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Mr. Letwin: Perhaps I have been asked to speak from the Front Bench on this important matter because the House is so full.

In common with Liberal Democrat Members, we wholly support the aim of trying to do something serious about phoenix companies, although most of the action that needs to be taken against such companies is not in the Bill, but in other measures. We accept that there is an issue to be addressed in respect of contributions, tax and debts to trade creditors and others, and that action needs to be taken to ensure that moneys that are owed are recouped.

However, the Minister took a slight liberty with exactitude when he suggested that, in another place, members of all parties supported what he described as the principles behind the group of amendments. In particular, I refer to amendment No. 72. Lengthy speeches were made by my noble Friends and by Lord Goodhart on behalf of the Liberal Democrats explaining exactly why the principles behind the amendment are repugnant to us and to the deepest principles of British jurisprudence. Today, we intend to establish the principles that we consider to be of the utmost importance to the legislation and generally.

The problem is well illustrated by the remarks by the Under-Secretary of State for Social Security, the hon. Member for Manchester, Withington (Mr. Bradley) who said in respect of the previous group of amendments that the Government's aim--which we accept is an admirable one--was to streamline the process without denying the rights of individuals. Amendment No. 72 does exactly the opposite: it tramples over individual rights.

In the context of phoenix companies, which have caused so much public concern, it is understandable that there should be an urge to legislate effectively. However, it is not right that the House should legislate in a way that ignores the proper rights of individuals, even in addressing a gross abuse.

The most signal phrase in amendment No. 72 is in what would become section 121C(1)(b) of the Social Security Administration Act 1992. It states that, in order for the Secretary of State to take action, it must appear to him that the failure in question is


In another place, Lord Goodhart gave an extraordinarily clear and powerful description of the amendment's effects. He said:


    "the amendment is, I believe, plainly incompatible with the European Convention on Human Rights and therefore with the Human Rights Bill".

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    He specifically referred to article 6 of the European convention, which provides:


    "In the determination of his civil rights and obligations . . . everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law".

Lord Goodhart went on accurately to describe the streamlined process, to which the Minister referred, that would be created by amendment No. 72. He asked:


    "What happens under clause 63?"--

now clause 64. He continued:


    "First, the Secretary of State, through members of her staff, investigates the reason for the company's failure . . . Secondly, the Secretary of State, through another member of staff, concludes that the failure has been due to the fraud or neglect of a director".

Lord Goodhart did excessive justice to the phrasing in the clause, because the Secretary of State needs to conclude only that it appears that there was fraud or neglect. He said:


    "There is no provision for any kind of hearing before that conclusion is reached. Thirdly, a personal liability notice is served on the director who is found culpable who becomes liable to pay contributions to the Secretary of State."

Lord Goodhart summarised the situation poignantly when he said:


    "The Secretary of State is the plaintiff, the prosecutor and the judge. There is no independent and impartial tribunal."

Lord Haskel attempted to rebut the remarks made by Lord Goodhart and my noble Friend Lord Higgins, and his remarks have strange echoes for many hon. Members on both sides of the House who attended to what was said when the Child Support Agency was set up and to what has been said on many occasions about administrative practice.

Lord Haskel said:


How reassuring. How could anything go wrong if a specialised unit is to make the decisions? Lord Haskel said that the unit


    "will have the necessary training and expertise to deal with the issues involved."

To within two words, those are the words spoken by another Minister in another place who was explaining why the CSA would be sure to get all its actions right.

Lord Haskel said:


How frequently we find that the vast apparatus of the social security system achieves perfection in ensuring that a decision is made only after all the relevant facts have been fully investigated. Presumably that is why there are no errors in the CSA's activities, why the Benefits Agency has no Members of Parliament submitting cases to it and asking for facts that have not been fully investigated to be examined afresh and why, in short, the system is perfect. Following that grand assurance, Lord Haskel said:


    "I hope that this reassures your Lordships that we will be taking all reasonable steps".

