Clause
173
Funding
Bridget
Prentice:
I beg to move amendment No. 16, in
clause 173, page 91, line 25, after
‘Act’, insert ‘or any other
enactment’.
The
Chairman:
With this we may discuss Government
amendment No.
17.
Bridget
Prentice:
I will be very brief. These are simple
amendments that are necessary to ensure that the board is not left with
a shortfall of funding so that it can perform all its functions and
carry out enactments transferred to it as a result of other amendments
to the Bill. I hope that the Committee can accept the
amendments.
Mr.
Bellingham:
On the basis that my hon. Friend the Member
for Huntingdon and myself will hopefully be running the Department in a
year or so—hopefully not with the hon. Member for North
Southwark and Bermondsey—I am glad that the Minister has moved
the amendments, and we support them.
Stephen
Hesford:
On a point of order, Sir Nicholas. Is it
not in order that comments to the Committee have a smidgeon of
credibility, which cannot be said of the last
comment?
The
Chairman:
I say to the hon. Gentleman that these matters
are outside the scope of my responsibility. They have no relevance to
this particular Public
Bill.
Amendment agreed to.
Clause 173, as amended,
ordered to stand part of the
Bill.
Clause
174
The
levy
6.15
pm
Mr.
Bellingham:
I beg to move amendment No. 301, in
clause 174, page 92, line 6, at
end insert—
‘( ) In
apportioning or imposing a levy the Board shall have regard
to—
(a) the extent to
which any resulting increase in the regulatory fees of a Regulator will
be reasonable and proportionate in comparison to the fees already
levied on relevant regulated
persons;
(b) the extent to
which the levy might discourage entry to or retention in the regulated
sector;
(c) the extent to which
the number of persons regulated by a regulator might be reduced in
consequence of the amount of the
levy;
(d) the extent to which
the regulator might be disadvantaged and another regulator might derive
an advantage, in particular through the movement between regulators of
regulated persons as a consequence of any differences in the levy
imposed;
(e) the likely ability
of the Regulator to raise the levy from Regulated
Persons;
(f) the impact of the
levy on the Regulator’s
viability.’.
The
Chairman:
With this it will be convenient to discuss
amendment
No. 302, in
clause 175, page 93, line 13, at
end insert—
‘( ) A debt
recovered under subsection (5) may only be recovered from practising
fees held by a
regulator.’.
Mr.
Bellingham:
I shall be very brief, because we are making
substantial progress. The clause is on the levy, which is an important
mechanism in how the board will run its affairs. The amendment would
insert a new subsection setting out various factors to which the board
must have regard when imposing a levy. It is basically a tidying-up
exercise and would put various qualifications into the clause. It would
improve the Bill, addressing in some detail a concern that a number of
outside bodies have put to us. That is why it is important that the
clause be amended as suggested, and I hope that the Minister will
consider the
amendment.
If the
wording of the amendment is not up to scratch and the Minister can
consider it and return to us on it, we will be more than happy to
accept that. The amendment is probing, but it strikes me as a sensible
way of improving an important clause. The same can be said for
amendment No. 302, which would add to clause 175 the words:
“A debt recovered under
subsection (5) may only be recovered from practising fees held by a
regulator.”
That speaks
for itself and would remove any semblance of doubt on the
matter.
Bridget
Prentice:
I have listened carefully to both what the hon.
Gentleman has said and what was said in the other place on the matter.
I reiterate the point that my right hon. and noble Friend Baroness
Ashton made. She highlighted the fact that the board would have to be
satisfied that the apportionment of the levy was in accordance with
fair principles before making levy rules. I am still of the strong
opinion that that is the right way to go about it, rather than set out
in the Bill a prescriptive list of factors as the amendment
would.
To set such a
list in primary legislation would restrict the board and preclude it
from considering factors that might subsequently prove to be equally,
or even more, important. I recognise that the list sets out, among
other things, what the board should consider, but my concern is that
any list would put pressure on the board to consider the matters on it
above all else for fear of its decision being reviewed. That would
restrict the flexibility that I have constantly said will be an
important part of the board’s
function.
I understand
where the amendments come from and I have great sympathy with the views
of the smaller legal organisations that want to ensure that they are
not disproportionately burdened by the levy. They say that they do not
want a one-size-fits-all approach to the matter, and I agree absolutely
and wholeheartedly with them, which is why we need flexibility. The
amendments would reduce that flexibility by predetermining some of the
factors, which might be to the detriment of some of the smaller
organisations that will be subject to the levy. On that basis, I ask
the hon. Gentleman to withdraw amendment No.
301.
On amendment No.
