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I think that there should be a question mark in the report's title so that it reads "getting it right?". That is the burden of my remarks. We had some very good consideration from the Government and some feedback from Europe. That is all positive but it does not satisfy me that the job is done yet, so I want to keep hold of that question mark. As a committee, we are keeping it under scrutiny, which I am absolutely sure is the right thing to do.

The analysis is very easy to support. I do not think that anyone would be against looking at simplification of the current set of rules. The current consumer acquis is not fit for purpose, to repeat a much overused phrase. There is no doubt that there is always a question about the European Union competence and whether there is an impingement under subsidiarity. However, I do not think that anyone can complain: this is the internal market and so it is intrinsically part of the Commission's work. Therefore, the competence is unquestionable.

The goal of increased trade is commendable but I agree with the noble Lord, Lord Borrie, who captured the point rather well. Why on earth would anyone want to do their shopping in Romania when they could go to the high street? Competent retailers, which we all have, seem to be the answer. We think that there is a cross-border flow of trade of something like 6 per cent. That is good and I hope that the figure improves in the not too distant future. However, the question that we need to ask is: at what cost? Again, the noble Lord, Lord Borrie, made an interesting point. I also noticed from the report Professor Nehf's very interesting evidence about how the United States handles

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this issue in not dissimilar circumstances. The two environments are not in point entirely but I think that we can draw on the American experience in taking this whole argument forward.

This all threw me back to my early days when I was studying to become a Scots lawyer. I was reminded of Donoghue v Stevenson and snails coming out of bottles.

Noble Lords: Hear, hear!

Lord Kirkwood of Kirkhope: I can tell who the lawyers are in the House. Indeed, although this is not my opinion, there are some Scots lawyers who think that there are still things coming out of bottles in cafes in Paisley that are dangerous to consumers. I repeat that that is not my view; I think that Paisley is a really nice place.

I looked at the articles and I believe that the argument has moved on, with the Government and the Commission taking it further forward. However, Article 1 uses the word "approximation". There are always translational issues involved in Europe, and Article 1 drew me up short because the question that we are trying to wrestle with is: how do you approximate consumer protection across 27 nation states? It is not easy.

You do not need to look much beyond Article 5 in the draft directive to see that there are information burdens, particularly for low-value goods. There is a long list of items for which evidence needs to be provided before they pass the test of the directive, and small businesses in particular might find that very onerous.

The key point under Article 26, to which the chairman of the committee referred, concerns the loss of the automatic right of rejection of goods that do not conform to contract. That is true in Scots law, where there would be a material breach. In passing, it occurs to me that the directive does not conflict with anything in Scots law, which has its own body of contract law. I should just like an assurance from the Minister, but perhaps not this morning if the information is not readily available, that there is nothing north of the border that we need to worry about that is different from some of the terms of the article.

As the noble Baroness, Lady Howarth, said, the Law Commission has raised some important objections about loss of existing rights and obscurity of terms. It made a very good point, which is referred to in Article 26. Article 38 refers to unfair terms: black-list items and grey-list items. I do not think the black-list items are any cause for concern because they are, by definition, terms of a contract which would be unfair. On the Annex 2 items we have had evidence from lawyers suggesting that it is simply not possible to determine whether an Annex 2 unfair term is actually unfair unless you look not only at the contract but also at the terms surrounding it and at any other contracts that affect it. In my view, as a simple former provincial Scottish solicitor, it is generically impossible under Annex 2 to claim that Annex 2 is helpful in defining unfair terms.

I absolutely concur with the view of my chairman that comitology is a matter of concern. I was more concerned about this than my other colleagues so I will be watching it with an even sharper eagle eye.

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I think it is a device. It can cut corners and it can be useful if it is used with a great deal of responsibility. The transparency and the consultation that surround it are essential; otherwise, people will lose confidence in the system as constituted.

Article 42 is the article which worried me the most. I do not think that there is a legal base for inserting penalties into our civil contract law. I do not see it. There are some really worrying sections in Article 42. This is a matter for legal brains that are more developed than mine in this area. I also agree with the noble Lord, Lord Borrie, that we were very lucky to have our special adviser, Geraint Howells, who is an expert in the area. He speaks in English despite being Welsh and he speaks English in a way that I understand, which is even better. We need to look at some of these detailed articles more fully as we continue to hold this under scrutiny.

