may be cleaning offices early in the morning and late at night, as well as other offices late in the day, and doing domestic cleaning, travelling for hours by bus and building her working week. She may be working at a department store late on a Thursday evening and all day Saturday, alongside working in a laundrette during the week. A man may be doing three hours each weekday in a sandwich shop alongside some delivery work or part-time security work in Tesco. Multiple jobs are hard work.

Steve Webb in the other place was puzzled as to why such workers do not find jobs with longer hours. Disappointingly, he cannot have read the research. Students and pensioners may want those limited hours, but nearly half the workers in the MASS1 survey wanted longer hours and could not get them, sometimes because, I am afraid, employers want to dodge paying NI. Such workers need a second or even a third mini-job to make ends meet. They work 30 or 40 hours a week, fractured between several jobs. They may earn £11,000 or £12,000 a year and they may pay tax. We are quite happy to amalgamate their earnings for tax, through which they contribute to other people’s pensions, but we refuse to allow them to do it for NI, which would build their own state pension. This is so wrong.

We do not know precisely how many people are in this situation but my own best estimate—and it is only that—is that the figure is some 250,000 and growing. The obstacles over the decade in which we have been arguing this have basically been two. First, it is fiddly getting fractions of employers’ contributions from different companies. Secondly, there is an assumption, which I know the Minister does not share and which I am sure his right honourable friend does not share, that those with a couple of part-time jobs are mostly older women who can rely on their husbands and work for pin money; for them, the situation is short term and they do not matter. Well, they do. The changing world of work has made this a real issue.

Real-time information allows HMRC to track them—that is now straightforward. The new state pension—and I am so pleased about this—brings 4 million self-employed people into national insurance without an employer’s contribution, so that is not necessary. In addition, there are in any case millions of unemployed people on benefits or earning above the LEL of £5,700 but below the point at which they pay NI at £7,500 and who are credited into NI for free, yet because someone is earning £12,000 from three £4,000 jobs, they are outlawed and get nothing. We should be supporting their work effort and applauding their effort to patch together a wage under difficult circumstances, not undermining it.

Neither is this some short-lived rite of passage. What little survey material we have suggests that 40% of people in zero-hour contracts have been with the same employer for five years or more and 20% for 10 years or more, to the detriment perhaps of their

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future state pension. We know, for example, that many low-paid people cycle between employment, self-employment and no employment, but we do not fail to support the self-employed because their self-employment may last only a few years and theoretically there is time to build a full NI record. These non-standard work patterns are not some temporary phenomena but a fundamental shift in the nature of employment where demand for labour and services will ebb and flow by the hour, the day, the week, the season. With a Pensions Bill before us, we could do something about it and bring the state pension into line with this new working world.

The House agreed. On 24 February it supported this entirely permissive amendment. The Minister in the Commons who overturned it made three points: it was technically defective; we did not know the real stats—the Minister used that argument today—and universal credit would sort it; and, therefore, it was premature to act. I agree with the Minister on most of that, but not on the last point. The amendment is probably technically deficient. I have had many technically deficient amendments run against me. If the House and Government agreed, it was my responsibility, with consent, to bring back an amendment that in the words of the honourable Steve Webb could “normally be tidied up”. He simply chose not to.

Secondly, I agree with the Minister that we do not know what the facts or stats are. We have no definitive figures. Research on the topic is limited and they use different data bases. Of the primary pieces of research, one samples employers and one samples employees. One looks at only zero-hour contracts and the other at short-term contracts as well. They have different wage bands and different hour bands. The reason is that they were researching the work conditions behind zero-hour contracts, not the question of pension entitlement to NI. I am afraid that those questions did not arise. We can only make informed assumptions about the number of those at risk who will be covered by UC.

I am delighted that today the Minister has committed himself to decent research on the subject over and beyond what we already know. A full review of the existing literature, as I am sure the Minister knows, will take him precisely 10 hours. What I do not know, and what the chartered institute or MASS1 could tell us, is whether their data can be cut in different ways to answer some of the unknowns or whether we need fresh survey material that focuses specifically on the NI and pension entitlement issue. If we do need fresh survey research material, is the Minister in a position today to give us the guarantee that he will use departmental resources to find out what else we may need to know?

However, none of these considerations need stop the Government following through on the amendment, in my view. Why? How? We could, for example, treat such workers in pension terms like the 4 million self-employed, coming into NI for the first time, leaving open the status of their employment. Or we could encourage voluntary NICs, but the employee will not know until retirement how many years she has missed, and by then voluntary NIC rules do not allow her to

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make good the missing years from 25 years earlier. Aren’t we clever? We could treat her like those on JSA, in that by working more than 20 or 30 hours a week, she was indeed meeting work conditionality and was credited in. We could reconsider the LEL—lowering it perhaps, as Steve Webb suggested, to bring in more mini-jobs or, as the IFS has proposed, raising the primary threshold, perhaps to the tax threshold with which it was previously bracketed. That comes at a cost.

We need departmental resources to determine how best to proceed, but it is not rocket science. We could do it quite easily with political will. We need to do it because the new state pension—this is also different—is financially more generous but it has scrapped the married woman’s pension and scrapped the widow’s derived pension. The widow or the wife can have absolutely nothing. Universal credit is a household test and the husband’s income may float them off it. If she were doing too many jobs that took her above the LEL, and was not allowed to bring them together, she could fail to get a pension through her own work; she could fail to get a pension through her husband’s national insurance; and she could fail to get a pension through UC. Unless we tackle this issue she will get no pension at all for those years in which she ran together many jobs. No state pension at all—none.

Let me make one final point. Of course I welcome the review and I am delighted that the Minister has spelled it out today. However, we are perhaps making heavy weather of what might be quite a modest change in crediting rules. Yet—I hope the House will forgive me for saying this—we have just had a Budget where, as far as I know, without any research, consultation, briefing or preparation but simply by fiat of the Chancellor, we have turned the annuity market upside down, affecting up to 400,000 people a year, with unknown, possibly disastrous, effects on retirement income, housing and social care.

Why are we bothered? Why is this House bothered with the private sector parts of the Pensions Bill? I really do not know. We have all, including the Minister, wasted countless hours on it. I do not in the least accuse him of bad faith on this because he may well have been in the position—I do not know—that the rest of us were in. However, we have certainly had enough departmental time to have this issue sorted. None the less, I welcome the review and the Minister’s generosity in outlining it today.

3.30 pm

Lord Forsyth of Drumlean (Con): My Lords, I say to my noble friend that the noble Baroness makes a devastating case in favour of those people who take advantage of flexible labour markets. All my political life we have been trying to create more flexibility in the labour market and more opportunities for women. As at an earlier stage, the noble Baroness, with her characteristic incisive, forensic approach and her considerable knowledge of social security and other matters, this afternoon has made an overwhelming case. It all goes to show that the Whips’ advice of never listen to the arguments before you vote is well founded for those people who only want to win the votes.

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The noble Baroness has won the argument on this and so I have a question for my noble friend. He is going to carry out a survey: what are the criteria by which he will decide what to do on the basis of that survey? Is this a numbers game? Does it depend on a certain number of people being affected by it? If it does, what is the number? To my mind, if it is one, that is one too many. The Prime Minister constantly talks about supporting strivers and people who do the right thing. In my book, someone who does not sit on benefit but goes out and does the kind of jobs to which the noble Baroness has referred has exactly that character. Such people have considerable difficulty in doing the right thing and yet find themselves penalised when they are at their most vulnerable in old age.

I understand the Government’s position. My noble friend said that the amendments were unnecessary because the Government already have the power to deal with this matter. I have two questions for him: first, what will the criteria be by which they decide whether to do something; and, secondly, what is the timetable for this? Can we have a commitment from my noble friend? If as a result of the survey the noble Baroness is proved right and it is 250,000, is that not a quarter of a million too many? If it is 10,000, is that not too many? What are the criteria?

What is the timescale? My noble friend will carry out his survey and we will have the results by the summer. Can we have an assurance that if he finds there is a problem he will do something this side of Christmas and that he will not use it as a delaying tactic? Certainly when I used to stand at the Dispatch Box there were certain techniques that one could apply when one had run out of arguments and could no longer win the debate. One was to set up a commission and the other was to commission a survey and hope that by the time the survey had been reported the matter would have gone away. One thing we can be sure of is that the noble Baroness will not go away.

Baroness Dean of Thornton-le-Fylde (Lab): My Lords, I support the two previous speakers, particularly my noble friend Lady Hollis. This issue was well aired in Committee and at later stages. At the moment it predominantly affects women. I welcome the Minister’s statement, but I am aware that we are not too far away from a general election and that things may change. The work that is to be carried out will obviously be done only after this Bill becomes an Act of Parliament, so what specific assurances can the Minister give to disabuse me of the notion that in reality this is being kicked into the long grass because it is rather inconvenient?

Lord German (LD): My Lords, I am slightly confused by the remarks of my noble friend Lord Forsyth because he referred to a survey. When my noble friend the Minister spoke, I could have sworn that he was talking about a review, and there is more than a slight difference between a survey and a review. A review means that you look at the evidence and take action as a result. I noted the words used by my noble friend, that the matter will be addressed. Given that, can we have an assurance that if any review turns up evidence

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that this is a matter which affects a large number of people, action will be taken to address it? That is the difference between a survey and a review; a review implies action at the end of it.

