5.45 pm

Lord Tebbit: The noble Lord has set out an alternative policy which the Government might have followed, but they did not. We are not dealing with the alternative policy but with what actually happened. He is saying that the Government have seen a way of doing things that he does not like. It does not alter the fact that this a money matter and he wants this House to overturn a majority decision in the Commons on a money matter.

Lord Kakkar (CB): My Lords, can I ask the noble Lord how your Lordships’ House should interpret the point of order made by Sir Edward Leigh on 21 October in the other place? He said:

“On a point of order, Mr Speaker. Generations of your predecessors defended the privileges of this House, and the greatest privilege of all is the principle of no taxation without representation …We had a lively debate yesterday on tax credits, and many of us would like to see some movement from the Government, but surely it is the elected representatives of the people who decide on tax and spending”.

The Speaker responded:

“I understand entirely what the hon. Gentleman is saying. My own feeling from the Chair is that the other place can look after itself; but we also can and will look after ourselves. I think it would be much more dignified for the Chair not to become drawn into what might be a public spat between the two Houses. In the final analysis, each House knows what the factual constitutional position is, and that position is what it is of long standing”.—[Official Report, Commons, 21/10/15; col. 959.]

Lord Richard: My Lords, I am bound to say to the noble Lord that I am not sufficiently qualified medically, politically or personally to know what is in the mind of Mr Leigh when he gets up in the House of Commons. To expect me to be able to do that is, frankly, unrealistic.

The answer to the noble Lord, Lord Tebbit, again is very simple. Of course the Government chose to do it. Why? Because it cut off discussion. It meant that they were not accountable on the Floor of the House of Commons. They knew when they did it that there was a convention here that we did not vote against statutory instruments; we did not turn them down. By doing it that way the Government thought they were impregnable in their approach. I do not think they are.

Lord Deben: Could it not have been that they did it that way because that is what the Act said they had to do? Would that not be a more proper judgment of what the Government did?

Lord Richard: The Act gave the Government the power to do it. It did not compel them to do it. If they wanted to do it by way of an Act of Parliament it

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could have been done that way. They could have added it to the Finance Bill and it would have come up here and in the normal way financial privilege would have applied and none of this nonsense would have been created. Perhaps the reason the Government chose to legislate in this way was because it was bound to create political controversy. Perhaps that was the object of the exercise.

I want to say a word about the debate in 2008. It was when this House limited the power of a Labour Government to raise the national insurance upper threshold so that it could be done only through primary legislation. The two cases are almost identical. In each case, the Government were trying to alter tax provisions by a statutory regulation. In each case, this House was standing in their way. The only real difference is that in 2008—

Baroness Stowell of Beeston: I am so sorry to interrupt the noble Lord, but he is referring to a previous case in a way which I do not believe is accurate. The example he is citing relates to primary legislation, not to a statutory instrument. An amendment was properly tabled in this House to that primary legislation, and this House voted on it. This House sent the Bill back to the other place in the normal way. The House of Commons decided that it would invoke financial privilege, and that was the end of the matter, so it is wrong for the noble Lord to draw direct comparisons in the way that he is doing.

The reason why the 1911 Act is relevant is that is quite clear that secondary legislation is not covered by some of the conventions that have been raised in debate in this House. What is at risk here is the financial primacy of the Commons.

Lord Richard: I hear what the noble Baroness says but, as far as the financial privilege of the House of Commons is concerned, if this House decides to vote for my noble friend Lady Hollis’s amendment—as I hope it will—it would not kill the statutory instrument. It would not mean that it was dead. It would mean that its implementation was delayed. According to the clerks—and I understand it is broadly accepted by most people—that is not a fatal attack upon these regulations. If the House were to do that, we would get the best of both worlds. I am not in favour of voting for the Liberal Democrat amendment because I do not, on the whole, think that voting for fatal amendments on statutory instruments is a good thing for this House to do, and I do not think I have ever done it. However, an amendment to postpone the statutory instrument until the other House has a chance to look at the evidence that has now arisen makes a great deal of sense. I hope that, when it comes to a vote, that is what will happen.

The Archbishop of York: My Lords, I want to a repeat a few words of the noble Lord, Lord Richard. I, too, have been listening to this debate, and I listened to the argument made by the noble and learned Lord, Lord Mackay. He persuaded me that the amendment moved by the noble Baroness, Lady Manzoor, to decline to approve the regulations is fatal and perilously and would raise all kinds of constitutional matters.

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The amendments moved by the noble Baronesses, Lady Meacher and Lady Hollis, simply decline to consider the draft regulations. They do not say that the regulations will not be approved. In fact, they tie our hands because when the regulations are produced, we will have no choice but then to approve them. If the Chancellor is being very mindful, as we have been hearing from the Lord Privy Seal, and is willing to negotiate and to listen to our advice, well, we are giving him our advice, so why does he not take it? I think that the amendments moved by the noble Baronesses, Lady Meacher and Lady Hollis, are not fatal. They are simply delaying, and we can do something about it.

My right reverend friend called on the Government to further consult on the draft regulations and revisit their impact. It is a question of trust. If you are legislators and do not have the facts before you before you finally approve these draft regulations, you are abrogating your legislative responsibilities. If you are a revising and scrutinising Chamber, surely you must do it. If you do not, who else is going to do it? They may even be glad that some people are planning; it will become very clear that some were probably not all that important. The noble Baroness, Lady Hollis of Heigham, in her moving speech, outlined clearly the unintended consequences of this hasty way of reducing and cutting tax credits because the people who are going to suffer most are those who up to now have been relying on them. They are in work, and they are managing to get their things in order, and then suddenly the Government say they are going to take it away. That is not good. The Chancellor of the Exchequer is more likely to meet his target reduction of the budget deficit of up to £4.2 billion a year by introducing the real living wage first, which I trust will be calibrated soon by the Living Wage Foundation.

What is my basis for saying this? Two years ago, I chaired the Living Wage Commission which brought together people from business, the trade unions, industry and civil society to look at how we could inspire and create a brilliant way of dealing with this difficulty. How can we tackle the blight of low pay? We looked closely and objectively at the case for the living wage, and we were sure about what should be done. Let me give the House the evidence. It is in the report. The evidence pointed to the living wage being good for employees, good for business, good for the economy, good for society and good for low-paid people. Employers who have already adopted a living wage policy have lifted thousands of people out of working poverty. They are not claiming tax credits because they have been lifted out. The Exchequer could gain up to £4.2 billion a year in increased tax revenues and reduced expenditure on tax credits. That is a much neater way of doing it. Businesses are reporting increases in productivity and improved morale. The truth is that you and I lose out on poverty wages. Billions of pounds are being spent every year on topping up the incomes of low-paid workers at a time when private finances are very tight. Demand is sucked out of the economy by the lack of spending power of a fifth of our workforce—about 5 million people—and where inequality grows, all of us end up diminished.

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Economics was not always divorced from moral and ethical considerations. Adam Smith, the father of modern economics, had been professor of moral philosophy at the University of Glasgow before he wrote The Wealth of Nations. To him and later classical economists such as Ricardo, Mill and Henry George, ethical considerations were of prime importance. Economic justice on a global scale is the only way we are going to deal with this. The issue we are facing here is not just economics divorced from morals and ethics. The decisions we take will affect a lot of men and women throughout the country who want to get out of poverty and out of depending on tax credits, and we should consider them properly and fairly.

Britain has struggled through very challenging times. I hope that the work being done by government, business and the people of the United Kingdom will enable us to take a huge step forward. The minimum wage, when introduced, went some way, but it did not go far enough. Let me give some recent research which seems to suggest that the legislature has considered the possibility of delaying in order that further facts may be brought out. What are they? There has been a rise in demand for unsecured credit, with many people reporting an increase in their need to borrow. This is likely only to get worse in the winter months. Do you want people who have hitherto have been dependent on work and tax credits to be driven to the loan sharks of this country? That would be quite unhelpful. What about UNICEF saying that a quarter of children in Britain are living in poverty? Britain is at risk of becoming a place where the haves and the have nots live in parallel worlds, where the common good, or the big society, has been a pious platitude rather than genuine. I want to listen more, and I hope the decision to delay the draft regulations until further facts ties our hands and allows the Chancellor, who is willing to listen to our advice, to come back with all that information. We are almost saying that we will pass it, we will agree with it.

Finally, a wonderful report by the Joseph Rowntree Foundation, Will the 2015 Summer Budget Improve Living Standards in 2020?, states that over seven years there has been a decline in living standards. It is pausing for the moment, but many low-income households are still much worse off than in 2008, leaving them struggling to make ends meet and reliant on benefits to top up their finances. Today, we want to say to hard-pressed families on poverty wages that the Government are serious about deficit reduction, but they want to do it in an orderly fashion that will not leave men and women in the hands of loan sharks.

6 pm

Lord Fowler (Con): My Lords, I have two claims to briefly intervene in the debate. First, it was my proposals in the social security legislation of 1986 that led to the introduction of family credit, which was a successor to Keith Joseph’s family income supplement and, of course, the forerunner of tax credits. It then became a Treasury matter when it went to tax credits. Obviously, I have considerable sympathy with the general case being put in this debate. Secondly, I was for six years the Secretary

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of State for Health and Social Security and, as such, no one’s idea of a natural supporter of the Treasury and all their schemes.

Lord Lawson of Blaby (Con): You can say that again.

Lord Fowler: Various Chancellors and Chief Secretaries might put it more strongly, and a former one just has. Perhaps I can add in parenthesis in this heated debate that throughout my time doing social security my shadow Minister was Michael Meacher, who died last week. We did not agree on very much but he was a very honourable and totally sincere man and he will be much missed.

Noble Lords: Hear, hear!

Lord Fowler: My Lords, I spent three months every year debating with the Treasury the proposals that it put forward to cut my budget. One counterargument I never used was that the specific cost-cutting measure was not in the party’s manifesto. Frankly, I had quite enough trouble getting the Treasury to recognise the measures that were in the manifesto. Every Government introduce measures not contained in the manifesto. The last thing I did was to introduce the dock labour scheme—there was not a word about that in the manifesto. Back in my old social security days, Barbara Castle, under pressure from the Treasury, altered the whole basis of measuring inflation at a cost and a saving of well over £1 billion.

The truth about reduction in benefit spending is that it is always going to be unpopular. I found that in Cabinet everyone was in favour of doing it in general but when it came to the specifics they always said, “Please, not that way”. Frankly, I think that the Conservative manifesto in 2015 spelled out what was intended with more clarity in this area than any manifesto I can remember on either side. The Government said in words that they would have to find £12 billion from welfare savings. That is a good deal more specific than any manifesto I had anything to do with myself and, indeed, any manifesto which ever came up on the other side.

Lord Campbell-Savours (Lab): My Lords, in light of what the noble Lord just said, does he think that it was right for Mr Cameron to rule out cuts to tax credits at the time of the general election?

Lord Fowler: We have been round this particular point because the noble Lord has made it several times. More to the point, it has been considered now three times in the House of Commons and has been rejected. In fact, I think he was talking about considering child tax credits and not the whole ball game.

The manifesto also made it clear in words that pension upratings would be protected. In other words, that area of retirement would be ring-fenced. I do not think there was any great controversy about that. By ring-fencing pensioner benefits the Government narrowed the field very substantially from where the £12 billion cuts could come. It follows as night follows day. Not everyone will agree with that diagnosis. Indeed, my major reason for introducing family credit was my concern for low-income working families with children.

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Even then it was clear that pensioner earnings were improving and increasing and that was not being followed by the low-income families.

I do not think that anyone can have imagined how spending on tax credits was to escalate in the way that it did. Tax credit spending trebled in the 10 years up to 2010 and by the Budget of this year was estimated to be about £30 billion a year. That was a long way from the original aim. However, I accept that none of this was the fault of the families who are struggling to make ends meet, often in very difficult circumstances. I totally accept and agree with that. I therefore welcomed the assurance of the Leader of the House when she said that these matters would now be considered again. I hope that when they are we can find room to look particularly at families with children. That is a priority, and Frank Field has a Motion down on this. That argument is particularly strong. Whether the Government do this or not—and this is the point—is frankly a matter for the Chancellor of the Exchequer, who is answerable on this and other financial matters to the House of Commons and not to us. It is a common-sense position—

Baroness McIntosh of Hudnall (Lab): My Lords, I hate to interrupt the noble Lord, for whom I have the greatest respect, but he said that the Leader had told the House that these measures would be reconsidered. I listened quite carefully to what the Leader said and I am not sure I heard that, but if I am wrong I am very happy to be corrected.

Lord Fowler: I leave it to the Leader of the House and the noble Earl who will be winding up to put it in specific words, but I think that not an unfair representation of what she said. We are the unelected House. The other place is the elected one. The measure has already been voted on twice, if not three times in the Commons. We cannot have the unelected House trying to impose its will on £5 billion of savings. I say one thing to the ex-Members of the House of Commons who are here: I do not remember their saying when we were in the House of Commons together, “We must give more financial power over what happens to the House of Lords”. I do not remember at any stage that point being made by anyone in any party on this particular position. I think a certain degree of humility might therefore be in order.

Lord Rooker (Lab): I agree entirely with the point made by the noble Lord. Does this not show, though, that our powers on statutory instruments are far too drastic, as was pointed out in the report on conventions? It would be better if we gave up the power to accept or reject a statutory instrument in exchange for maybe two amendments, which would deal with the point made by the noble Lord, Lord Lawson—we could have tweaked it but we could not have opposed it anyway. There may be a lifeboat in this, if we could get something out of it in the way we deal with secondary legislation and avoid all this in future.

Lord Fowler: That is obviously something we can consider for the future, and on first hearing sounds an attractive proposition. However, we are considering what we are doing now and not in the future.

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I make a last point. In spite of some of the criticism—no, the attack—now being directed at this House, it is my view that it carries out a very valuable series of functions. The Members I meet here day by day are hard-working, not just on the Floor of the House but in Select Committees. However, we need to recognise one common-sense thing: that as long as this is an appointed House, we must accept the limitations on our powers, particularly in financial matters. To ignore those limitations is not in the interests of Parliament, it is certainly not in the interests of the House of Lords and it is not in the interests of the public. It cannot be justified and that is why I will be voting against these amendments.

Lord Low of Dalston (CB): My Lords, we have been going at this now for well over two and a half hours. Strong points have been made on each side of the argument and many points have been made in speeches that have been not only lengthy but weighty. I find it difficult to conceive that any more arguments can be deployed on either side. I submit that we need to make up our minds on the basis of what we have heard and that it is time to come to a conclusion.

Baroness Hayman (CB): My Lords, I accept what the noble Lord, Lord Low, says but I want to make one or two points that have perhaps not been made before and, if the House will indulge me, I would be grateful for the opportunity so to do.

I shall not go over the case against the regulations in their current form. That has been argued powerfully tonight from all Benches, and I think that we could pass almost nem con that we feel there is a need for reconsideration. The issue before us is whether it is constitutionally appropriate for the House of Lords to use its most potent and well-known weapon—the weapon of delay—in respect of these regulations.

Very powerful speeches were made from the Bishops’ Benches. I am delighted that the right reverend Prelate the Bishop of Gloucester is here for today’s debate. I should warn her—or console her—that it is not always like this. However, I hope that those Benches and others will consider that it might be appropriate for the House to use its powers of delay tonight. I favour the amendment in the name of the noble Baroness, Lady Meacher, because it gives us an alternative to a fatal amendment on a matter which is, I agree, of high political import. It gives us the opportunity to delay the regulations and to ask the Commons—and, through it, the Government—to think again.