There is a real danger that existing protection could be lost in this harmonisation operation, as I think Citizens Advice has said to us. I absolutely concur with colleagues who said earlier that there is a lack of a proper research base or impact assessment. The noble Baroness, Lady Wilcox, made the point that there is not a powerful foundation on which to base some of these changes. There is a need to balance and to keep the consumer at the heart of this. Politically, it is impossible for the Government to disregard existing rights and give them away in any casual way. I am sure that the Government would not want to do that but it might happen by accident. You never know when you go into negotiations at the European Commission what the outcome will be.

For me, paragraphs 170 to 173 of Chapter 7-I am looking at the Government Front Bench-are key. They are about sales contracts and what we need to do for minimum protection in that area before we can be confident that this job is being properly done.

There is obviously a long way to go in this argument. We have had evidence that there is some flexibility and some negotiating capacity within the argument that will probably unfold over the next year or year and a half. It is very, very important that we get this right and that we do not give away the game and surrender rights which have been established, as the noble Lord, Lord Borrie, said, for centuries in the negotiation which is about to proceed. I return to the title of the report and I hope that the Government take the time to get it right.

10.43 am

Lord Whitty: My Lords, as the noble Baroness, Lady Wilcox, has trailed me, I had better start by declaring that I am chair of Consumer Focus. I congratulate the noble Baroness, Lady Howarth, and her committee on the perceptiveness of the report because it closely mirrors the views of the directive not only of my own organisation but also of other British-based consumer organisations and the European consumer organisations, all of which strongly support the line taken in the committee's report that, in its present form, this is not the appropriate way in which to enhance consumer rights and to lessen business costs. I say that because I am aware of what the

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Commissioner told the committee and has told the institutions of Europe. Indeed, I have had discussions with her myself. Her aims are quite correct.

We need to review the present regime; we need greater clarity for consumers; we need greater consistency across borders for businesses; and we need to make it easier to operate across borders for those people. However, I also agree with the committee that the differential regulatory framework in 27 countries is not the main reason why people do not shop across borders. There are not only issues of culture, language, access and consumer preference, but also business behaviour. Not only are there significant barriers to small businesses trading across borders, and certainly across more than one border, but there are very large, transnational firms which operate on a European scale and beyond whose marketing tends to be fragmented. They have franchising and distribution networks, which in this digital age ought to give us global access, but if you try to buy insurance in Spain because you believe it is cheaper you are bunged back-whatever the technical term is-into the British website. Some business practices are a greater inhibition to cross-border trade than the regulatory framework.

Nevertheless, a good objective is to aim for better consistency and the aims of the Commissioner were undoubtedly correct. Unfortunately, this directive does not meet those objectives, largely because of the way it has come about. It is more a cobbling together of four existing directives, all of which have their merits and demerits and, even in the form in which they are put in this overall draft directive, there is no consistency of coverage. Some cover services and some do not; some cover financial services and some do not; no consistency of rights is provided; and there is no consistency of remedy and redress between the various areas. The Commission has attempted to make it more consistent but it is still inconsistent between the four pre-existing pillars. The whole aim is to make it easier and to clarify and it does not do that. My conclusion from a study of this is that it makes life less easy for consumers and less easy for business to operate across frontiers.

I am not exactly of the same mind as my predecessor, the noble Baroness, Lady Wilcox, as regards her attitude to harmonisation in general. I think a degree of harmonisation would be useful here. I am not even ideologically opposed to full harmonisation. The problem with full harmonisation in this context is that it is put at far too low a level. Maximisation will actually reduce the consumer rights of citizens within this country and in a number of other countries across the EU. There may be a role for full harmonisation of definitions and therefore partial harmonisation might be possible. In general, I do not think that this is the appropriate approach.

Clearly, the focus of consumers more generally in Britain is concerned with the loss of long-standing rights, such as the right to reject, as the noble Lord, Lord Kirkwood, has just said. There is also the reduction from six years to two years for remedy in many areas of goods which exists in this country and issues such as the right to a refund of money rather than having to accept a repair. Many noble Lords will have seen the evidence from Which?, pointing out that that is particularly

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acute with cars that go wrong. Do you really want it repaired when one thing has gone wrong and your confidence in the total machine has been seriously shattered? You need to get your money back.

I would probably be even harsher on the references to the proposed unfair contract terms and the role of the British national regulators in that area needs to be preserved. There are dangers that it would be undermined. I also agree with the committee that putting some of this down to comitology, as the noble Lord, Lord Kirkwood, said, is not a reassurance that this will all come right on the night. If the basic legislation is unclear, it is unlikely that comitology will make it a lot clearer.

