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House of Lords

Tuesday, 23 June 2009.

2.30 pm

Prayers—read by the Lord Bishop of Southwell and Nottingham.

Legal Aid

Question

2.36 pm

Asked By Viscount Montgomery of Alamein

To ask Her Majesty’s Government whether they plan to increase the income that junior counsel at the criminal Bar receive from legal aid.

The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bach): My Lords, the Government have no plans to increase the legal aid rates payable to junior counsel at the criminal Bar.

Viscount Montgomery of Alamein: My Lords, that was a rather disappointing but not unexpected Answer. Is the noble Lord aware that after four or five years’ intensive training, aspiring criminal law barristers earn about the same as unskilled workers until they get a tenancy, which may take several more years?

Lord Bach: My Lords, I am not aware of what the noble Viscount says and, if he will forgive me, I do not really accept it. The Bar got a very good deal from the 2006 review of legal aid procurement conducted by my noble friend Lord Carter. He increased the amount in the graduated fee scheme, particularly in the shorter cases, to benefit exactly the people about whom the noble Viscount is asking—the junior Bar. The Bar itself supported the aim of taking money out of the highest-paying cases and putting it into the lowest-paying cases. We put an additional £29 million into graduated fees in 2007, which the then chairman of the Bar said amounted to an increase of approximately 16 per cent over graduated fees across the board.

Lord Clinton-Davis: My Lords, does my noble friend agree—I suppose that he does not—that criminal legal aid is very deficient, despite what he has said? Many junior counsel and solicitors specialising in this field are finding it very difficult to make a living. Accordingly, the public are suffering as well. What are the Government prepared to do about that, if anything?

Lord Bach: My Lords, I do not think that that public are suffering. The criminal Bar is still doing well. I give my noble friend and the House a few examples. For a guilty plea—that is, defending someone who has pleaded guilty—to wounding with intent, a class B offence, with 75 pages of prosecution evidence, the total that the barrister would receive is in the area of £872.50. For a four-day trial of a Section 18 wounding, with 75 pages of prosecution evidence and 14 witnesses, the same barrister would get £2,643.89. I submit that those are large amounts, particularly compared with the earnings of unskilled workers.

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Lord Mayhew of Twysden: My Lords, while declaring a possible interest as a member of the Bar, perhaps I may ask about the Legal Services Commission’s proposals on awarding legal defence contracts for police station workers at the bottom end. Is it not misleading to call these proposals “best value tendering”, given that contracts would be awarded on the basis not of sound and objective valuation but of the price of bids alone?

Lord Bach: My Lords, the BVT proposals, which spring from those of my noble friend Lord Carter, focus on securing what we want, which is a sustainable, effective and efficient supply base. They will enable the Government and the Legal Services Commission to manage the legal aid budget effectively and plan for the future. I need to tell the noble and learned Lord that we are in consultation on the scheme for solicitors at police stations. This is a real consultation; we want to hear what is said. The department will then consider the proposals and whether this is the best way forward to ensure best value for taxpayers’ money while ensuring the quality of criminal defence services for those that need them, which is crucial.

Lord Henley: My Lords, I am interested to hear the noble Lord describe this as “a real consultation”; I imagine that the other consultations that his department has conducted were fakes. Who in the entire profession—whether it is the Bar Council, the Law Society or the Criminal Bar Association—supports the best value tendering scheme?

Lord Bach: My Lords, not long ago the Conservative Party supported it; perhaps it will be good enough to tell us if it has changed its mind. As I said, we are consulting on the BVT scheme and we will find out whether it is workable and whether it is what we should be doing. I have to tell the House that the legal aid budget is limited and, at a time of recession, we need to spend more not less on social welfare law—that is, law that looks after those with debt needs, housing needs and employment needs. I hope that the House will accept that, while there is a lot of pressure on the fund, those are the areas in which you should not cut back.

