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The noble Lord said: My Lords, this takes us back over some territory we discussed in Grand Committee. This pair of amendments has the simple objective of changing the terms of office for board members from two five-year terms to three three-year terms. My arguments in Grand Committee can be summarised as follows. First, the LBRO will deal with private sector companies, and modern corporate governance allows for three three-year terms, not two five-year terms. Since it interfaces with the LBRO, the LBRO should be on the same basis. Secondly, five-year terms are inherently undesirable. A chairman or board member can do a great deal of damage in five years. Thirdly, my noble friend Lord Cope made the helpful suggestion that three-year terms made the board succession questionwhich he described as the balance between continuity and turnovereasier.
The argument against, which the noble Lord, Lord Borrie, was prominent in advancing, was that this is a public sector and part-time body, and it takes five years to get to know the ropes. It is a public sector body, but a very specialised one. It is established as a body corporate. It is registered with the Registrar of Companies for England and Wales. Paragraph 1 of Schedule 1 suggests that it is not to be regarded as a servant or agent of the Crown. However, it is wrong to say that it takes five years to get to know the ropes. All non-executive directors are part-time. In large private sector companies, three years is considered the right length of time and as striking the right balance
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The Minister suggested that he wished to use the precedent of the Serious Organised Crime Agency. I really do not think that SOCA, as a law enforcement agency, is comparable to this issue. He finally pointed out that five years was, in any case, the maximum period and that it was possible to remove a chairman or board member in less than five years. But we all know that the reality is that, once people are appointed, it involves very great agony and effort to turf someone out before the end of their maximum turn. The LBRO interfaces with private sector companies, which are set up on a three-by-three, not a five-by-two, basis. The LBRO should be the same. That would be better for it and will make it more effective and responsive to changes in the marketplace. I hope that the Minister will think again. I beg to move.
Lord Borrie: My Lords, I hope that I have never said, either in Committee or elsewhere, that it is necessary to be on a body for five years to get to know the ropes. I expressed my view that five years should be the maximum period, because it takes a year or twoespecially for a part-timerto be useful and to get to know the ropes. Then one needs a reasonable time to be useful, rather than thinking, In a few months time, I have to leave. That was all I was saying. I hope that I did not go as far as the extreme statement attributed to me by the noble Lord.
Lord Bach: My Lords, paragraph 6 of Schedule 1 makes provision for the tenure of board membership, and paragraph 6(2) limits board members to terms of no more than five years; paragraph 6(5) limits board members to a total period of appointment of no more than 10 years. The noble Lord, Lord Hodgson, returns to a theme discussed in Committee, and I am sorry that, on this occasion, I will not be able to agree with him.
As my noble friend has just said, these are maximum periods for a term and for the total period of appointment respectively. It should be noted that within the Bill it is quite possible to appoint a board member for a term of only three years. The noble Lord, Lord Hodgson, has already mentioned what my noble friend Lord Borrie said in Committeethat, unlike board members in the world of business and commerce, the LBROs board will be taking on part-time posts and it will take them some time to learn the ropes. We take the same view.
While of course there are arguments for and against limiting the terms of the LBROs board members to three years, on balance we believe that it is preferable to include flexibility in the Bill and to allow for the possibility of a five-year term for a board member. That addresses the point made by my noble friend on the previous occasion, and now on Report. That is the Governments view and I hope that the noble Lordalthough I am sure he is not persuadedwill not press his amendments.
Lord Hodgson of Astley Abbotts: My Lords, I am grateful, as ever, to the Minister for his courteous response to my amendments. I am not persuaded that his case is right for achieving the best governance in this organisation. All non-executive directors are part-time, and if you are to be a non-executive director of a major international company, you have to get to know and become familiar with the company in three years, and you can be reappointed. I understand the Ministers viewpoint; it is not an open-and-shut case. I accept that there are arguments on the other side that he and the noble Lord, Lord Borrie, have advanced. In the circumstances, I beg leave to withdraw the amendment.
(7) The Secretary of State may by order determine whether, for the purposes of subsection (3), an enactment made under section 2(2) of the European Communities Act 1972 (c.68) is made with respect to any of the matters specified in that subsection.
The noble Lord said: My Lords, I also speak to government Amendments Nos. 12 and 37. Amendments Nos. 8 and 37 are linked. Amendment No. 8 will require that any direction issued by the Secretary of State under Clause 4(7) is made by way of an order subject to the negative resolution procedure. Amendment No. 37 is consequential to this. These amendments respond to the comments of the Delegated Powers and Regulatory Reform Committee regarding Clauses 4(3) and 4(7) and our treatment of the relevant statutory instruments made under Section 2(2) of the European Communities Act 1972. The committee has stated that it is content with the approach we have taken in Amendment No. 37. There was a good debate in Committee and I would like to explain our approach.