In introducing the debate, the noble Baroness the Leader of the House said that she had seen the Chancellor of the Exchequer today. I think that the words used were that he would “listen very carefully” to what was said in the House today. I accept that. However, having had the privilege of being a Member of both Houses, I think he will listen even more carefully to what is said in the House of Commons on Thursday, and I would like him to have the opportunity to do that.

Delaying an SI rather than killing it is innovative, and I have asked myself over time whether it is something we should therefore abjure. My answer is no. If we have the power to kill a statutory instrument and send it back to base, surely we have the power to delay it and wait for reconsideration.

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I absolutely accept that this matter has been discussed in another place three times. Does it need further consideration? I think the evidence is that it does. Every time we discuss an amendment to a Bill that has gone through the House of Commons, it has probably been voted on three times: at Second Reading, in Committee and on Report. That does not inhibit us from saying first time round, “Please will you look again?”.

Therefore, for me, the only question that remains is that of financial privilege. I hesitate to cross swords with either the noble and learned Lord, Lord Mackay, or my noble friend Lord Butler, but the situation is not as clear-cut as they have set out. If this were a Finance Bill we would have no part in it, and if it were a taxation SI we would have no part in it. In fact, it would never come here: it would go through only the House of Commons. But it is not. This is an SI under “ordinary legislation”—under a welfare Bill. Under that legislation, this House considers amendments and sends them to the House of Commons. The House of Commons can then do what it likes with them: it can accept them; it can offer a compromise; it can reject them; or it can invoke financial privilege. However, that is after this House has asked it to think again. That is a better analogy than the analogy of a Finance Bill. This statutory instrument comes under welfare legislation, not a Finance Bill.

6.15 pm

Lord Butler of Brockwell: Surely there is an analogy with Finance Bills. They come to your Lordships’ House but we pass them without amendment because that is the constitutional convention, and that is similar to what we are being asked to do on this statutory instrument.

Baroness Hayman: I say to the noble Lord, Lord Butler, that the financial convention has not stayed absolutely the same for 300 years. The convention was that this House did nothing about the Finance Bill or, indeed, other economic measures. In 2000, we set up an Economic Affairs Committee. The House of Commons went into free-fall about encroachment on financial privilege. In fact, we were told that Gordon Brown, the Prime Minister at the time—I see the noble Lord, Lord Lisvane, nodding—was incandescent at the idea that there should be a sub-committee looking at the Finance Bill. However, those things happened and the world did not collapse. Financial privilege and the right of the Commons to have the final say was not impeded.

To my mind, this is a matter of very high and clear-cut politics, and of highly nuanced constitutional significance. Overall, I believe that the most important power of this House, while leaving the last word to the other place, is to ask it to think again, and I urge the House to use that power this evening.

Baroness Smith of Basildon: My Lords, this has been a quite extraordinary debate. It is unusual for your Lordships’ House to find itself at the centre of such a ferocious policy and constitutional debate as it does today. It is also extraordinary and unusual that, on a matter that affects the Department for Work and Pensions and the Treasury, we have no Treasury or

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DWP Minister addressing your Lordships’ House today. I can understand why: the Government feel more comfortable talking about constitutional issues in this regard than they do about the impact of this policy. We all understand that. Again, it was extraordinary that the noble Baroness the Leader of the House supported an amendment to her policy by supporting the right reverend Prelate’s amendment. So there have been some quite extraordinary scenes and what we are seeing today is unprecedented. It is good to see the noble Earl, Lord Howe—

Baroness Stowell of Beeston: I thank the noble Baroness for giving way. It is important that she does so because she has incorrectly interpreted what I said. I was very clear that the Government do not support any amendment to their Motion. I said that the right reverend Prelate had brought forward his concerns in a way that was consistent with the conventions and the proper role of this House.

Baroness Smith of Basildon: I think that that is a bit of an angels-on-pinheads defence, but I take the point that she makes.

I suspect that when the noble Earl, Lord Howe, took on the role of defence Minister, he did not think that his job would be defending all government policies across the House, as he is being asked to do today.

We have been asked to approve the Government’s tax credit order, and we are unable to do so. The reasons for that have been very carefully laid out. Our view is that these are pernicious regulations that do enormous damage. Overnight, at a sweep, they would dramatically cut the income of some of the poorest in society: those who are working hard and doing what the Government say is the “right thing”. About 3 million people will be affected by these cuts. Like many other noble Lords, I have had emails and letters from those who are likely to be affected: from nurses, teachers, cleaners and firefighters—people working hard, trying to raise a family. They are terrified by what lies before them; they do not know how they are going to cope. The noble Baroness, Lady Campbell, echoed some of the emails that I have received when she talked about those who have disabilities being moved into work and finding it so much better for them.

When my noble friend Lady Hollis spoke to her amendment, the House was silent. We could have heard a pin drop as we listened to what these cuts will really mean and the impact that they will have on people across this country. I think that the House was shocked and upset by the information that she provided today. However, she also provided a way through.

The noble Lord, Lord Lawson, said that tax credits have increased to £30 billion. They have; that is part of their success. In almost equal measure, we have seen income support reduce as people went into work. Therefore, they were no longer on income support but were receiving tax credits—that was the success of the measure. Income support went down as people moved into work and received tax credits to reflect their circumstances and help them to work. We have always been told that the way out of poverty is work, and that is what those people on tax credits have done; they have moved into work.

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It may be that some people cannot imagine what it is like to lose £25 or £30 a week from their income. For a lot of people out there, the loss of that £25 or £30 a week—in some cases much more—would be devastating. It would mean not putting in the money for heating this winter when it gets colder; it would mean not getting the kids new school shoes; it would mean making the kinds of choices that we should never place on families.

This is a highly contentious area, but it is the policy that is important. Having said that, there are conventional and constitutional issues, which noble Lords have raised, that have given some concern. It would, as we have heard, normally be expected for a measure of this nature and magnitude to be introduced by primary legislation. Thus, a government Bill would go through all the stages that such a Bill goes through and there would be the opportunity to debate it, put amendments to it and vote on those amendments. There would be opportunity to make revisions and to listen to the concerns that were raised. One has to wonder why the Government did not take that route. They could have applied financial privilege, which would have stopped all this, but they have chosen to deal with this measure through a statutory instrument.

Baroness Butler-Sloss (CB): I am sorry to interrupt the noble Baroness, but we did hear from the noble and learned Lord, Lord Mackay, that this came about as a result of the secondary legislation from the tax credits legislation introduced by her Government. As a result of which, this is a natural progression from that legislation. Therefore, perhaps the noble Baroness could explain why that was wrong.

Baroness Smith of Basildon: I can certainly help. In 2002, the legislation that went through that allowed for amendments to tax credits legislation to be made by statutory instruments or delegated legislation was so that normal uprating, for example, could be applied. It was for minor changes and normal uprating. However, major policy changes would not normally be made by these kinds of regulations. Furthermore, as I said earlier in my intervention on the noble Lord, Lord Lawson, the legislation in 2002 was not itself subject to financial privilege. But now we have a Government saying that the secondary legislation that follows on from that should be subject to financial privilege. I hope that that addresses the concerns that the noble and learned Baroness has raised. I give way to the noble Baroness yet again.

Baroness Stowell of Beeston: An important point for the House to understand is that the original Bill—the Tax Credits Act 2002—was not certified as a money Bill because it included changes to the administration of the welfare system. Had it just been about the financial measures that we are debating, it would probably have been certified as a money Bill. It was the addition of administration that caused it not to be certified as a money Bill.

Baroness Hollis of Heigham: My Lords, I took those two Bills through this House. I can tell the Minister that such considerations never arose.

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Baroness Stowell of Beeston: They would not, because certification of a Bill is done by the Speaker.

Baroness Smith of Basildon: In some ways, the Minister makes my point for me. Major issues and changes such as this are undertaken in primary legislation—a case she made for what happened in 2002. It is unusual to make such major changes in secondary legislation. But let us leave that to one side, if we may.

Anybody in the real world listening to us talk today would wonder what on earth we are on about—primary legislation, secondary legislation, delegated legislation, affirmatives and negatives. What really matters is the impact it has and applying a common-sense approach to what is before us today. We know, as parliamentarians, that SIs are more normally used for that specific detail of legislation that we have passed already or for issues following primary legislation where the principle has already been approved into law. As I have said, they can be very properly used for normal uprating in tax credits, and I made the point about 2002 to the noble and learned Lord, Lord Mackay.

The proposal before us today goes way beyond that normal kind of uprating. It is a major policy change that, in the first place, the Government promised not to do. The route that the Government have chosen is not illegal or the wrong route, but there are consequences of taking it. If the Government try to truncate the process, so as not to have that full consideration in the House of Lords, yet at the same time allow this House, through the normal constitutional procedures of your Lordships’ House, to debate and discuss the proposal and the kinds of amendments that we have before us today, it is quite clear that the amendment from my noble friend Lady Hollis is not a fatal amendment, whatever the Minister and her colleagues may think. She has had advice from the clerks and has made numerous references. It is no good the Leader shaking her head at me; the evidence is there and it is very clear cut.

If the Government had gone down the normal route, they would have claimed financial privilege and we would not be here today, and there would have been further debates in the House of Commons. MPs from across the House privately, and now publicly, admit that this goes too far, too quickly and causes too much harm.

The amendment in the name of my noble friend Lady Hollis is what I refer to as the common-sense, practical approach. It can really make a difference and is in line with what most people in this country are asking for: 60% of the population today are reported to want to see a U-turn or change in this policy. That is what my noble friend is seeking to do. Her amendment calls on the House to reject these proposals as they stand and for Ministers to come back with a proposed scheme to protect those already getting tax credits for at least three years—that is all of them.

If the amendment is passed, what happens next? The onus is then on the Government to take the proposals away and reconsider. The Government can bring forward new proposals for consideration. The policy would not, as the noble Lord, Lord Butler, intimated, disappear into the ether—that is a matter

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for the Government. If they are committed to doing something, the Government can bring new proposals to your Lordships’ House or choose to bring forward new primary legislation. However, if they failed to bring anything back at all, it would mean that they could not proceed with these cuts, would have to look for another route and would have to reconsider their policy. No Government ever have the wisdom such that they are right all the time. This House is right to ask the other place and the Government to reconsider, to pause and to try to get it right.

Lord Butler of Brockwell: But it is a blocking amendment. Nobody can compel the Government to do what the amendment says, and if the Government do not, the House of Lords would be refusing to consider this Motion indefinitely.

6.30 pm

Baroness Smith of Basildon: The noble Lord, Lord Butler, seems to be under the impression that, contrary to what the Leader said, the Government want to do nothing. The Government would have us believe, from what they have hinted at, that they are happy to look at things again. Therefore, I do not accept his argument on that. What is clear, though, is that the passing the amendment of my noble friend Lady Hollis would force the Government to look at this again. We would have a commitment, a promise: they would have to look at this issue again and say where they could make significant changes to protect those who are currently terrified of the letters they will get at Christmas outlining the cuts to expect in their income.

We have been very clear: this is not a fatal amendment; it does not totally block the Government’s plans; it allows them to reconsider. Although we do not have the right to pass a fatal amendment, we have a moral and constitutional duty to scrutinise, examine and challenge and, when a Government have clearly got it wrong, to ask them to think again. The noble Lord, Lord Cormack, and I were sparring partners at a distance on Radio 4 today, but even those voting with the Government tonight are saying, “But I’ve got great concerns about the policy; I want to see change”. The noble Baroness needs to know, if her troops follow her into the lobby today, that they are doing so because she has tried to make a constitutional issue out of this, not because they agree with the tax credit cuts. We could give the Chancellor of the Exchequer tonight an opportunity to address the very deep concerns expressed by Peers and Members of Parliament of all parties, including very senior members of her own party and colleagues on the Benches behind her.

I want to explain why these Benches have not put forward a straightforward fatal Motion like the one tabled by the Liberal Democrats at the behest of their party leader, Tim Farron. In policy terms, there is little between us on this issue. It is significant that the fatal Motion was tabled only after the Government had threatened retaliation if your Lordships’ House voted against the cuts. That escalated the constitutional issues and let the Government off the hook a bit, because they were more willing to talk about constitutional issues than about the impact of these cuts. The really important task before us today is to look at how we

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can protect people from what the Government have proposed, and I regret that the fatal Motion has allowed the focus to go off the issue and on to the constitution. My further concern is that the Government, having won a vote in the Commons, would quickly return with new primary legislation with very little change, if any, to avoid consideration by your Lordships’ House.

We believe that our Motion is the only one that can lead to meaningful change. It gives Ministers the opportunity to take a step back and listen properly to the clamour of voices calling for them to think again. That is the right role for your Lordships’ House to take. Those voices are clamouring not just here in Parliament; it is also the Children’s Society, think tanks such as the IFS, the IEA and the Adam Smith Institute, and newspapers such as the Sunthat would normally support this Government.

We have heard the arguments about whether this oversteps our constitutional authority. It does not.

Lord Forsyth of Drumlean: Can she tell us exactly how much the proposal of the noble Baroness, Lady Hollis, would cost?

Baroness Smith of Basildon: My noble friend Lady Hollis is very keen to tell the noble Lord.

Baroness Hollis of Heigham: Yes, my Lords. I had hoped that the noble Lord, Lord Forsyth, in his courteous way, would have heard my argument that the savings would come to the Government automatically; first, by the rise in the living wage, of which three-quarters of a billion pounds each and every year accrues back to the Government; secondly, by the fact that new claimants to tax credits are not covered by our amendment; and thirdly, because the National Audit Office says that, by 2019, more than 90% of those on tax credits will be on universal credit, where they will have their cuts. Over the entire Parliament, the Government will have matching savings that probably exceed the very cuts that they demand.

Baroness Smith of Basildon: My Lords, the point made by my noble friend is that this is a choice for the Government, not a necessity. What we have seen in the last week has enlightened all of us on the Government’s reluctance to accept challenge or proper scrutiny. There is no constitutional crisis looming at all. The Prime Minister has provoked a rather phoney constitutional crisis in this House rather than dealing with the very serious problems with his and the Chancellor’s tax credit policy. In the last Labour Government, we lost many dozens of votes here in the House of Lords on a range of issues, including one on 42 days’ detention, and one on the entire Second Reading of a Bill. Of course we did not like it, but we accepted it and moved on. At no point in this Session of Parliament have this Official Opposition not accepted the right of the Government to get their legislation through, but they have to do so properly, and they do not have a monopoly on getting things right all the time. In this case, we really believe that the Government have it wrong.

26 Oct 2015 : Column 1023

The threats that have been made to the House of Lords as an institution have been nothing less than parliamentary bullying.

Noble Lords: Hear, hear!

Baroness Smith of Basildon: Threats to suspend the House of Lords; to pack it with 150 new Tory Peers, or to “clip our wings” do nothing to address the issues that are before us and have given rise to concerns. There is a need for true reform of your Lordships’ House and Labour Peers have already suggested good measures, but those threats have nothing to do with reform and everything to do with the Government not wanting to be challenged and not being willing to think again.

This is a common-sense way to do things. This House looks at the issues; considers them and thinks the Government have got them wrong; so let us send them back to the Government and urge them to rethink and come back with something that is significantly better and does not really harm, and create enormous fear in, those people in work who are struggling to make ends meet and are terrified of the letters that are going to come through their letterboxes near Christmas. We will not exceed our authority, but neither will we be cowed into abdicating our responsibilities to hold the Government to account and act in the public interest.