I also wonder if my noble friend can reassure me that this review will look at the differences in zero-hours contracts, on which an enormous emphasis has been placed. They are seen as being at the heart of the problem. The ONS labour market survey shows that although there has been an increase in the number of people on zero-hours contracts, the number of women in part-time and multiple jobs has not been increasing over time. I think that a distinction needs to be made because the issue is not necessarily about zero-hours contracts, so I would be grateful if my noble friend could reassure us that that is not the emphasis. The emphasis here is on people who have mini-jobs or who fall below the lower earnings limit. They are not able to get the stamp which would qualify them for building up their pension. Given the number of years that the new pension requires—35 years—can my noble friend also say whether the review will take into account a lifetime of work? That is because if you have earned up to the limit or you have got your 35 years, whatever you do on top of that is not going to make a difference to the £149 or so that we are expecting to be the figure for the new state pension for a single person. That will have effects elsewhere on people’s personal economic trail.

I welcome the announcement made today by my noble friend, and I hope that he can reassure the House that these caveats will be taken into account when taking action.

Lord Turnbull (CB): My Lords, when I heard mention of the Minister in the other place, two words came to mind: “kitchen” and “sink”. Indeed, the Minister claimed that there were 17 logical flaws in the case the Lords had put forward. However, it was not clear to me which were the objections of substance and which were the makeweight arguments. Of course, the problem is that there are not that many people in this category. Is it a problem that is going to be solved by universal credit, or is it not a problem because people have time to catch up later on? That is a very poor argument because you never know whether you are going to have time to catch up. Is it a problem of information? Is it a problem that in the fixing of it would create other problems? Lastly, there were arguments about drafting. For good measure some bad statistics were thrown in that referred to average numbers of people on average hours and average earnings, when you really need to look at the median if you are trying to calculate the numbers.

However, I welcome the statement from the Minister today because he appears to have conceded that there is an issue to address. As a matter of principle, I think it is not acceptable that someone earning £120 in one job can get credit, while someone earning two times £60 a week cannot. We have a duty to address this issue if it turns out that significant numbers of people fall into that category. I also welcome the review, and like other noble Lords I hope that it will be addressed with some urgency.

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I think that one further assurance is needed. If it turns out that the Government do not have the powers, they should be introduced quickly. Opportunities to do that in social security legislation seem to arise every few weeks, so I do not think that it will be a problem.

Baroness Sherlock (Lab): My Lords, as the opposition winder, I have rarely felt more redundant. If the Minister had seen the nodding of heads going on from all Benches, including those behind him, he might begin to think that accepting the amendment would have been the easier path in the long run. I was quite disappointed to find the amendment returning to this House, as it had a number of things to commend it. First, it identified a problem which clearly needed attention. If there were any doubts about that, my noble friend Lady Hollis has cleared them up today. The case is compelling.

When we debated this amendment on Report, Ministers seemed sceptical that there was a problem at all. However, since then, we have had some new figures from the Office for National Statistics, specifically on the prevalence of zero-hours contracts. The figure that was used on Report was 183,000 in 2010. The new ONS report, based on the Labour Force Survey, shows that there are 583,000 people currently employed on zero-hours contracts. I fully accept that some of those people will of course be earning enough to bring them into the system, but the point made by the noble Lord, Lord Turnbull, about the use of average figures when this was debated in the other place is very well made. If some people are earning very high salaries, for example as IT contractors, a mean figure is never going to be any help at all in working out the impact of this.

In addition to those on zero-hours contracts, there is the broader issue of those doing more than one mini-job, as described so effectively by my noble friend. Concern has been expressed across the House throughout the passage of the Bill about the asymmetry of the system crediting-in those who earn all that money in one job or those who are unemployed, including those who are unpaid carers, but not crediting-in people working hard in more than one job.

The other thing the amendment had to commend it was that it was wholly permissive: it simply enabled the Government to take action if and when they were ready but mandated them to do nothing. The amendment also had no financial implications, and I was surprised as well as disappointed to see financial privilege being cited for such a permissive amendment. Frankly, I really find that incomprehensible.

However, the Government still seemed unpersuaded. Ministers, both in the other place and here, have posted a series of objections to the amendment. Some are minor, such as complaints about the drafting, but, as my noble friend Lady Hollis pointed out, those could have been easily resolved by the Government bringing forward their own differently worded amendment at Third Reading, so we have to assume the problem is bigger than that. When we sweep away some of the flannel in the debate in the other place, the options are these: they do not believe there is a problem; they believe there is a problem but do not know the scale;

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there is a problem but universal credit will solve it; or there is a problem but the Government do not know how best they want to address it.

Both in debates in another place and, indeed, today, we have had smatterings of all of those. The Government seem unpersuaded that there is a problem, or at least not one of a size to merit intervention to tackle it. They want to do research—lots of really thorough and careful research. I am a great believer in research but want to understand what it is the Government think they could learn that would make a difference to the decisions they would take. There are many noble Lords in this House who may not be biologists but who, as mentioned by my noble friend Lady Dean, can spot long grass when they see it. Frankly, I can smell it from here.

As for the universal credit defence, my noble friend Lady Hollis has taken that apart at different stages of the Bill. The Minister said again today that 800,000 people will be credited-in as a result of universal credit. The new pension system is due to come in in under two years, and I am personally not willing to bet the house that UC will be fully rolled out by the time it does. Even if it is, that leaves out all kinds of people. Single people on even very modest incomes will not be covered by universal credit. A married woman affected by this problem could find that her husband’s earnings float her off universal credit but she can no longer, as a result of this Bill, get a pension based on his contributions, so she is cut out both ways.

Finally, it may be that the Government are eventually persuaded that there is a problem, but they want to address it in a different way from that favoured by my noble friend Lady Hollis. Of course, the amendment allowed them to do that. In addition, the Government could have brought back their own amendment, had that been what they wanted to do. But this must leave the House nervous that the Government are not really supportive in the way that they sound at the outset, however warm their words of welcome. The Minister has a job to do to reassure people on all sides of the House.

First, do the Government accept that there is a problem that needs addressing? Secondly—and this was the killer question posed by the noble Lord, Lord Forsyth—are the Government satisfied for any worker to be excluded from the new single-tier pension just because his or her hours are spread across more than one employer? Is it a question of principle? Is it a question of scale? If so, what is the magic number? Thirdly, as the noble Lord, Lord German, said, if the Government do accept that there is a problem, will the Minister confirm that they are committed to taking action to address it? The only outstanding question, therefore, is how best to do that.

Finally, many noble Lords asked about the timescale and the process. If the forum is to be held by the summer, when can the House expect a report back, and what form will the action take? My noble friend Lady Hollis pointed out that even though this Bill has not yet completed its passage through the House, the entire pension system is to be revolutionised still further. If that means further primary legislation, do the Government intend to take advantage of that legislation

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to enact whatever decisions they take as a result of the review? If not, what other mechanisms will they choose and how will the Minister report back to the House?

3.45 pm

Lord Freud: My Lords, again, I record my thanks to those who have contributed to the discussions on this issue, in particular, of course, the noble Baroness, Lady Hollis, who has shone a spotlight on this group of people.

I will pick up a few of the points that have been made today. The first was raised by my noble friend Lord German and the noble Baroness, Lady Sherlock, and concerned zero hours. There has been quite a lot of conflation between this issue and zero hours, which is probably, on balance, unhelpful, because people on zero-hours contracts do not necessarily have more than one job. Indeed, they can be working quite a large number of hours. I think the title “zero-hour contracts” does not do justice to what should perhaps be called “flexible-hour contracts”. The mean in the Labour Force Survey of people on these contracts is 21 hours and the median—I know that people like both—is 18. When you look at the average usual hours, it is a higher figure: 25 mean and 23 median. There is quite high satisfaction with that.

On the point about the labour market, the percentage of women in two or more jobs has hardly changed in the past 10 years. It is approximately 10%. The number of women who work part-time because they cannot find a full-time job is currently standing at 13.3%.

The noble Baroness, Lady Hollis, asked about the forum. We do not want to prejudge the outcome of the forum. I am sorry; the question was about the commitment to further research, if necessary. We will consider further research if it can fill the gaps in the evidence and we need it to aid our policy. If we need to take more evidence, we will need to take the time to do it properly. The rough timing is that from the initiation of qualitative research to carry out and publish takes roughly six months.

My noble friend Lord Forsyth asked about timing. We will hold the forum in July, we hope. Our analysis of existing data should be published roughly at that time, before the break. My noble friend also asked what the criteria are. The criteria are that we want to ensure that people with multiple short-hour jobs are not disadvantaged, and we would need to consider the most appropriate and proportionate means to ensure this. We need to ensure that any remedy does not place an undue burden on the business.

Perhaps I may correct something I said earlier. When I said “10% of women in two jobs”, I should have said “5%”. I apologise for that.

On the criteria and on the question of whether we would have the answers this side of Christmas—the noble Baroness, Lady Dean, was rather rude in referring to “long grass”—we are taking this issue seriously. We are making an enormous number of changes in this department. We are rebuilding the welfare system and the pensions system. We want to make sure that we incentivise flexible work. I do not think that your Lordships see before you a Minister or a department

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shy of taking action where it is required. I think that that is the best assurance about lawnmowers that I can give.

Lord Forsyth of Drumlean: I shall read my noble friend’s words carefully in Hansard, but they sounded to me like a commitment that he would address this problem one way or the other. Is that what he was saying?

