The Parliamentary Under-Secretary of State for the Home Department (Mr. Vernon Coaker): I beg to move,

A draft of the order was laid before Parliament on31 January.

I welcome you to the Chair, Mr. Cook. I also welcome hon. Members, including my neighbour, the hon. Member for Newark (Patrick Mercer); in whatever capacity, it is good to see him in the Committee.

The Private Security Industry Act 2001 provides for the regulation of the private security industry, which is carried out by a non-departmental public body, the Security Industry Authority, through the licensing of individual security operatives. Section 8(7) of the 2001 Act enables the Secretary of State to prescribe a fee to be paid on application for an SIA licence. The current licence fee is £190.

As an NDPB providing a service, the SIA is required to be self-funding, and its fee must therefore be kept under review. However, when setting a fee under a statutory power, the costs to be recovered are considered to be those incurred in the accounting period in which the function is exercised. That is relatively easy to cope with when the income stream is even, but the SIA is not in that position, for a number of reasons.

First, the SIA has been in existence only since 2003; licensing has been phased-in since 2004 with that of the largest group of operatives licensable under the Act, contracted manned guards, becoming mandatory in March 2006.

Most licences last for three years and although the flow of applications is expected to level off, it is too soon for that to happen. Based on projected numbers of future applications, it is expected that the SIA’s intake of new applications will fall in 2007-08 and rise in 2008-09 as renewal applications start to increase. The SIA cannot readily shrink and expand to adapt to such fluctuations. As a result, in-year unit costs are expected to rise in 2007-08 and fall in 2008-09. In those circumstances, strict adherence to in-year recovery of costs in the case of the fee prescribed under section 8(7) would require the licence fee to be raised to about £280 in 2007-08 and then reduced to about £220 in 2008-09. That is not an acceptable position. The order is therefore needed to enable a fee to be set based on an estimate of unit costs over the two years. The order is laid under section 102(5) of the Finance (No. 2) Act 1987.

I said that when setting a fee under a statutory power, the costs to be recovered are considered to be those incurred in the accounting period in which the function is exercised. The proposal in effect requiresthe Secretary of State, when setting the licence fee for the financial years 2007-08 and 2008-09, to take into account the costs that the SIA will incur in carrying out its licensing functions in both those years rather than only the financial year in question. In so doing, it smoothes the effect of fluctuations in the numbers of licence applications on the SIA’s income from licence fees and therefore on unit costs.

On the basis I have outlined, in order to achieve a full-cost basis for the SIA licensing function, we intend to increase the licence fee from £190 to £245 with effect from 6 April 2007. The order will enable the fee to be held at that level over the two-year period. It is expected that after 2008-09, the SIA’s intake profile will have levelled to a point at which the fee can be set, based on in-year self-funding in respect of licensing. We do not raise the fee lightly, but it is clear that an increase is necessary if the SIA is to be self-funding in respect of licensing. When the fee was originally set, reliable and comprehensive data were difficult to obtain, despite the efforts of the SIA and Home Office officials. Subsequently, it became clear that numbers in the industry and the rate of people leaving and joining it were not as high as had been indicated. That meant that fewer fees had come in than was expected. As a result, it is now clear that a higher fee is needed to fund the SIA’s licensing function. Without that increase, the SIA will face a shortfall in licence fee income of about £350,000 a month. I would add that the SIA has made considerable efforts to reduce its costs, including cutting its staff by 30 per cent., moving to cheaper offices and taking other economy measures.

I make it clear, in closing, that the order does not increase the fee. Provided that the order is made, a separate statutory instrument will be needed to be made by negative resolution procedure under the 2001 Act. That will increase the fee to be paid on application for an SIA licence, and will come into force on 6 April 2007.