The Minister of State, Ministry of Defence (Earl Howe) (Con): My Lords, the privilege falls to me, as Deputy Leader, of winding up this debate, which has proved to be a remarkable one. In many ways, it has been a landmark in the proceedings of the House. We have been treated to some extremely powerful contributions, both for and against the draft regulations, and both for and against the amendments that have been tabled. I listened with care to them all. I suggest to your Lordships that there are, in essence, two aspects of the matter that we are here to consider: the content of the regulations themselves and the issues which, for want of a better term, I will call the constitutional questions that arise out of three of the amendments before us.

Turning first to the policy issues, without unnecessarily going over the ground already covered by my noble friend the Leader of the House, there is one central point to be made at the outset. I make this point given that a number of noble Lords have seen fit to criticise both the intent and the effect of what the Government are seeking to achieve. The Government want a new deal for working people: a deal whereby those who claim either tax credits or universal credit will always be better off in work and always be better off working more. The way in which we are doing this will mean that a typical family man or woman, working full-time on the national living wage, will be substantially better off by the end of this Parliament than at the beginning of it. That is the aim that we have set ourselves and it is an aim that runs parallel with our policy intent, which we have made expressly clear for nearly two years now: that a Conservative Government, if and when elected, would look to find welfare savings of around £12 billion in order to reduce the public sector deficit. I simply say

26 Oct 2015 : Column 1024

to the noble Baroness, Lady Hollis, that the proposals that she has very constructively put forward are already built into the assumptions that we made. I am happy to look at her proposals in more detail but, from what she said, the Chancellor has already factored those points in.

Achieving those two policies simultaneously is possible only if a series of measures is taken—measures that will move us from a position in which working households are supported by low wages and high tax credits to one where there are higher wages and lower tax credits. The regulations that are before us today are about only the tax credit element of that overall picture. That is why it is unfair to pick up the report from the Institute of Fiscal Studies and point with alarm to large losses that a poorer working family might incur from cuts in tax credits without also taking into account other vitally important things that we are doing. The counterbalance to lower tax credits is a combination of positives—the national living wage, the rise in the income tax personal allowance and, importantly—

Baroness Meacher: The analysis of the Institute for Fiscal Studies is very clear in incorporating the effects not only of the tax credit changes but of the rise in the minimum wage, the move to the national living wage and the increase in the income tax and higher-rate tax thresholds. It makes very clear the redistributional effects of all these things from the poor to the rich.

Earl Howe: I do not dispute that the Institute for Fiscal Studies has looked at these things, but the figure of £1,300 that has been quoted is one that does not take into account the positives that I mentioned. Importantly for families with children, the doubling of free childcare should not be overlooked. For many people, although not for all, that will make it possible to work longer hours. Those are just some of the counterbalances. The noble Baroness, Lady Manzoor, chose not to mention them.

I cannot pretend that these have been easy decisions. However, I put it to the House that the measures that we are taking are the right thing for us to be doing—right not only for individual working families but for the nation. We are still, as a nation, living grossly beyond our means. Even so, eight out of 10 working households will be better off by 2017-18 than they are now because of the combined effect of the measures that we are taking.

Baroness Manzoor: Will the noble Earl say where the evidence is to support that assertion about eight out of 10 households? That is partly the problem, because those sorts of impact assessments have not been done.

Earl Howe: The evidence was in the Budget analysis, which I am sure the noble Baroness has read—the distributional analysis that came out at the time of the Budget.

Lord McKenzie of Luton (Lab): My Lords, is the Minister saying that eight out of 10 people currently on tax credits and subject to these cuts are similarly to be better off?

26 Oct 2015 : Column 1025

Earl Howe: What I said was that eight out of 10 working families, whether or not on tax credits—

Noble Lords: Oh!

Earl Howe: Well, it is an important point to factor in because the creation of and rises in the national living wage will affect not just those on tax credits, but many millions of others paid above that level, in the so-called ripple effect that has been widely discussed.

Baroness Kramer: My Lords, for clarification, will the Minister focus on the two out of 10 whom he says are losers and tell us how many people those are? How many children are in those families and what is their loss likely to be? We are talking about something close on 1 million people, largely families with children. I think that he will be able to confirm that they are in the lowest deciles of the population in terms of poverty.

Earl Howe: Let me address that. It has been said by some noble Lords, and the noble Baroness’s question implies it, that the brunt of these savings will be borne by those on tax credits who are relatively worse off. That is not the case. The 10% of tax credit claimants on the highest incomes—incidentally, those on £42,000 on average—contribute nearly four times as much to the savings that we are proposing as the poorest claimants. That is an important point to factor in. The problem with talking about those at the lower end of the scale is that everyone’s circumstances are different. Some people have children and some do not. Some have a disability and some do not. Some work shorter hours, some work longer hours. It is very difficult to particularise.

I can say that the cut in public spending that we propose through this regulation is one that will take us back not to some far-distant point in the past, but to the levels of spending seen in 2007-08 before the financial crash. I am talking of course about the spending position in its totality. One cannot particularise, as I said, to an individual case because people’s circumstances will be different.

Lord Purvis of Tweed: The Deputy Leader is giving a defence of the Government’s position that does not give much of an indication that the Government are prepared to think again, as some Members on the opposite Benches have indicated. Before he came to the House today, I wonder if he had spoken to the leader of his party in Scotland, Ruth Davidson. She said over the weekend:

“If we’re not the party of getting people into work and making it easier for them to get up the tree, then what are we there for? It’s not acceptable. The aim is sound, but we can’t have people suffering on the way. The idea that there’s a cliff edge in April before the uptake in wages comes in is a real practical human problem and the Government needs to look again at it”.

Will they?

6.45 pm

Earl Howe: The trouble with comments like that is that they fail to take account, very often, of the things that I mentioned such as the national living wage.

Lord Purvis of Tweed: Maybe I was not entirely clear. That was the leader of the noble Earl’s party in Scotland.

26 Oct 2015 : Column 1026

Earl Howe: Look, I cannot take those comments in any sort of context, having not read them. Of course, I accept what the noble Lord has reported about the leader of the Conservative Party in Scotland, but I am not aware of the general context in which she was speaking and I hope he will understand that.

Lord Spicer (Con): Will the noble Earl say how these figures compare with the budget for the nation’s entire defence spending, which he deals with in his day job?

Earl Howe: The regulations before us account for £4.4 billion of public expenditure in the next financial year. That is a large slice of the defence budget, but it is not the total defence budget. It will however mean that the Chancellor has more money at his disposal to spend on schools, hospitals and those with disabilities. Incidentally, I say to the most reverend Primate the Archbishop of York that the national living wage is possible only because the economy of this country is strengthening, and it is strengthening because there is a high degree of confidence in the Government’s economic programme and their ability to deliver economic stability by, among other things, reducing the deficit. One has to look at the totality of what the Chancellor’s programme consists of.

The Archbishop of York: The Living Wage Commission, which I chair, was working in conditions when the economic climate was not very good. We were very clear that those companies that can afford to pay should pay a living wage. The noble Earl will be interested to know that, even before the economy started improving, a lot of companies acted out of an ethical conviction about their workers. As Churchill said here 100 years ago, the greatest evil is that some of Her Majesty’s people are not being paid a living wage. Those companies actually took on the need to pay a living wage and were doing so even when the economic climate was very poor. Of course, I agree that the economy has improved, but if it has improved, why are we not helping the poorest who need us most?

Earl Howe: We are doing so. We are doing so through the national living wage. We should welcome the fact that these companies are already paying the national living wage. There are 200 major companies already doing so. That is a very good thing. I congratulate the most reverend Primate for the work that he has done in this area. I do not think there is anything much between us on this, as a matter of fact.

The Archbishop of York: Sorry—this is about the impression that was being given. I am suggesting that the Chancellor of Exchequer actually may meet the £4.2 billion that he wants to cut in tax credits through the living wage, because the report actually shows that if the five million are being paid a living wage, it is more likely that less tax credit would have to be taken off. My worry relates to the people who are going to suffer. That is what my speech was all about.

Earl Howe: Interestingly, the Institute for Fiscal Studies said in terms in its report that the Chancellor made quite a big choice in the Budget to protect some

26 Oct 2015 : Column 1027

of the poorest people on tax credits. That is self-evidently true. I would add in response to the noble Baroness, Lady Campbell of Surbiton, who I am sorry is not in her place—oh, she is, I beg her pardon—that the disabled and severely disabled elements of working tax credit will not be cut through these measures. They will be uprated by inflation. In fact, the Government are making savings in tax credits, so that they can protect disability benefits which have been protected from the benefits freeze and the welfare cap, including DLA and the support group component of ESA, as well as disability elements of the tax credits, as I have mentioned. I hope that that is of some reassurance to her.

Despite all that I have said about why what we are doing is both necessary and right, I recognise that there are noble Lords opposite who will remain unpersuaded. Let me therefore address the amendments. Other than in the rarest of circumstances, it is against the long-standing conventions of this House—and, therefore, I would suggest wrong—for us to vote down or block secondary legislation. Those rare circumstances, I would argue, do not include this situation, in which noble Lords are seeking to challenge the House of Commons on a matter of public spending and taxation, a point made very effectively by the noble Lord, Lord Butler. The sums involved are not trivial. The regulations before us, as I said, would account for welfare savings of £4.4 billion in 2016-17. We can argue—as I am actually quite interested in doing, but I do not think it would be profitable—about the technicality of whether these regulations are or are not financial, but in substance they are very definitely and very obviously financial. I therefore say to the noble Baroness, Lady Manzoor, that her fatally worded amendment should not be put to a vote.

On the amendments tabled by the noble Baronesses, Lady Meacher and Lady Hollis, the situation, I contend, is simple. There is a choice before this House to approve or not to approve these regulations. It is a binary choice. The noble Baronesses are inviting the House to withhold our approval. We can argue endlessly once again about the technicality of whether the wording of these amendments is or is not fatal in nature. But the reality is that if either amendment is passed, this House will not have approved these regulations. It is no good saying that this would merely amount to asking the House of Commons to think again. They can do that with Lords’ amendments to primary legislation, but with secondary legislation there is no mechanism for a dialogue between the Houses and no mechanism to allow the will of the Commons to prevail in respect of this instrument—

Baroness Smith of Basildon: I sense the noble Lord is coming to a conclusion. Does he accept that the amendment of the noble Baroness, Lady Hollis, does not ask the House of Commons to think again; it asks the Government to reconsider their proposals and think about new ones? It is asking the Government to reconsider.

Earl Howe: Of course, I do accept that. The amendment of the noble Baroness is expressly asking the Government to do something other than what is in the regulations.

26 Oct 2015 : Column 1028

By definition, that means that if her amendment were carried, we could not bring back the same set of proposals. The implementation of these regulations would not be delayed, as the noble Baroness is suggesting; it would be thwarted entirely. So, she is asking the House to accept a false proposition. It is very interesting that the noble Baroness herself has recently given an interview which certainly implied that the amendment of the noble Baroness, Lady Hollis, is a fatal one. In the interview she gave to the

Huffington Post

, she said that if the amendment of the noble Baroness is carried, the Government cannot go ahead with the cuts. Well, that, to me, is very fatal indeed. Therefore—

Lord Grocott: I am really quite surprised at the noble Earl, given all his experience and the respect in which he is held in this House. He seems to be suggesting that there is no significant difference between a fatal amendment and a non-fatal amendment. In the time I have been here, which is less than his, there has always been a clear distinction between the two—a “binary” is the word he used in another context. Indeed, the Leader of the House seemed to be unclear in her opening remarks about the distinction between the Lib Dem amendment and the Labour amendment, but the difference is surely fundamental. If he does not accept my proposition, could he at least enlighten the House as to the professional advice from clerks to him and the Conservative Front Bench about which of these amendments are fatal and which are not.

Earl Howe: There is a clear difference in the wording—that is unarguable—but the effect is exactly the same. That is the point I am making.

Baroness Symons of Vernham Dean: I beg the noble Earl’s pardon. I have the greatest respect for him, but in her speech my noble friend Lady Hollis said explicitly that she had drafted her amendment with the help of the Clerk of the Parliaments, and the Clerk of the Parliaments said that it is not a fatal amendment. Is the noble Earl challenging that?

Earl Howe: I cannot gainsay the Clerk of the Parliaments; heaven forbid if I did that. Perhaps what was meant was that the wording of the amendment in the name of the noble Baroness, Lady Hollis, is not of a kind that one associates with a fatal amendment. Nevertheless—

Noble Lords: Oh!

Earl Howe: —the traditionally worded fatal amendment is that in the name of the noble Baroness, Lady Manzoor. I am sure that the noble Baroness, Lady Hollis, got good advice—the best advice there is—but what we are looking at is what would happen if her amendment were carried. I am saying that it would frustrate the Government’s intent.

Baroness O’Loan: Does the Minister think that it would be impossible, if either of these two amendments were passed, for the Government to bring back regulations in the form of a statutory instrument to this House?

26 Oct 2015 : Column 1029

Earl Howe: The problem is that the amendment in the name of the noble Baroness, Lady Hollis, holds the Government hostage. It holds them to ransom. We might be able to bring back some different regulations, but what if those were unacceptable to the House? Let us read the wording of the amendment. It puts us on a perpetual treadmill.

Baroness Meacher: There is a very important distinction between the amendment in the name of the noble Baroness, Lady Hollis, and my amendment. The crucial point about the amendment I have tabled, which is also not a fatal amendment, is that all it asks for is some time and some information. That is a very different thing from asking the Government to spend money on transitional arrangements. I have put down the amendment for only one reason, and that is because the House of Commons has a cross-party Motion on Thursday which they wish to and will debate. It has on it the names of eight Conservative MPs, including those of former Cabinet Ministers. Does the Minister accept that to give the Government time to listen to the Commons is an entirely appropriate duty for this House to perform?

7 pm

Earl Howe: I understand what the noble Baroness is seeking to achieve here, but the fact is that the House of Commons has looked at this three times and has not overturned the proposals. In fact, it has approved them. I would simply say to the noble Baroness that if we are talking about the advice given by the Clerk of the Parliaments, there is a crucial difference between an amendment that it is procedurally permissible to bring before the House, and one which it is constitutionally proper for the House to approve. I do not take issue with the noble Baroness, Lady Meacher, or the noble Baroness, Lady Hollis, bringing forward their amendments. What I do take issue with is the idea that we should vote in favour of either of them, or indeed in favour of the amendment in the name of the noble Baroness, Lady Manzoor.

I need to conclude. For the House to withhold its consent to the regulations today would, in my submission, mean overruling the House of Commons on an issue which that House has already expressed its view on three times. In other words, it would mean doing what this House has not done for more than 100 years, which is to seek to override the primacy of the House of Commons on a financial matter. So I say respectfully to the noble Baronesses, Lady Manzoor, Lady Hollis and Lady Meacher, that there is a right way and a wrong way to challenge government policy on a matter of this kind. This is the wrong way. The right way is to table an amendment such as the one in the name of the right reverend Prelate—not that I support it, but that is the proper way of doing it—or at a suitable opportunity to table an amendment to primary legislation. Indeed, a Bill is coming to us shortly, the Welfare Reform and Work Bill, which would enable noble Lords to do exactly that, should they so choose.

