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Lord Glentoran: The noble Lord, Lord Phillips, has not returned yet. I shall resume the remarks that I cut short when responding to the Minister on the last point. Much of what he said was very helpful. However, I believe that there is room for clarification. One of the most important points in the debate was that raised by my noble friend Lord Hodgson concerning the midwifery role for perhaps the first three years. I shall read Hansard and shall give considerable thought to returning to this subject on Report. Even following discussions that I have had recently with officials, it would be helpful if, perhaps in a schedule, further clarification were provided on how those who wish to set up a CIC can obtain answers to questions about legal rights and wrongs.
Lord Phillips of Sudbury: I thank the Minister for his reply. Before the next stage of the Bill, I should like him to consider an amendment that would at least require what he called "core guidance", or what might be called "general guidance", to be provided without charge. I shall leave it at that and communicate with the Minister later.
Lord Glentoran: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Fyfe of Fairfield moved Amendment No. 105A:
- Page 27, line 4, at end insert—
The noble Lord said: In moving Amendment No. 105A, I shall speak also to Amendment No. 106A because they are of a piece. At this point, I declare an interest in that I am chairman of the Unity Trust Bank, which is jointly owned by the Co-operative Bank and the trade union movement and does extensive business with the voluntary and mutual sectors. I also take the opportunity to apologise for the absence of my noble friend Lady Thornton, who has a long-standing Co-operative engagement in Manchester today which she could not avoid.
These amendments concern how best to provide an input from consumers and practitioners both into the establishment of the community interest companies regulator and into the way in which the regulator undertakes the necessary work.
The genesis of the Bill was, in many ways, the model of how a consultation process leading to legislation should work. I believe that the DTI is to be congratulated on its accessibility and openness to the social, co-operative and community enterprise sector in the drafting of the Bill. Indeed, the Bill has benefited from the consultation process, which involved practitioners and other experts. Therefore, the amendments seek to find an expression of that practitioner expertise in the Bill itself.
Amendment No. 105A seeks to ensure that the regulator of the CIC makes practical arrangements to consult practitioners and consumers. The amendment does not seek to be prescriptive about how that should be done. The details would be required to be laid out in the regulations that accompany the Bill, but it could give great credibility to the regulator among his customers, so to speak, and be a very valuable and useful resource in his work.
Amendment No. 106A seeks to ensure the establishment and maintenance of a panel that, in many ways, could be used by the regulator as his reality check. This is not a new idea. The FSA has a financial services practitioners panel whose remit is to provide input to the FSA from the industry, in order to help it to meet its statutory objectives and comply with the seven principles of good regulation and to represent the interests of practitioners. The panel received statutory status under the Financial Services and Markets Act 2000. The goal was to create a high-level body that would represent the views and interests of regulated firms and monitor the regulator's effectiveness. While the aim of creating the community interest company is to have a vehicle that is easy to sue and has light regulation, the principle of practitioner advice still holds good. I beg to move.
Lord Phillips of Sudbury: I simply add to what the noble Lord, Lord Fyfe of Fairfield, said regarding the possibility that if Amendment No. 106A—the appointment of the practitioners panel—does not appeal to the Government as a requirement, it might be a matter that could be placed within the discretion of the Secretary of State, in the light of experience, to set up. It could be that, two or three years downstream, it is felt by all concerned to be a helpful addition to the armoury of provisions in the Bill in rather the same way that, somewhat late in the day, the charity world decided that an appeals body should be set up vis-a-vis the work of the Charity Commission.
Lord Sainsbury of Turville: Clause 24 provides that when deciding what approach to adopt to his functions, the regulator must have regard to the outcome of consultations with CICs and with others with relevant experience. This is one of a number of statutory obligations that Clause 24 imposes on the regulator. We think it is an important one.
In order to develop his role effectively and to help to make the CIC form a success, the regulator will clearly need to be able to draw on the understanding and expertise of those who are familiar with social enterprise. It is also worth observing that there is a specific requirement in Clause 27 for the regulator to consult before setting limits on distributions.
In practice, the regulator will need to take some steps to enable this consultation to take place effectively. We have no doubt that that will involve the use of some sort of group or panel of experts from the sector—perhaps more than one, given the range of issues that the regulator will need to consider. The need for advice and assistance from the sector will perhaps be greatest in the initial stages, as the regulator will certainly want to obtain expert input into aspects of his role, such as the production of guidance material. Over time, it may be appropriate for the consultation process to become more of a means of providing feedback on issues arising in the course of the regulator's work.