Lord Freud: I was saying that we now have a base on which to look at this problem, see what it is and, on that basis, decide how to deal with it.

Lord Forsyth of Drumlean: When my noble friend has decided how to deal with it, will he then deal with it?

Lord Freud: I would be pretty surprised if, when one had reached a decision on how to deal with something, one did not get on with trying to deal with it.

On the timetable, we have the power to introduce credits anyway—that is a point that I have already made—but it would take time, working with HMRC, to get it right. We need to work through the impacts to ensure that there are not any significant burdens on business. However, I give the assurance that this is not a numbers game and we will look at the most appropriate action.

I think that I have dealt with most of the issues raised. I am glad that we can conclude the scrutiny of this important Bill with another example of how, through well informed discussions, this House can move a debate forward, in this case by ensuring that we have a robust evidence base on which to consider the issue of multi-jobs. On that basis, I ask that the House do not insist on Amendment 1.

Motion agreed.

3.53 pm

Sitting suspended.

Water Bill

Third Reading

5.01 pm

Baroness Anelay of St Johns (Con): My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Water Bill, has consented to place Her interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Amendment 1

Moved by Lord De Mauley

1: After Clause 41, insert the following new Clause—

Chapter 3A

Retail exit: non-household premises

Retail exit: non-household premises

(1) The Secretary of State may by regulations (“exit regulations”)—

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(a) make provision for a relevant undertaker whose area is wholly or mainly in England to apply to withdraw from the non-household retail market in relation to that area;

(b) make provision about the determination of an application under paragraph (a) (an “exit application”),

(c) make provision for and in connection with the transfer of so much of a relevant undertaker’s undertaking as relates to the non-household retail market to an eligible licensee or licensees, and

(d) make provision about the operation of the water industry in relation to an area in respect of which an exit application has been granted (a “retail exit area”).

(2) Provision under subsection (1)(a) may require a company that is a water undertaker and a sewerage undertaker to make an exit application that relates both to its functions as a water undertaker and to its functions as a sewerage undertaker, subject to such exceptions as exit regulations may specify.

(3) Exit regulations may include provision for protecting customers affected by a relevant undertaker’s withdrawal from the non-household retail market.

(4) For the purposes of this Chapter—

(a) a reference to a water undertaker withdrawing from the non-household retail market in relation to an area is a reference to a water undertaker ceasing, in relation to that area, to exercise such functions relating to the supply of water to non-household premises as are specified in exit regulations, and

(b) a reference to a sewerage undertaker withdrawing from the non-household retail market in relation to an area is a reference to a sewerage undertaker ceasing, in relation to that area, to exercise such functions relating to the provision of sewerage services in respect of non-household premises (including trade effluent functions) as are specified in exit regulations;

and a reference to the non-household retail market is to be construed accordingly.

(5) Exit regulations may—

(a) prohibit a water undertaker from exercising, in relation to a retail exit area, such functions relating to the supply of water to non-household premises as are specified in the regulations;

(b) prohibit a sewerage undertaker from exercising, in relation to a retail exit area, such functions relating to the provision of sewerage services in respect of non-household premises (including trade effluent functions) as are specified in the regulations.”

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con): My Lords, government Amendments 1 to 12 and 18 address the subject of retail exits. The question of whether an incumbent water company should be able to exit the market for retail services to non-household customers has been discussed at all stages of the passage of the Bill through your Lordships’ House and another place. Most recently, it was raised in debate on amendments tabled by my noble friend Lord Moynihan and the noble Lords, Lord Whitty and Lord Grantchester, at Report.

Having listened extremely carefully to the thoughtful and well informed contributions to the debate on retail exits, I undertook to consider the matter further, with the aim of bringing back government amendments to respond to the views of the House. The proposed new clauses are intended to do just that.

The attached provisions reflect the key policy objectives of the previous amendments on this subject. They offer incumbent water companies the option to exit

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voluntarily from the non-household retail market, subject to the consent of the Secretary of State. I said before that this was not a simple matter, and indeed it is not. Enabling exit will require a number of changes to the Water Industry Act 1991—for example, to address issues around the incumbent’s duties to supply and other statutory obligations to customers.

In making this commitment, I put on the record that the only practical way of delivering this objective would be to take wide-ranging powers, and that is what the amendments seek to deliver. Although the enabling powers are, of necessity, broad, we have sought to provide as much detail of the nature of the changes to be made as possible. I recognise that your Lordships have limited time in which to undertake detailed scrutiny of these clauses. However, as I said, the broad policy has been widely discussed throughout the passage of this Bill.

Further work will be needed to consider the practical implications of exits and to develop the detailed policies that will underpin the use of these powers. Broad consultation will, therefore, be essential. Following these detailed discussions with all interested parties, there will be a further opportunity for parliamentary scrutiny under the affirmative procedure.

Several key policy issues about how an exit policy should be shaped and delivered are still to be resolved. For example, discussions in your Lordships’ House and elsewhere have mooted a number of different models for the transfer of customers from the exiting incumbent to a retail licensee. One model suggested is the transfer of customers to an associate licensee within the wider structure of a parent company. Others have suggested that incumbent companies which no longer wish to provide retail services may just want a simple route out of the retail market. Some have identified customers as an asset to be sold for profit, while others see them as a liability to be transferred. Ongoing dialogue with the industry, customers and others will be essential to inform the decisions about how exit will operate in practice. Our guiding principle must be to ensure that customers are protected and that they are no worse off as a result of the exit.

These provisions are therefore intended to provide government with the flexibility necessary to respond to the views of industry and its customers about the best way to deliver the new regulatory framework for the sector. They provide the Secretary of State with powers to put in place, through regulations, a framework which enables exits. This will entail a restructuring of the key provisions in the Water Industry Act 1991, the regulation of the industry and suppliers’ relationships with their customers.

The purpose of these provisions is to permit incumbent water or sewerage companies, with the consent of the Secretary of State, to stop providing any retail services to current or future non-household customers in their areas of appointment. The services will then be provided by one or more retail licensees. This is likely to lead to a consolidation of retail businesses. Exit will be irreversible and result in the incumbent divesting itself of some of its statutory supply duties in relation to non-household premises. However, incumbents will retain all their current responsibilities for household customers.

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In summary therefore, these proposed new clauses enable the Secretary of State to make exit regulations, which would allow any incumbent water company whose area is wholly or mainly in England to apply to exit the non-household retail market for that area. The regulations may include grounds for refusing an exit application and provide for the transfer of customers to an eligible licensee. The regulations may also make provision for what happens in the area from which the company has exited after the exit has taken place. The powers make provision for the protection of both household and non-household customers affected by the exit.

Throughout the debates on this matter in both Houses, there has been a clear consensus that exit must be undertaken voluntarily. We have stated on a number of occasions that any suggestion that a provision could be used to force exit and drive legal separation of an incumbent’s retail and wholesale business risks undermining investor confidence in the sector. Amendments 7 and 9 ensure that the regulations can provide for important checks and balances as regards the conditions under which divestment and exit may, or may not, be required by the competition authorities.

We all agree that we must ensure that customers are protected. The regulations must ensure the protection of both those non-household customers that are subject to a transfer and the household customers who would remain with the incumbent. There is currently a range of statutory protections for customers in place. These are being reinforced by protections for the reformed competitive market in the Bill. For example, we are reforming the interim supply duty, or supplier of last resort, in Clauses 31 and 32. The statutory protections in the current retail market generally rest on the duties of the incumbent. These new provisions on retail exits are therefore required to enable regulations to rework the relevant statutory duties and obligations, in the event of a transfer of customers to a licensee. For example, we have provided for price regulation to be introduced for licensees, as well as regulation over the terms and conditions that they can offer to customers. We have provided for incumbent companies to be relieved of the interim supply duty, which currently requires them to serve customers when their previous supplier defaults. This role would then have to be taken up by the licensed market.

In addition, Amendments 1 to 12 and Amendment 18 enable the Secretary of State to make regulations which put in place safeguards requiring the exiting incumbent to take certain steps prior to making an application, such as, importantly, consulting its customers. The regulations may also set out the grounds on which such an application may be refused: for example, if the company could not demonstrate that exit was in the best interests of its customers. These provisions will enable us to put in place a stable and transparent framework within which exits can take place. I beg to move.

Lord Moynihan (Con): My Lords, I am grateful to the Minister for providing a comprehensive solution to the issue of exit, for tabling these amendments and for his clear explanation of the Government’s intent. While the legislative drafting is more extensive than

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some of us had anticipated, these amendments achieve the desired effect of facilitating a clearer framework for competition. Additionally, the greater transparency on cost allocation that such a voluntary transfer mechanism brings will help to ensure that the incumbent companies are less able to adjust their cost allocations to the detriment of household customers.

This transparency is fundamental to effective economic regulation and the policing of effective markets. It will allow companies to organise their businesses in the way that they consider to be in the best interests of their shareholders and indeed their customers. Allowing exit to occur voluntarily, as confirmed by the Minister, will allow transfer mechanisms to enable more competitive third parties to enter the non-household water and sewerage retail market to the benefit of business customers, as has proved to be the case in Scotland. Above all, as demonstrated by both Oxera and Macquarie, exit will save customers unnecessary cost.

I am very grateful to the Government for confirming today that they will now consult fully on safeguards, consulting particularly with those who represent the interests of the customers, given that the powers granted through these amendments confirm the opportunity, not the obligation, for incumbent water and sewerage companies to propose transfer schemes to the Secretary of State for his consideration.