302, for the record, I would in general expect money owed in respect of
the levy to be paid from practice fee income, but I do not think that
it is appropriate for the Bill to state that practice fees are the only
source of funds by which debts to the board may be paid. Once again,
that would restrict the flexibility of a regulator to meet a debt that
might best be dealt with in a way that suits its own financial
arrangements. On that basis, I do not support the
amendment.
It is quite
unusual for legislation to restrict the way in which moneys owed may be
recovered. In effect, it would fetter the court’s ability to
enforce payment of debts. The standard procedure for recovery of debts
should apply, so I ask the hon. Gentleman to withdraw the
amendment.
Mr.
Bellingham:
The Minister has stressed the point about
flexibility. I am glad that we gave the issue another airing—it
was discussed in the other place, as she rightly said, but the
proposals were rejected. I am glad that we have had another discussion.
In the light of what the Minister said, I beg to ask leave to withdraw
the amendment.
Amendment, by leave,
withdrawn.
Simon
Hughes:
I beg to move amendment No. 237, in
clause 174, page 92, line 14, after
‘means’, insert ‘two-thirds
of’.
The
Chairman:
With this it will be convenient to discuss the
following amendments:
No. 238, in
clause 174, page 92, line 16, leave
out ‘including’ and insert
‘excluding’.
No.
239, in
clause 174, page 92, line 17, leave
out ‘and’ and insert ‘but
including’.
No.
240, in
clause 174, page 92, line 26, leave
out ‘including’ and insert
‘excluding’.
No.
241, in
clause 174, page 92, line 33, leave
out ‘means’ and insert
‘excludes’.
Simon
Hughes:
The amendments are about the start-up and running
costs of the board. They propose dealing with those matters differently
so that the Government would meet a third of the running costs of the
LSB, and would bear the start-up costs rather than transfer them to the
legal profession.
The
Joint Committee on the Draft Legal Services Bill supports the
amendments. The Government intend that the cost of the regulatory
regime, including the LSB—the umbrella
organisation—should be borne by the legal profession. The
amendment would split the responsibility. No body, and certainly not
the Law Society, has argued that the professions should meet the costs
of the lower tier of regulation, by which I mean the regulators and the
office of legal complaints—that is the current position. The Law
Society supports the status quo, as do we.
The supervisory tier is a
different matter because its responsibilities are different. To ask the
legal profession to meet its costs is not only unreasonable but
illogical and inconsistent with other Government policies. Sir David
Clementi’s report, to which we have referred often today,
said:
“The
issue arises as to how the LSB should be paid for. At present a
substantial part of the oversight function is paid for by the State:
judicial oversight falls to the taxpayer, as does the cost of the
oversight function carried out by Government departments. The arguments
in favour of the Government contributing to the cost of oversight
functions, beyond the fact that it does already, are...that the
LSB, in pursuit of its objectives...such as ‘access to
justice’, has a wider role in the public interest than the
oversight of practitioners in the legal
sector”
—the LSB
has a duty to the public as well as to the legal
profession—and
“that
an element of payment by other than the bodies being regulated confirms
that the regulator is independent of the
regulatee.”
That is an
important principle We discussed that earlier in a different
context.
Sir David
Clementi went
on:
“There is
an interesting precedent in the proposed funding of the Financial
Reporting Council. Its funding is to be split, two thirds falling to
the private sector and one third to Government. How the split should be
made between the private sector and Government for the LSB would need
to be covered in statute and would, therefore, be the subject of
Parliamentary
scrutiny.”
He pointed out
that the Government already meet a third of the cost of the Financial
Reporting Council. I understand that they also meet the full cost of
the supervisory tier of health care regulation, the Council for
Healthcare Regulatory Excellence. They have not
given a significant or convincing explanation of why they consider it
appropriate for them to meet part of the supervisory tier of regulation
in accountancy, but not in legal
services.
One
function of the Legal Services Board is to consider what additional
legal services should come within the regulatory net. That function is
currently the Government’s function and does not form part of
the regulation of legal services. It is carried out entirely in the
public interest rather than in the interest of providers of legal
services. It seems therefore particularly unreasonable for the
Government to expect those costs to be borne by the legal profession.
The Joint Committee considered the issue and concluded that the legal
profession should not be expected to finance public policy
considerations currently funded in-house by the
Government.
At the
moment, the Government are saying that they will shift responsibility
from the public purse and pass it entirely from the taxpayer
collectively to the legal profession exclusively. They currently meet
the costs of the legal service ombudsman, whose functions will be
absorbed in the Office for Legal Complaints, now to be taken over
entirely by the legal profession, and part of the costs of the Legal
Services Complaints Commissioner referred to in glowing terms today by
the Minister and others, whose post is to be abolished by the
Bill.