Baroness Deech: My Lords, I declare an interest as chairman of the Bar Standards Board. Is the Minister aware that best value tendering, which appears to be about the lowest price, and various other undoubted cuts in legal aid have the most impact on women and black and ethnic minorities, both as clients of the Bar and as those who are attempting to earn a living, and that the Government’s programme on social mobility and access to the professions is undermined by pulling the rug from under their feet?

Lord Bach: My Lords, I do not accept that the savings that we will make will necessarily be in relation to the class of person to which the noble Baroness refers. However, I have to say that it is not the Government who decide which barrister will do which case. That is a matter for the clerks in chambers and it is sometimes the case that clerks will give the lower-paid work to those from the categories that she mentions.

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Lord Carlile of Berriew: My Lords, I declare my interest as a barrister. Will the Minister recognise that the Legal Services Commission has paid no attention whatever to those very junior barristers who are required day after day to appear in magistrates’ courts and are often losing money as a result of travelling to them? Will he bear in mind the fact that such barristers are actually dealing with people with social need, housing deprivation and other forms of poverty and disadvantage who find their way, unhappily, into a summary court?

Lord Bach: Yes, my Lords, I accept what the noble Lord says. This is not always an easy time for the very junior end of the Bar—not that it ever has been particularly easy for people who have just gone to the Bar. However, I stressed social welfare law because, if you can give some legal help at an early stage, you can perhaps prevent people from ending up in the criminal courts.

Lord Dubs: My Lords, does my noble friend accept that this is not an easy time for solicitors? Does he know how many criminal legal aid solicitors have had to leave their jobs because of the Government’s policies?

Lord Bach: My Lords, a large number of solicitors are still doing legal aid and they do a wonderful job, as do barristers who do legal aid. However, these are professions where people come and go—the numbers will never stay the same. The Government have to concentrate on the fact that they have a fixed budget for legal aid and we need to spend it where it is most needed.

Taxation: Channel Islands

Question

2.45 pm

Asked By Lord Foulkes of Cumnock

To ask Her Majesty’s Government what is their forecast of the revenue lost to HM Treasury through the use of the Channel Islands for avoiding the payment of United Kingdom tax.

The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the UK plays a leading role in international efforts to combat tax avoidance and evasion. Avoidance can be defined in a variety of ways. For example, some groups argue that the use of perfectly legitimate relief from tax, such as pension payments, represents avoiding tax; others adopt a more limited definition. I cannot provide any estimates of UK tax avoided using the Channel Islands because of the subjective nature of the definition of avoidance. For the same reason, the Government cannot prepare avoidance forecasts or statistics on a geographical basis.

Lord Foulkes of Cumnock: My Lords, what action are the Government taking to stop the use of tax havens such as the Channel Islands and Monaco for tax-dodging, which results in the rest of us having to pay higher taxes? Would he care to speculate on why a loyal newspaper such as the Daily Telegraph fails to publicise unpatriotic tax-dodgers such as the Barclay brothers?

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Lord Myners: My Lords, I do not think that noble Lords need me to speculate on why the Daily Telegraph does not speculate on the tax strategies of the Barclay brothers—that must be self-evident. Through the G20, the Government have led the initiative to pursue tax evasion. This was given significant priority in the ECOFIN Finance Ministers’ meeting, the G20 Finance Ministers’ meeting and later in the meeting of the G20 leaders in early April. We are promoting the introduction of more taxation and information exchange agreements and are vigorous in our pursuit of tax evasion. Furthermore, we are alert to new opportunities for tax avoidance and are taking rapid action to close them down where we feel it is warranted.

Lord Howell of Guildford: My Lords, sticking to the main Question, is the Minister aware that when I looked on the appropriate website this morning, I found that there are 56 tax havens around the world, most of them outside Europe and the European Union? Although tax evasion is utterly deplorable and indeed illegal, does he accept that when it comes to investment to avoid and limit certain tax liabilities, if we chase all investors out of the Channel Islands and Europe, they will merely go elsewhere? How much revenue will we then lose and how much higher will our taxes have to be as a result?