The Bill does not provide for a formal structure for these consultation processes, because it does not need to. The regulator will be able to assemble whatever structures he regards as necessary to help in his work. If it seems appropriate to do so, it would certainly be possible for one or more groups or panels to be given formal recognition, perhaps as advisory non-departmental public bodies. But in the Bill itself we have been concerned to maintain proportionality and flexibility. That is why we have gone down the route of requiring the regulator to have regard to the outcome of consultations with CICs and experts in the sector, without specifying how he should do so.
The first amendment runs the risk of formalising the consultation process too much. We fully intend that the regulator should consult, but in keeping with the small size of the regulator's operations, the arrangements should be kept as flexible and informal as possible. The second amendment, by requiring one particular panel to be established, reduces that flexibility even further, and perhaps raises more questions than it answers. For instance, what is a "practitioner" in this context? Any attempt to specify possible ways of organising the regulator's consultation processes in primary legislation is likely to suffer from similar problems.
My noble friend also raised the FSA precedent—if it is good enough for the FSA, why not for the CIC regulator? The consultation arrangements applying to the FSA reflect the very complex sectors within which it operates and its wide range of technical responsibilities. The FSA is also, of course, a very large organisation compared with our proposed regulator, so is able to support highly formalised consultation.
We would like to keep the provision as flexible and proportional as possible. On that basis, I ask my noble friend to withdraw the amendment.
Lord Fyfe of Fairfield: That is a very helpful reply from my noble friend. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 106 not moved.]
[Amendment No. 106A not moved.]
Schedule 3 [Regulator of Community Interest Companies]:
[Amendments Nos. 107 and 108 not moved.]
Lord Glentoran moved Amendment No. 109:
The noble Lord said: Amendment No. 109 focuses on the role of the appeal officer, as set out in Clause 25. The appeal officer occupies a vital role. It is his responsibility to determine appeals against decisions and orders of the regulator. Since we know that the regulator is to have a significant power to intervene in CICs at his discretion, it is surely of fundamental importance to have an appeal officer to hear any challenges against decisions taken by the regulator.
However, Clause 25 is currently limited in relation to circumstances when an appeal can be made against the regulator's decision. Subsection (4) reads:
From the list of 18 powers of the regulator that I referred to when speaking to the previous amendment, the Committee will remember that I made it clear that the exercise of powers 4 to 18 was limited by the requirement that the regulator should make use of them,
Our amendment would insert the words,
It seems that the noble Lord, Lord Phillips, is of the same mind on this matter, although his amendment is drafted slightly differently. Nevertheless, it is certainly worth looking at this clause in more detail.
We have had important representations from the Law Society on this point. It has gone further than us in its criticism. It comments:
I look forward to hearing the response of the Minister on these points, which seem to me to be entirely pertinent, especially when we are dealing with a wholly new company model. I beg to move.
"( ) The regulator must make or maintain effective arrangements for consulting practitioners and consumers on the extent to which its practices are consistent with its general duties under this section."
5.30 p.m.
Page 27, line 25, at end insert "or there has been a change in the facts"
"An appeal to the Appeal Officer against a decision or order of the Regulator may be brought only on the ground that the Regulator made a material error as to the facts".
This means that decisions by the regulator cannot be challenged except where he was in error as to the facts—in other words, where he made a mistake. However, in many of the circumstances where it is envisaged that the regulator might step in, we are not talking about hard facts, I suggest. Rather, the regulator has to weigh up the situation and decide whether things have got sufficiently serious to merit his involvement.
"only to the extent necessary to maintain confidence in CICs".
This suggests a company whose affairs are fluctuating.
"or there has been a change in the facts"
at the end of subsection (4). It reflects a scenario in which the CIC in question sorts itself out and therefore believes that its affairs are not in sufficient jeopardy to warrant the continued involvement of the regulator. In such a case, the facts will have changed and the intervention of the regulator would no longer be necessary.
"Clause 25(4) restricts the grounds on which an appeal to the Appeal Officer against a decision or order of the Regulator to a material error on the part of the Regulator as to the facts: we query whether such a restriction is justified given the likely circumstances of any appeal by (for example) a subscriber under clause 33(10) or the CIC under clause 35(10), when matters of law (such as the interpretation of the Bill or regulations made under it) may be highly relevant".
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