The
Government also meet the costs associated with the legal services
consultative panel and the costs of the work in relation to the legal
services regulation of the Lord Chancellor and the senior judiciary. A
substantive amount of work is funded by the Government. Contributing on
a continuing basis towards the cost of regulation would thus maintain
the existing position rather than represent a new spending commitment
by the Government. We are not asking for more responsibility, but for
the status quo to be preserved in
essence.
I hope that I
can persuade the Minister that, although the Government will always try
to reduce their expenditure commitments, the amount spent on such
matters as a proportion of their expenditure is extremely small. The
sum that goes to the Lord Chancellor’s budget at present
relative to the other budgets of state is extremely small. I hope that
the Government will agree that there is no absolute requirement to
shuffle off that
responsibility.
I have
referred to the running costs, but I want now to say a word about
start-up costs. I am talking particularly in relation to amendment No.
241. Under the present provisions of the Bill, the Government intend
that not only the full continuing costs of both tiers of the regulatory
system, but the start-up costs, should be borne entirely by the legal
profession. Our amendment would change that and require the Government
to fund the start-up
costs.
Anyone would
accept that it is unreasonable for all the start-up costs to be met by
the profession. As we have heard from the Minister’s own mouth,
the functions of the Legal Services Board are essentially to provide
public assurance about the regulatory system rather than do a
front-line job. It is even more unreasonable for the transitional costs
to be paid by the legal profession, bearing in mind that it has its
system in place and that all have said that it has been ameliorated and
made more effective. To say, “Hang on, guys, you not only have
to pay for what you are
doing now and for what you have been doing, but for getting from where
you are to where the Government want you to be,” seems
unreasonable. The
Joint Committee’s look at the draft Bill, in paragraph 455,
said:
“We
recommend that the Government give further consideration to funding the
start up costs of the new regulatory system. We understand that such
assurances have been given in respect of Part 2 of the Compensation
Bill which introduces a new regulatory regime for claims
management.”
The
Committee went on to say, in paragraph 467,
that
“if the start-up
costs of the new system are to be met through levies and charges on
front line regulators, initial costs to the profession will be high and
will be met both by practitioners and consumers. This adds weight to
the argument that the start up costs of the LSB and OLC should be borne
by
Government.”
The
Government’s only substantive argument so far is the assertion
that those being regulated should pay for the regulatory system.
However, there is no explanation why, for example, accountancy—a
profession of a similar type, often discussed in the Bill in the
context of working together—should be regulated and funded in
one way, but law should now be regulated differently and should now be
funded differently, which is by the practitioners
themselves.
There
is no incentive in the proposals for Government to make sure that the
start-up costs are limited. By definition, if the Government do the job
and give the bill to someone else, there is no incentive to keep the
bill down. If the Government do the job and know that they have to pay
for it, there will be in-house regulatory systems to control the costs.
The estimates provided by PricewaterhouseCoopers, discussed in
Committee in the last few days, were very high for the transitional
process. Government indications are now that start-up costs are going
to be even higher. All the more reason for the Government to know that
they have a responsibility, which will hopefully add to the pressure to
keep the costs
down.
My
last point is about the precedent across Government. It is not unusual
for the start-up costs of regulatory bodies to be met by the
Government, whatever is done about the running costs later on. The
accountancy Financial Reporting Council, referred to earlier, had the
Government meeting the full transitional costs of establishing the new
body and a third of the continuing costs. That was the approach that
the Government took with the Claims Management Regulator, which we
discussed in a Committee like this not many months ago. Before that,
the Government took the same approach to the Council for Licensed
Conveyancers. There have been several precedents for one type. There is
now a change. The Joint Committee did not believe the change was right.
Sir David Clementi did not believe the change was right. The Government
have really not made their case. I hope that they see the benefit to
the taxpayer, to the consumer and to the profession from moving in an
agreed way. I hope that the Minister will be helpful and seriously
consider this, because at the moment there is severe discontent that
all the burden is being put on the professions to pay for a system
that, by definition, is a system of the Government’s
creation.
6.30
pm
Bridget
Prentice:
During the Report stage in the other place, my
right hon. and noble Friend Baroness Ashton set out for their lordships
the further work that we have done in updating the financial analysis
conducted by PWC in support of the draft Bill. I have written to hon.
Members to set out how we have approached that work and provide more
detailed figures. Hon. Members should also now have received a copy of
the supplement to the regulatory impact assessment, which was published
alongside the Bill. That updates the cost
figures.