The long and short of it is that, in another place, a senior advocate, who is also the Liberal Democrat spokesman, raised a serious question about the compatibility of amendment No. 72 with the European

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convention on human rights, which the Government are enacting. Lord Haskel, speaking for the Government, replied that we should be reassured that there would be no human rights problem because the decisions would be made by a specialised unit after all the relevant facts were known and the administrators could be relied on to protect human rights. Nobody in this House could possibly accept that as an adequate rebuttal of Lord Goodhart's points, which were echoed by my noble Friend Lord Higgins.

If we look deeper and ask whether a legal explanation of the compatibility of the amendment with the European convention on human rights was given, I fear that we find no greater assurance. Lord Haskel told the other place:


That was the last thing he had to say on the matter. Despite the fact that there were two meetings outside the other place between representatives of Opposition parties and the Government, and despite the fact that Lord Goodhart made a learned, long and forceful speech about the matters, all the Government did was state that they were satisfied--without answering the logic--that the amendment would be compatible with the European convention and to laud the administrative practices.

4.30 pm

It may be asked--indeed, hon. Members who want to retire for tea or supper probably are asking--why on earth the Opposition should be going on at such length about such a matter. I shall explain. We are dealing with a case of personal liability. Ostensibly, it concerns a civil penalty. Indeed, Madam Speaker--Mr. Deputy Speaker, I do apologise--on various occasions, the Government have made much of the fact that the penalty is a civil one. However, it is a very strange kind of civil penalty.

When a phoenix company or a purportedly phoenix company collapses and fails to pay a contribution that it owes, the director or directors--the amendment allows for an extension to the manager or managers--may be charged an amount that forces that person into bankruptcy and is out of all proportion to the gain that he could conceivably have made from acting on behalf of the phoenix company, unless there was a further fraud of a vast extraction of funds from the company.

There could be cases in which it appears--I stress the term--to the Secretary of State that there has been a fraud or neglect, to which I shall return, in which the director responsible for the neglect, or who appears to the Secretary of State to have been responsible, has benefited from his directorship of the phoenix company to the tune of, shall we say, £20,000 or £30,000, and finds himself faced with a penalty, with compound interest, of £200,000, £300,000 or £400,000. That does not strike me--I very much suspect that it would not strike any hon. Member--as an ordinary civil penalty. It has all the appearance of a criminal penalty.

The crucial constitutional difference, Madam Speaker, between a civil penalty and a criminal penalty, about which we in the House ought to be concerned, is that a criminal penalty is an attempted deterrent. I apologise, Mr. Deputy Speaker. I have not meant to call you Madam Speaker throughout. I had it so firmly fixed in my mind

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that Madam Speaker, with all her majestic presence, was in the Chair. I shall try to refrain from addressing her hereafter.

The attempt is not one to allow one party in a civil case to recapture a loss from another party. It is an attempt by the state to create a deterrent against an action that the state believes--and we all accept--is a fraud and wrong, if it has been genuinely conducted in such a way.

The Government have, in effect, accepted that the act and penalty are criminal ones; there is no other reason why they should have instituted an appeal process in which, as the amendment specifically states, the burden of proof is on the prosecution. One would not see that in ordinary civil litigation, but, of course, we would in the tradition of British criminal justice. The Government virtually admit--and certainly ought to admit--that this administrative action relates to a criminal or near-criminal penalty for what is effectively a criminal act.

There is a particular problem, because when the Secretary of State takes such a director not to court but to an administrative tribunal that the Secretary of State has set up, he or she is trying to show that tribunal that neglect has occurred. If the neglect is shown to have occurred, the effective criminal penalty can be levied.

That is an extraordinary state of affairs, because neglect is a highly charged and difficult term and concept. Even in the case of an ordinary, honest company, it is difficult to be sure whether what a particular director has done is neglectful or otherwise. However, it would be easy to argue that there was neglect, as long as one was arguing it before a tribunal that was not especially acute in its legal judgments.

I admit that there has been--thank the Lord--a concession, a listening, by the Government.


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