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On the type of inspection applied to charities, the Charity Commission is the statutory consultee on standards, so it will be well represented. In answer to the question of the noble Baroness, inquiries will always be about mismanagement. It will be proper for the Charity Commission to be notified if there are mismanagement concerns about a particular charity. Inspections are likely to be more routine, but we would expect that if the inspection raised a particular concern in relation to a charity, the regulator would let the Charity Commission know of that concern. As a statutory consultee, we think that there will be quite a lot of traffic between them.

I hope that I have addressed most of the questions raised by noble Lords. Otherwise, I shall have to write to fill in any blanks.

On Question, amendment agreed to.

4.15 pm

[Amendment No. 110CA not moved.]

Clause 194, as amended, agreed to.

Clause 195 [Direction by Secretary of State]:

Baroness Andrews moved Amendment No. 110D:

“(ba) the Audit Commission for Local Authorities and the National Health Service in England,”

On Question, amendment agreed to.

On Question, Whether Clause 195 shall stand part of the Bill?

Viscount Eccles: Before giving my reasons why Clause 195 should not stand part, I need to go back to our debate on Clause 49, which is the clause empowering the Secretary of State to give general directions to the HCA. I summed up my position on Amendment No. 96 by saying:

In contrast, I said:

It would be good to hear today that the noble Baroness shares that view and agrees with that conclusion. However, in her response to Amendment No. 96, in what I now read as a hot and cold reply, she said:

She also said that my amendment,

and that the power was needed,

There is much else besides which is in conflict with the professed policy that the HCA is to be strong and independent. It is even worse for the regulator in Part 2. All his rules can be changed in the middle of the game if Parliament accepts Clause 195.

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To reiterate, the power of direction with which public bodies must comply has been used for two purposes. The first is administrative, typically in accounts directions, while the second enables action to be taken to deal with issues that either could not have been foreseen during the passage of a Bill—the Dome, for example—or later, under an Act, when a non-departmental public body or a Secretary of State faces a crisis needing urgent action—the Dome again. Therefore the second use is as a backstop or reserve power. This has been frequently agreed by Ministers in recent times as the position of directions.

It is for these reasons that directions are subject to no parliamentary procedure; they come to Parliament for no form of scrutiny. Administration is de minimis—crises demand urgent action. Indeed, Parliament has no established right even to see directions, which is just about all right if they remain administrative or urgent matters of last resort. Of the four directions cited by the noble Baroness at col. 183 on 10 June in Grand Committee, three were related to the Dome and one to Stratford City. These were specific, complex issues outside the normal experience and, I expect, the powers of English Partnerships. They accurately illustrate my point because they were indeed used as backstop or reserve powers.

The second important matter we need to remember about directions is that increasingly they are being included to cover situations that fall between the purely administrative and matters of last resort. We can see this as a steady infiltration into the middle ground of a non-departmental public body’s objects and the way in which it achieves them. Clause 195 is a classic example of direction creep. Thirdly, we need to remember that directions can be a form of secondary legislation to be used, as the noble Baroness, Lady Hamwee, told us, instead of orders and capable of being utilised without parliamentary scrutiny. Why is this happening? It is because it is convenient. A clause such as Clause 195 needs little thought. Its breadth means that, combined with no scrutiny either before the event, as with the scrutiny of orders by the Delegated Powers and Regulatory Reform Committee or when the Act is in operation, the discretion of the Secretary of State is unrestrained. However, such untrammelled flexibility comes at a price, and a steep one at that. All pretence of independence is exposed and nobody who deals with the regulation either can or ever should believe that he or she is his or her own man. It is the Secretary of State who calls the tune however and whenever he or she wants.

Let us look at the detail of the clause. The paragraphs set out in subsections (1) and (2) cover just about everything in Clauses 191 and 192; indeed, is anything left out? Subsections (4) and (5) ensure that we have to go back to a zero base. Everything needs to be considered afresh. Indeed, the amendment put forward by the Minister increases the duty to consult. Since the process of consultation is open to manipulation, there is nothing to stop the Secretary of State from coming out exactly where and how he or she went in.

Finally, in Clause 195(8) we have a fig leaf: publication. Publication to whom, and how? On the department’s website, I suppose. How detailed will the responses under Clause 195(8)(b) be? Not very, if experience is

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any guide. Then there is the direction itself. Just what can we do with that when we read it on the website? It is a fait accompli. Maybe—no, indeed, not “maybe”; since the Secretary of State started the game again from a zero base and needs must justify the intervention, the rules of the regulator’s game will have been significantly changed. If that were not to be so, the clause would have real sense or meaning.

I return to where I began. The more there is the perceived opportunity for the rules of the game to be changed in the middle of play, the less successful the regulator will be. Whenever directions have been put forward in this way—it has happened with the lottery funds, for example—the point has been taken and the powers brought back more into line with the usual and acceptable uses: administrative and last resort. That should happen again. Clause 195 should be dropped from the Bill.