As tabled, the amendments place a considerable degree of power in the hands of Ministers, notably to adjust the powers and duties of key industry stakeholders, including Ofwat. While this could be problematic were the powers to be used to their full extent, I am confident from what the Minister has said that there is absolutely no intention to undermine the freedom of manoeuvre of the regulator.

With the clauses soon to be in the Bill, I hope, it will be important to enter into constructive discussion and engagement in order to consult widely and urgently to meet what I hope will be the reasonable deadline of market opening in 2017. I also agree with noble Lords who emphasised at an earlier stage that it is also very important to secure customer protection on retail exit.

I hope that the amendments will be welcomed on all sides of the House and by all those who have taken part in the debates over exit, with the request that the Government will give a firm and unequivocal commitment to using their new powers to facilitate efficient and orderly market entry and exit. If so, the benefits will be considerable for business customers. Once this House, in future legislation, has the opportunity to review the working of the market for business customers, I hope that it will not subsequently hesitate to move forward to deliver competition to the household sector as well.

Lord Haskel (Lab): My Lords, has the Minister seen the report from the Delegated Powers and Regulatory Reform Committee? It is quite critical of these amendments. The committee found that the amendments were prepared in a hurry, and was particularly concerned that the procedure should have a strengthened affirmative procedure. I was not sure from the Minister’s introduction whether he was giving an undertaking that this would be so, or indeed whether he accepts this recommendation from the committee. The committee also found that

8 Apr 2014 : Column 1263

the powers are conferred in rather permissive terms and, where regulations must make provision, the committee suggested that the regulations should be required to make provision. Again, I did not quite gather from the Minister’s introductory words whether he had taken these recommendations on board.

5.15 pm

Baroness Parminter (LD): I rise to speak to Amendment 13, which is in this group. It is tabled in my name and that of my noble friends Lady Bakewell of Hardington Mandeville and Lord Marks of Henley-on-Thames.

I think my views on retail exit are well known in this House. I am not in principle against it, but I have concerns that it is a complex issue and therefore one should not legislate in haste. The amendments the Government have introduced today, at this late stage, give broad-ranging powers to the Secretary of State to implement changes to allow voluntary retail exit from the non-household market. Given the nature of these powers and the need to get the details of retail exit right, I believe the fullest consultation and parliamentary scrutiny are required. Only this will ensure that retail exit is introduced in a way which delivers improvements in services to all customers.

The Delegated Powers and Regulatory Reform Committee argued yesterday that,

“the opportunity for discussion in Parliament of the extent of the powers and the manner in which they are likely to be exercised has been seriously curtailed”.

It went on to argue that,

“the powers to make exit regulations should require a strengthened affirmative procedure on their first exercise”,

and outlined what procedure it had in mind for that. I agree with the committee. My amendment does what it called for yesterday, which the Government sadly chose not to table.

Why is this important? It is because we need wide stakeholder engagement and strong parliamentary scrutiny to ensure that the real concerns about retail exit can be addressed and taken into account. It is because we need to make sure that retail exit proposals protect the rights of customers, both affected non-household customers and household customers who remain with incumbent providers who cannot divest them. Given that the retail exit is for business customers only, householders could be left with a water company that has signalled a lack of interest in providing customer services. We must ensure a good level of service for effectively stranded customers. As it stands, water companies take ownership of the provision of clean drinking water from source to tap and plan with their customers to deliver that efficiently and safely. Aggregating water retail apart from water provision means we will not necessarily have water providers working with retailers to help customers manage water efficiently. Major water-saving initiatives have been driven by robust planning by water companies which know the supply constraints and want to work with customers through their retail operation to manage that supply for the long term. We need to ensure retail exit is not done in such a way as to hinder that incredibly valuable objective.

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Let us also not forget that there is no consensus in the water industry that retail exit is the best way forward, as Water UK makes clear. Indeed, the only vocal advocate among water companies is Thames Water, or more precisely Macquarie, which is one of Thames Water’s major investors. The paper it produced is about selling off customers to extract maximum value for its investors. That blatant self-interest is in stark contrast to the needs of those investing in the industry for the long term. They want stability in the sense of predictability, no surprises and carefully thought-through, outcome-based, long-term logic. We need to ensure that retail exit is done in such a way as not to unsettle the wider investment community whose investment we need to deliver long-term water resilience.

The Government’s amendments show that they are alive to these concerns. For example, they propose a requirement to consult customers prior to an application to exit, and an application can be refused on the grounds that it is not in the interest of household or non-household customers. Equally, the Government are proposing further dialogue with the industry, regulators, customers and others in advance of laying a proposed regulatory framework before Parliament, and a consultation is proposed later this year. This is all welcome, but it does not go far enough. We need a process with full consultation and then the opportunity for Parliament to scrutinise any draft proposals before regulations are put to the House, at which point they cannot be amended.

My amendment would deliver what the Delegated Powers Committee asked for and ensure that any proposed framework for non-household retail exit receives the widest consultation and full parliamentary scrutiny. That way we can be sure that retail exit improves customer service, gives investors confidence and delivers the long-term water resilience we need.

Lord Marks of Henley-on-Thames (LD): My Lords, I support Amendment 13, which was spoken to by my noble friend Lady Parminter and to which I have added my name. I do so as a member of the Delegated Powers and Regulatory Reform Committee of which the noble Lord, Lord Haskel, who has already spoken, is also a member—other members are in their places today—to explain why that committee takes the strong view that a strengthened procedure, often called the super-affirmative resolution procedure, is important, at least on first exercise in the case of these regulations.

The context in which these amendments fall to be considered is that they are a wide-ranging set of amendments which represent a radical change of direction in the Bill. The Bill itself introduces considerable change in the way that the water industry operates, that industry being of great importance to the UK economy as a whole and to individuals. Although these amendments on retail exit are concerned with non-household supplies, as my noble friend has already stated, they are nevertheless of wide public importance.

The noble Lords, Lord De Mauley and Lord Moynihan, and my noble friend Lady Parminter have all explained the political context and impact of these amendments. I will confine what I say to the three reasons why a strengthened procedure is so important.

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First, there has been very limited time for the consideration of this scheme as a whole, as the noble Lord, Lord De Mauley, frankly recognised. The amendments are introduced in this House at Third Reading in response to amendments introduced earlier, notably by the noble Lords, Lord Moynihan, Lord Whitty and Lord Grantchester. However, in legislative terms, the amendments come, in this House at least, not even at the 11th hour: it is a minute to midnight. It is not, I suggest, satisfactory, and it is certainly not desirable, for nearly 11 pages of amendments to be introduced at such a late stage in the passage of the Bill without the time for lengthy and informed scrutiny of the detail of the proposed scheme. The amendments are complex and demand detailed scrutiny after all interested parties have had ample opportunity to consider them and to comment on them. The timing of their introduction has simply not permitted this to happen and the use of a simple affirmative procedure, as is proposed, would be likely to lead to a draft set of exit regulations being laid before Parliament for approval in unamendable form.

Secondly, quite regardless of the issue of timing, this is, I suggest, a case for a super-affirmative procedure in any event. The amendments would introduce into the Bill the power to make regulations which would effectively amount to an entire new legal framework to enable relevant undertakers to withdraw from the new market arrangements. If those provisions become part of the Bill without a super-affirmative procedure, then Parliament will have, as your Lordships well know, no opportunity to consider and report on the individual details of the proposed regulations and, in practical terms, no opportunity to invite detailed revision of their provisions. With the super-affirmative procedure set out in our amendment, there will be an opportunity for a committee of either House to consider the draft regulations in detail and to recommend changes to the draft for the Secretary of State to consider. The procedure proposed is similar to that in Section 102 of the Local Transport Act 2008, which the Delegated Powers and Regulatory Reform Committee recommended as a model. There is no rush to introduce these exit regulations, particularly not when they are potentially of such importance. They should not be the subject of delegated legislation without a full opportunity for Parliament to consider their detail.

Thirdly—this was touched on by the noble Lord, Lord Haskel—our committee was extremely concerned by the degree to which the amendments establish, not a list of requirements to which the Secretary of State must adhere in presenting the regulations, but a menu from which he can largely pick and choose at will. I have no objection to the fact that the power to make regulations in the first place, in subsection (1)(a) of the new clause proposed in Amendment 1, is permissive and not mandatory. It may be that the Secretary of State decides against exercising the power to make such regulations at all, although that is of course unlikely. However, if he makes such regulations, it is surely right that he should be required to incorporate all the safeguards of which the noble Lord, Lord De Mauley, spoke, which are essential to protect customers, to ensure proper consultation with interested parties, to safeguard the public interest and to secure appropriate

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parliamentary scrutiny. Yet the amendments as drafted are almost entirely permissive in respect of such matters.

I will trespass on your Lordships’ time for a moment or two to look at a couple of examples. Amendment 1 provides that exit regulations,

“may include provision for protecting customers”,

affected by a relevant undertaker’s withdrawal. Amendment 2 provides that:

“Provision under subsection (1)(a) may require a relevant undertaker … to consult”.

Amendment 4 states that:

“Exit regulations about the transfer of a part of a relevant undertaker’s undertaking may include provision for the making of a scheme to transfer property”.

These are all matters on which this House would wish to be given the opportunity for detailed consideration.