As I
explained in that letter, and in the supplement to the RIA, following
our work on the revised costs, implementation now stands at
£32.1 million and the revised running costs are £4
million for the board and £19.9 million for the OLC. Of those
costs, £2.4 million will fall to the Ministry of Justice, so the
Government are making a
contribution.
It is
obviously important that both hon. Members and the legal profession can
have some confidence in the figures. I want to emphasise, therefore,
that the adjustments that have been made are based on robust and
detailed analysis. Baroness Ashton has set out the revised figure for
implementation that will now form the basis of the implementation
budget for the board and the OLC, when they finally assume management
responsibility.
I
come now to the principled argument about who should pay. Let me say
right from the outset that I do not accept that the Government should
contribute more than the £2.4 million that I have already
mentioned—either to the establishment costs or to the costs of
running the board and the OLC. We all know that the legal services
market is thriving, and that there was a turnover of some £22
billion in 2005. The legal professions are in a very privileged
position in that they operate in a market where they provide reserved
legal services.
I
believe absolutely that the increased consumer confidence that will
result from a demonstrably independent regulatory and
complaints-handling service will benefit the lawyers. The opportunities
that the Bill creates for alternative business structures will benefit
lawyers as well. So it seems to me entirely right that, as they will be
beneficiaries, they should pay.
Another argument has been that
the Bill will allow the Government to make considerable savings. I am
not at all convinced of that. We will make some savings, but when we
do, the savings should be invested in other priority areas where the
investment is needed and where other funding sources are unavailable. I
am sure that I do not need to mention other aspects within the Ministry
of Justice in relation to which hon. Members on both sides would like
to see us invest some of that
money.
Equally I
cannot accept that the Government should contribute because the board
plays a public interest role. The legal professional bodies currently
raise fees from the members that are not solely intended to pay for
regulatory costs and that also fund important public interest
activities in which those bodies participate—on human rights and
law reform, for example. That approach should continue under the new
framework.
The hon. Member for North
Southwark and Bermondsey mentioned the arguments on funding
arrangements that are in place for other regulatory
organisations—in particular, the Financial Reporting Council. I
have considered the funding arrangements of other bodies, including the
FRC, the Council for Healthcare Regulatory Excellence, the Financial
Services Authority, the financial services ombudsman, the pensions
regulator, the Office of Communications, and the claims management
regulator. I discovered no rigid approach; the Government fund
establishments and running costs in some cases but not
others.
On the FRC in
particular, its accounting, auditing and corporate governance
activities are funded by a tripartite arrangement with contributions
from the accountancy professions, the business community and
Government. Other costs, connected with audit inspections and the
investigation and discipline of accountants, are funded entirely by the
accountancy professions. The Government provide no funding in relation
to actuaries. There are therefore big differences between systems, and
the decision must be made on a case-by-case basis. Our starting
position is that unless there is a compelling case for public funding
there should be no increase in public expenditure, and I do not believe
that there is such a case in the present instance.
I know that
the legal profession has argued that, if the Government made a
contribution, that would incentivise them and us to reduce costs. We
are absolutely committed to ensuring value for money in the reforms.
That is why the Bill contains the safeguards that it does. The levy
rules are subject to extensive consultation requirements, the Lord
Chancellor’s consent and parliamentary scrutiny through the
negative procedure and, under clause 147(5)(c), the affirmative
procedure. All those measures will ensure that the new bodies’
spending will be properly contained. As I said, the revised figures
that we have announced will form the implementation budget for the
board and the OLC. That is another check on
costs.
I am conscious
that there is some concern about the impact that the costs involved in
establishing the board and the OLC might have on individual
practitioners. I reassure Members that the Government are clear that we
will not seek to recover those costs in a single year; rather, we will
do so on a phased basis, and we share that with the professionals in
every discussion about the matter. That will help relieve any potential
pressure on the bodies themselves and on their
practitioners.
I will
continue to work with stakeholders on the details of the process, just
as I want the Government to work with them on all other aspects of the
Bill’s implementation. Only last Friday, officials held a useful
discussion with stakeholders about costs, and it was agreed that
further individual meetings with stakeholders will take place to ensure
that they are fully sighted on all the issues, methodology and
assumptions underpinning our work on cost. That open dialogue is
important if we are to retain the confidence of the professional bodies
as well as of consumers and others. I am committed to ensuring that we
do so. On that basis, I ask the hon. Member for North Southwark and
Bermondsey to withdraw his amendment.
Simon
Hughes:
There was quite a lot in the Minister’s
reply. I shall pick up on a couple of points, because the issue is
substantive and significant for the
professionals.
First,
the Minister said that the Government will contribute £2.4
million. Can she put on the record why that sum has been plucked out?
