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11.05 am

Lord Lyell: My Lords, may I apologise humbly to the chairman of the committee in that I put my name down very late? May I also apologise to the noble Baroness who has just spoken, although no doubt she and other noble Lords will be delighted to hear that I shall be brief? The noble Baroness who has just spoken has made most of the points that I would wish to have made.

It was 32 years ago when I sat where my noble friend Lord Hunt is sitting now and had to lead for the Opposition on the Unfair Contract Terms Bill, which became the Unfair Contract Terms Act 1977. I recall with considerable humility that one was among really eminent lawyers, such as former Lord Chancellors; about four of them spoke. It was relatively simple in those days. The first element that I remember was removing what was known as the small print. The two categories of people concerned were very much the trader, in perhaps white goods or motor cars, and the consumer. No longer could the trader say to the consumer, "It's in the small print", if things went wrong. I hope that I have got some of that right. That seemed to be the basis of the 1977 Act, and it seems to have worked quite well.

The noble Lord, Lord Borrie, made, if I might humbly say so, a five-star speech that probed a little further. He pointed out the great risks involved in getting right the consumer legislation across borders. Since I was in any way involved in this in 1977, the list of commodities and things that can be traded has increased. Indeed, one of your Lordships spoke about mobile phones and how one can buy and use them. The problem of looking for and enforcing a right across borders in that aspect is particularly difficult.

I was particularly grateful to see in the report by the noble Baroness, Lady Howarth, what she called the black and the grey lists. Chapter 8 of the report was particularly relevant to any of the things that I might have wanted to say today. Paragraph 181 beautifully put the point about patients wishing to try as yet unproven medicines-I hesitate to call them drugs. Similarly, paragraph 186, on insurance, also merited further consideration, as I think has been suggested both by the noble Lord, Lord Borrie, and indeed the noble Baroness in her report. I was very pleased to see this reiterated in paragraph 194 and in paragraph 195, which stressed national safeguards.

Finally, I was really delighted to hear from the noble Lord, Lord Kirkwood, about the case of Donoghue v Stevenson in 1932. He might be an eminent lawyer, but I am only a humble member of the Institute of Chartered Accountants of Scotland. However, part of my legal training was to take into account fitness for purpose. I seem to recall that that case rested on-if I may say this to your Lordships this early in the morning-a decomposed snail in a bottle of stone ginger. I do not think that this tincture is widely available in the Refreshment Department in your Lordships' House, but never mind. The case is still quoted and still of particular relevance in Scotland. Indeed, the noble Lord, Lord Kirkwood, pointed out Scots law as far as it is applied throughout the United Kingdom. What he had to say makes

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the committee and your Lordships think of what might happen across the borders in Europe and the Community.

I am particularly grateful to your Lordships and, above all, to the noble Baroness, Lady Howarth, for her report and for allowing me to speak, and I look forward to hearing what the Minister has to say.

11.09 am

Lord Razzall: My Lords, I am sure that I speak for everyone in your Lordships' House in thanking the noble Baroness and her committee not only for the quality of this report but also for the fact that they clearly have total unanimity on all sides of the House regarding their conclusion-mind you, we have not heard what the Minister has to say. The fundamental conclusion that,

"the Government should withhold agreement from the proposal as drafted"

also seems to have had unanimous support from all sides of the House.

From my point of view, the two reasons set out in paragraphs 41 and 42 are persuasive. First, I share the view of the committee that, by itself, the action proposed by the Commission-that is, harmonisation of consumer law across the EU-will not necessarily boost cross-border retail trade as the Commission desires. Secondly, and most fundamentally, the committee says that it is,

"of utmost importance that the overall level of protection afforded to consumers should not be reduced"-

a point touched on by a number of speakers. The overarching concern is that that could happen if harmonisation went through in the proposed form.

The noble Baroness, Lady Wilcox, said she thought that we had the best structure of consumer protection in the European Union and I am sure that the noble Lord, Lord Whitty, would agree. I entirely agree that that is the case, but I do not think that we should be complacent about this. One of my fundamental concerns about moving to harmonisation is that a number of people have argued for some time that we need to improve consumer protection rights in the United Kingdom.

My noble friend Lord Kirkwood said that one of the problems with these reports is that they get buried and no one takes any notice of them. Clearly, there is an element of truth in that and one of the reasons is that the arguments are always put in rather dry terms. In the time available to me, I will indicate in practical terms what I mean by saying that there are areas in which we need to improve our consumer protection rights.