Another dimension that is not clearly in the draft directive is any adaptation to the digital age. It is mentioned in one or two places, but a lot of consumer access is delivered through the digital world. That must be particularly true when people are at a large distance from the actual provider, but the draft directive does not reflect digital rights and provisions right across the economy. We also agree that the impact assessment and the basic research behind it need to be improved.

My conclusion is that this is a huge missed opportunity. The Commission rightly saw that there was a job to be done. It worked hard to try to do it, but it started from the wrong place. Instead of producing a consistent framework and then adapting the four existing directives into it, it started from the basis of the four different directives. That has led to some of the inconsistencies and possible dangers that the noble Lord, Lord Kirkwood, described. I very much regret that the Commission's good intentions have been drafted in that way. I doubt very much whether that is a matter for negotiation. It is not a matter of tweaking the structure of the directive; nor is it a matter of negotiating UK opt-outs to preserve the right to reject. There are bits in here that can be preserved but in effect we need to start again. When the new Commission comes in, if it is, as I hope, concerned to improve citizen and consumer rights and to ease the course of business across the EU, it ought to rethink the whole project. The report of the noble Baroness and her committee gives it good grounds so to do.

I know that some of our concerns in this House and in the consumer movement in the UK are shared across other countries within the European Union. Consumer interests and business costs in the long run would be much better served were we effectively to start again. I hope that the Commission, the Council of Ministers and the Parliament will ensure that that is the case, whatever process needs to be gone through to bring that about.

10.52 am

Baroness Hooper: My Lords, some years ago, as a Member of the European Parliament, in the first directly elected Parliament, I was vice-chairman of the Committee on Public Health, Consumer Protection and Environment. That was in the days when the doorstep selling directive was mistakenly thought by some people in this country to be a direct attack on our daily pint of milk delivery on the doorstep, when

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it was in fact about giving people the chance to change their minds about hire purchase agreements or other financial commitments made to doorstep sellers of financial services-a very necessary consumer right. Many other myths abounded at the time due to the perception that the European Union, or the European Community, as it was then known, was encroaching on our national and sovereign rights and ways of doing things. Even in those days, the House of Lords Select Committee reports were very well regarded and well used not only by British MEPs but by MEPs of other nationalities.

Today, it is with relief that we now have before us a well researched and clear report on the current Commission proposals. I am glad to see from the list of witnesses that at least two Members of the European Parliament were witnesses to the committee, but I am sorry that there do not appear to have been any MEPs from other member states to give their views. Nevertheless, I welcome the ongoing policy dialogue between the Select Committee and the Government, of which this debate forms part, and between the Select Committee and the Commission. That certainly did not happen in my days in the European Parliament.

The present proposals to update and improve the fair application of consumer protection throughout the now much enlarged European Union are well timed, although it is perfectly true that their scope may be a little too great. For the same reasons, Sub-Committee G's report is well timed. Considerable regard will be paid to the work that has been put into the report. I congratulate the noble Baroness, Lady Howarth, not only on her committee's report but on her clear and detailed presentation of it this morning, which, in a way, leaves very little for the rest of us to add. Although I am not a member of Sub-Committee G, I am a member of Sub-Committee A of the European Union Select Committee.

I have listened with great interest to the various well-informed contributions to the debate and, as I said, feel that I can add little. Like others, I want to record that I welcome the general objective of the proposals before us but, again like others, I have doubts about the possibility of full harmonisation. I hope that the Government will look into the committee's suggestion to differentiate harmonisation. I look forward to hearing the Minister's answer on that proposal, which was put so well by the noble Baroness, Lady Howarth.

I am also concerned that the Commission's proposals do not take into account the impact of new technology in our lives. I cite as an example digital products. I understand that there is some doubt as to whether the directive would adequately deal with the complexities of the digital age. By their very nature, those products are of a very different kind to those of a more tangible quality and are subject to intellectual property rights. May not the digital era require even more far reaching reform than that proposed in the report? This is yet another area where, hopefully, time is on our side. I am also concerned that, as my noble friend Lady Wilcox and others pointed out, the current level of protection should not be reduced. If, as the noble Lord, Lord Kirkwood, thinks, the press will ignore the report-I

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certainly hope that they do not-that will be very disappointing, but the important thing at this stage is that the Commission takes note.

I fully support the approach that, as proposals are at an early stage, there is ample time to get it right.