My contention is this. The measures in these regulations form a central plank of the programme on which the Government were elected to office in May. It is a programme that has been in the public domain for a

26 Oct 2015 : Column 1030

long time. However, even if it was not and even if these were policies dreamt up by the Chancellor overnight, I respectfully say to your Lordships that this House, under its conventions, should not reject statutory instruments or seek to overturn the primacy of the other place on a matter of very sizeable public expenditure. I therefore invite the sponsors of each of the amendments to withdraw them, and I urge the House to allow the regulations to pass. Moreover, I simply remind the House that in order to support the amendment in the name of the right reverend Prelate, the preceding three amendments need either to be withdrawn or defeated.

Baroness Manzoor: My Lords, I thank everyone who has contributed to this debate. Noble Lords will be relieved to hear that I do not intend to summarise the excellent contributions that have been made from all sides of the House. As your Lordships know, I am a relatively new Member, and for me it is a privilege to serve as a Member of this House. But with that privilege comes responsibility.

Tabling this Motion was not something I did lightly. I do not discount the strength of feeling on the role of the House and I do not believe that this is a situation in which the House should find itself regularly. However, ultimately this is about the House making a decision on whether we think it is acceptable for the Government to cut off vital support for 3 million families which they claim to support. It is about whether we think it is acceptable for the Prime Minister to make these changes not via primary legislation, but by a procedural instrument—in direct contradiction of what he said to people during the general election. It is about whether we think it is acceptable for this House to relinquish its responsibilities to those affected.

I welcome the Leader of the House saying that the Chancellor will be listening to this debate—and I hope also to the country—very carefully. But I could not look myself in the eye tomorrow if I had not done all I could to stop this devastating measure going through. I know that many in my party feel the same, and while I hold no ill will against anyone who does not share our view, I hope that those who agree that the lives of the 4.9 million children who will be affected should be our primary concern will join us in the Division Lobby. Tax credit cuts for low-paid working families are short-sighted and deeply damaging, not only to the parents and children who will bear the cost, but to the Government’s own long-term goals. I urge the Government to rethink, and I hope the House will choose to reject the regulations as they stand. I wish to test the opinion of the House.

7.04 pm

Division on Baroness Manzoor’s amendment.

Contents 99; Not-Contents 310.

Baroness Manzoor’s amendment disagreed.

Division No.  1

CONTENTS

Adams of Craigielea, B.

Addington, L.

Adebowale, L.

Afshar, B.

Alton of Liverpool, L.

Ashdown of Norton-sub-Hamdon, L.

Avebury, L.

Bakewell of Hardington Mandeville, B.

26 Oct 2015 : Column 1031

Barker, B.

Benjamin, B.

Bonham-Carter of Yarnbury, B.

Bradshaw, L.

Cashman, L.

Clancarty, E.

Clement-Jones, L.

Cotter, L.

Dholakia, L.

Doocey, B.

Elis-Thomas, L.

Fearn, L.

Fox, L.

Garden of Frognal, B.

German, L.

Glasgow, E.

Goddard of Stockport, L.

Greaves, L.

Grender, B.

Hamwee, B.

Harris of Richmond, B.

Hastings of Scarisbrick, L.

Humphreys, B. [Teller]

Hussain, L.

Hussein-Ece, B.

Janke, B.

Jolly, B.

Jones of Cheltenham, L.

Jones of Moulsecoomb, B.

Kidron, B.

Kirkwood of Kirkhope, L.

Kramer, B.

Lee of Trafford, L.

Linklater of Butterstone, B.

Listowel, E.

Loomba, L.

Ludford, B.

Macdonald of River Glaven, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Manzoor, B.

Marks of Henley-on-Thames, L.

Miller of Chilthorne Domer, B.

Newby, L. [Teller]

Northover, B.

Oakeshott of Seagrove Bay, L.

Oxford and Asquith, E.

Paddick, L.

Palmer of Childs Hill, L.

Parekh, L.

Parminter, B.

Pinnock, B.

Purvis of Tweed, L.

Quin, B.

Randerson, B.

Razzall, L.

Redesdale, L.

Rennard, L.

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Scott of Needham Market, B.

Scriven, L.

Sharkey, L.

Sharp of Guildford, B.

Sheehan, B.

Shutt of Greetland, L.

Smith of Clifton, L.

Smith of Newnham, B.

Steel of Aikwood, L.

Stephen, L.

Stoneham of Droxford, L.

Storey, L.

Strasburger, L.

Suttie, B.

Taverne, L.

Teverson, L.

Thomas of Gresford, L.

Thomas of Winchester, B.

Tope, L.

Tyler, L.

Tyler of Enfield, B.

Uddin, B.

Verjee, L.

Wallace of Saltaire, L.

Walmsley, B.

Watson of Richmond, L.

Wigley, L.

Williams of Crosby, B.

Willis of Knaresborough, L.

Wrigglesworth, L.

NOT CONTENTS

Aberdare, L.

Ahmad of Wimbledon, L.

Altmann, B.

Anelay of St Johns, B.

Arbuthnot of Edrom, L.

Armstrong of Ilminster, L.

Arran, E.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Baker of Dorking, L.

Balfe, L.

Bamford, L.

Bates, L.

Bell, L.

Berkeley of Knighton, L.

Berridge, B.

Bew, L.

Bhatia, L.

Bichard, L.

Bilimoria, L.

Birt, L.

Black of Brentwood, L.

Blackwell, L.

Blencathra, L.

Boothroyd, B.

Borwick, L.

Bourne of Aberystwyth, L.

Bowness, L.

Boyce, L.

Brabazon of Tara, L.

Brady, B.

Bridgeman, V.

Bridges of Headley, L.

Brougham and Vaux, L.

Brown of Eaton-under-Heywood, L.

Browning, B.

Burns, L.

Buscombe, B.

Butler of Brockwell, L.

Butler-Sloss, B.

Byford, B.

Caithness, E.

Callanan, L.

Carrington of Fulham, L.

Carswell, L.

Cathcart, E.

Cavendish of Furness, L.

Chadlington, L.

Chalker of Wallasey, B.

Chester, Bp.

Chisholm of Owlpen, B.

Coe, L.

26 Oct 2015 : Column 1032

Colville of Culross, V.

Colwyn, L.

Condon, L.

Cooper of Windrush, L.

Cope of Berkeley, L.

Cormack, L.

Courtown, E.

Craig of Radley, L.

Crathorne, L.

Crickhowell, L.

Crisp, L.

Cumberlege, B.

Dannatt, L.

De Mauley, L.

Deben, L.

Deech, B.

Deighton, L.

Denham, L.

Dixon-Smith, L.

Dobbs, L.

Donoughue, L.

Dundee, E.

Dunlop, L.

Eames, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Elder, L.

Elton, L.

Erroll, E.

Evans of Bowes Park, B.

Evans of Weardale, L.

Farmer, L.

Faulks, L.

Feldman of Elstree, L.

Fellowes, L.

Fellowes of West Stafford, L.

Fink, L.

Finkelstein, L.

Finlay of Llandaff, B.

Flight, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freeman, L.

Freud, L.

Gardiner of Kimble, L. [Teller]

Gardner of Parkes, B.

Garel-Jones, L.

Geddes, L.

Gilbert of Panteg, L.

Glenarthur, L.

Glendonbrook, L.

Glentoran, L.

Gold, L.

Goldie, B.

Goodlad, L.

Goschen, V.

Grade of Yarmouth, L.

Green of Deddington, L.

Green of Hurstpierpoint, L.

Greenway, L.

Griffiths of Fforestfach, L.

Hameed, L.

Hamilton of Epsom, L.

Hannay of Chiswick, L.

Harris of Peckham, L.

Hayman, B.

Hayward, L.

Helic, B.

Henley, L.

Heseltine, L.

Heyhoe Flint, B.

Higgins, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Hogg, B.

Hollins, B.

Holmes of Richmond, L.

Hooper, B.

Hope of Craighead, L.

Horam, L.

Howard of Lympne, L.

Howard of Rising, L.

Howarth of Breckland, B.

Howe, E.

Howe of Idlicote, B.

Howell of Guildford, L.

Hunt of Wirral, L.

Inglewood, L.

Irvine of Lairg, L.

James of Blackheath, L.

Janvrin, L.

Jay of Ewelme, L.

Jenkin of Kennington, B.

Jopling, L.

Judge, L.

Kakkar, L.

Kalms, L.

Keen of Elie, L.

Kerr of Kinlochard, L.

Kilclooney, L.

King of Bridgwater, L.

Kinnoull, E.

Kirkham, L.

Knight of Collingtree, B.

Laird, L.

Lamont of Lerwick, L.

Lane-Fox of Soho, B.

Lang of Monkton, L.

Lansley, L.

Lawson of Blaby, L.

Leach of Fairford, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Lipsey, L.

Lisvane, L.

Liverpool, E.

Livingston of Parkhead, L.

Lloyd-Webber, L.

Lothian, M.

Lucas, L.

Luce, L.

Lyell, L.

McColl of Dulwich, L.

Macfarlane of Bearsden, L.

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

Magan of Castletown, L.

Maginnis of Drumglass, L.

Mancroft, L.

Marland, L.

Marlesford, L.

Masham of Ilton, B.

Maude of Horsham, L.

Mawhinney, L.

Mobarik, B.

Mone, B.

Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newlove, B.

Nicholson of Winterbourne, B.

26 Oct 2015 : Column 1033

Noakes, B.

Northbrook, L.

Norton of Louth, L.

O'Cathain, B.

O'Donnell, L.

O'Loan, B.

O'Neill of Gatley, L.

Oppenheim-Barnes, B.

O'Shaughnessy, L.

Oxburgh, L.

Palmer, L.

Palumbo, L.

Patel, L.

Patten of Barnes, L.

Pearson of Rannoch, L.

Perry of Southwark, B.

Plumb, L.

Polak, L.

Popat, L.

Prashar, B.

Prior of Brampton, L.

Quirk, L.

Ramsbotham, L.

Rawlings, B.

Renfrew of Kaimsthorn, L.

Ribeiro, L.

Richardson of Calow, B.

Ridley, V.

Risby, L.

Robertson of Port Ellen, L.

Rooker, L.

Rose of Monewden, L.

Rotherwick, L.

Rowe-Beddoe, L.

Russell of Liverpool, L.

Ryder of Wensum, L.

Saatchi, L.

St John of Bletso, L.

Sanderson of Bowden, L.

Sassoon, L.

Scott of Foscote, L.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shields, B.

Shrewsbury, E.

Skelmersdale, L.

Slim, V.

Smith of Hindhead, L.

Somerset, D.

Spicer, L.

Stedman-Scott, B.

Sterling of Plaistow, L.

Stevenson of Coddenham, L.

Stewartby, L.

Stoddart of Swindon, L.

Stowell of Beeston, B.

Strathclyde, L.

Stroud, B.

Suri, L.

Sutherland of Houndwood, L.

Swinfen, L.

Tanlaw, L.

Taylor of Holbeach, L. [Teller]

Taylor of Warwick, L.

Tebbit, L.

Thomas of Swynnerton, L.

Thurlow, L.

Trefgarne, L.

Trenchard, V.

Trevethin and Oaksey, L.

Trimble, L.

True, L.

Trumpington, B.

Truscott, L.

Turnbull, L.

Ullswater, V.

Verma, B.

Vinson, L.

Wakeham, L.

Walker of Aldringham, L.

Walpole, L.

Warner, L.

Wasserman, L.

Wei, L.

Wellington, D.

Whitby, L.

Wilcox, B.

Williams of Elvel, L.

Williams of Trafford, B.

Wilson of Dinton, L.

Wolf of Dulwich, B.

Wolfson of Aspley Guise, L.

Wolfson of Sunningdale, L.

Woolf, L.

Wright of Richmond, L.

York, Abp.

Young of Cookham, L.

Young of Graffham, L.

Younger of Leckie, V.

7.20 pm

Amendment to the Motion

Moved by Baroness Meacher

As an amendment to the Motion in the name of the Lord Privy Seal, to leave out all the words after “that” and insert “this House declines to consider the draft regulations laid before the House on 7 September until the Government lay a report before the House, detailing their response to the analysis of the draft regulations by the Institute for Fiscal Studies, and considering possible mitigating action.”

Baroness Meacher: My Lords, you will be glad to know I will speak extremely briefly. I thank many noble Lords for setting out so clearly the consequence

26 Oct 2015 : Column 1034

of these regulations for vulnerable people and the need for the Government to come forward with mitigating measures. My amendment to defer consideration pending a report, nothing more—no money, nothing unusual—raises no constitutional issues. The evidence is absolutely clear on this from our clerks and from many authorities. I ask the House to perform its duty: to enable the Government to think again and to ensure that they listen to the elected House next Thursday. I want to test the opinion of the House.

The Lord Speaker: My Lords, before I put the Question, I should inform the House that, if this amendment is agreed to, I cannot call the amendment in the name of the right reverend Prelate the Bishop of Portsmouth by reason of pre-emption.

7.22 pm

Division on Baroness Meacher’s amendment

Contents 307; Not-Contents 277.

Baroness Meacher’s amendment agreed.

Division No.  2

CONTENTS

Adams of Craigielea, B.

Addington, L.

Adebowale, L.

Afshar, B.

Ahmed, L.

Allen of Kensington, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Ashdown of Norton-sub-Hamdon, L.

Avebury, L.

Bach, L.

Bakewell, B.

Bakewell of Hardington Mandeville, B.

Barker, B.

Bassam of Brighton, L.

Beecham, L.

Benjamin, B.

Berkeley, L.

Best, L.

Bhatia, L.

Bichard, L.

Bilimoria, L.

Billingham, B.

Blackstone, B.

Blood, B.

Blunkett, L.

Bonham-Carter of Yarnbury, B.

Boothroyd, B.

Bradley, L.

Bradshaw, L.

Bragg, L.

Brennan, L.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Belmont, L.

Campbell of Surbiton, B.

Campbell-Savours, L.

Carter of Coles, L.

Cashman, L.

Chandos, V.

Chester, Bp.

Christopher, L.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clement-Jones, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Cotter, L.

Crawley, B.

Crisp, L.

Cunningham of Felling, L.

Davies of Abersoch, L.

Davies of Oldham, L.

Davies of Stamford, L.

Desai, L.

Dholakia, L.

Donaghy, B.

Doocey, B.

Drake, B.

Dubs, L.

Dykes, L.

Eames, L.

Eatwell, L.

Elis-Thomas, L.

Evans of Temple Guiting, L.

Evans of Watford, L.

Falconer of Thoroton, L.

Falkner of Margravine, B.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Fearn, L.

Filkin, L.

Finlay of Llandaff, B.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Fox, L.

Freyberg, L.

Gale, B.

Garden of Frognal, B.

German, L.

Gibson of Market Rasen, B.

26 Oct 2015 : Column 1035

Glasgow, E.

Glasman, L.

Goddard of Stockport, L.

Golding, B.

Gordon of Strathblane, L.

Gould of Potternewton, B.

Grantchester, L.

Greaves, L.

Grender, B.

Grocott, L.

Hamwee, B.

Hannay of Chiswick, L.

Hanworth, V.

Harris of Haringey, L.

Harris of Richmond, B.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Hastings of Scarisbrick, L.

Haworth, L.

Hay of Ballyore, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollick, L.

Hollins, B.

Hollis of Heigham, B.

Howarth of Newport, L.

Howe of Idlicote, B.

Howells of St Davids, B.

Howie of Troon, L.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Humphreys, B.

Hunt of Kings Heath, L.

Hussain, L.

Hussein-Ece, B.

Hutton of Furness, L.

Hylton, L.

Janke, B.

Jay of Paddington, B.

Jolly, B.

Jones, L.

Jones of Cheltenham, L.

Jones of Moulsecoomb, B.