For example, not many people in this Chamber will have called any of the helpline numbers at the Department for Work and Pensions. If they did, they will have discovered that they cost 40 pence per minute from a mobile phone. A lot of people do not have BT landlines and have only a mobile phone, so they have to use their mobile when they need to contact the DWP. I do not think that many of your Lordships earn £67.75 a week in incapacity benefit, but if anyone does and they have discovered a mistake in their payment, when phoning the DWP they could find themselves being charged £24 for the privilege of determining the anomaly in their payment.

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I am sure that many of your Lordships have had to wait in for the gas man to visit, a satellite dish to be installed, furniture to be delivered or a boiler to be fixed. You would have been told that the man might come in the morning, the afternoon or that he will certainly come at some time during that day. That is particularly difficult when a person is on low income or has inflexible working hours.

I am sure that all your Lordships have picked up a pack of sausages and seen that they are labelled "British". The expectation will be that they contain pork from pigs which have been raised on British farms. In fact, the meat could come from anywhere and still be labelled "British" as long as it was processed in the UK. Shoppers are often prepared to pay more for meat because they think that it is British, but quite often it will only have been processed here.

When people receive their energy bill from the electricity company, there are thousands of tariffs and all kinds of claims and counterclaims by the energy companies. Unless people are prepared to spend half a day on the internet, it is often impossible to discover exactly what is happening with their energy bill. I will not even go into bank clearing and the fact that your money leaves your account on day 1 and is not received by the person to whom you have paid it for several days.

While we could strongly argue that consumer protection in this country is better than in most of our European competitors and partners, there still needs to be a great improvement before we can agree to significant harmonisation with other member states. From these Benches, we would do three things. We think that the Government should introduce a new universal service code, which would be mandatory in the public sector and would provide a benchmark for the private sector. We would-no one has touched on this-introduce a general duty to trade fairly, which would be enforceable by individuals as a private right, as well as by the relevant authorities in case of infringement. We would take out of the empire of the noble Lord, Lord Mandelson, the responsibility for consumer affairs. We would call on the Government to appoint a Minister with responsibility for consumer affairs in the Cabinet Office, with the right to attend the Cabinet.

We welcome this report. We are glad of the unanimity, subject to what the Minister has to say. But before we move further down the harmonisation route, we need further protection of consumer interest in the UK.

11.16 am

Lord Hunt of Wirral: My Lords, first, I draw attention to my interests as set out in the register; in particular I am a partner in the national commercial law firm Beachcroft LLP. This has been a marvellous debate with some outstanding contributions. I always enjoy listening to the noble Lord, Lord Borrie, but I particularly appreciated hearing others refer to his contribution. My noble friend Lord Lyell said that he made a five-star speech and my noble friend Lady Wilcox referred to his masterclass in consumer law. I have never heard so many plaudits. For me, the most interesting part of his speech was the fascinating comparison with the United States, the trade between states and the different systems, which is something for us to think about.

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Before I deal with the outstandingly clear speech of the noble Baroness, I should like to say to the noble Lord, Lord Kirkwood, that he must not get cynical. I am very worried about him. When he says that the media will bypass this debate, has he forgotten that this is a televised debate and that the periodicals will scrutinise all that we have said? Is he aware that our website gets millions of hits? There is a fascinating interest in this area. I do not think that his pessimism will be borne out. I certainly hope not.

I was also thrilled with the notable contribution from my noble friend Lady Wilcox. This has been a debate in which the Minister has a lot to answer. So far there has been a general feeling of unanimity across the House. I have a horrible feeling that it may not continue in his contribution and I urge him to throw away the script that he has been given.

I thank the noble Baroness, Lady Howarth, and the other members of the committee for producing this thoughtful report, which is aptly named Getting It Right. That has been the focus of debate. As is ever the case with these reports, some of the Government's responses to the various recommendations of the committee are more constructive and positive than others. I certainly look forward to hearing more from the Minister about why he does not agree, for example, with the committee's recommendation, which is supported by many speakers, to pursue differentiated harmonisation, which would allow greater flexibility and potentially much more effective compliance, rather than full harmonisation. I would also be interested to hear more about the ongoing negotiations on this draft directive.

I was a little disillusioned by the noble Lord, Lord Whitty, when he said that it is a missed opportunity and that it is time to start again, and heartened by my noble friend Lady Hooper when she said that there is ample time. I suppose that those of us who have had experience know about that. I remember fondly that I was assisted by my noble friend when between 1992 and 1997 she chaired a committee about the rights of consumers. We had the Citizen's Charter, and I had the honour to be the Citizen's Charter Minister. The noble Lord, Lord Razzall, referred to helplines, and my mind went back to when we had the cones hotline-no, it wasn't me. The Minister at the time said that the telephone number to ring was to be that of the general exchange for the Department for Transport. Hundreds of journalists rang the number only to be told by the operators that they did not know what on earth they were talking about. Our memories are crowded with those sorts of pitfalls.