General directions are of general application. I will address two points on Amendment 9. Subsection (1) states:

“Exit regulations may make provision for the Secretary of State to publish … a statement setting out general directions for the”,

regulators. Subsection (4) states:

“Exit regulations may make provision for the Secretary of State, before publishing a statement under the regulations, to consult”.

These are all matters which I would expect, and I suggest your Lordships would expect, to be requirements. They are matters which concerned the Delegated Powers and Regulatory Reform Committee. The list goes on. The central point is that it is vital for Parliament to have the opportunity to consider the proposed exit regulations individually and to recommend changes to particular regulations before they become law without being restricted by the limitation inherent in a simple affirmative resolution procedure.

Lord Whitty (Lab): My Lords, first, I apologise to the Minister that, due to a misreading of the Order Paper, I was not here to hear his first couple of minutes.

The Minister gave us a fulsome presentation of the changed position of the Government, which explained in considerable detail how these new powers would work. Those of us who sat through Committee and Report will know that the Government were faced with a pretty widespread view across the House that they needed to change their mind on retail exit. The noble Lord, Lord Moynihan, headed a series of debates which eventually brought the Government to change their mind and present these new clauses that are before us today.

It is of course a pity in many senses that this comes so late. Given this stage of the Bill, which has gone through both Houses of Parliament, it is difficult to deal with such a complex set of amendments. I am sure that when the noble Lord, Lord Moynihan, put amendments in this direction on the Order Paper at an earlier stage, and certainly when I did so, we did not expect to create quite such a substantial job-creation scheme for parliamentary counsel, but the Government have done a major job here and it would be churlish to quibble too much about it. However, there are problems

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with it. We all welcome deathbed conversions, but the central problem here is the lateness of the conversion. I wish that we were a stage earlier in the proceedings, when we could have tried to make minor amendments to the proposed clauses.

I echo the points made by the noble Lord, Lord Marks, in particular that there are several points in this, from the first new clause onwards, particularly in the very first line and the reference to protecting consumers, where “must” really ought to be substituted for “may”. With a bit more time, the Government might have come to that conclusion themselves in the instructions that they gave to counsel. However, we are where we are, and this is a major concession by the Government to the House. In a sense, the whole process has been a vindication of the way in which the House considers complex legislation and minds are changed—and we have the result here before us.

5.30 pm

It would be churlish to make too many quibbles about these amendments, but the issue of procedure is still with us. The noble Lord, Lord Haskel, the noble Baroness, Lady Parminter, and the noble Lord, Lord Marks, are, in a sense, giving the Government a bit of a lifeline on this issue, because I would imagine that when the Bill goes back to the Commons there will be some consternation at the size of these amendments and the fact that they have not been signalled at an earlier stage. The reassurance to be given to that House and to this one that the first regulations under these provisions would be introduced under a super-affirmative resolution would be very substantial.

The Government ideally ought to accept the noble Baroness’s amendment. That would put the whole process back in order, and give one more chance to Parliament to look at these proposals in detail. If the Government are not quite in the position to do that, they have a Commons stage to go through, and there is the possibility of minor amendments in that direction in Parliament. I do not and will not oppose in any way the substance of what we are talking about, but I think that the noble Baroness and her colleagues have a strong point on the procedure forward, and the Government—if I can gently put it this way—would be wise to recognise that today in one manner or another so that we can allow at least some form of further scrutiny of an incredibly complex set of amendments.

Baroness Neville-Rolfe (Con): My Lords, I would briefly like to intervene, first to thank the Minister for the efforts that he has made to address concerns and to make these amendments this afternoon. The Bill is hugely complex and the amendments are extensive, as my noble friend Lord Moynihan put it so succinctly. However, I feel that these provisions will add more complexity. So it is all the more important that the Minister confirms the plans that I know that Open Water has to summarise all the many regulatory provisions on water in the Bill and elsewhere, in order that customers, entrants, companies and investors can understand the complex web of rules and subordinate legislation that is planned, providing a force for simplicity.

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I believe that the good sense of our administrators is the key thing here and that is actually more important than to bring in a special new procedure. I support the amendments that the Government have made.

Lord De Mauley: My Lords, I thank all noble Lords for their contribution to this debate. I have listened to them extremely carefully. I thank my noble friend Lord Moynihan for welcoming the changes that we are making to the Bill to enable incumbent water companies to exit the non-household market for retail services. I thank the noble Lord, Lord Whitty, as well, for his comments in that regard.

I thank, too, the noble Lord, Lord Haskel, for his intervention, and I hope that he understands that I thought it best to allow my noble friend Lady Parminter to explain her amendment before I addressed the question that he raised. Before I get into that question, I address the question raised by my noble friend Lady Neville-Rolfe. She raised a very valid point about the additional levels of complexity added by the retail exit provisions. The noble Baroness also raised the issue of bureaucracy. Indeed, she has done so throughout the course of the Bill and has worked tirelessly on the subject. I strongly agree with her on that matter. In that regard, I highlight the work that Open Water is doing in presenting water regulation in guidance and online. It is presenting the information in a way that helps customers, entrance companies and investors to understand the sector, and which meets their particular information requirements.

These proposed new clauses set out, in as much detail as possible, the basis on which we will establish regulations to enable exits. We will now need to move from the high-level, in-principle statements regarding the case for exits to tackle the detailed, practical implications for companies and their customers. In doing this, we will need to consult widely. We will also provide further opportunity for parliamentary scrutiny through the draft affirmative procedure.

I think that all noble Lords who have spoken in this short debate have commented on the breadth of these powers. On Report, I put on record our view that the only practical way of responding to the will of the House on this matter would be to take a very wide-ranging power.

The question of whether to allow exits has been discussed at all stages during the passage of the Bill in both Houses. The overall policy of retail exits has been discussed at length. Powerful speeches from my noble friends Lord Moynihan and Lord Selborne, the noble Lord, Lord Whitty, and others demonstrated the strength of feeling in this House about the matter. I have tabled the amendments before us today in response to that pressure.

Throughout our debates on this subject there has been a broad consensus that we should allow for retail exits in such a way as to meet three important criteria: they must be for non-household customers; they must be undertaken voluntarily; and they must ensure the ongoing protection of customers. This is what the amendments do. The breadth of these powers is, unfortunately, unavoidable in this case. The debates in your Lordships’ House have ably set out the high-level

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principles in support of the case for retail exit. Nevertheless, further detailed work is required to address the practical implications of this change.

A number of changes will be required to the Water Industry Act 1991 and the detailed thinking has yet to be done by any of the interested parties on what these might be, what would be involved, how the implications for customers would be managed and the type of safeguards that would be required to avoid any risk of forced exit or separation. None of these is an inconsequential issue and it is clear that substantial further consultation and engagement will be required. We will consult widely on these matters. Following this there will be a further opportunity for parliamentary scrutiny under the draft affirmative procedure.

Noble Lords have highlighted that the Delegated Powers and Regulatory Reform Committee met yesterday to consider the new retail exit powers. I apologise to the committee for the inconvenience caused to it. We are very grateful to the committee for its report. I particularly appreciate its meeting at such short notice and I welcome the important contribution that it has made to this debate. I welcome the fact that the committee does not consider the powers conferred by the proposed new clauses to be inappropriate. The focus of the committee’s concerns has been on the relatively late stage in the passage of the Bill at which these proposed new clauses have been tabled rather than on their content. The committee did, however, recommend a strengthened affirmative resolution procedure for the exit regulations on their first use.

I fully understand and sympathise with concerns that the new provisions have not received detailed scrutiny as they have been tabled at this late stage. I agree with the committee’s view that, given the permissive nature of these powers and the need for further work on the detail, extensive further engagement is required with both parliamentarians and other interested parties. Our amendments already include a consultation requirement before any regulations may be made.

I can confirm that before tabling the first exit regulations we will consult widely and that we will ensure that there are many further opportunities for all interested parties to comment, and I can be clear that the Government’s use of the powers will take account of issues raised during that consultation. I believe that this extensive and wide-ranging approach to consultation will provide the level of engagement envisaged by the committee. Consultation of this nature with industry experts is an important part of the policy development process and it reflects that used in Section 102 of the Local Transport Act 2008—the procedure to which the committee refers.

I fully accept that we need to ensure that parliamentarians are given adequate time to scrutinise the precise wording of the proposed regulations before the final draft is laid before Parliament. We will therefore commit to publishing a draft of the regulations well in advance of laying the final regulations before Parliament so that there is a real opportunity for changes to be made to address any concerns that parliamentarians may have. We will also send a copy of these indicative regulations to the Environment, Food and Rural Affairs Select Committee in the other place so that it has an opportunity to comment on our intentions.

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I believe that these measures fulfil the spirit and practical implications of the enhanced affirmative processes detailed in Section 102 of the Local Transport Act. In addition to the detailed consultation, these powers will be subject to the draft affirmative resolution procedure, which means that there will be further opportunities for parliamentary scrutiny.

The use of strengthened affirmative procedures for delegated legislation is unusual, and rightly so. There must be a very strong case for the use of such a procedure. The Government have brought forward these retail exit amendments in response to the level of pressure across your Lordships’ House. The amendments seek to provide clarity as to what matters are to be within the scope of the regulations, while delivering precisely what your Lordships asked for. Exit regulations would be the subject of extensive consultation and of debate in both this House and the other place.