Jones of Whitchurch, B.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

Kennedy of The Shaws, B.

Kerr of Kinlochard, L.

Kerslake, L.

Kidron, B.

King of Bow, B.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkhill, L.

Kirkwood of Kirkhope, L.

Knight of Weymouth, L.

Kramer, B.

Lane-Fox of Soho, B.

Lawrence of Clarendon, B.

Layard, L.

Lea of Crondall, L.

Lee of Trafford, L.

Lennie, L.

Levy, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Lister of Burtersett, B.

Listowel, E.

Loomba, L.

Low of Dalston, L.

Ludford, B.

McAvoy, L.

McCluskey, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of River Glaven, L.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

McKenzie of Luton, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Mallalieu, B.

Mandelson, L.

Manzoor, B.

Marks of Henley-on-Thames, L.

Masham of Ilton, B.

Massey of Darwen, B.

Maxton, L.

Meacher, B. [Teller]

Mendelsohn, L.

Miller of Chilthorne Domer, B.

Mitchell, L.

Monks, L.

Morgan, L.

Morgan of Drefelin, B.

Morgan of Ely, B.

Morgan of Huyton, B.

Morris of Handsworth, L.

Morris of Yardley, B.

Newby, L.

Northover, B.

Nye, B.

Oakeshott of Seagrove Bay, L.

O'Loan, B.

O'Neill of Clackmannan, L.

Ouseley, L.

Owen, L.

Oxburgh, L.

Oxford and Asquith, E.

Paddick, L.

Palmer, L.

Palmer of Childs Hill, L.

Parekh, L.

Parminter, B.

Patel, L. [Teller]

Patel of Blackburn, L.

Pearson of Rannoch, L.

Pendry, L.

Pinnock, B.

Pitkeathley, B.

Plant of Highfield, L.

Portsmouth, Bp.

Prashar, B.

Prescott, L.

Prosser, B.

Purvis of Tweed, L.

Quin, B.

Radice, L.

Ramsay of Cartvale, B.

Ramsbotham, L.

Randerson, B.

Razzall, L.

Rea, L.

Rebuck, B.

Redesdale, L.

Rees of Ludlow, L.

Rennard, L.

Richard, L.

Richardson of Calow, B.

26 Oct 2015 : Column 1036

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scott of Needham Market, B.

Scriven, L.

Sharkey, L.

Sharp of Guildford, B.

Sheehan, B.

Sherlock, B.

Shutt of Greetland, L.

Simon, V.

Smith of Basildon, B.

Smith of Clifton, L.

Smith of Gilmorehill, B.

Smith of Leigh, L.

Smith of Newnham, B.

Snape, L.

Soley, L.

Steel of Aikwood, L.

Stephen, L.

Stern, B.

Stevenson of Balmacara, L.

Stone of Blackheath, L.

Stoneham of Droxford, L.

Storey, L.

Strasburger, L.

Suttie, B.

Symons of Vernham Dean, B.

Taverne, L.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Teverson, L.

Thomas of Gresford, L.

Thomas of Winchester, B.

Thornton, B.

Tomlinson, L.

Tope, L.

Touhig, L.

Triesman, L.

Tunnicliffe, L.

Turnberg, L.

Tyler, L.

Tyler of Enfield, B.

Uddin, B.

Verjee, L.

Walker of Gestingthorpe, L.

Wall of New Barnet, B.

Wallace of Saltaire, L.

Walmsley, B.

Warner, L.

Warwick of Undercliffe, B.

Watson of Invergowrie, L.

Watson of Richmond, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Williams of Crosby, B.

Willis of Knaresborough, L.

Wills, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.

Wrigglesworth, L.

York, Abp.

Young of Hornsey, B.

Young of Norwood Green, L.

Young of Old Scone, B.

NOT CONTENTS

Aberdare, L.

Ahmad of Wimbledon, L.

Altmann, B.

Anelay of St Johns, B.

Arbuthnot of Edrom, L.

Armstrong of Ilminster, L.

Arran, E.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Baker of Dorking, L.

Balfe, L.

Bamford, L.

Bates, L.

Bell, L.

Berkeley of Knighton, L.

Berridge, B.

Bew, L.

Birt, L.

Black of Brentwood, L.

Blackwell, L.

Blencathra, L.

Borwick, L.

Bourne of Aberystwyth, L.

Bowness, L.

Boyce, L.

Brabazon of Tara, L.

Brady, B.

Bridgeman, V.

Bridges of Headley, L.

Brougham and Vaux, L.

Brown of Eaton-under-Heywood, L.

Browning, B.

Burns, L.

Buscombe, B.

Butler of Brockwell, L.

Butler-Sloss, B.

Byford, B.

Caithness, E.

Callanan, L.

Carrington of Fulham, L.

Carswell, L.

Cathcart, E.

Cavendish of Furness, L.

Chadlington, L.

Chalker of Wallasey, B.

Chisholm of Owlpen, B.

Coe, L.

Colville of Culross, V.

Colwyn, L.

Condon, L.

Cooper of Windrush, L.

Cope of Berkeley, L.

Cormack, L.

Courtown, E.

Craig of Radley, L.

Crathorne, L.

Crickhowell, L.

Cumberlege, B.

Dannatt, L.

De Mauley, L.

Deben, L.

Deech, B.

Deighton, L.

Denham, L.

Dixon-Smith, L.

Dobbs, L.

Dundee, E.

Dunlop, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Elton, L.

Erroll, E.

Evans of Bowes Park, B.

Evans of Weardale, L.

Farmer, L.

26 Oct 2015 : Column 1037

Faulks, L.

Feldman of Elstree, L.

Fellowes of West Stafford, L.

Fink, L.

Finkelstein, L.

Flight, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freeman, L.

Freud, L.

Gardiner of Kimble, L. [Teller]

Gardner of Parkes, B.

Garel-Jones, L.

Geddes, L.

Gilbert of Panteg, L.

Glenarthur, L.

Glendonbrook, L.

Glentoran, L.

Gold, L.

Goldie, B.

Goodlad, L.

Goschen, V.

Grade of Yarmouth, L.

Green of Deddington, L.

Green of Hurstpierpoint, L.

Greenway, L.

Griffiths of Fforestfach, L.

Hameed, L.

Hamilton of Epsom, L.

Harris of Peckham, L.

Hayward, L.

Helic, B.

Henley, L.

Heseltine, L.

Heyhoe Flint, B.

Higgins, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Hogg, B.

Holmes of Richmond, L.

Hooper, B.

Hope of Craighead, L.

Horam, L.

Howard of Lympne, L.

Howard of Rising, L.

Howarth of Breckland, B.

Howe, E.

Howell of Guildford, L.

Hunt of Wirral, L.

Inglewood, L.

Irvine of Lairg, L.

James of Blackheath, L.

Janvrin, L.

Jay of Ewelme, L.

Jenkin of Kennington, B.

Jopling, L.

Judge, L.

Kakkar, L.

Kalms, L.

Keen of Elie, L.

Kilclooney, L.

King of Bridgwater, L.

Kinnoull, E.

Kirkham, L.

Knight of Collingtree, B.

Laird, L.

Lamont of Lerwick, L.

Lang of Monkton, L.

Lansley, L.

Lawson of Blaby, L.

Leach of Fairford, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Liverpool, E.

Livingston of Parkhead, L.

Lloyd-Webber, L.

Lothian, M.

Lucas, L.

Luce, L.

Lyell, L.

McColl of Dulwich, L.

Macfarlane of Bearsden, L.

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

Magan of Castletown, L.

Maginnis of Drumglass, L.

Mancroft, L.

Marland, L.

Marlesford, L.

Maude of Horsham, L.

Mawhinney, L.

Mobarik, B.

Mone, B.

Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newlove, B.

Noakes, B.

Northbrook, L.

Norton of Louth, L.

O'Cathain, B.

O'Donnell, L.

O'Neill of Gatley, L.

Oppenheim-Barnes, B.

O'Shaughnessy, L.

Palumbo, L.

Patten of Barnes, L.

Perry of Southwark, B.

Plumb, L.

Polak, L.

Popat, L.

Prior of Brampton, L.

Quirk, L.

Rawlings, B.

Renfrew of Kaimsthorn, L.

Ribeiro, L.

Ridley, V.

Risby, L.

Robertson of Port Ellen, L.

Rooker, L.

Rose of Monewden, L.

Rotherwick, L.

Rowe-Beddoe, L.

Russell of Liverpool, L.

Ryder of Wensum, L.

Saatchi, L.

St John of Bletso, L.

Sanderson of Bowden, L.

Sassoon, L.

Scott of Foscote, L.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shields, B.

Shrewsbury, E.

Skelmersdale, L.

Slim, V.

Smith of Hindhead, L.

26 Oct 2015 : Column 1038

Somerset, D.

Spicer, L.

Stedman-Scott, B.

Sterling of Plaistow, L.

Stevenson of Coddenham, L.

Stewartby, L.

Stoddart of Swindon, L.

Stowell of Beeston, B.

Strathclyde, L.

Stroud, B.

Suri, L.

Sutherland of Houndwood, L.

Swinfen, L.

Tanlaw, L.

Taylor of Holbeach, L. [Teller]

Taylor of Warwick, L.

Tebbit, L.

Thomas of Swynnerton, L.

Thurlow, L.

Trefgarne, L.

Trenchard, V.

Trevethin and Oaksey, L.

Trimble, L.

True, L.

Trumpington, B.

Turnbull, L.

Ullswater, V.

Verma, B.

Vinson, L.

Wakeham, L.

Walker of Aldringham, L.

Wasserman, L.

Wei, L.

Wellington, D.

Whitby, L.

Wilcox, B.

Williams of Elvel, L.

Williams of Trafford, B.

Wilson of Dinton, L.

Wolf of Dulwich, B.

Wolfson of Aspley Guise, L.

Wolfson of Sunningdale, L.

Woolf, L.

Wright of Richmond, L.

Young of Cookham, L.

Young of Graffham, L.

Younger of Leckie, V.

7.39 pm

Amendment to the Motion

Moved by Baroness Hollis of Heigham

As an amendment to the motion in the name of the Lord Privy Seal, to leave out all the words after “that” and insert “this House declines to consider the draft Regulations laid before the House on 7 September until the Government, (1) following consultation have reported to Parliament a scheme for full transitional protection for a minimum of three years for all low-income families and individuals currently receiving tax credits before 5 April 2016, such transitional protection to be renewable after three years with parliamentary approval, and (2) have laid a report before the House, detailing their response to the analysis of the draft Regulations by the Institute for Fiscal Studies, and considering possible mitigating action.”

Baroness Hollis of Heigham: My Lords, we have had the arguments. I wish to test the opinion of the House.

7.40 pm

Division on Baroness Hollis of Heigham’s amendment

Contents 289; Not-Contents 272.

Baroness Hollis of Heigham’s amendment agreed.

Division No.  3

CONTENTS

Adams of Craigielea, B.

Addington, L.

Adebowale, L.

Afshar, B.

Ahmed, L.

Allen of Kensington, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Ashdown of Norton-sub-Hamdon, L.

Avebury, L.

Bach, L.

Bakewell, B.

26 Oct 2015 : Column 1039

Bakewell of Hardington Mandeville, B.

Barker, B.

Bassam of Brighton, L. [Teller]

Beecham, L.

Benjamin, B.

Berkeley, L.

Bhatia, L.

Billingham, B.

Blackstone, B.

Blood, B.

Blunkett, L.

Bonham-Carter of Yarnbury, B.

Boothroyd, B.

Bradley, L.

Bradshaw, L.

Bragg, L.

Brennan, L.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Belmont, L.

Campbell of Surbiton, B.

Campbell-Savours, L.

Carter of Coles, L.

Cashman, L.

Chandos, V.

Christopher, L.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clement-Jones, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Cotter, L.

Crawley, B.

Cunningham of Felling, L.

Davies of Abersoch, L.

Davies of Oldham, L.

Davies of Stamford, L.

Desai, L.

Dholakia, L.

Donaghy, B.

Doocey, B.

Drake, B.

Dubs, L.

Dykes, L.

Eames, L.

Eatwell, L.

Elder, L.

Elis-Thomas, L.

Evans of Temple Guiting, L.

Evans of Watford, L.

Falconer of Thoroton, L.

Falkland, V.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Fearn, L.

Filkin, L.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Fox, L.

Gale, B.

Garden of Frognal, B.

German, L.

Gibson of Market Rasen, B.

Glasgow, E.

Glasman, L.

Goddard of Stockport, L.

Golding, B.

Gordon of Strathblane, L.

Gould of Potternewton, B.

Grantchester, L.

Greaves, L.

Grender, B.

Grocott, L.

Hamwee, B.

Hannay of Chiswick, L.

Hanworth, V.

Harris of Haringey, L.

Harris of Richmond, B.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Hastings of Scarisbrick, L.

Haworth, L.

Hay of Ballyore, L.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollins, B.

Hollis of Heigham, B.

Howarth of Breckland, B.

Howarth of Newport, L.

Howe of Idlicote, B.

Howells of St Davids, B.

Howie of Troon, L.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Humphreys, B.

Hunt of Kings Heath, L.

Hussain, L.

Hussein-Ece, B.

Hutton of Furness, L.

Hylton, L.

Janke, B.

Jolly, B.

Jones, L.

Jones of Cheltenham, L.

Jones of Moulsecoomb, B.

Jones of Whitchurch, B.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

Kennedy of The Shaws, B.

Kerr of Kinlochard, L.

Kerslake, L.

Kidron, B.

King of Bow, B.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkhill, L.

Kirkwood of Kirkhope, L.

Knight of Weymouth, L.

Kramer, B.

Lane-Fox of Soho, B.

Lawrence of Clarendon, B.

Layard, L.

Lea of Crondall, L.

Lee of Trafford, L.

Lennie, L.

Levy, L.

Liddell of Coatdyke, B.

Liddle, L.

Lister of Burtersett, B.

Listowel, E.

Loomba, L.

Low of Dalston, L.

Ludford, B.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of River Glaven, L.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

26 Oct 2015 : Column 1040

McKenzie of Luton, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Mallalieu, B.

Manzoor, B.

Marks of Henley-on-Thames, L.

Massey of Darwen, B.

Maxton, L.

Meacher, B.

Mendelsohn, L.

Miller of Chilthorne Domer, B.

Mitchell, L.

Monks, L.

Morgan, L.

Morgan of Drefelin, B.

Morgan of Ely, B.

Morris of Handsworth, L.

Morris of Yardley, B.

Newby, L.

Northover, B.

Nye, B.

Oakeshott of Seagrove Bay, L.

O'Loan, B.

O'Neill of Clackmannan, L.

Ouseley, L.

Owen, L.

Oxburgh, L.

Oxford and Asquith, E.

Paddick, L.

Palmer of Childs Hill, L.

Parminter, B.

Patel of Blackburn, L.

Pendry, L.

Pinnock, B.

Pitkeathley, B.

Plant of Highfield, L.

Prashar, B.

Prescott, L.

Prosser, B.

Purvis of Tweed, L.

Quin, B.

Radice, L.

Ramsay of Cartvale, B.

Ramsbotham, L.

Randerson, B.

Razzall, L.

Rea, L.

Rebuck, B.

Redesdale, L.

Rees of Ludlow, L.

Rennard, L.

Richard, L.

Richardson of Calow, B.

Roberts of Llandudno, L.

Robertson of Port Ellen, L.

Rodgers of Quarry Bank, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scott of Needham Market, B.

Sharkey, L.

Sharp of Guildford, B.