I was pleased to hear that Ministers are confident that the right to reject will be retained, but I wonder whether the Minister can give us some more reassurances about the other proposed improvements he expects to be successful. Just as important is that he explains what steps he will take to protect the UK's consumer rights regime should any of his valiant efforts to make improvements fail. The concerns raised, in particular by the noble Baroness, Lady Young of Hornsey, about the bewilderment of people faced with what is proposed and the weakening of the UK regime, have rightly been at the core of this debate, and I hope

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that the Minister has fully absorbed the committee's recommendations in this area. Presumably, Ministers have no desire to see the current balance of rights between UK businesses and consumers being eroded. If full harmonisation does take place, how will they be able to prevent that occurring? As the saying goes, "If you touch it, you change it". Is the policy one of harmonisation followed by gold-plating? If it is, the approach has had, to put it politely, a somewhat chequered history. All laws and regulations have some unintended and unforeseen consequences, but when we are dealing with measures as wide-ranging as these, we must be especially on our guard.

Valid concerns have also been raised about the possible unintended consequences arising from this directive especially for financial services. There appears to be a certain amount of confusion about whether beneficial services such as auto-enrolment into pension schemes with an opt-out will continue to survive. Although I am sure the Minister is going to tell us that this problem has been identified and addressed, that is not the same as seeing the practices protected on the ground. Robust measures must be in place and Ministers should share their plans with us and allow them to be subjected to scrutiny.

It is clear on reading the report and the other various responses to the directive that even where it is benign or beneficial, it does not achieve all that it is supposedly intended to achieve. The responses to the department's consultation raised the concern that much more could be done to simplify the EU-wide consumer rights regime and consumer sales law. This, as we have heard, is particularly true for digital products, a sector particularly suited to cross-border trade, by the way. Most directives have elements of inbuilt obsolescence, but no more so than in this area because the world changes so rapidly. When one looks at the speed of change over the past few years, one can hardly imagine what things are going to be like over the next few years. This directive has got to come to terms with the digital world rather than exclude it. As the noble Lord, Lord Whitty, said, it is a very different world. The reluctance of the Commission risks making this particular draft directive out of date even before it is implemented, and I am not sure that the Government are doing anything to improve matters. A White Paper setting out the intention to review does not inspire one to believe that the necessary steps will be taken soon.

One area in which the Government can and most certainly should make a difference to UK consumers is in the matter of guidance and information provision. Any simplification of regulation in this directive will have effect only if it is readily and fully understood. I think that the department must take great care to explain precisely what rights and responsibilities will remain, particularly if a harmonised rights regime leads directly, as many noble Lords have expressed in this debate, to an improvement in cross-border trade. What benefit will the directive have if it fails to enhance consumers' understanding of their rights abroad? We have had several discussions on that topic. How will businesses be encouraged to market their products in other countries if they are not confident about the nature of the regulatory regime under which they will be selling?

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Concerns about clear information were not limited to the quality of the guidance produced by the Government. In the report the noble Baroness highlights deep concerns about the quality of the analysis which underpins this directive. The Government's responses were a little superficial about the costs and the analysis, and the way in which procedures have been followed. I understand that the Commission is undertaking further work on these proposals, but there is no indication of what effect any future analysis will have on the negotiations and the final shape of the directive. I hope that the Minister is going to reassure us that the ongoing work is a meaningful exercise, not merely an attempt to provide a justification for decisions already made.

A true single market for Europe was always an integral part of the founding vision that so many of us shared, but as my noble friend Lady Wilcox has always told me, free trade must also be fair trade. If the noble Lord, Lord Razzall, can produce a clear definition of "fair trade" we will make a lot of progress in the direction that he wants us to go. Competition pursued on the basis of undercutting consumer protection is certainly not fair competition, and effective regulation must be targeted, proportionate and, in this case, should promote trade and not inhibit it. As my noble friend Lady Wilcox said, paragraph 39 of the report is particularly relevant. The whole report is brilliantly written, but paragraph 39 says that,

"we consider that the Government should withhold agreement from the proposal as drafted. We recommend that further progress on the directive should await a more complete impact assessment. We believe this could usefully include"-

how much I agree with this-

"a full analysis of existing consumer protection in all 27 Member States; the problems encountered; the differences between the proposal, the existing minimum harmonisation Directives and national provisions; better statistics on cross-border trade; and possible interaction with the Common Frame of Reference for contract law".