Lord Myners: My Lords, the noble Lord makes a very good point. That is why the Prime Minister and the Chancellor of the Exchequer have been leading an international co-ordinated effort through the OECD and the G20 to ensure unified action, otherwise closing down some areas will simply see that business divert elsewhere. However, we are vigilant and determined to close down tax evasion and are alert to areas where new tax avoidance strategies are emerging. HMRC estimates that the initiatives it has taken since the requirement for pre-disclosure of tax strategies in 2004 have led to a net accrual of more than £11 billion of additional tax.

The Lord Bishop of Winchester: My Lords, I declare an interest as bishop of the bailiwicks of Jersey and Guernsey, a position held by the Bishop of Winchester since the 16th century. Will the Minister confirm that both Channel Island dependencies are listed by the OECD as having substantially implemented the internationally agreed tax standard and that they appear in the same top tier of jurisdictions as the UK itself?

Lord Myners: My Lords, the right reverend Prelate is correct. The OECD classifies offshore centres in three categories, and Jersey and Guernsey are in the top one. Indeed, most of our offshore territories rate well but not all of them as well as the Crown dependencies. We continue to work with those overseas territories, including through the Foot review, to help to raise the standard of tax and information exchange and general financial regulation in those centres.

Lord Peston: My Lords, my right honourable friend the Prime Minister, when he was Chancellor, worked enormously hard to deal with tax avoidance problems. On Budget day, however, he discovered that any tax changes he made would immediately appear on the websites of many leading finance firms and tax firms

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in the City of London, with the advice, “Don’t pay this tax; we will advise you how to avoid it immediately”. Is not the answer to this to make tax avoidance prima facie unacceptable, unless he who is doing the avoiding can prove legally that it is a viable scheme?

Lord Myners: My Lords, my noble friend’s question cuts to the heart of the issues of the spirit and the letter of the law. HMRC will be publishing a consultation paper in the not-too-distant future which will encourage banks to explain how they comply with both the letter and the spirit of the legislation. Of course, my noble friend’s observation about historical practice is correct. That is one reason why my right honourable friend the Prime Minister, when he was Chancellor of the Exchequer, introduced the pre-notification requirement, which now requires those who market and promote tax avoidance schemes to pre-advise HMRC, so that HMRC can consider whether it regards these schemes as consistent with the spirit of good business practice, or structured solely or primarily for tax avoidance reasons. If the latter is the case, HMRC can take the necessary action to close down such schemes. More than £1 billion was saved in the last 12 months as a result of that initiative.

Lord Wallace of Saltaire: My Lords, the noble Lord, Lord Howell of Guildford, mentioned 56 tax havens. Does the Minister agree that many of the ones to which money from the Channel Islands might be diverted are actually British Overseas Territories? Therefore, although we need international co-operative action, Britain has a very particular responsibility. Does he also recognise that the confusion between aggressive tax avoidance, tax planning and tax evasion is such that it might be useful to have a sessional committee of this House to look at how we distinguish the narrow lines between one and the other?

Lord Myners: My Lords, the ultimate question of distinction must be for the courts, and that is why we always have difficulties in answering questions on identifying the quantum of tax lost due to tax avoidance. In the end, these must be matters on which Parliament passes the laws and the courts interpret those laws. The noble Lord, Lord Wallace, is correct about the number of offshore territories, and this is one reason why the review being carried out by Mr Michael Foot is looking both at the Crown dependencies and the offshore territories.

Insolvency

Question

2.52 pm

Asked By Baroness Gardner of Parkes

To ask Her Majesty’s Government what assessment they have made of the impact of using pre-packaged administrations (pre-packs) in undisclosed insolvency proceedings on small- and medium-sized enterprises which are suppliers to businesses restructured in this way; and whether they have any proposals for greater transparency or minimum disclosure.