Sheehan, B.

Sherlock, B.

Shutt of Greetland, L.

Simon, V.

Smith of Basildon, B.

Smith of Clifton, L.

Smith of Gilmorehill, B.

Smith of Leigh, L.

Smith of Newnham, B.

Snape, L.

Soley, L.

Steel of Aikwood, L.

Stephen, L.

Stern, B.

Stevenson of Balmacara, L.

Stone of Blackheath, L.

Stoneham of Droxford, L.

Storey, L.

Strasburger, L.

Suttie, B.

Symons of Vernham Dean, B.

Taverne, L.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Teverson, L.

Thomas of Gresford, L.

Thomas of Winchester, B.

Thornton, B.

Tomlinson, L.

Tope, L.

Touhig, L.

Triesman, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Tyler, L.

Tyler of Enfield, B.

Uddin, B.

Verjee, L.

Walker of Gestingthorpe, L.

Wall of New Barnet, B.

Wallace of Saltaire, L.

Walmsley, B.

Walpole, L.

Warwick of Undercliffe, B.

Watson of Invergowrie, L.

Watson of Richmond, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Williams of Crosby, B.

Willis of Knaresborough, L.

Wills, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.

Wrigglesworth, L.

York, Abp.

Young of Hornsey, B.

Young of Norwood Green, L.

Young of Old Scone, B.

NOT CONTENTS

Aberdare, L.

Ahmad of Wimbledon, L.

Altmann, B.

Anelay of St Johns, B.

Arbuthnot of Edrom, L.

Armstrong of Ilminster, L.

Arran, E.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Baker of Dorking, L.

Balfe, L.

Bamford, L.

Bates, L.

Bell, L.

Berkeley of Knighton, L.

Berridge, B.

Bew, L.

Bilimoria, L.

Birt, L.

Black of Brentwood, L.

Blackwell, L.

26 Oct 2015 : Column 1041

Blencathra, L.

Borwick, L.

Bourne of Aberystwyth, L.

Bowness, L.

Boyce, L.

Brabazon of Tara, L.

Brady, B.

Bridgeman, V.

Bridges of Headley, L.

Brougham and Vaux, L.

Brown of Eaton-under-Heywood, L.

Browning, B.

Burns, L.

Buscombe, B.

Butler of Brockwell, L.

Butler-Sloss, B.

Byford, B.

Caithness, E.

Callanan, L.

Carrington of Fulham, L.

Carswell, L.

Cathcart, E.

Cavendish of Furness, L.

Chadlington, L.

Chalker of Wallasey, B.

Chester, Bp.

Chisholm of Owlpen, B.

Coe, L.

Colville of Culross, V.

Colwyn, L.

Condon, L.

Cooper of Windrush, L.

Cope of Berkeley, L.

Cormack, L.

Courtown, E.

Craig of Radley, L.

Crathorne, L.

Crickhowell, L.

Crisp, L.

Cumberlege, B.

Dannatt, L.

De Mauley, L.

Deben, L.

Deech, B.

Deighton, L.

Denham, L.

Dixon-Smith, L.

Dobbs, L.

Dundee, E.

Dunlop, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Elton, L.

Erroll, E.

Evans of Bowes Park, B.

Evans of Weardale, L.

Farmer, L.

Faulks, L.

Feldman of Elstree, L.

Fellowes of West Stafford, L.

Fink, L.

Finkelstein, L.

Flight, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freeman, L.

Freud, L.

Gardiner of Kimble, L. [Teller]

Gardner of Parkes, B.

Garel-Jones, L.

Geddes, L.

Gilbert of Panteg, L.

Glenarthur, L.

Glendonbrook, L.

Glentoran, L.

Gold, L.

Goldie, B.

Goodlad, L.

Goschen, V.

Grade of Yarmouth, L.

Green of Deddington, L.

Green of Hurstpierpoint, L.

Greenway, L.

Griffiths of Fforestfach, L.

Hameed, L.

Hamilton of Epsom, L.

Harris of Peckham, L.

Hayward, L.

Helic, B.

Henley, L.

Heseltine, L.

Heyhoe Flint, B.

Higgins, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Hogg, B.

Holmes of Richmond, L.

Hooper, B.

Hope of Craighead, L.

Horam, L.

Howard of Lympne, L.

Howard of Rising, L.

Howe, E.

Howell of Guildford, L.

Hunt of Wirral, L.

Inglewood, L.

Irvine of Lairg, L.

James of Blackheath, L.

Janvrin, L.

Jenkin of Kennington, B.

Jopling, L.

Judge, L.

Kakkar, L.

Kalms, L.

Keen of Elie, L.

Kilclooney, L.

King of Bridgwater, L.

Kinnoull, E.

Kirkham, L.

Knight of Collingtree, B.

Lamont of Lerwick, L.

Lang of Monkton, L.

Lansley, L.

Lawson of Blaby, L.

Leach of Fairford, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Liverpool, E.

Livingston of Parkhead, L.

Lloyd-Webber, L.

Lothian, M.

Lucas, L.

Luce, L.

Lyell, L.

McColl of Dulwich, L.

Macfarlane of Bearsden, L.

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

Magan of Castletown, L.

Maginnis of Drumglass, L.

Mancroft, L.

Marland, L.

Marlesford, L.

Maude of Horsham, L.

Mawhinney, L.

Mobarik, B.

Mone, B.

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Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newlove, B.

Noakes, B.

Northbrook, L.

Norton of Louth, L.

O'Cathain, B.

O'Donnell, L.

O'Neill of Gatley, L.

Oppenheim-Barnes, B.

O'Shaughnessy, L.

Palumbo, L.

Patten of Barnes, L.

Perry of Southwark, B.

Plumb, L.

Polak, L.

Popat, L.

Prior of Brampton, L.

Quirk, L.

Rawlings, B.

Renfrew of Kaimsthorn, L.

Ribeiro, L.

Ridley, V.

Risby, L.

Rose of Monewden, L.

Rotherwick, L.

Rowe-Beddoe, L.

Russell of Liverpool, L.

Ryder of Wensum, L.

Saatchi, L.

St John of Bletso, L.

Sanderson of Bowden, L.

Sassoon, L.

Scott of Foscote, L.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shields, B.

Shrewsbury, E.

Skelmersdale, L.

Slim, V.

Smith of Hindhead, L.

Somerset, D.

Spicer, L.

Stedman-Scott, B.

Sterling of Plaistow, L.

Stevenson of Coddenham, L.

Stewartby, L.

Stoddart of Swindon, L.

Stowell of Beeston, B.

Strathclyde, L.

Stroud, B.

Suri, L.

Sutherland of Houndwood, L.

Swinfen, L.

Tanlaw, L.

Taylor of Holbeach, L. [Teller]

Taylor of Warwick, L.

Tebbit, L.

Thomas of Swynnerton, L.

Thurlow, L.

Trefgarne, L.

Trenchard, V.

Trevethin and Oaksey, L.

Trimble, L.

True, L.

Turnbull, L.

Ullswater, V.

Verma, B.

Vinson, L.

Wakeham, L.

Walker of Aldringham, L.

Wasserman, L.

Wellington, D.

Whitby, L.

Wilcox, B.

Williams of Trafford, B.

Wilson of Dinton, L.

Wolf of Dulwich, B.

Wolfson of Aspley Guise, L.

Wolfson of Sunningdale, L.

Woolf, L.

Wright of Richmond, L.

Young of Cookham, L.

Young of Graffham, L.

Younger of Leckie, V.

Motion, as amended, agreed.

Bank of England and Financial Services Bill [HL]

Bill Main Page

Second Reading

7.57 pm

Moved by Lord Bridges of Headley

That the Bill be now read a second time.

The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con): My Lords, it is now over seven years since the height of the financial crisis. In that time, many steps have been taken not simply to repair the damage done but to reform the entire financial sector. The regulatory system and regulatory standards are now vastly different from those which existed before the crisis—and rightly so. Those reforms, many of which were enacted by the last coalition Government, bear the imprint of a number of your Lordships. I would like to thank in particular noble Lords who

26 Oct 2015 : Column 1043

were part of the Parliamentary Commission on Banking Standards. Although I cannot claim the considerable expertise that many of your Lordships have on financial matters, I have worked for two banks—HSBC and, more recently, Banco Santander. I mention this not just for the record but to say that, from that vantage point, I have seen the painstaking efforts your Lordships take to ensure that we fully address the failings of the previous regulatory regime, doing so in a robust but proportionate way.

Today our financial services are far more resilient than they were seven years ago. The Chancellor has talked of the British dilemma of being a host for global finance without exposing taxpayers to the costs of financial failures. We have made real progress in tackling this dilemma, but it would be hubristic to say that this is job done. Even if memories of what happened in 2008 may begin to fade, we must never forget the lessons that that crisis taught us. Eternal vigilance is required—but this should not be mistaken for ever more regulation. We must never fall victim to the belief that we can somehow magically regulate risk out of the system. Nor should we try to do so: risk and innovation are two sides of the same coin. Our challenge is to get the balance right—to deliver stability and protect taxpayers, while allowing free markets, enterprise and innovation to flourish.

This is the backcloth to the Bill, which seeks to implement a series of evolutionary changes to the regulatory system as part of this Government’s commitment to deliver a new settlement for financial services. There are four main elements to this.

First, the Bill will strengthen the governance, transparency and accountability of the Bank of England, as well as updating resolution planning and crisis management arrangements between the Bank and the Treasury. Secondly, it will extend the senior managers and certification regime across the whole financial services industry to increase the accountability of the sector and will build a new duty of responsibility into the regime, ahead of its introduction next year. Thirdly, it extends the scope of the Pension Wise guidance service. Finally, it makes technical changes to the Scottish and Northern Irish banknote issuance regime to allow new issuers to be authorised in place of an existing issuer to facilitate group restructuring.

I turn first to the measures which will strengthen the governance and accountability of the Bank of England. As noble Lords will be aware, the Bank was established in 1694 to finance the War of the Grand Alliance against France. At that time, the 24 directors of the Bank were each required to hold £2,000 of Bank stock. The first matter the new court discussed was “the method of giving receipts for cash”. At its third meeting, the court appointed the first officials of the Bank; there were only 19, including two doorkeepers. The new court also made a number of other important decisions, including appointing a committee to inspect the cash, and recommending that the cashiers should be “fenced in to keep off people from disturbing them”. Scroll forward to the 20th century and much had changed, but even in the interwar years the long-serving executive director of the Bank, Sir Otto Niemeyer, observed, “When the Permanent Secretary of the Treasury

26 Oct 2015 : Column 1044

visited the Bank of England … he took a taxi because he was not quite sure where the Bank was”.

It is fair to say that both the role of the Bank and its governance have seen some changes in the intervening years. From a macroeconomic perspective, some of the most important developments have been in the recent past. In 1997 the Bank was given operational responsibility for monetary policy. During the last Parliament, the Government put the Bank at the centre of a fundamentally reformed regulatory architecture, giving it significant new responsibilities and the powers it needs to deliver its financial stability mandate. The Bank is tasked with delivering monetary and financial stability, and as such plays a critical role in maintaining the stable macroeconomic conditions that are a prerequisite for delivering the Government’s long-term economic plan. It is vital, therefore, that the structure and governance of the Bank put it on the best possible footing to fulfil its critical role in supporting UK economic stability.

The Bank itself recognises this need. Through its “One Mission. One Bank” strategic plan and its 2014 publication Transparency and Accountability at the Bank of England, the Bank has set out a series of changes to reinforce its transparency, accountability and governance and contribute to its strategic objective of operating as a single, integrated institution. The Bill brings forward a set of evolutionary changes that are complementary to the steps the Bank itself is taking. The key measures that I would like to highlight are as follows.

First, the Bill will strengthen the role and governance of the court, including by implementing the recommendation of the Parliamentary Commission on Banking Standards to remove the oversight committee and transferring its functions to the court. This will complete the job to enable the court to act as a modern unitary board, with performance overseen by the executive and non-executive together. Next, the Bill will end the Prudential Regulation Authority’s status as a subsidiary of the Bank, integrating microprudential supervision more fully into the Bank. The PRA board will be replaced by a new Prudential Regulatory Committee, modelled on the Monetary Policy Committee and Financial Policy Committee, with sole responsibility within the Bank for the PRA’s functions. These changes will support the Governor’s strategy,

“to conduct supervision as an integrated part of the central bank and not as a standalone supervisory agency that happens to be attached to a central bank”.

The Government also recognise that the PRA’s strong brand and operational independence need to be protected, and that transparency around the use of the PRA levy activities must be maintained. The Bill will therefore ensure that supervision continues to operate with appropriate independence and adequate resources, and the statutory objectives of the PRA, which underpin its forward-looking, judgment-based approach to supervision, will remain unchanged. In line with the approach taken to the MPC and FPC, the Bill will provide for a new remit letter from the Government to the PRC, to highlight those aspects of government economic policy that are most relevant to the PRC’s duties.

26 Oct 2015 : Column 1045

Turning to the Monetary Policy Committee, the Bill includes provisions to move the MPC to a schedule of at least eight meetings a year and updates requirements for the timing of MPC publications, implementing the remaining recommendation of the Warsh review, Transparency and the Bank of England’s Monetary Policy Committee, published in 2014. The Bill also includes a set of measures to strengthen and harmonise the legislative underpinnings of the Bank’s three policy committees; the MPC, the FPC and the proposed PRC. As part of these changes, the Bill will harmonise the provisions around conflicts of interest for the MPC, FPC and new Prudential Regulation Committee and put in place a requirement for each committee to publish a code of practice detailing how potential conflicts of interest will be managed.

Next, the Bill will give the National Audit Office the power to launch value-for-money studies across all parts of the Bank, thereby bringing the whole Bank within the purview of the NAO for the first time. This is a significant strengthening of the accountability of the Bank to the public and to Parliament. The Bill implements this important change in a way that protects the independence of the Bank’s policy-making functions. Alongside these changes to the Bank’s governance and accountability, the Bill builds on the existing arrangements and the strong working relationship between the Bank and the Treasury by updating the formal framework for how the Bank and the Treasury should engage with each other on the public fund risks and the financial stability risks of firm failure. These changes improve co-ordination while maintaining the existing clear and separate roles of the Bank and the Treasury in the event of a crisis. It is essential that both the Government and the Bank are in the best possible position to respond to a financial crisis. This will be supported by these measures. These measures concerning the Bank of England form one part of the Bill.

I turn next to the changes that we propose to make to extend the principle of personal responsibility to all sectors of the financial services industry. As noble Lords will be aware, following the report of the Parliamentary Commission on Banking Standards in 2013, we legislated for a senior managers and certification regime to replace the discredited approved persons regime. At the moment, this new regime, which is due to come into force in March 2016, would apply to banks, building societies, credit unions and PRA-regulated investment firms, but not to any other authorised financial services firms. The new regime consists of three key components. The first is regulatory pre-approval of senior managers at the top of the firm. The second is certification by the firm of other key individuals as fit and proper, both at hiring and annually thereafter. Thirdly, the regulators will be able to make rules of conduct for senior managers, certified persons and other employees.

The Government now propose to extend the senior managers and certification regime to all sectors of the financial services industry, replacing the approved persons regime, so as to have a single approach for the entire sector. In 2014 former members of the PCBS called for the regime to be extended, as did the fair and effective markets review. This expansion will create a fairer, more consistent and rigorous regime for all

26 Oct 2015 : Column 1046

sectors of the financial services industry, enhancing personal responsibility and accountability for senior managers as well as providing a more effective and proportionate means to raise standards of conduct of key staff more broadly, supported by robust enforcement powers for the regulators.