The scope of Parts 1 and 2 is determined by reference to the regulatory functions of local authorities arising, first, under any of the Acts listed in Schedule 3 and statutory instruments made under those Acts; and secondly, under secondary legislation made under Section 2(2) of the European Communities Act. The use of category headings to capture the secondary legislation made under Section 2(2) of the ECA is intended to facilitate the interpretation of the scope of Parts 1 and 2 of the Bill. In most cases, it will be clear whether a set of regulations falls within one of the category headings. Such regulations themselves generally include a heading such as Animal Health or Consumer
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On Amendment No. 12, it was noted in Committee by the noble Baroness, Lady Hamwee, that while the LBRO is required to consult persons who are subject to regulationusually businesses or their representativesbefore issuing guidance, it is not explicitly required to consult local authorities. It has always been our intention that the LBRO should do so under the broader requirement to consult such persons as it considers appropriate, set out at Clause 6(4)(b). We were therefore very happy to consider the noble Baronesss amendment, which would have added a specific requirement to consult local authorities. Amendment No. 12 has this effect. It requires the LBRO to consult such local authoritiesor their representativesas it considers appropriate. This reflects the fact that guidance may only affect a subset of local authorities. For instance, guidance on trading standards would only be relevant for unitary and county councils. The LBRO needs the flexibility to conduct a more tailored consultation than an unqualified requirement to consult all local authorities would require. I beg to move.
Baroness Hamwee: My Lords, I welcome these amendments. The letter on Amendment No. 8, sent to noble Lords following Committee by the noble Lord, Lord Bach, was particularly helpful. It certainly prepared me for this amendment and persuaded me. I also welcome Amendment No. 12 and am grateful to the Government for taking up the point.
The noble Lord said: My Lords, we now come to the general functions of the LBRO and are ploughing some familiar ground, but it is ground where the nature of the argument has moved on since we debated this in Grand Committee. The purpose of the amendment is to add and efficiently to the word effectively as the objective relating to the general functions of the LBRO with regard to local authorities in England and Wales in Clause 5.
This Code supports the Governments better regulation agenda and is based on the recommendations in the Hampton Report. Its purpose is to promote efficient and effective approaches to regulatory inspection and enforcement.
The Minister may say that the quotation I have given concerns only the Regulators Compliance Code and not the Bill. I do not entirely accept that because regulation should be all of a piece. Indeed, the purpose behind the Bill is to achieve an even, level playing field with regard to better regulation, and that is the reason behind the creation of the LBRO. Even if I were inclined to accept it, the guide to the Bill, at the top of page 11, refers to the general duties created by the Bill and lays down three duties. It goes on to say:
These duties closely relate to the Regulators Compliance Code and the Legislative and Regulatory Reform ... Order ... which are currently before Parliament ... The duties created under the RES Bill
The Minister was kind enough to offer us a meeting to discuss this matter in more detail, and I am extremely grateful to him and the noble Baroness. We spent an hour going through some of the trickier issues that we are discussing here this afternoon, and we had a chance to discuss more closely his loss of sympathythe fact that his intention to give me a fair hearing had somehow disappearedwhich appeared to be due to a potential clash with the duties of the Audit Commission. Adding the word efficiently in Clause 5(1)(a) would cause difficulties with the Audit Commission, given the wording in that subsection, which reads:
It was the duty of the Audit Commission to judge efficiency and therefore, according to the Minister and the Bill team, it was all right for the LBRO to require local authorities to be effectivethere would be no clash. However, requiring it to be efficient causes a clash.
I thought that that was slightly counterintuitive, so this morning, while preparing for this afternoon, I went to the Printed Paper Office and got out the Audit Commissions two most recent reports. The first is called Fire and Rescue Performance Assessment, and the summary at paragraph 8 on page 3 says:
So, clearly the Audit Commission is measuring effectiveness and efficiency. However, if we turn to page 3 of the second report, which is called Positively Charged: Maximising the Benefits of Local Public Service Charges, there is no mention at all of efficiency. The only reference in the summary reads:
Therefore, I have some difficulty seeing why the Government now argue that efficient will give rise to a clash when, in the two Audit Commission reports I picked out at random, effectiveness is clearly an important part of their role.