I agree with the committee that further scrutiny and debate on these matters are required and I am very grateful for its work in raising these important matters. Given the history of these changes and the recommendations that the committee has made with regard to future scrutiny and engagement, I should like to place on the record that my department will continue to keep all interested parties up to date with progress on this area. I have no doubt that the relevant Minister will be very happy to make themselves available to parliamentarians from both Houses for further discussions as we develop the detailed plans for use of the regulation-making powers.

As I said, I am very grateful for the work of the Delegated Powers and Regulatory Reform Committee. I will reflect on its other comments and will reply formally in due course. In particular, paragraph 6 of the committee’s most recent report, to which the noble Lord, Lord Marks, referred, focuses on the importance of protections for customers. I confirm that ensuring that the interests of all customers are fully protected will be the guiding principle that underpins this work. These protections will embrace both the household customers who will stay with the incumbent water company and the non-household customers who, in the event of an exit, will be transferred to a retail licensee.

Concern was expressed that some companies may be seeking exit as a route to short-term financial gain. During Committee, my noble friend Lord Moynihan highlighted a report published by Macquarie, a major investor in the water sector, arguing for exit. This report identifies long-term benefits for customers from greater consolidation and efficiency in the retail market. It also identifies potential financial benefits for those companies that transfer or “sell” their customers to a licensee.

The enabling powers that we have been discussing today would allow the Secretary of State to put in place a framework governing the process of transferring customers and to place appropriate boundaries on the value that may be extracted by the exiting companies and on the costs that may be passed on to customers. For example, these provisions will enable the Secretary of State to place conditions on consent to an exit application, such as profit sharing with affected customers and compliance with charging rules to ensure that transferred customers are no worse off.

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5.45 pm

I hope and believe that I have listened to and responded to the will of the House. In doing so, I have brought forward Amendments 1 to 12 and 18, which make provision for voluntary exit from the non-household retail market with the consent of the Secretary of State. These are broad powers—unavoidably so—to respond to the strongly held views expressed by many noble Lords during our extensive debates on the matter. These powers will enable the Secretary of State to establish, through regulations, a framework for exit that contains all the appropriate safeguards. We will do this following a process of full engagement with all interested parties. I ask my noble friend Lady Parminter to accept my explanations, and not to press her own amendment in due course.

Amendment 1 agreed.

Amendments 2 to 11

Moved by Lord De Mauley

2: After Clause 41, insert the following new Clause—

“Application for retail exit

(1) Exit regulations about exit applications must make provision requiring a relevant undertaker to apply to the Secretary of State, and may include—

(a) provision requiring a relevant undertaker to take such steps as the regulations may specify before making an application;

(b) provision as to the form and manner in which an application is to be made and as to the contents of an application;

(c) provision about payment to the Secretary of State of a fee of an amount specified in or determined under the regulations;

(d) provision about the information that is to accompany an application;

(e) provision for the Secretary of State to require a relevant undertaker to provide such further information as the Secretary of State may require in order to make a determination;

(f) provision as to the grounds on which an application may be refused;

(g) provision for the Secretary of State to grant an application subject to conditions.

(2) Provision under subsection (1)(a) may require a relevant undertaker—

(a) to consult—

(i) its non-household customers and its other customers,

(ii) the WSRA,

(iii) the Chief Inspector of Drinking Water,

(iv) the Consumer Council for Water, and

(v) any other person specified in the regulations;

(b) to prepare and publish a report assessing the effect on non-household customers and other customers if the undertaker withdraws from the non-household retail market;

(c) to publish notice of its proposed exit application in such manner as the regulations may specify.

(3) The grounds that may be specified under subsection (1)(f) include—

(a) grounds relating to the public interest or to the interests of a section of the public;

(b) grounds relating to the interests of non-household customers or other customers;

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(c) grounds relating to costs associated with a transfer of part of the relevant undertaker’s undertaking;

(d) grounds relating to the eligible licensee or licensees to which a transfer of part of the relevant undertaker’s undertaking is proposed to be made.

(4) The conditions that may be imposed under subsection (1)(g) include—

(a) conditions as to the persons who are to pay the costs associated with a transfer of a part of the relevant undertaker’s undertaking;

(b) conditions as to the application of money received by the relevant undertaker in connection with a transfer of a part of its undertaking;

(c) conditions about the relevant undertaker giving consent to modifications of the undertaker’s conditions of appointment;

(d) conditions about an eligible licensee to which a transfer of part of the relevant undertaker’s undertaking is proposed to be made giving consent to modifications of the conditions of its water supply licence or sewerage licence;

(e) conditions about the treatment of non-household customers affected by the transfer of part of the relevant undertaker’s undertaking.

(5) Exit regulations may make provision about how particular descriptions of customers and premises are affected by a relevant undertaker’s withdrawal from the non-household retail market, including in particular any of the following—

(a) premises to which the supply of water has been disconnected,

(b) premises that are to be demolished,

(c) premises that are temporarily unoccupied,

(d) premises in relation to which the owner or occupier has served notice under section 63AA of the Water Industry Act 1991 (supply by water supply licensee: domestic supply),

(e) premises in relation to which the owner or occupier has served notice under section 63AB of the Water Industry Act 1991 (supply by water supply licensee: non-domestic supply), and

(f) premises in relation to which the owner or occupier has served notice under section 110K of the Water Industry Act 1991 (provision by sewerage licensee).

(6) Provision under subsection (5) may include provision about how exit applications deal with particular descriptions of customers and premises.

(7) Exit regulations may make provision about the disclosure by a relevant undertaker of such information as the regulations may specify about—

(a) its non-household customers, and

(b) the charges payable by them (whether payable under a charges scheme under section 143 of the Water Industry Act 1991 or under an agreement).

(8) Exit regulations may specify—

(a) the persons to whom the information may be disclosed;

(b) the purposes for which it may be disclosed.”

3: After Clause 41, insert the following new Clause—

“Eligible licensees

(1) Exit regulations may—

(a) make provision for a relevant undertaker to specify in its exit application the eligible licensee or licensees to which it proposes to transfer a part of its undertaking;

(b) make provision for the WSRA to direct one or more eligible licensees to accept the transfer of a part of the relevant undertaker’s undertaking.

(2) In this Chapter “an eligible licensee” is a company—

(a) that has a water supply licence with a retail authorisation or a sewerage licence with a retail authorisation, or both, and

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(b) that has elected to be an eligible licensee for the purposes of this Chapter.

(3) Exit regulations may—

(a) provide for an eligible licensee to be specified in an exit application only if the licensee agrees to be so specified;

(b) provide for the WSRA to give notice before giving a direction under subsection (1)(b);

(c) provide for an eligible licensee to temporarily suspend an election under subsection (2)(b) so that it may not be given a direction under subsection (1)(b).

(4) Exit regulations may make provision about electing to be an eligible licensee, and may in particular—

(a) provide for a company to satisfy such criteria as are set out in a code published by the WSRA before the company may elect to be an eligible licensee;

(b) provide for the WSRA to assess whether a company satisfies those criteria;

(c) provide for the WSRA to publish a code setting out—

(i) the criteria mentioned in paragraph (a), and

(ii) how it conducts such assessments, and

(d) provide for the WSRA to comply with the code in making such assessments.

(5) Exit regulations may—

(a) allow an eligible licensee, to which a transfer of a part of a relevant undertaker’s undertaking is proposed to be made, to be a company associated with the undertaker,

(b) require the eligible licensee to which such a transfer is made to be such a company, or

(c) prohibit such a transfer being made to such a company.

(6) For the purposes of this section, a relevant undertaker is associated with an eligible licensee if one of them is a subsidiary of the other or both are subsidiaries of the same body corporate.”

4: After Clause 41, insert the following new Clause—

“Transfer of undertaking

(1) Exit regulations about the transfer of a part of a relevant undertaker’s undertaking may include provision for the making of a scheme to transfer property, rights and liabilities where an exit application has been granted.

(2) Exit regulations about the transfer of a part of a relevant undertaker’s undertaking may include provision about arrangements under Chapter 1 of Part 5 of the Water Industry Act 1991 for fixing, demanding and recovering charges.

(3) Provision under subsection (2) may include—

(a) provision for and in connection with treating such arrangements as if they were agreements between the undertaker and the person liable to pay such charges;

(b) provision about the terms and conditions of such agreements.

(4) Exit regulations may make provision for a scheme under subsection (1) to contain—

(a) provision identifying the property, rights and liabilities to be transferred (which may include property, rights and liabilities that would not otherwise be capable of being transferred);

(b) provision for the division of property, rights and liabilities, including—

(i) provision creating an interest in or right over property;

(ii) provision creating new rights and liabilities;

(iii) incidental provision as to the property, rights and liabilities of other persons;

(c) provision about the consideration to be provided (and about the enforcement of such provision).

(5) Subsection (4) is not exhaustive of what a scheme may contain.”

5: After Clause 41, insert the following new Clause—

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“Operation of retail market

(1) Exit regulations about the operation of the water industry in relation to a retail exit area may include such provision as is described in the following subsections.

(2) Exit regulations may make provision for and in connection with requiring a relevant undertaker to impose on an eligible licensee only such charges under a section 66D agreement or a section 117E agreement as would enable the licensee to fulfil its obligations under agreements (including deemed agreements) transferred to the licensee from the undertaker under the regulations.

(3) Exit regulations may make provision for and in connection with requiring a water supply or sewerage licensee, where the licensee is providing services under the licensee’s licence in relation to a retail exit area, to provide such services under its licence in relation to that area as the regulations may specify.