Lord Dixon-Smith: My name is also down in support of my noble friend. I need not take as long because he has explained the detail of it far more clearly than I would have attempted to do. I feel a profound sense of disappointment because the Government are displaying all their greater weaknesses. We have 18 pages—from page 29 to page 38—the first nine establishing what I would call the legislative background to the establishment of the regulator and the following nine establishing a freestanding independent regulator who will be empowered to do his job. Then we go on through the Bill with a lot of detail about how things will work, and so on. Finally, 35 pages later, we have this measure, which throws a blockbuster into the whole thing. I accept that it may never be used, but it says, “We don’t actually have any faith in everything we have written up until now. We don’t have any faith that it will work or that the people who have the regulator’s job might do it correctly, and therefore we have to have an absolute reserve power to amend it as and when we think fit”. That is very peculiar, and I cannot say I like it.

It is interesting that the Delegated Powers and Regulatory Reform Committee drew attention to this matter in its eighth report. It says,

If that committee says that, we need to pay serious attention to it. It goes on:

If I do nothing else, I give the Minister the opportunity to explain that—thereby, hopefully, satisfying one curiosity of the committee.

4.30 pm

Baroness Falkner of Margravine: We have had much discussion of the Cave review—rightly so—and, as the Minister pointed out, much of the Bill derives from its recommendations. Therefore, this clause comes as a surprise. I think that it drives a coach and horses through Cave’s intentions. Perhaps I may remind

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noble Lords what Cave said about concerns over policy passporting. He said that the,

is not of itself necessarily detrimental in respect of certain regulated items so long as it is done—these are the key words—in a “structured” and “transparent” way. My problem with this clause is that, having tried to build up the structure and to build in the transparency, it now takes all that away through these directions. Cave goes on to say at paragraph 2.60:

In Clause 195, the powers are so broad that they go against these intentions. I argue that subsection (1) allows the Secretary of State to give direction in relation to any standard whatever. In subsection (2), the Secretary of State needs only to form an opinion that his direction relates to core standards—and we have already observed that core standards are extensive and broad. I recognise that the Secretary of State has a duty to consult several interested parties, and subsection (4) goes so far as to detail a list of those parties, but I hope that the Committee will note that it omits a duty to consult representatives of secured creditors. So far as I am aware, I have no interest here, but I thought that that was rather curious, given the interest that secured creditors may well have in the directions. Finally, subsection (6) allows for the Secretary of State to disapply the requirement to consult in relation to specified matters. In other words, basically the subsection says that there is no need to go beyond the direction that in the Secretary of State’s opinion was the right one.

The noble Viscount, Lord Eccles, reminded us that directions can take the form of secondary legislation. I rather liked his use of the words “untrammelled flexibility”. That well describes this clause, and I have great sympathy with the view that Clause 195 should stand part of the Bill.

Lord Best: We need to give credit where it is due. When this debate opened, the position in relation to the independence of registered social landlords was in greater jeopardy than it was with the clause that we have before us now. When this debate started, the intention was that the Secretary of State would have the power to direct the regulator in all respects in relation to every standard that the regulator might, or might not, dream up. That extensive power has now been much curtailed thanks to hard work by the National Housing Federation and particularly by colleagues in Committee in the other place. I pay tribute to Nick Raynsford and Sir George Young—probably the two most distinguished post-war housing Ministers, with the exception of those occupying such posts today. They carefully worked their way through the clause and we have ended up with one in which it is simply the quality of accommodation, the rent and

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the involvement of tenants in the management of their organisation’s affairs on which the Secretary of State could direct the regulator.

In early discussions on this matter, I remember the example used to illustrate the extent to which the Secretary of State—through, no doubt, the wishes of the then Minister of Housing—might reach out with the respect agenda in requiring housing associations to behave in particular ways toward tenants behaving anti-socially, when ASBOs might be issued. That was the concern of the Minister at the start of our discussions. A little later, we had a change of Minister. The successor Minister is, I know, very keen that registered social landlords use some of their powers to help tackle worklessness, but neither of those matters is directly concerned with the provision of housing. The ways in which registered social landlords might go about those tasks, even though they are very important, will vary, and the Government will not always get right the way that they might prescribe activity under those headings. I was extremely pleased that the Government backed down and recognised that, in most respects, the regulator should be left to decide these standards on their own.

Some have gone further and said that the regulator should be confined to the same three core areas of activity as registered social landlords. However, I know from my experience that a Housing Minister is much more likely than a regulator to come up with an exciting, new, innovative policy that is not entirely related to the ways in which housing associations and other social landlords might wish to behave. Regulators are in my experience rather more constrained and are concerned directly with the regulation of the function of the organisation. I feel much less threatened now by the independence of this sector than when the Bill started out.

I went to the annual general meeting reception of the National Council of Voluntary Organisations yesterday. The Minister for the Third Sector, Phil Hope, gave an excellent speech, telling us that the independence of the voluntary sector was its most precious asset. The ability for organisations to run their own affairs, for their own boards to take charge and be independent and autonomous, is the essence of this sector, of which the housing associations, registered social landlords and social housing providers are part.

It is well worth our considering these amendments and seeing how best we can improve and enhance the independence of the organisations to which the regulator’s work refers, but we also need to pay tribute to government for retreating from the opportunity to make much more draconian interventions.