The Minister for Economic Competitiveness and Small Business (Baroness Vadera): My Lords, in the right circumstances pre-packaged administration can deliver benefits by saving troubled businesses, thus preserving

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value that would otherwise be lost. It can potentially be more effective at saving jobs than other types of administration. However, it is important that the system is monitored and not subject to abuse. On 1 January 2009, we introduced mandatory requirements for administrators to report to creditors on all aspects of a pre-pack as soon as possible. These arrangements are being actively policed by the Insolvency Service, which is examining every pre-pack report it receives, and will publish a report before the Summer Recess.

Baroness Gardner of Parkes: My Lords, I thank the Minister for that Answer. Is she aware of the phoenix issue being the big problem for businesses? For example, when a restaurant in London closed on a Friday and re-opened on a Monday with exactly the same staff and management, in that process of administration by pre-pack, all small creditors lost all claim. Is she aware that that is aggravated by the lack of credit insurance? Small businesses are having great trouble getting credit insurance now.

Baroness Vadera: My Lords, about six out of 10 pre-packs, as the noble Baroness says, are phoenix, meaning going back to the original owners. However, one has to remember that the plight of small creditors, which I feel acutely as Small Business Minister, is actually the result of the insolvency, not of the pre-pack, and there is no evidence to suggest that small creditors fare worse in a pre-pack than in any other type of administration. Of course, there is evidence to suggest that more jobs are saved: 90 per cent of jobs are saved under pre-pack and about 60 per cent under other administrations.

Lord Barnett: My Lords, my noble friend, as ever, makes a good point, but is she aware that there is also a perception of serious abuse on occasions by directors of companies using the pre-pack arrangement to buy the company back at an undervaluation? The Government have powers under SIP 16, as she will be aware. How do they intend to use those powers to enforce against the kind of abuse that does indeed happen?

Baroness Vadera: My Lords, SIP 16 does indeed provide us with powers that require and enforce transparency, which is the key to this issue. If the Insolvency Service finds abuse, both the insolvency practitioner and the directors are investigated. There were 105 cases last year of action taken against insolvency practitioners and directors themselves. Noble Lords will be aware that every working day five company directors are struck off and one is criminally convicted. We police this very actively. The purpose of SIP 16 was transparency.

Lord Razzall: My Lords, does the Minister not accept that there is significant concern about this issue? The Government cannot say simply that this is a matter for the Insolvency Service. There is significant evidence that creditors are being damaged, as the noble Baroness, Lady Gardner of Parkes, has indicated. There is also significant evidence, as the noble Lord, Lord Barnett, has indicated, that often the directors who caused the problem in the first place are simply buying back the business. Should not the Government be doing something about this rather than passing it on to the Insolvency Service?

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Baroness Vadera: My Lords, the Insolvency Service is part of the Government, so there is no question of passing this on. However, while this is an emotive issue, it is very important to consider the facts. The insolvency practitioners are required to ensure value for creditors, to protect employees and, since the Enterprise Act, to see whether companies can remain as going concerns. They have to look at the best way of doing this, and if the only available buyer is the existing owner, it would simply be cutting off your nose to spite your face to say, “We are not prepared to do this. Instead, we will put it into some other form of administration”. The requirement is for people to ensure that the best value is created for creditors and that the company is protected as best it can be. That is what we investigate. It is not just a matter for the Insolvency Service; it is a matter of policy.

Baroness Gardner of Parkes: My Lords, did the Minister see the article, which I thought was very interesting, headed, “Pre-packs: Smug v Mugs”? It claimed that pre-packs were driven by the banks, which were determined to recover their secured loans and which had,

“a hit squad to push for administration. The outcome is always identical—bank gets back its cash and unsecured creditors can go hang”.

That is my concern.

Baroness Vadera: My Lords, it is a fundamental fact of capitalism and doing business that the ranking in a company is: secured creditors, preferential creditors such as employees, creditors secured against a floating charge, and unsecured trade creditors. It is not practical or sensible to change that. It is a fact of the insolvency rather than the administration. Insolvency means by definition that there are not enough assets or there is not enough cash flow to cover the liabilities. That is what results, unfortunately, for small unsecured creditors. It is not because of the nature of the administration.

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