Patrick Mercer (Newark) (Con): It is a privilege, Mr. Cook, to be working under your hand again. It is very pleasant to see the Minister opposite and so many colleagues from the Liberal Democrats and other colleagues of my own. I am going to be extremely brief, Mr. Cook, you will be pleased to hear. I am grateful to the Minister for making it clear, particularly in his last few statements, that the legislation will require a negative resolution, as part of the 2001 Act, to raise the fee. I am grateful for that. However, I would like to quote one thing back to the Minister: we do not raise the fee lightly. That is absolutely crucial and goes to the heart of the matter. It looks as if the fee will be massively raised: nearly 30 per cent. I would grateful if the Minster could give some detailed answers.

The predicted expenditure for the next few years, from which the proposed 29 per cent. fee increase emanates, causes me concern. Paragraph 4.28 of the regulatory impact assessment shows that there are still many risks that could result in a reduced income, but states that

May I press the Minister on how accurate he thinks that that is? Is it 9 per cent., 0.5 per cent., or what? I do not know that it is difficult to assess, or whether the Minister is aware of that. However, how accurate did he think that the previous forecast was going to be, which has led us to the current situation?

Paragraph 4.26 states:

that is the crux—

Can the Minister make it clear, if he knows—I accept that it is early days—what “gradually” means? How definite or indefinite a statement is that?

Next, the model for the fee itself is supposed to cover the next two-year period, at which point it is expected that the SIA will obtain cost recovery. However, if there is no cost recovery—there have been several miscalculations so far—how will that affect the fees?

The British Security Industry Association estimates that there are some 35,000 to 40,000 in-house security personnel, who are unregulated. Many of them work in schools, hospitals or universities, and apparently the Government have no appetite for increasing regulation over those people. Industry, however, is not keen on an extension of the licensing base for the BSIA; on the other hand, the organisation itself is indeed keen. In-house personnel are an obvious risk. Should they be included or not? What assurances can the Minister give about the intention to include or exclude that group in the licensable base?

Lastly, I believe that there is still quite a large black economy sector in the industry, on which I should be interested to hear the Minister’s view. That gives rise to uncertainty about numbers. Also, as it is the individual employees who are registered rather than the companies, it is hard to determine exactly how many operators there are. For instance, some security companies have only a mobile phone as a point of contact. What will happen if the SIA collects too much money with the increased fees? If it does collect too much, will the charges be reduced?

Those are detailed points, but I hope that they are not unreasonable. I guess the Minister will be able to answer most if not all of them. I do not intend to oppose what he has said, but some clarity would be most welcome.

Mr. Nick Clegg (Sheffield, Hallam) (LD): It is a delight to be here, Mr. Cook, not only because the purpose of the order has been so well explained in the material provided to us and set out with great clarity as ever by the Minister, but because unless I have missed something, the order is almost entirely bereft of political controversy. That is a blessed relief in a policy area that is almost always disfigured by political controversy.

The hon. Member for Newark has already posed many of the questions that sprang to mind when I read the order. I look forward to the answers provided to them by the Minister. However, there remains the question of why the gap between cost and income has been as great as it has now emerged to be, without remedial action being taken by the SIA. I wonder whether the Minister would care to comment on the original projections that were made in 2003 when the SIA was first created. The purpose of the order is to enable a fee to be set based on estimates of unit costs over two years. That seems eminently sensible, given the fluctuating nature of the applications that are likely to be made over the next few years, and adheres to the most basic principles of sound financial administration. Notwithstanding the more vexed issue of the level of fee set—the decision on which I accept is taken separately—I assume that the provisions must provide at least a degree of predictability over two years, which would be welcome to the industry. I do not seek to place any further obstacles in the way of the order.

Mr. Rob Wilson (Reading, East) (Con): It is a great pleasure to serve under your chairmanship again, Mr. Cook. The Committee will be pleased to hear that I shall keep my comments brief and try not to repeat any of the information that my hon. Friend the Member for Newark gave.