She gave figures according to the latest assessment that she called
robust. Can she put on the record what percentage of the start-up costs
she and her Department believe that sum represents? I have been arguing
that the payment is the start-up costs and a third of the running
costs. It would be helpful to see where we are starting from in this
debate, or where we have got to in our difference of
views.
Secondly, I
should be interested to know whether the Government have any
independent support for their position. I have not heard the Minister
cite any. If there is any, where does it come from, and will the
Government put that on the record? Independent support exists for the
position for which I am arguing.
Thirdly, the one point with
which the Minister did not deal was the argument that if the profession
is to fund all but the £2.4 million, that does not support the
proposition that the board is a brand new body, entirely independent of
the profession, set up by Government to give that independence. It is
inconsistent, because the system will still be funded by the people
against whom complaints will be made. In terms of showing the
independence of the agency, I do not think that the Government have
made the
case.
Fourthly, the
Minister conceded that savings will be made by Government. She said
that they were small. I should be grateful for her best estimate on
advice of the smallest and largest band of savings a year in each of
the first three years so that we can understand, because we are all
interested in the budget of the Ministry of Justice. I am intrigued, as
other people watching and listening will be, to know what the expected
savings are. It would be helpful to have that on the
record.
6.45
pm
Lastly, the
Minister said, “If we make some savings, there are all these
wonderful candidates for other spend.” The one wonderful
candidate that the hon. Member for North-West Norfolk and I have argued
should get more expenditure is legal aid, but Ministers in the
Department are saying that there will be no more expenditure on legal
aid. On Sunday, according to my television, the new Labour leader said
to the nation that the new Government will listen and will serve the
people and bow down in front of them. They should therefore be
listening.
If the
Minister had said to us that the Government were going to make savings
of £1 million, which would be added to the legal aid budget, we
would have been tempted, but I have not heard her say that. She has
said that there will be some small savings, which the Government will
spend somewhere, although she will not tell us where. She tells us that
she still does not know whether the Department will get a significant
increase in the comprehensive spending review, which has now been
delayed until the
autumn.
I would be
grateful for quick answers. With the agreement of the Committee, I
shall not press for a
Division now. The Minister dealt with the comparative points to an
extent. I want to go away and examine accountancy set-up costs,
accountancy running costs and the costs of the Healthcare Commission,
which the Minister talked about. There are issues that it would be
sensible to consider again. If she can answer the specific questions,
we can go into that debate better informed.
Bridget
Prentice:
I will do my best to answer at least some of the
questions that the hon. Gentleman has raised. I will, of course, write
to him and to the Committee about any that I do not answer.
The figure of £2.4
million relates to the closure of the Office of the Legal Services
Ombudsman and the Office of the Legal Services Complaints Commissioner,
plus the Ministry of Justice’s costs associated with the
internal running of the programme. That is about 7.5 per cent.
of the implementation costs. The hon. Gentleman said that he felt that
the independence of the board and the OLC would be compromised, to
which I say that both the Financial Services Authority and the
Financial Ombudsman Service are entirely funded by the professions that
they regulate. I do not think that any of us consider that they lack
independence. Despite the fact that the professions will provide the
funding, there is no need to believe that the board and the OLC will
not be absolutely independent.
On some of the other
issues, I will have to write to the hon. Gentleman. I want to ensure
that everyone on the Committee is aware of how we see the money being
spent. He made a plea for increased spending on legal aid; I had a
feeling in my heart of hearts that that would be the first call, should
there be any spare money. It is not for me to make those spending
commitments on behalf of the Government, but I will try to give him the
figures of likely savings to the Ministry of Justice and an idea of how
the Department might use
them.
Simon
Hughes:
I am grateful for that response. By way of a
postscript, I add that we have today been given the chance to pick up
the Criminal Justice and Immigration Bill, which is the first product
of the Ministry of Justice—the first Bill born of its womb. I
venture to suggest that we might save a lot of money if we did not have
yet another Bill with more apparent remedies, just like the past 10
years’ worth of criminal justice Bills. Will the Minister be
kind enough to tell us the cost to her Department of implementing that
Bill? Some of us would say that that money would be better spent
elsewhere. I look forward to as full an answer as possible. I would
certainly rather that the Committee has all the information to look at.
We will return to the issue on Report, but in the meantime, I beg to
ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Amendment
made: No. 17, in clause 174, page 92, line 16, leave out
‘the Compensation Act 2006’ and insert ‘any other
enactment’.—[Bridget
Prentice.]
Clause
174, as amended, ordered to stand part of the
Bill.
Clauses
175 and 176 ordered to stand part of the
Bill.
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