The Bill will also introduce a statutory duty of responsibility to be applied consistently to all senior managers across the financial services industry. This supersedes the “reverse burden of proof”, which would, in the absence of legislative change, apply to banking sector firms when they become subject to the regime in March 2016. Under the statutory duty of responsibility, the same underlying obligation will remain on the individual to ensure that they take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible, but the burden will be on the regulators to prove that a senior manager has failed to do this.

A third part of the Bill extends the remit of the Pension Wise guidance service. As noble Lords will be aware, the Government are making fundamental changes to the pension system to allow people to access their pension pots flexibly without being hit with punitive tax rates. These reforms give people freedom and choice over how they spend their money. Following the decision to extend pension freedoms to those who already hold an annuity in 2017, the Bill will extend the scope of the Pension Wise guidance service, so that pensioners can access a free, impartial service to discuss their new options.

Finally, the Bill makes changes to the legislative framework governing the issuance of Scottish and Northern Ireland bank notes; it gives the Treasury power to make regulations authorising a bank in the same group as an existing issuer to issue banknotes in place of that issuer. This will increase the flexibility for banks to restructure their operations, while preserving the long-standing tradition of certain banks in Scotland and Northern Ireland issuing their own notes. This is a particular issue currently, as some banking groups will be adjusting their group structure in order to ring-fence their retail banking operations.

In summary, the Bill builds on previous reforms to financial regulation with a number of important measures that will contribute to the Government’s commitment to deliver a new settlement for financial services. I am aware that a number of noble Lords have great experience and expertise in these matters, and my door is always open to meet and discuss the measures in the Bill as it progresses through Committee. I look forward to hearing your Lordships’ views. I beg to move.

8.10 pm

Lord Eatwell (Non-Afl): My Lords, I thank the noble Lord, Lord Bridges of Headley, for introducing the Bill, and welcome him to our debates on financial regulation.

For those of us who spent many hours in your Lordships’ House examining, clause by clause, what were to become the Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013, achieving creative compromises with the then Minister, the noble Lord, Lord Deighton, and generally advancing

26 Oct 2015 : Column 1047

the cause of effective regulation, this Bill makes depressing reading. That is not because of the proposals concerning the status of the PRA and consequential amendments, which are entirely sensible; nor because of the extension of the authorised persons regime to all authorised persons—in a seamless financial services industry that is obviously a sensible development. What is depressing is the Government’s back-pedalling on the governance of the Bank of England, and their spineless surrender to industry lobbying on the issue of the burden of proof in the senior persons regime.

First, on governance of the Bank of England, noble Lords will recall that the Treasury Select Committee of another place recommended in its report on the accountability of the Bank of England, published in November 2011, that there be established a supervisory board, replacing the Court of the Bank. The supervisory board would have a wide-ranging oversight role, including ex-post reviews of the Bank’s performance in prudential and monetary policy, and it should be provided with proper staff to perform that review function.

I remind the House why this proposal was made. First, it was argued that there was clear evidence of groupthink in the Bank during the financial crisis, and that it was important that there appropriate challenge within Bank policy-making. Secondly, it was clear at the time that some of the groupthink emanated from an intellectually powerful and dominant Governor. While there is in this House the greatest respect for the noble Lord, Lord King, and, indeed, for Mr. Carney, we should all remember the maxim of Lord Keynes:

“It is astonishing what foolish things one can temporarily believe if one thinks too long alone, particularly in economics”.

For both these reasons, the Treasury Select Committee and, I recall, almost all who spoke on the matter in this House, agreed that an independent review body of considerable weight and influence should be established. After all, as the Treasury Select Committee put it:

“The Bank is a democratically accountable institution and it is inevitable that Parliament will wish to express views and, on occasion, concerns about its decisions. Our recommendation that the new Supervisory Board have the authority to conduct retrospective reviews of the macro-prudential performance of the Bank should, if operating successfully, provide the tools for proper scrutiny”.

So there is the third reason for the establishment of a supervisory board—that its reports will enable Parliament to do its job properly.

Noble Lords will recall that the Court of the Bank was hostile to the creation of a supervisory board, but instead proposed the establishment of the oversight committee, consisting entirely of non-executives who would perform the retrospective evaluations that the Treasury Select Committee felt were so necessary. Your Lordships’ House accepted the proposal as a reasonable compromise. Now, without ever having had the chance to prove itself, the oversight committee is to be abolished, and its functions handed back to the Court of Directors, the very body the activities of which it was supposed to oversee. Of course, there is reference in Clause 4 to an oversight function being delegated to a small sub-committee of the court. However, as noble Lords will be aware, a sub-committee, however talented, is not the same as a full non-executive director committee.

26 Oct 2015 : Column 1048

The impact assessment performed by the Treasury argues—and the noble Lord echoed this argument—that abolishing the oversight committee will,

“bring the Bank’s governance arrangements in line with normal best practice of a unitary board”.

All I can say is that whoever wrote that has not had much experience of unitary boards of major companies. The oversight committee was never intended to replace the court, as the impact assessment also erroneously suggests; it was intended to be a powerful instrument of non-executive director review—an instrument that the financial crisis revealed to be desperately needed.

In Clause 5, we find that the Court of Directors is taken out of its policy-making role and replaced by an amorphous entity called “the Bank”. The result is that Clause 9A of the Bank of England Act now reads: “The Bank must carry out and complete a review of the Bank’s financial stability strategy before the end of each relevant period”. That is typically called marking your own homework. The impact assessment says:

“Making the Bank responsible for setting the strategy … within the Bank … will ensure that Court is responsible for the running of the Bank and that the Bank’s policy committees are responsible for making policy”.

How do we know? We do not know. This Bill renders the governance structure of the Bank of England opaque and not fit for purpose. We do not know what the bank is. Is it the court? If so, why the amendments? Is it the executive? Is it the governor? Where does authority really lie? We do not know.

Nor can any comfort be drawn from the section of the Bill on audit referred to by the noble Lord. Consider Clause 11. There we are told that:

“The Comptroller and Auditor General … may carry out examinations into the economy, efficiency and effectiveness with which the Bank has used its resources in discharging its functions”.

However, it is also in Clause 11 that:

“An examination under this section is not to be concerned with the merits of the Bank’s general policy in pursuing the Bank’s objectives”.

Moreover, Section 7E describes how the court may forbid the comptroller from proceeding with the examination if,

“the court of directors … is of the opinion that an examination under section 7D, or any part of it, is concerned with the merits of the Bank’s general policy”.

No wonder that Sir Amyas Morse who heads the National Audit Office—he is the Comptroller and Auditor-General—told the Financial Times on 15 October:

“The legislation proposed by the government includes a statement about my role. … However in departing from the existing legislative parameters governing my role it imposes unacceptable restrictions that, if enacted, would create an impression of increased public accountability without the reality”.

An impression of increased public accountability without the reality—that is what we are being asked to endorse.

Now I turn to the other major retreat in this Bill—the reversal of the proposal from the Parliamentary Commission on Banking Standards that in the case of senior managers the burden of proof with respect to the performance of their roles should rest with the managers themselves. The noble Lord, Lord Newby,

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the then government Minister, put the case clearly—what a shame he is not here this evening to enlighten us further. He said:

“The Parliamentary Commission on Banking Standards concluded that the current system for approving those in senior positions in banks—the approved persons regime—had failed … The commission’s central recommendation in this area is for the creation of a senior persons regime applying to senior bankers. The regime for senior managers in banks will … reverse the burden of proof so that senior bankers will have to show that they did what was reasonable”.—[Official Report, 15/10/13; col. 386.]

The most powerful speech in favour of the Government’s proposal was made by the noble Lord, Lord Lawson, who made clear that he had wearied of the excuses paraded by senior bankers before the commission, including, “It wasn’t me; it was a collective board decision, so no individual is responsible,” or “It wasn’t me: I had no idea what the traders in my bank were doing; it was all them,” or blaming the regulators or monetary policy or anyone but themselves. The noble Lord, Lord Lawson, concluded:

“The standards in the City of London should be the highest in the world. The whole thinking behind the commission on banking standards was that we wanted to clean up banking … Personal responsibility is not the whole of the solution, but personal responsibility of the senior management is a vital and necessary element”.—[Official Report, 15/10/13; col. 398.]

I agree with the noble Lord, Lord Lawson.

So how is the Minister to explain Clause 22, which reverses the reversal? Can he explain in detail exactly why what was at the very heart of government policy two years ago is now to be abandoned before it has even been tried? Will the Minister also spell out in detail the rationale for ignoring the carefully considered arguments of the parliamentary commission?

Turning again to the Treasury’s impact assessment, we read that the “duty of responsibility”, as contained in the new Bill,

“will maintain the same tough underlying obligation on the individual to ensure that they take reasonable steps to prevent regulatory breaches”.

These words were also echoed by the noble Lord in his introduction. If it is the same, why bother to amend it? Clause 22 is unnecessary; but if it is necessary then the “underlying obligation” cannot be the same. The Government cannot have it both ways. Which is it?

Fortunately, the impact assessment gives the game away. It tells us:

“One of the unintended consequences of the enforcing this obligation using a ‘reverse burden of proof’ has been that firms will have to incur greater costs than originally envisaged in preparing the documentation required by the regulators setting out the allocation of responsibilities in firms”.

So there we have it: the Bill will result in less comprehensive documentation and hence less awareness of responsibilities and less detailed examination of the relationship between responsibility and risk. That is what the Treasury’s own impact assessment says. Is that what we want? Less clear responsibility and less appreciation of risk? The requirement to fully document was not an unintended consequence. We knew that effective regulation of individual responsibility would cost more, and so it should when the failure to exercise individual responsibility imposes heavy costs on the community as a whole.

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So for the—let us call us—regulatory old lags among us who worked late into the night to get regulation right, this is a seriously defective Bill. It must be amended.

8.23 pm

Lord Sharkey (LD): My Lords, this is a much shorter and simpler Bill than its two financial services predecessors, and I congratulate the noble Lord, Lord Bridges, on this welcome innovation, but, on the whole, it does not work to strengthen the regulatory framework put in place by those predecessors. On the contrary, and in very significant ways, it appears to weaken much of the work done in the past two Sessions.

There are four major areas of concern. The first is the abolition of the Bank’s oversight committee alongside the reduction in the number of non-executive directors on the court. There is also the role of the National Audit Office, the change in the status of the PRA and the changes to the senior manager regime and, particularly, the U-turn on the reverse burden of proof.

I shall start with the abolition of the oversight committee. The committee was recommended by the Parliamentary Commission on Banking Standards and was introduced into the Financial Services Bill by lengthy and detailed government amendments at the suggestion of the Bank. The very helpful Treasury briefing note to this Bill says that these new oversight functions have been a successful innovation, but it describes the oversight committee as an “unnecessary layer of governance”. As a reason for removing a key part of the Financial Services Act, this “unnecessary layer of governance” seems pretty weak. Will the Minister explain exactly how the existence of the oversight committee harms the bank’s ability to operate or how its existence as a separate body, as Parliament deliberately designed it, is damaging in any real or significant way?

The oversight committee consists only of non-executive directors. Its replacement, the court, has five bank officials and seven non-executive directors. This inevitably raises questions about robust independence, which was entirely the point of the non-executive director-only structure in the first place. The Bill reduces the number of non-executive directors on the court from nine to seven, although it contains the rather odd provision to allow restoration of the number to nine. There is nowhere any justification for the reduction in the number of non-executive directors from nine to seven: not in the Explanatory Notes, not in the HMT briefing note and not in the impact assessment. Will the Minister say why there is to be a reduction in the number of non-executive directors and why to seven? The abolition of the oversight committee seems certain to reduce the independence of oversight activity. The Government have presented no convincing reason why this committee should be abolished, and I am certain we will want to have a much better justification before agreeing to it.

The second area I want to discuss is the role of the NAO. The Treasury briefing note asserts that the purpose of this part of the Bill is to increase the accountability of the Bank to Parliament. There seems to be some significant disagreements on this. In evidence to the House of Commons Treasury Committee, the chair of the Court of the Bank of England, Anthony Habgood,

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said that the extent of the NAO’s proposed involvement had come as a surprise. That is a surprise in itself. Will the Minister say why Mr Habgood was taken by surprise? Was he consulted? Will he say whether the chair of the Court of the Bank of England is in favour of the NAO proposals in the Bill and whether he believes they will in fact increase the accountability of the Bank to Parliament? Certainly, Sir Amyas Morse, the Comptroller and Auditor-General and head of the NAO, does not think so. As the noble Lord, Lord Eatwell, said, the

Financial Times

reported on 11 October that Sir Amyas had,

“attacked ‘unacceptable’ government plans to increase transparency at the Bank of England, saying that they created a false impression of greater accountability”.

These are very important matters.

We welcome the prospect of increased public accountability of the Bank via the NAO, but it is not at all clear that that is what the Bill really offers. As the Financial Times pointed out, under the Bill’s proposals the Bank would have a veto over what the NAO could scrutinise. This would be the first time that a public entity could restrict the scope of a value-for-money study. It is very hard to see why the Bank should have this power of veto and fairly easy to see why it should not. At the moment, the NAO is responsible for the financial audit of the PRA. The Bill proposes to end that arrangement and hand over the financial audit responsibility to the bank’s auditors. This seems a retrograde step and seems to signal a reduction in the independence of the PRA, which is the subject I want to turn to next.

The Bill proposes to end the PRA’s status as a subsidiary and make the Bank itself the Prudential Regulation Authority, exercising its functions through a new prudential regulation committee. The chief reasons given for this proposed change in the impact assessment are that it will,

“maximise the synergies between micro- prudential supervision and macro-prudential policy”,

and be,

“better able to exploit internal efficiencies by sharing knowledge, expertise and analysis”.

Will the Minister explain this in a little more detail and perhaps in plainer language? Will he give concrete examples of the synergies anticipated? Will he explain how internal efficiencies can be exploited in a way not possible under the current set-up?

Both the HMT briefing notes and the impact assessment assert that the PRA’s independence will be retained. The impact assessment says that the new PRC will have a majority of external members. However, the chart provided with the Treasury briefing note is open to a quite different interpretation. This chart says that the PRC will consist of the governor, three deputy governors, the CEO of the FCA, one governor’s appointment and at least six external Chancellor’s appointments. Unless one counts the CEO of the FCA as an outsider, which seems completely implausible after the summary sacking of Martin Wheatley, the outsiders are not in a majority. Would the Minister care to clarify this? Is he counting the CEO of the FCA as an outsider and, if so, on what grounds?

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I now turn to the Bill’s proposal to make changes to the senior managers regime. I welcome the extension of the regime across all sectors of the financial services industry, as was recommended in 2014 by former members of the Parliamentary Commission on Banking Standards and by the 2015 Fair and Effective Markets Review. However, I am very concerned about the U-turn on the reverse burden of proof. This reverse burden of proof test has not even come into force yet the Government are now proposing to abolish it before it does. The reverse burden of proof was a key recommendation of the Parliamentary Commission on Banking Standards, which said that it would,

“make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations”.

The Government accepted this and wrote it into law. They were right to do that: the issue remains a serious problem.

Members of the House of Commons Treasury Select Committee, in February this year, investigating the scandal in which HSBC reportedly helped people around the world evade tax, were frustrated by senior executives, one after another, disclaiming personal responsibility. The Parliamentary Commission on Banking Standards was right to conclude that having a named executive with personal responsibility for key risks, accompanied by reversing the burden of proof, was essential to removing what it called this “accountability firewall”.