The SIA seems to have suffered from poor planning from the outset. The blame seems to have fallen on an unreliable base data source, which falls into the same category of excuses as “I ate a dodgy curry,” when one has had too much to drink late one night. I wonder whether we could hear more from the Minister about the dodgy data source and why we got things so badly wrong in the first place. The SIA has got off to a particularly bad start in its short life. That makes me wonder how reliable the other predictions in the documentation are, such as those concerning the licence applications in 2007-08 and 2008-09. If we are not very careful indeed, there is a prospect of the increase resulting in fewer applications and therefore of less money coming into the SIA, because the increase is significant. What consideration was given to increasing the frequency of the charge rather than the amount, to the £245 that the Minister talked about? Will the Government provide help for those who need a licence to continue their employment, but cannot afford it? Do the Government have any way of evaluating those who can afford to pay, and those who cannot?

Mr. Coaker: I am glad that hon. Members support the order. They raised a number of detailed, but fair points.

The Government fully support the SIA. It has done an excellent job, working with the BSIA and the security industry in general, to drive up standards in this country, and it is important to put that on the record. It has made a significant difference to what was an unregulated sector about which many MPs had serious concerns. We can debate some of the issues, and I shall respond to specific questions in a moment, but it is important to put on the record—I see from the nods around the Room that I have the support of the Committee—the fact that the SIA has made a significant contribution to regulation of the industry and has done so not in opposition to the industry, but with its support. I commend all those who work for the SIA who made that possible, and all those in the security industry, including the BSIA, who worked so hard to deliver that improvement.

Turning to some of the specific questions, it is important to reiterate that the order allows the SIA to calculate the cost of licensing over a two-year period—2007-08 and 2008-09—rather than annually. That will allow us to equalise the licence fee. If we did not do that, we would have an astronomical rise next year, and would then have to reduce the fee the following year. That would not be sensible. In reply to the hon. Member for Reading, East, non-departmental public bodies are required to be self-funding, and without the order next year’s fee would have to be much higher.

In reply to the hon. Member for Newark who asked about grants in aid, we expect that if the order is accepted the SIA will not require grant over those two years. Without it, there will not be equalisation of income to the SIA, and we do not want fluctuations in fee levels because of peaks and troughs in applications.

Pages 13, 14 and 15 of the regulatory impact assessment set out the figures that led us to conclude that we need the fee increase. In reply to the various questions asked by the hon. Gentleman, I am confident that with our experience of the SIA operating with the industry, we have a much clearer idea of the likely number of applications and, therefore, a much clearer indication of the level of activity and of income. The licence fee is based on the expected number of licence applications, set against the authority’s running costs. I explained how it tried to reduce costs through staff reductions, a move to cheaper premises and so on in order not to impact too greatly on the licence fee.

The hon. Members for Newark and for Sheffield, Hallam asked what influenced the cost of the licence fee. As I said, it is the operating costs of the SIA and the churn rate—the number of people applying for new licences and leaving or entering the industry. To be fair, that is quite difficult to determine. It is not science, but we now have a much clearer view of what is happening. To calculate the size of the licensable population—how many people are standing in front of clubs or involved in all the other sectors—is quite difficult, but we have a much clearer idea now.

Mr. Wilson: Is the calculation made on a break-even or surplus basis?

Mr. Coaker: We require the SIA to be self-funding, so at the very least we would expect it to be break-even. In the event of a surplus, my expectation is that it would be reinvested into the SIA. As the fee will be annual after the two years, we expect that the SIA would not require an increase from the sector after 2008-09. The SIA is required to break even, not to have a surplus. If there is a surplus, it will be the SIA’s business decision to reinvest in itself or ensure that the fee to the industry is kept at a reasonable level. After the period, we expect the SIA to review the licence annually.

We now have a much clearer idea of the size of the licensable sector. The fee, although it will increase next year, has not risen in the three years since the SIA was established. With that clearer picture, we can now fix a fee, albeit an increased one, that will enable the SIA to be self-funding. It will also enable us to work to extend the SIA into Scotland during the next few months, and the SIA to function effectively and efficiently, being self-funded and able to work with the industry to continue to drive up standards.

Question put and agreed to.

Resolved,

Committee rose at seven minutes to Three o’clock.