Baroness Andrews: I am grateful to the noble Viscount, Lord Eccles, for enabling us to have a short and important debate. This is an important part of the Bill. I appreciate that he has consistently raised these issues as we have gone through this process, for which I give him credit. As I said earlier, I put a high value on the independence of the regulator from government, just as the Cave review recommended.

Perhaps I may give the Committee a little background. I am grateful to the noble Lord, Lord Best, for what he said. He put his finger on an important aspect of this

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debate and gave credit where it was due to those in the other place who took seriously the concerns raised by the housing associations and addressed what we required, and did not require, the Secretary of State to do.

The Government’s considered response to that is the reason for the clauses being the way that they are now. In the original drafting the power was too open-ended—essentially, it permitted the Secretary of State to set standards on any issue—but that was never our intention. There were limitations on the power in any case: the Secretary of State could not give directions requiring the regulator to act contrary to its fundamental objectives, including objective 10, or regulate anything unconnected to social housing. However, it became evident that those conditions were neither clear nor sufficient enough to allay the concern and we agreed to amend the Bill at Report stage so that it better reflected our intentions.

As I have said, that was always our intention. Why would it be otherwise? What is the point of setting up a regulatory system if it is not independent from government? That is the whole point. We have done that and this regulator is far from being just an agent for government directions. This clause covers none of the provisions in Clause 192 and a very limited range of issues in Clause 191. Other than directions on standards and a role in selecting the board, the Government will have virtually no control over the regulator. I invite the Committee to consider how that compares with the Housing Corporation, the costs of which are paid and the targets set by the Government, who also have the power to direct it on any issue. My noble friend Lady Dean paid tribute to that. It is a draconian power which is very different from what we are offering in the Bill.

We have sought throughout to strike the right balance between the regulator’s independence and the need for the Government to have a say in certain key issues on which standards are set and which are fundamental to how tenants and social housing can be managed in terms of rents, physical housing standards and tenant engagement.

On the point made by the noble Baroness, Lady Falkner, I refer the Committee to paragraphs 5.12, 5.13 and 5.14 of the Cave review, which states that,

It continues:

The Government have a clear interest in setting a strategic rents policy. We have to ensure that rents are not set too high and that they are fair, both for the benefit of tenants and, frankly, because otherwise we end up paying huge amounts in housing benefit.

We also have to acknowledge—Cave certainly did—that some improvements of physical standards have required huge amounts of public money, in particular under the Decent Homes policy, and the regulator should not be able to require them without government approval. I am referring to the £20 billion which has gone into that element of our economy.

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Baroness Falkner of Margravine: I accept that the standards defined in subsection (2)(a), (b) and (c) are quite rightly core standards. When I referred to the powers being rather broad, I was interpreting the words “in the Secretary of State’s opinion” in subsection (2). I do not understand why the word “opinion” is there. If the clause is to address those standards, it should say so; it should not leave it open to a particular Secretary of State’s opinion.

Baroness Andrews: It is hard to divorce that from the necessity of having the Secretary of State involved in that part of the process, for the reasons that I have explained.

4.45 pm

In any case, our amendment ensured that the Secretary of State may direct the regulator only if, in the Secretary of State's opinion, either the standard, or its content, related to one of three things: the quality of accommodation; involvement by tenants; and management by registered providers of accommodation. We added that because that is what the Bill is about: tenant involvement. We thought it sufficiently important to give it that prominence. On other issues, the Secretary of State can set objectives which the regulator must have regard to, but they are not binding and the regulator will consider them along with issues raised by other stakeholders.

We also made two other amendments. We amended subsection (3) so that the Secretary of State must have regard to the regulator’s fundamental objectives when deciding whether to give a direction, so we have tied the hands of the Secretary of State in that way. Although the effect of a direction may be that the regulator has to strike a more difficult balance between its objectives than it would otherwise have chosen to do, we think it only right that the regulator’s fundamental objectives should affect the Secretary of State as well as the regulator.

We also introduced at subsection (5) a provision similar to that in Clause 194, requiring the Secretary of State to consult the Charity Commission on any directions that may affect charities to ensure that there is no breach of charitable status. The Secretary of State's powers to give directions in relation to standards was also intended to introduce a greater degree of transparency into the process, to pick up the point made by the noble Viscount, Lord Eccles. Cave recognised concerns about policy passporting: that obligations or pressures were being placed on registered providers to implement government policies without that being openly discussed or the sources of the obligations being clear. That is why subsection (4) requires the Secretary of State to consult the regulator, the HCA and representatives of registered providers and tenants of social housing before giving the regulator a direction. We will add the Audit Commission to that list.

Through other amendments to subsection (8), we have further reinforced the transparency of the direction process by requiring the Secretary of State to publish not only the directions made but each proposed direction that is the subject of consultation and each response. It is an issue for the website, but it is very accessible and most people these days are very familiar with accessing websites.

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In response to the issue raised by the noble Lord, Lord Dixon-Smith, I hope that this will serve as a response to the DPRC report, but we replied to that report—it looks as if he has already seen that reply.

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