(4) Exit regulations may make provision for and in connection with such arrangements between a water supply or sewerage licensee and a relevant undertaker as would enable the licensee to comply with requirements imposed on it under subsection (3).

(5) Exit regulations may make provision as to the functions of a relevant undertaker in relation to a retail exit area and may, in particular, modify or disapply a duty imposed on a relevant undertaker by—

(a) section 63AC(2) (interim duty to supply water), or

(b) section 110L(2) (interim duty to provide sewerage services).

(6) Exit regulations may provide for a water supply or sewerage licensee that—

(a) is a company,

(b) is providing services under its licence in relation to a retail exit area, and

(c) satisfies such criteria as may be specified by the regulations (which may include criteria as to market share),

to be subject to provision for special administration (see section 23 of, and Schedule 2 to, the Water Industry Act 1991) in such circumstances as the regulations may specify.

(7) Exit regulations may include provision—

(a) requiring relevant undertakers, water supply licensees and sewerage licensees to provide such information as the regulations may specify to customers;

(b) requiring relevant undertakers, water supply licensees and sewerage licensees to provide such information as the regulations may specify to the WSRA or the Secretary of State;

(c) requiring the WSRA to record such information as the regulations may specify in the register it maintains under section 195 of the Water Industry Act 1991.

(8) Provision under subsection (7)(b) may in particular specify information about customers and the arrangements under which they receive services.”

6: After Clause 41, insert the following new Clause—

“Operation of retail market: charges etc

(1) Exit regulations may make provision for water supply licensees and sewerage licensees, that are providing or proposing to provide services under their water supply or sewerage licences in relation to a retail exit area, to make, and from time to time revise, a scheme containing the terms and conditions which, in the absence of agreed terms and conditions, are to apply to such services.

(2) Provision under subsection (1) may include—

(a) provision for a scheme to make different provision for different purposes, or different areas;

(b) provision about the publication of a scheme or revised scheme;

(c) provision about sending a copy of a scheme or revised scheme to the WSRA;

(d) provision enabling the WSRA to direct that terms or conditions be modified generally or in a particular case;

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(e) provision requiring a licensee to comply with a direction under paragraph (d), including provision for enforcing such a duty under section 18 of the Water Industry Act 1991.

(3) Provision under subsection (1) may also include—

(a) provision requiring the WSRA to issue a code about providing services to which a scheme under subsection (1) relates;

(b) provision for the code to include, in particular, provision about—

(i) the terms and conditions contained in such schemes;

(ii) licensees informing owners or occupiers of premises about their schemes before agreeing any terms and conditions for the provision of services;

(c) provision for the WSRA, if it considers that a licensee is not acting as required by such provision as is described in paragraph (b), to give the licensee a direction to do, or not to do, a particular thing specified in the direction;

(d) provision requiring a licensee to comply with a direction under paragraph (c), including provision for enforcing such a duty under section 18 of the Water Industry Act 1991;

(e) provision requiring the WSRA from time to time to review the code and, if appropriate, to issue a revised code.

(4) Exit regulations may make provision for the WSRA to issue and enforce—

(a) rules about charges for services that may be imposed by water supply or sewerage licensees in relation to a retail exit area;

(b) if exit regulations make provision for licensees to make schemes about such charges, rules about such schemes.

(5) Provision under subsection (4) may include—

(a) provision for the rules to make different provision for different cases;

(b) provision for the WSRA to direct a licensee to comply with the rules;

(c) provision for such directions to be enforceable by the WSRA under section 18;

(d) provision for the Secretary of State to issue guidance as to the content of the rules;

(e) provision for the Secretary of State to prevent rules being issued.”

7: After Clause 41, insert the following new Clause—

“Exit applications: further provision

(1) Exit regulations may make provision about the provision relating to exit applications that may be included in a relevant undertaker’s conditions of appointment.

(2) Exit regulations may in particular prohibit the inclusion of provision requiring a relevant undertaker to make an exit application.

(3) Exit regulations may make provision for requiring the WSRA or the CMA to obtain the consent of the Secretary of State—

(a) before exercising a function so as to require a relevant undertaker to make an exit application, or

(b) before exercising a function in a way that is likely to result in a relevant undertaker making an exit application.”

8: After Clause 41, insert the following new Clause—

“Modification of appointment and licence conditions

(1) Exit regulations may provide for the WSRA to modify the conditions of appointment of a relevant undertaker where it considers it necessary or expedient to do so in consequence of the transfer of part of the relevant undertaker’s undertaking under the regulations.

(2) Exit regulations may provide for the WSRA to modify the conditions of a licence under Chapter 1A of Part 2 of the Water Industry Act 1991 where it considers it necessary or expedient to

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do so in consequence of the transfer to the holder of that licence of part of a relevant undertaker’s undertaking under the regulations.

(3) Exit regulations may provide for the WSRA, where it modifies conditions under subsection (1) or (2), to make such incidental or consequential modifications of other conditions of the appointment or, as the case may be, other conditions of the licence as it considers necessary or expedient.

(4) Provision made by exit regulations as regards the modification of conditions under this section may include—

(a) provision for the Secretary of State to give consent to a modification proposed by the WSRA;

(b) provision as to the period during which a modification may be made.

(5) Provision under subsection (4)(b) may not allow a modification to be made after the end of the period of one year beginning with the day on which the transfer in question takes place.”

9: After Clause 41, insert the following new Clause—

“General directions

(1) Exit regulations may make provision for the Secretary of State to publish, from time to time, a statement setting out general directions for the WSRA and the CMA as regards the carrying out of their relevant functions in circumstances where the WSRA or the CMA, in carrying out those functions, might be able—

(a) to require or bring about an exit application, or

(b) to have an effect as regards the making of an exit application.

(2) Exit regulations may require the WSRA and the CMA to carry out their relevant functions in accordance with any statement published under the regulations.

(3) Exit regulations may make provision about formulating a statement to be published under the regulations, and may in particular—

(a) require the Secretary of State to have regard to—

(i) the duties of the WSRA mentioned in section 2(1)(b) of the Water Industry Act 1991,

(ii) the duties of the CMA under the Competition Act 1998 or the Enterprise Act 2002, and

(iii) the protection of the interests of consumers (within the meaning of section 2 of the Water Industry Act 1991), and

(b) enable the Secretary of State to have regard to such other matters as the Secretary of State thinks fit.

(4) Exit regulations may make provision for the Secretary of State, before publishing a statement under the regulations, to consult—

(a) the WSRA,

(b) the CMA,

(c) the Consumer Council for Water,

(d) relevant undertakers,

(e) water supply licensees and sewerage licensees,

(f) the Welsh Ministers, and

(g) anyone else the Secretary of State thinks appropriate.

(5) Exit regulations may—

(a) require the Secretary of State to lay a draft of a statement before Parliament before publishing it;

(b) require the Secretary of State to wait for a period specified in or determined under the regulations after laying the draft statement under paragraph (a);

(c) prohibit the Secretary of State from publishing it if, within that period, either House of Parliament resolves not to approve it.

(6) In this section “relevant function” means—

(a) in relation to the WSRA, a function mentioned in section 2(1)(b) of the Water Industry Act 1991;

(b) in relation to the CMA, a function of the CMA under the Competition Act 1998 or the Enterprise Act 2002.”

8 Apr 2014 : Column 1277

10: After Clause 41, insert the following new Clause—

“Exit regulations: general

(1) Exit regulations may make such provision as the Secretary of State considers appropriate—

(a) for modifying a person’s duties and powers, and

(b) for imposing new duties and conferring new powers on a person.

(2) The persons in relation to whom provision under subsection (1) may be made include—

(a) the Secretary of State;

(b) the Chief Inspector of Drinking Water;

(c) the Welsh Ministers;

(d) the Chief Inspector of Drinking Water for Wales, if there is one, or the Chief Inspector of Drinking Water if section 86(1B)(b) of the Water Industry Act 1991 applies;

(e) the WSRA;

(f) the CMA;

(g) the Environment Agency;

(h) the NRBW;

(i) the Consumer Council for Water;

(j) relevant undertakers;

(k) water supply licensees and sewerage licensees.

(3) Exit regulations may—

(a) apply enactments, with or without such modifications as the Secretary of State thinks fit;

(b) amend, repeal or revoke enactments.

(4) The provision that may be made by exit regulations includes provision conferring power to make subordinate legislation.

(5) Exit regulations may—

(a) contain such consequential, incidental, supplementary, transitional or saving provisions (including provisions amending, repealing or revoking enactments) as the Secretary of State considers appropriate, and

(b) make different provision for different cases, including different provision in relation to different persons, circumstances or areas.

(6) In this section “enactment”—

(a) includes an Act or Measure of the National Assembly for Wales;

(b) includes an enactment contained in this Act, other than this Chapter.”

11: After Clause 41, insert the following new Clause—


(1) In this Chapter—

“the CMA” means the Competition and Markets Authority;

“eligible licensee” has the meaning given by section (Eligible licensees);

“exit application” means an application under section (Retail exit: non-household premises)(1)(a);

“the NRBW” means the Natural Resources Body for Wales;

“non-household customer” means a person who is the customer as regards a service provided in respect of non-household premises;

“non-household premises” means premises other than household premises as defined in section 17C of the Water Industry Act 1991;

“retail exit area” has the meaning given by section (Retail exit: non-household premises);

“the WSRA” means the Water Services Regulation Authority.