How true that all is, and I can hardly wait to hear the Minister's response.

No one wants to see us trapped in a regulatory and legislative logjam, but we need to have transparency and accountability. As several noble Lords have mentioned, the comitology system within the European Union is somewhat controversial; I had quite a lengthy conversation with my noble friend Lord Inglewood, who is out of the country and sadly cannot be with us today, about this whole subject. Comitology has its merits, but transparency must be maintained. I thought also that paragraph 196 was absolutely spot on,

"we consider that this process ought to be given a chance to prove itself as it could be a more efficient method of taking these decisions than a full legislative procedure. Its legitimacy will be dependent on a commitment to full transparency by the Commission and by national governments, which should include consultation as appropriate".

I do hope the Minister agrees with that.

In conclusion, my overall summary is that I can offer only qualified support for the draft directive. There is a great deal of work still to be done at both EU and national levels before I can feel confident that international trade and consumer rights will both benefit. I look forward to the Minister's response to the numerous questions and doubts expressed from

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both this Bench and by Members on all sides of the House who have spoken today. Again I thank the noble Baroness for introducing such an important debate.

11.30 am

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Young of Norwood Green): My Lords, I thank the noble Baroness, Lady Howarth, profusely for her introductory contribution and the committee for a truly excellent report. I enter the debate with some trepidation. There is always a worry in the back of my mind that there are at least one or two people in the Chamber who know 10 times more than I do. On this occasion, there is a galaxy of people who know a hell of a lot more than I do.

I was fascinated by the suggestion of the noble Lord, Lord Kirkwood, that a question mark should be added to the title of the report and by that of the noble Baroness, Lady Young, who would prefer three dots. Perhaps if we put underneath it "Caveat emptor"-let the buyer beware-that would be good, general, all-round advice whatever happens to harmonisation, full, none at all or differentiated. There was not quite unanimity among noble Lords. My noble friend Lord Borrie suggested that there should be 51 variations on a theme, as per the USA, and my noble friend Lord Whitty wanted us to start again. I am not sure whether that is quite unanimity, but I shall endeavour to address a number of points. I do not know whether I can address all the points made in an excellent and wide-ranging debate, but if I cannot we will communicate in writing.

The committee drew on evidence from stakeholders in both the UK and other member states to produce a thorough and in-depth analysis of the complex issues that the directive raises, including seeking the views of representatives of other Governments. The findings will be of great assistance to the Government as negotiations continue. I mean that genuinely; I think that they are well written, with a great deal of clarity, which is very important.

Noble Lords will be pleased to know that the Government are in agreement with the committee on the vast majority of points. I cannot go quite as far as to follow the advice offered by the noble Lord, Lord Hunt, who suggested that I should throw away my speech and start again, because I do not think I would be capable of dealing with this complex issue without it. We agree that the directive could bring benefits to both consumers and traders but I underline the fact that certain aspects need to be improved.

This is the correct time to be introducing these changes. There have been substantial developments in the market since the four existing directives were adopted-for example, the massive increase in internet sales and the rise of online auctions-and, in order to capitalise on the potential of the internet to boost cross-border trade and provide consumers with greater choice, it is necessary to update the rules to reflect these changes. Full harmonisation of consumer rules has the potential to ensure that consumers will benefit from knowing that, wherever they shop in the EU, the

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same consumer protections will apply. Making it easier for businesses to sell to consumers in other countries will improve the functioning of the internal market and benefit consumers by giving them access to greater choice and lower prices. Businesses that trade cross-border or are considering doing so in the future will similarly benefit from harmonisation of rules.

The existing divergence of rules creates considerable compliance costs for businesses that sell to consumers in other member states. Despite their best intentions, businesses-particularly small and medium-size enterprises-can find it difficult and expensive to be certain that they are complying with the plethora of consumer provisions that exist across the EU.

Of course, as the committee's report acknowledges, divergent consumer laws are not the only impediment to increasing cross-border sales. Differences in language, taxation rules and the cost of delivering goods to other countries are also important points, as a number of noble Lords said. But these are not reasons for not tackling the barriers created by fragmentation of consumer rules. The European Commission is undertaking work separately from this directive to tackle some of the other barriers to business-to-consumer cross-border trade. For example, it is engaged in work to consider how consumers can have better access to redress mechanisms in other member states. Yesterday, the Commission published a communication on cross-border e-commerce, which considers how to encourage levels of cross-border online shopping and looks at a number of issues such as cross-border enforcement, payment systems and copyright issues, as well as fragmentation of consumer rules.

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