It seems to me that the Government have advanced three main argument in favour of this U-turn. They are, first, that it was necessary because the Bill extends the scope of the senior managers regime to financial institutions for which the reverse burden of proof would not work. The Chancellor said that he wanted to avoid a dog’s dinner of a two-tier accountability system. This is very unconvincing. It is not obviously the case that a two-tier system would be problematic. In fact, a two-tier system may be necessary to keep the large, globally systemic financial institutions accountable.

The second reason, advanced by Harriet Baldwin in our recent meeting, was that senior bankers were losing focus on their real jobs because of the compliance burden imposed by the reverse burden of proof—presumably in preparation for it. We need to see the evidence for this. I assume that this is what the banks are claiming. Can the Minister say how these assertions have been evaluated? How do we know they are true and not the obvious special pleading?

The Minister also told us that the looming reverse burden of proof was causing senior managers to avoid the jurisdiction. This is a serious charge and I think we need to see evidence for it. Could the Minister provide us with some examples? The Bank has described the removal of the reverse burden of proof test as a matter of process rather than substance. I believe that is simply, straightforwardly incorrect. The issue of abandoning the reverse burden of proof is extremely serious and is central to the ability to hold bankers properly to account. I have no doubt we will return to this issue at later stages in the Bill.

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There is one other provision in this part of the Bill that raises concerns: the removal of a senior managers regime obligation to report breaches of rules of conduct to the regulator. I can see no rationale for this in either the Treasury brief or the impact assessment. The impact assessment simply notes that this measure is likely to “mainly benefit larger firms”. Can the Minister say why this provision is in the Bill?

Our discussions of this and other changes to the senior managers regime will be helped, I think, by the full, quantified impact assessment covering these measures promised in paragraph 103 of the current impact assessment. Can the Minister assure the House that we will have sight of this further impact assessment well before Committee?

This is an unsatisfactory Bill. It undoes much of Parliament’s work on the previous two Financial Services Bills; it overturns a key recommendation of the Parliamentary Commission on Banking Standards; and it acts to reduce accountability and independent supervision. We have recently seen many moves in favour of the banks: we have seen changes to the banking levy and the sacking of Martin Wheatley, and we have heard talk of imposing a time limit on PPI claims. We should not let this Bill add to all that.

8.35 pm

Lord Lawson of Blaby (Con): My Lords, I begin by echoing the noble Lord, Lord Eatwell, in welcoming my noble friend Lord Bridges to this area of his responsibilities, and we look forward to the further debates that we may have in the future. I am also grateful to my noble friend for his kind remarks about the Parliamentary Commission on Banking Standards, of which I was a member, as were others who will be speaking in this debate.

The hour is late, for reasons that we are all aware of, so I shall be very brief and refer simply to two areas, one of which has already been spoken about this evening; the other one has not.

The one that has been spoken about already is personal responsibility, and the noble Lord, Lord Eatwell, even went so far as to quote me on it. It is something to which I attach the first importance and I do not think that the change to the burden of proof affects it. Personal responsibility is important, and indeed the Parliamentary Commission on Banking Standards had other proposals to nail it. It is absolutely vital that there is personal responsibility. It is not banks but bankers who commit wrongdoing. If we are to deter bankers from committing wrongdoing, they have to be held personally responsible. What happens if it is not clear who is personally responsible? I hark back to my time in the Navy many years ago. Then, if a ship ran aground, the captain was court-martialled. There was always personal responsibility and there was no way in which it could be escaped.

Currently, too often when the authorities discover wrongdoing, they fine the banks. That is, if anything, counterproductive. Not only does it enable those who are personally responsible to escape scot free but very often it is harmful for the banks to have their capital ratios adversely affected by heavy fines. That is not in the public interest. Furthermore, at the end of the day

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the people who suffer are the shareholders, who have done nothing wrong, and those who have done something wrong are completely immune from any punishment. Therefore, we have to take personal responsibility seriously. It has to be front and centre of the business of disciplining and supervising those in the banking system.

My second point, which has not been referred to, concerns the ring-fence. We on the banking commission took very seriously the need to separate out deposit-taking and high-street banking from investment banking and merchant banking or whatever. Indeed, we did not think that the Government had been strong enough and we recommended that the ring-fence should be strengthened or, to use a term of jargon, electrified. What has happened now is that some, but not all, of the big banks have been campaigning and lobbying very hard for the Government to back down on the ring-fencing. That has happened so much so that Martin Taylor, a member of the Financial Policy Committee in the Bank of England, was moved to make a very outspoken speech attacking the banks for trying to prevent the ring-fencing coming about.

Ring-fencing is essential for a number of reasons. First, as noble Lords taking part in this debate are well aware, banking is of particular importance to the economy as a whole. Therefore, there is an implicit taxpayer subsidy, which is, in my judgment, inescapable when it comes to the deposit-taking banks. However, it is quite wrong that investment banks, which often undertake a lot of risky trade of one kind or another—including proprietary trading, where there are no clients at all; they are just doing it for themselves—should be able to benefit in any way, however remote, from the taxpayer subsidy. That subsidy is there because of the need to prevent deposit-taking banks, which are not just retail banks but also finance SMEs, from folding.

There is another reason why there has to be a separation. One thing that was clear was the importance of the culture of banking when things went wrong. The culture of deposit-taking banking and that of investment banking are completely separate. It is very difficult to see how we can have two quite separate cultures in one organisation. All too often, the high-risk-taking or go-go culture of the investment banks takes over what should be the prudent, risk-averse culture of the deposit-taking banks.

However, the banks that are complaining do have a slight point about one thing. They say that this curious thing, which came out of the Vickers commission and which has not been tried anywhere in the world, is unworkable for governance reasons. It is very difficult to see how the governance of two quite separate, ring-fenced banks could work. But they have a remedy; the remedy is in their own hands. They could separate completely, and then all the governance problems would be gone. I believe that complete separation is the right answer and have been publicly arguing that for more than six years now. Nothing that I have seen has persuaded me that that is not the case.

The Government have said that they will monitor the ring-fence to see how it is working in practice. If individual banks are gaining from the system—as some, but not all, will try to do—the Government will

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move from ring-fencing to complete separation. I would like the Minister to confirm that it is still the position that not only are the Government not going to give way to this lobbying, which Martin Taylor spoke out about, but furthermore that they are monitoring the ring-fence very carefully and will, if that ring-fence is bringing gains in any way, move to complete separation.

8.44 pm

The Lord Bishop of Portsmouth: My Lords, this Bill offers an important way to confirm the Government’s commitment to promoting real diversity in the financial services sector. I want to make a very brief contribution in support of such diversity.

I hope that your Lordships will allow me a very mundane analogy, appropriate to someone like me—an amateur in this complex area. In the recent past, the international Anglican communion has been wrestling with the question of how its local ministry relates to global structures. I will not bore you with any details: there have been quite enough of those to contend with this evening already. Suffice it to say that at the heart of our deliberations has been the question of which aspects of church life are best agreed, shared and implemented internationally and which best happen locally. We have realised that, although global and national structures enable us to deliver much in terms of ministry, local delivery is of prime importance. When people think of the Church, they do not predominantly relate to international structures or even national bodies: they relate primarily to the local church and the local vicar, who may have helped them out when the going got tough.

For those of us close to the ground, in the banking sector in my lifetime, we have seen a shift from the local bank manager who knew your affairs and could guide you—we hoped—wisely and discreetly, to rather larger and often faceless multinational institutions that cannot relate, never mind respond, to localised needs of customers. Therefore, I want to place on record the importance today of credit unions, which—now that the building societies seem to have stepped away from local engagement—are often the best vehicle by which banking can take place responsibly and accountably within the local community. A requirement for the Bank of England, including the PRA and FCA, to consider diversity of provider would be a significant commitment to the benefit of both consumers and the wider economy. I invite the Minister to confirm on behalf of the Government that commitment to locally accountable, directly accessible facilities and advice, which are so important in our communities.

8.47 pm

Lord Naseby (Con): My Lords, I, too, welcome this Bill. I am only going to concentrate on one aspect: diversity, because the Bill gives us an important opportunity to solidify the Government’s commitment to promoting real diversity in the financial services sector within legislation. A properly functioning, healthy and genuinely consumer-focused financial sector requires a broad range of different types and sizes of financial institutions operating in it to drive competition and

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financial resilience. This range of institutions should include customer-owned financial mutuals such as building societies, credit unions—as the right reverend Prelate has mentioned—and mutual insurers and friendly societies.

I recognise that, in the annual remit letters to the PRA and the FCA, the Government give a commitment to aim for, and follow up, diversity of provider and that is helpful, but it would be far better if it were put in legislation. I do not need to remind your Lordships of the difference between the mutual sector and the plc sector. One of the principal differences is the methodology of raising capital, whereby plcs can go to the market but mutuals have to raise inorganic capital. Your Lordships will be aware of the Private Member’s Bill that I took through in the last Session, which was the beginnings of an easing up on how the mutuals can raise capital. That was the Mutuals’ Deferred Shares Act 2015, but there is a long way to go still.

Why is it so important that this be put into legislation? There are two reasons. First, diversity increases the effectiveness of competition. After all, competition creates a better consumer environment in financial services through choice and so forth. Secondly, it makes the whole system a degree more resilient. We saw that in the recent financial crisis. Of course, out of it flows competition, which is helpful. One gets a superior service—and the evidence is there—from the mutuals. There are fewer complaints, and the evidence is there for that as well. Interestingly, one gets more competitive interest rates. What I found most persuasive is that, between 2012 and the end of June 2015, building societies provided no less than £52 billion of net new lending for mortgages. The rest of the mortgage market provided £7 billion. That is £52 billion from the mutuals and £7 billion from the plcs. That in itself is a demonstration of the importance of the mutual movement.

It goes wider than that. We have already heard about the great inclusion that comes from credit unions. There is a gap between the plcs and the high-cost providers. It is in that area that the credit unions are playing a key part. I submit to your Lordships that there is better conduct all round, more stable profitability and a lower risk appetite in lending; and they are, and remain, very efficient operations.

The thought that may be going through the mind of my noble friend on the Front Bench is, why do we have to put this into law? I submit to the House that, at this point in time, as we review the Bank of England and the financial sector, one size fits all is not acceptable. There were too many incidents in recent times where, as a last gasp, after much representation, either the European Union or our own Treasury suddenly remembered that there is a mutual sector. The fact that the mutual sector is a very important part of our financial sector should be right up front. What I and others in the mutual movement will be asking for is an environment where all types of firms can operate on a fair basis with regulations that are proportionate and appropriate to them, rather than this one-size-fits-all approach.

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I should mention to my noble friend that I will be tabling an amendment to the Bill. It is important, but all it would do is impose a duty on the FCA and the PRA to consider models of ownership, such as mutual societies and firms of different sizes, when formulating any policy changes. I very much hope that when I have finished drafting it properly, it will find favour with my noble friend.

8.53 pm

Lord McFall of Alcluith (Lab): My Lords, I welcome the opportunity to participate in this debate. I welcome the Minister to his place and my fellow members of the Parliamentary Commission on Banking Standards, the noble Lord, Lord Lawson, and the noble Baroness, Lady Kramer. We started off on a three- or four-month project, which ended up taking over two years, with 10,000 questions. We presented the Government with recommendations and I am pretty disappointed in the Bill tonight, as are the noble Lords, Lord Eatwell, Lord Lawson and Lord Sharkey. I will focus on the ring-fence, the senior managers’ regime, Bank of England governance and, lastly, transparency and disclosure.

The noble Lord, Lord Lawson, and I were at one from the very beginning in that we wanted separation in banking. But we went along with the concept of ring-fencing to give it a chance. We actually spent almost a disproportionate amount of time on it, so it was a big issue in our deliberations. I well remember Paul Volcker coming to give us evidence on that. He was very clear. He said, “You are going to have two boards. It is naive to expect the holding company directors to have anything other than an unremitting interest in responsibility for the retail”. So you cannot separate those issues. He was very clear—as we were—that the culture is different. If it boils down to one thing, it is that the retail bank has to be customer focused, whereas the investment bank is trading and it is anonymous. It devalues and eliminates the personal relationships. That is the difference between the two of them. I do not think that this will ever change. We had individuals who came to the committee who were very supportive of the ring-fence—for example, Sir David Walker, who was chairman of Barclays. But hey presto, five or six months later, he has an article in the Daily Telegraph saying that ring-fencing has had its day—even before it has come in. The issue of lobbying is right at the heart of this very Bill.


Let us not forget that, post-crisis, banks are both bigger and more complex. The big issue now is “too big to manage”. I well remember the chairman of HSBC, Douglas Flint, coming before us. I asked him the question, “Is HSBC too big to manage?”. He said, “That is a good question”. There was no other answer on that issue.

Look at the size of the 28 global banks: in 2006 their combined total was $38 trillion—an average size of $1.4 trillion per bank. In 2013, seven years later, it has gone up from $38 trillion to $50 trillion, with an average $1.8 trillion for each bank. We speak here in trillions. Can we understand what trillions are? If we ask the question “What is a trillion seconds?”, the answer will come back: “32,000 years”. Trillions are a

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hell of a lot of money—and lots of people in the banking sector do not understand what the issues are in their individual institutions.

When Lehman’s went down, there were hundreds of legal entities connected globally. The issue was that it could not connect the individual pieces, hence it went down. Is it any different today? I do not think it is. So the concept of separation, as the noble Lord, Lord Lawson, said, needs to be kept alive by this Government. It cannot be dismissed.

On the senior manager regime, the main recommendation of the Parliamentary Commission on Banking Standards concerned the lack of individual accountability at the top. There was a no-see, no-tell policy, with no one responsible. We were very clear in our recommendation when we said that the problem is that:

“Top bankers dodged accountability for failings on their watch by claiming ignorance or hiding behind collective decision-making. They then faced little realistic prospect of financial penalties, or more serious sanctions”.

Now the Government are dropping the plans to reverse the burden of proof, which would have forced senior managers to demonstrate that they have done the right thing if there was wrongdoing on their watch. That is a concern. Why the change? We are changing the burden of proof from the senior manager to the regulator. It will be necessary for the regulator to prove that the senior manager had not taken steps before bringing disciplinary proceedings. The previous FCA chief executive, Martin Wheatley, was very clear when he said that there is an accountability firewall within institutions. Here we see the Government watering down that very proposal.

There is a history to the attempt by the regulator to hold banks to account. We should look at that history when we are filing this legislation. The mis-selling and misconduct of PPI, which went on for 15 years or more—we still have the remnants of it—has cost UK banks £40 billion in fines and redress. That £40 billion is three and a half times the cost of the London Olympics. Who has been fined or brought to account on this? If we look at Land of Leather, we find that the chief executive was disciplined by the FCA for mis-selling, but he is the only senior manager to have been disciplined. What is the moral in that? It is that if you mis-sell in a sofa shop, they are coming after you, but if you mis-sell in a financial system that is systemically important, then you are safe. What a condemnation.

I recall one regulator saying in a speech made in 1998 that senior managers were not held to account. He was very clear. He said that:

“One of the least appealing features of a number of the scandals I referred to at the outset was that while junior and operational managers have lost their jobs and been disciplined”,

the senior managers get away without that responsibility. He followed that up in a speech made in April 2001 when he said that, when things go wrong, we should look directly to the senior manager, whom we should hold accountable. In the case of the failure of Barings Bank or the pensions mis-selling debacle, senior management has not been held directly accountable. He asserted that: