APPENDIX 11: REGULATORY ENFORCEMENT AND
SANCTIONS BILL [HL] — GOVERNMENT RESPONSE
Letter to the Chairman from Lord Jones of Birmingham,
Minister of State, Department for Business, Enterprise and Regulatory
Reform
1. I am writing in response to the Committee's
report on the Regulatory Enforcement and Sanctions Bill, which
was published on 6 December 2007.
2. The Government has accepted a number of the
Committee's recommendations and I have today tabled some amendments
to the Bill to address these. A copy of the amendments is enclosed.
3. There are, however, a few issues on which
I would like to respond to the Committee.
Local Better Regulation Office - Part 1
Report Paragraph 38: Relevant functions - Clause
4
4. The Committee asked about the rationale for
the treatment of regulations made under section 2(2) of the European
Communities Act 1972 (ECA 1972), by the use of a list of category
headings at clause 4(3) of the Bill.
5. I believe that listing all the regulations
whether in the Bill or by statutory instrument would be impractical:
regulations under ECA 1972 are made very frequently and any list
would very quickly be out of date. The approach taken in the Bill
makes it clear which regulations are in scope: in the majority
of cases, it will be clear whether particular section 2(2) regulations
fall within the category headings, as the regulations themselves
generally include a subject heading, such as "Animal Health"
or "Consumer Protection" which leaves no room for doubt.
6. There may be some cases of doubt, and the
Committee questioned the rationale of the provision in clause
4(7) which allowed the Secretary of State to decide whether or
not regulations fell within one of the matter headings. As you
will see, we propose amending the Bill to make such a decision
subject to Parliamentary oversight through the negative resolution
procedure.
Report Paragraph 42: Local Better Regulation Office's
(LBRO) power of direction: Guidance to local authorities - Clause
7
7. The Government has accepted the Committee's
recommendations in relation to the operation of this clause (and
the related amendment to Clause 15).
8. The Committee asked for a list of the guidance
that might be involved in LBRO's power of direction at clause
7(1)(b): the Bill restricts this power to guidance that is issued
to local authorities "under an enactment which relates to
the exercise of a relevant function". In effect this will
mean guidance issued by other bodies with statutory powers to
issue guidance relating to the exercise by local authorities of
the functions that fall within LBRO's scope.
Report Paragraph 44: Power to dissolve LBRO -
Clause 17
9. The Committee asked for an explanation of
the power in clause 17(2)(b) to transfer any of the functions
and powers of LBRO to another body when it is dissolved.
10. Once LBRO's objectives of securing better
regulation by local authorities has been achieved, clause 17 allows
for the body to be dissolved. However, LBRO has some specific
operational functions (essentially those under Part 2 relating
to the administration of the Primary Authority scheme) which will
need to be carried out indefinitely, regardless of the overall
standard of local authority regulation. The power to transfer
functions has been included with this particular function in mind
and we do not, therefore, propose to amend this provision.
Co-ordination of regulatory enforcement - Part
2
Report Paragraph 46: Specification of legislation
in reserved areas in Scotland and Northern Ireland - Clause 22
11. The Committee noted that clauses 22(1)(b)
and (c) of the Bill allow for an order which will specify the
extent to which Part 2 of the Bill will apply in Scotland and
Northern Ireland, and recommended that this should be restricted
to listing a subset of the legislation listed in Schedule 3.
12. I can assure the Committee that there is
no intention to go beyond the English and Welsh scope through
these orders, and you will have seen the amendment that I have
tabled. The amendment allows for the inclusion in an order of
legislation in Scotland and Northern Ireland which has equivalent
effect to that in Schedule 3. This is to allow the orders to specify
functions which are within the scope of the legislation included
in Schedule 3, but are given effect by Northern Ireland or Scotland
specific legislation.
Civil sanctions - Part 3
Report Paragraph 58: Discretionary Requirements
- Clause 40
13. The Committee accepted that there should
be no upper limit for variable monetary penalties (VMPs) for either
way offences but recommended that the Bill should specify a maximum
limit for offences that would otherwise be tried summarily, unless
the Government could make the case for the absence of such a limit.
14. VMPs are designed to be flexible enough to
allow a regulator to capture any financial benefit a business
may have accrued through its regulatory non-compliance, a key
recommendation of both the Hampton and Macrory reviews. While
I would expect VMPs to be used mainly for more serious acts of
non-compliance, there may be circumstances where they are imposed
for what are summary only offences. This could include, for example,
offences under section 9(4) of the Wildlife and Countryside Act
1981, where a developer may have destroyed protected species
in clearing land for development. The statutory maximum for the
offence is £5,000 but the financial benefit of the developer's
non-compliance could be much higher. Enabling penalties to be
set at a level to capture such benefit will ensure that there
is sufficient deterrent and will help to level the playing field
for businesses.
15. The regulator will, however, be required
by clause 61 to publish guidance setting out the matters it is
likely to take into account when setting the level of VMP, so
there will be transparency in the process.
16. A business will of course be able to raise
objections and make representations against the imposition of
a variable monetary penalty after the notice of intent is issued
and will be able to appeal against the level of the penalty if
it feels this is unreasonable. If the tribunal agrees with the
appellant it will have the power to withdraw or vary the penalty
imposed.
Report Paragraph 60: Stop Notices - Clause 44
17. The Committee suggested that the Bill must
specify the essential elements of the compensation arrangements
for stop notices. I understand the Committee's concerns about
the severity of stop notices as a sanction and it is for this
reason that we have set the threshold for their usage so high
(i.e. a significant risk of serious harm).
18. Clause 46 leaves the detailed provision about
the compensation scheme to secondary legislation for reasons of
flexibility, as the legislation is intended to cover a wide range
of regulators and regulatory offences. In particular, the compensation
provisions need to take account of any existing compensation schemes
that regulators currently operate, as well as any common law rights
to compensation. Examples of existing statutory compensation schemes
include section 14 of the Consumer Protection Law Act 1987 and
section 12 of the Food Safety Act 1990. Any compensation scheme
would also need to take account of provisions such as section
71 of the Financial Services and Markets Act 2000 should, for
example, the Financial Services Authority wish to make use of
stop notices as a sanction.
Report Paragraph 62: Appeals - Clause 52
19. I agree with the Committee that the rights
of appeal are of fundamental importance to the fairness of the
new sanctioning regimes and that is why we have strengthened considerably
the relevant provisions in the Bill since it was published in
draft last summer. We have, in particular, added the minimum grounds
for appeal for each of the sanctions and specified that appeals
must be heard by a statutory tribunal.
20. The Bill, however, is not prescriptive in
terms of the powers of the tribunal that will hear appeals against
the new sanctions. Again, this is for reasons of flexibility,
in order to allow individual schemes to take account of the existing
powers of the particular tribunal that will hear appeals. Furthermore,
as appeals will be heard by existing tribunals, the powers and
procedures will already have been established in other legislation.
We envisage that most appeals will be heard by the new First-tier
Tribunal. Many of the powers and procedures of this tribunal will
be set out in either the primary legislation that established
it (the Tribunals, Courts and Enforcement Act 2007) or tribunal
procedural rules. If appeals are directed to another tribunal,
such as the employment tribunals, then this too will have its
own existing powers and procedures.
Report Paragraph 63: Supplementary Provision:
Clause 53
21. The Committee drew this provision to the
attention of the House in order to seek justification of the provision
from the Minister. I am sorry that our Memorandum was not clearer
on the need for this power.
22. Clause 53 enables an order made under Part
3 of the Bill to make consequential and other supplementary provisions.
It allows existing investigation powers of the regulator in relation
to the relevant offence to be extended so that they may be used
where a regulator seeks to impose a civil sanction conferred under
the Bill for that offence.
23. The Committee has raised particular concerns
about subsection 3(b) of the clause. The purpose of this subsection
is to amend specific restrictions on the use of evidence so that
they may be used, in appropriate cases, in proceedings imposing
the civil sanction. A hypothetical example of how this power might
be used is in relation to the restriction in section 197 of the
Enterprise Act 2002. This section limits the use of compulsorily
obtained statements which have been obtained during an investigation
of the cartel offence at section 188. It restricts the use of
those statements to prosecution for giving false or misleading
information or prosecution for some other offence where in giving
evidence that person makes a statement inconsistent with it. It
would be inequitable if a regulator could not rely upon those
statements if during proceedings for the civil sanction, the person
makes statements which are inconsistent. In other words, where
in a criminal prosecution, the regulator benefits from an exception
from evidential restrictions, we propose that it should also be
extended where the regulator proposes to impose a civil sanction
for that criminal offence. Furthermore, it may also encourage
regulators to pursue criminal prosecution in all cases where there
has been a previous criminal investigation so as to ensure that
there is full availability of evidence. This would be a departure
from the risk-based approach to regulation that we seek to encourage.
24. I wish to assure the Committee that the power
is not intended to remove restrictions or protections from persons
arbitrarily. Furthermore, it is not intended to be used to remove
the privilege against self-incrimination wholesale. The power
can only be used for the purpose of facilitating the use of the
civil sanctions under part 3. It would be up to implementing departments
to assess whether such restrictions hindered the use of the civil
sanctions and whether amendment or removal of these restrictions
would be compatible with ECHR rights in accordance with their
duty under section 6 of the Human Rights Act 1998.
January 2008
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