Lord Lyell: My Lords-

Baroness Farrington of Ribbleton: My Lords, we should hear first from the noble Baroness, Lady Young, and then the noble Lord.

10.58 am

Baroness Young of Hornsey: My Lords, first, I thank my noble friend Lady Howarth for securing the debate and for her able and patient chairing of and guidance on what is, at least for me, a very complex EU directive. The noble Lord, Lord Kirkwood, said that he wanted to add a question mark after the words "Getting it right"; I had thought of putting three dots, to signify that it is ongoing and that, if we ever get it right, we will be lucky.

I shall address two key issues that came up during the course of the scrutiny process: first, the scope of the directive; and, secondly, the information available to the consumer and its clarity. As with a number of other matters that arose from discussion of the directive, there were various views on what its scope should be. After due consideration of the many concerns that were expressed by several different witnesses and in the written submissions, we felt that the scope could be expanded in a number of ways. We recommend, for example, that the inclusion of other directives, such as the package travel directive within the scope of the consumer rights directive, should be reviewed after the extended impact assessment, which we recommend takes place before the Government agree the proposal as currently drafted.

There was a good deal of agreement on extending the scope of the directive to include digital products; the noble Lord, Lord Whitty, and the noble Baroness, Lady Hooper, have already commented on that. The issue of digital products is very important, and I will spend a little time talking about it. Article 2 of the proposal defines goods as any "tangible, movable item"; thus, digital goods bought over the internet would be included in the proposals, but similar items downloaded directly on to a computer would not be covered. That is very confusing for most consumers.

There was support for an extension of the scope of the proposals even from those who were positive overall about the directive. The British Retail Consortium, for example, expressed strong support for the directive and believed the scope to be satisfactory, but it agrees with the principle of extending the scope to include digital goods provided that it is acknowledged that the remedies for the sale of other types of goods would not necessarily work for digital products. Developing appropriate measures for digital goods in this context will not be easy.

While Consumer Focus, Which?, the OFT, and the EU consumer body umbrella organisation, the BEUC, all felt strongly that digital goods should be covered by the directive, not everyone who submitted evidence supported their inclusion. This was partly due to the

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difficulty arising from the difference between tangible and non-tangible goods. In its written submission, the CBI argued that digital goods were,

I suggest, however, that this distinction might elude the consumer, who has protection when buying a music CD but not when legally downloading music from the internet; so the inclusion or otherwise of digital products indicates how difficult it is to design instruments that keep pace with present-day situations, let alone with what may arise in the future. It is hard to see how the aim of the directive to future-proof consumer law can be achieved if it cannot engage effectively with today's realities.

I spent a little time on the scope of the proposals because it was one of the biggest concerns expressed in many of the submissions that we heard and read; "wide", "unclear" and "very confusing" were some of the terms used to describe the directive. Certainly, many consumers would feel quite bewildered by what is and is not covered by the proposal. Indeed, many of the witnesses and written submissions acknowledged that the clarity of information for consumers and traders was a difficulty when trading in one's home country, let alone across borders with the potential for language and cultural barriers to be added to the mix. Given the complexities, apparent anomalies and gaps, we will need to work very hard indeed to ensure that, as far as possible, consumers are given the correct amount of information at the right stage of the transaction. As might be expected, the directive itself is not written in accessible language for everyday consumers, but that is not necessarily a problem unless lawyers and those tasked with interpreting and distilling the meaning of the proposals lacked clarity about its provisions. The OFT observed that a directive that was clear and capable of being explained to consumers should be the main goal.

Other key concerns expressed include the possibility of information overload for the consumer, a lack of guidance for traders about how to display and arrange the information for the consumer, possible deterrents to the trader due to the volume and nature of the information, and the consequences of not providing the information. Although we were not convinced by the argument that consumers might suffer from information overload as a result of the directive, we do feel that it is essential for the directive to be legally robust and clear for those who are charged with explaining its provisions to consumers.

In labelling this a consumer rights directive, the aim should be that consumers have a full range of protective measures under the law. Of course there needs to be a sensible balance so that traders are not unnecessarily hampered by excessive regulation and consumer push-back but, after close examination of the draft directive and of the evidence from witnesses, we feel that it is important to stress that consumers need clarity. It is no good having rights if you cannot work out what they are or what is meant by them. This is particularly important in the context of this debate. As we have already said, we came to the critical conclusion that the overall level of protection currently offered to consumers should not be reduced.

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