The reality is that the LBRO should ensure that local authorities are both effective and efficient. The Minister knows that because that was his reaction when he heard the arguments put to him in Committee. The prospect of a clash with the Audit Commission is, to be candid, a smokescreen. The Minister should trust his instincts and accept the amendment. I beg to move.
Lord Borrie: My Lords, I have a lot of sympathy with what has been said by the mover of the amendment, the noble Lord, Lord Hodgson. I recalled that in Committee my noble friend Lord Desai indicated that it was rather difficult to think of saying that a local authority had been effective in its job without also considering whether it had been efficient. The two seem to go together like twins and that led me to think that the proposal in the amendment of the noble Lord, Lord Hodgson, is redundant because effective covers the same area. However, to be on the safe side and make it clearer to local authorities, businesspeople, consumers and whoever is concerned with the provision in the Bill, it may well be a good idea to have efficient added to effective.
The noble Lord has done his homework in studying a selection of Audit Commission reports and has made some important points. I was not terribly convinced of the explanation given in Committee by my noble friend Lord Bach when in rejecting efficient he said that that was a matter for the Audit Commission. I fully accept that detailed assessment of local government management and its efficiency is indeed a matter for the Audit Commission, but I do not see a clash between that assessment that the Audit Commission pursues and the idea in the amendment that the LBRO should consider the effectiveness and efficiency of local authorities. Therefore, I still have sympathy with the amendment proposed by the noble Lord.
Lord Desai: My Lords, I spoke in Grand Committee and I continue to be astonished that, in a Bill designed
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Baroness Hamwee: My Lords, the point that the noble Lord, Lord Desai, has just made about reducing or adding to the burden provoked a smile from the Government Front Bench. It is a view that I share, but the Minister may be about to tell us why we are both wrong.
I tabled an amendment in Committee that referred to what I think the noble Lord, Lord Bach, called the mantra of efficiency, effectiveness and economywith which the Audit Commission is concerned. I tabled that amendment because I wanted to understand how the work of the LBRO interfaced with that of the Audit Commission. I was then persuaded to withdraw it. It seems to me that to add one extra limb in this clause would be inappropriate. I can see that the LBROs business is to support and to encourage effectiveness among local authorities, which is entirely within its remit. Efficiency on the part of local authorities is not its business. I would be unhappy if the provision were extended in this way.
Baroness Wilcox: My Lords, I support my noble friend Lord Hodgson of Astley Abbotts in his Amendment No. 9. It seems to me to be a sensible idea to ensure that the LBRO is tied to good practice through the Governments own regulators Compliance Code. It makes a qualitative requirement that the LBRO fulfils its duties with adequate success. In these debates on regulation, we need to ensure that the LBRO is a body fulfilling a purpose. When the regulatory system is so hideously complex, the last thing we need is another body that will further complicate the system, let alone an extra word. We need to find solutions and clarity and, unless we stipulate that, I believe we are in danger of missing an opportunity here.
Lord Bach: My Lords, I thank the noble Lord, Lord Hodgson, for raising this issue. In our view, the noble Baroness, Lady Hamwee, had it absolutely right. She speaks with a lot of experience of local governmentsome of us have some experience of local government but not to the extent that she has. The point she makes is right. Efficiency is very much about the internal workings of a local authority. I will not say that it has a specific meaning, but it has a pretty clear meaning in local authority terms. Efficiency is about the internal workings of local authority regulatory services. The LBRO is looking at the external manifestation of regulation: the effects or effectiveness of regulation.
The efficiency of local government is a matter that is looked at by the Audit Commission. We are not afraid of clashes with the Audit Commissionthe
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The word effective in the LBROs objective seeks to capture maintaining what can only be described as regulatory outcomes, which sounds rather clichéd; for example, consumer protection, which is key to the policy behind the LBRO. We do not think that the use of the word effective in the context of the Audit Commission has the same meaning. For that reason, we see no clash with regard to the term effective from the quotes given to us by the noble Lord when moving his amendment. It is not because it adds an extra word to the Billalthough in general terms my noble friend Lord Desai is right that we will add the words in writing later this afternoonbut because there is a confusing of roles. Efficiency is a matter for the Audit Commission and effectiveness is very much a matter for the LBRO. I am sorry that I cannot accept the amendment.
Lord Hodgson of Astley Abbotts: My Lords, I am very disappointed with the Minister's response, as he will understand. I am grateful to the noble Lord, Lord Borrie, for his qualified support for what we are trying to achieve. I understand what the Minister is driving at, but I do not think that that meets the point, which is that the Audit Commission reports comment on effectiveness as well as efficiency. So if you wish to avoid having the same ground climbed twice, you should strike out effective as well as efficient.
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