(2) Except in so far as the context otherwise requires, terms used in this Chapter have the same meaning as in the Water Industry Act 1991.”

Amendments 2 to 11 agreed.

8 Apr 2014 : Column 1278

Amendment 12

Moved by Lord De Mauley

12: After Clause 41, insert the following new Clause—


(1) Before making exit regulations, the Secretary of State is to consult—

(a) the Welsh Ministers;

(b) the WSRA;

(c) the CMA;

(d) the Consumer Council for Water;

(e) relevant undertakers whose areas are wholly or mainly in England;

(f) water supply licensees and sewerage licensees;

(g) persons whom the Secretary of State considers to represent the interests of investors in the water industry.

(2) The power to make exit regulations is to be exercised by statutory instrument.

(3) A statutory instrument containing exit regulations made by the Secretary of State may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”

Amendment 13 (to Amendment 12) not moved.

Amendment 12 agreed.

Clause 54: Scheme funding

Amendment 14

Moved by Baroness Parminter

14: Clause 54, page 109, line 40, at end insert “and this is to include guidance about the application of surplus funds during the period of operation of the scheme to support uptake of resilience measures by householders”

Baroness Parminter: My Lords, the noble Lord, Lord Krebs, and I return again to the issue of the use of any surplus reserves for Flood Re. I will not repeat the arguments we advanced in Committee and on Report. I feel that the House is clear that our aim is to ensure that any significant surplus funds can be used by Flood Re to encourage householders to adapt to the impacts of climate change and flooding, and so manage down risk.

I am grateful to the Minister for meeting the noble Lord, Lords Krebs, and me last week to discuss the matter again. We accept that decisions cannot be made now—pinning down in legislation what level of reserves should be built up and what should happen to them. However, we need clarity about the decision-making process that will condition what happens to surplus funds. Will the Minister confirm that Flood Re will have to draw up a strategy to manage surplus funds and that it will be published? Equally, we seek confirmation that the approach of “invest to save” is not ruled out if significant surpluses are built up. By this I mean spending on property-level protection where the economics of that approach show that it delivers the best value for money in managing down risk. Given that it has been shown that such an approach delivers a benefit of at least £5 for each £1 invested, it is too important an approach to discount. It could make a decisive difference

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to individual householders and their protection. It will also benefit the insurance industry by reducing the level of overall claims. It is, therefore, in the interests of a smooth transition at the end of the process of Flood Re. To that end, I beg to move.

Lord Krebs (CB): My Lords, I, too, thank the Minister for meeting the noble Baroness, Lady Parminter, and me to discuss this amendment. I do not wish to say anything at length but I shall make a couple of simple points. If we accept that Flood Re, according to the Government’s own figures, will build up a reserve, we can ask what this surplus might be used for. It could be used for future discounting of policy charges; it could be saved up for—excuse the pun—a rainy day when the call on insurance may be greater than anticipated; or, as our amendment suggests, it could be used to manage down future risk. As the noble Baroness, Lady Parminter, said, this is in effect a proposal that Flood Re should invest to save, to reduce both its own future costs by encouraging household-level protection measures and to help those householders to exit at the end of the period of operation of Flood Re.

According to the work of the Adaptation Sub-Committee of the Committee on Climate Change, which I chair, about 190,000 properties could benefit from property-level protection. It would seem reasonable that some of the money that accrues as a surplus in Flood Re should, given the returns on investment to which the noble Baroness has already alluded, be used to help some or, I hope, eventually, all of these 190,000 properties to become more resilient.

Lord Curry of Kirkharle (CB): My Lords, I have some concerns about the amendment. If I can describe the noble Baroness, Lady Parminter, and the noble Lord, Lord Krebs, as friends, I hesitate to object to their amendment, but I have concerns. I declare an interest in that I was, until two years ago, a chair of an insurance company.

My concerns are around the following issues. First, as a policyholder contributing to the funds that will be accumulated to create Flood Re, I am concerned that some of my contributions will be used to create resilience measures—which are, I assume, measures to reduce the risk of flooding—for a select group of properties. That is not why we will contribute the funds.

Lord Campbell-Savours (Lab): Does the noble Lord not accept that in the long term the insurance company will benefit because it will save money?

Lord Curry of Kirkharle: Perhaps I may respond to that as I work through my argument.

Secondly, identifying the properties that will be subject to this special treatment will require the wisdom of Solomon and might create division and resentment among other property owners who are not able to benefit from the resilience measures used.

Thirdly—here I have some sympathy with the comments made by the noble Baroness, Lady Parminter—Flood Re needs a strategy for the amount of reserves that will

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be appropriate and need to be built up to cover flood risk. A strategic approach to the amount of surplus required is important. It will be very difficult to determine what the reserve should be to cover flood risk over a period of years, but it is essential that a reserve is established to maintain adequate funds to cover significant flood risk.

Finally, my most important point—I respond here to the comments made by the noble Lord, Lord Campbell-Savours—is that, as a policyholder, I do not want to continue contributing to a fund that has established a significant surplus. Once the surplus has been determined and achieved, I would hope that the Government and the ABI would have a mature discussion about reducing the contributions to the fund so that they do not establish an ever-increasing fund which may never be used. It would benefit the insurance companies if they did not need to continue collecting funds to contribute to this reserve. Resilience measures are essential and should be taken as properties are restored after flooding, but it is not the role of the fund to provide the resources to do that.

Lord Whitty: My Lords, I can see the immediate attractiveness of the amendment but I share some of the reservations of the noble Lord, Lord Curry. If we are going to do this, we have to be more precise than the provisions in the amendment. The noble Lord rightly said that Flood Re will need a strategy for its surpluses and the limitations on the degree of cross-subsidy it can require from policyholders more generally. There will be a limit as to what is acceptable in that regard. It will also need a strategy to ensure that resilience and mitigation measures are adopted by those at the highest risk. If this amendment means that, and if it is a relatively small part of such surpluses—by which I mean a very small part—I can probably go along with it. If, however, it is as open-ended as it appears—and we know what the demands for flood mitigation as climate change and population pressures increase are likely to be—the temptation for insurance companies outside the system, the Government and the population to try to raid the Flood Re surplus for those purposes will begin to increase as well.

Despite the initial attractions, I do not think I can support the rather open-ended nature of the amendment as it stands. However, as we move forward and review the scheme, I hope that the Government and the administrators of Flood Re, along with other stakeholders, will find ways of ensuring a maximal take-up of resilience measures by those who own properties at risk and their insurance companies.

Lord De Mauley: My Lords, I thank my noble friend Lady Parminter and the noble Lord, Lord Krebs, for Amendment 14. I am glad to be able to return to your Lordships, having considered the proposals in more detail. As I have said previously, reserves that build up during the lifetime of Flood Re will be used primarily to pay flood claims in the bad years. It will not be easy to identify surplus funds and any decision about Flood Re’s reserves will require a judgment about the level of cover needed for the unpredictable risks it bears. Any commitment by Flood Re to spend

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a proportion of its reserves in a certain way, such as on betterment or resilience, would potentially increase the amount of capital it needs to hold on an ongoing basis, thereby having an impact on the cost of the scheme and ultimately the levy.

However, it is entirely right that there should be clarity on the principles regarding how surplus reserves would be dealt with, should that situation arise. This is not about small reserves that could provide one or two years’ comfort for Flood Re, but significant additional capital implying that Flood Re is excessively capitalised. It is important to recognise that this is not a situation that we anticipate occurring in the first few years of Flood Re’s life, as reserves will build up only gradually, if at all.

We have previously set out that during Flood Re’s life, we would expect the levy and eligibility thresholds to be set in such a way as to manage down excess reserves. I agree with my noble friend Lady Parminter that it should be open to Flood Re to spend some surplus money on resilience measures if it is appropriate to do so as part of its commitment to support households to prepare for risk-reflective pricing. Flood Re will have a duty to deliver value for money. One of the benefits for both households and insurers of installing property-level resilience measures is that, properly fitted, they can reduce the cost of future claims. Research suggests that for some homes, installing resilience measures can reduce the cost of subsequent flood claims by more than 70%. While we recognise that there is still work to be done to improve the evidence base, a point that the insurance industry raised in the Public Bill Committee on the Bill in the other place, I strongly agree that investment in resilience measures from whatever source could have a role to play in reducing the overall cost of claims over the lifetime of the scheme.

I recognise, too, that it would be helpful to provide greater clarity about how Flood Re will support policy- holders to prepare for transition to risk-reflective prices. We therefore propose that the secondary legislation, which will itself be subject to the affirmative procedure, will set out in more detail the points that Flood Re’s transition plan should cover, including that Flood Re could encourage and incentivise policyholders to make their properties more resilient to flooding. We will also expect Flood Re to consider in broad terms the process for managing any surplus during the lifetime of the scheme, either as part of the transition plan or in its wider governance framework. Parliament will have an important role to play in holding Flood Re to account for its use of resources and the delivery of its purpose, and its directors will be directly accountable to Parliament for that.

In relation to any reserves at the end of Flood Re’s life, as I have previously explained, Clause 71 allows the Government to require Flood Re to transfer a sum of the reserves to government, following consultation with Flood Re. It will ultimately be for the Government of the day, in consultation with Flood Re and Parliament, through affirmative resolution, to decide on the treatment of any reserves. I reassure your Lordships that there is no presumption about how reserves might be disbursed.

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6 pm