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However, while the UK strongly supports the objectives of the directive as a simplification and better regulation measure, it is vital that the internal market objectives are not pursued at the expense of important consumer protection. It is clearly a universal concern of the House that we should not get a lowest common denominator effect where consumer protection is diminished. We must work to achieve a directive that provides a high level of consumer protection as well as boosting the internal market. We share the committee's concerns that the Commission's proposal for the directive does not adequately achieve these dual objectives; indeed, there is a serious risk that the directive may result in the loss of key consumer protections, both in the UK and in other member states.

I am also concerned that the scope of the directive and its interaction with national contract law and other Community legislation is not sufficiently clear. I am particularly concerned about the potential loss of the UK right to reject faulty goods, the reduction in the period of trader liability and the potential loss of consumer protection in the area of financial services. These points were addressed by a number of noble Lords and it will only be in the interests of time and trying to cover as much as I can if I do not single them out individually.

I say in response to the question from the noble Baroness, Lady Howarth, that the Government's view is that it is essential that the right to reject faulty goods for a short period is retained. That is a cornerstone of the UK protection regime and is understood and

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highly valued by consumers. Although we have received assurances from the Commission that we can retain this right in general contract law, we do not regard this as a satisfactory solution. It will not achieve the aims of harmonisation or simplification and is likely to be confusing for both traders and consumers. We are therefore working with the Commission and other member states to secure an amendment to the directive to provide a fully harmonised, time-limited right to reject which will be available to consumers across the EU. I am pleased to say that we are making progress on this issue. We are also working with other member states to ensure that longer liability and limitation periods will be provided by the directive. Two years is simply not enough in relation to certain goods and services.

The noble Baroness, Lady Young, expressed her concern about future-proofing in relation to digital products, services, mixed goods and services contracts. The Government have made it clear that we would like to see these issues covered throughout the directive, including Chapter 4, which provides consumers with rights when things go wrong. Unfortunately, it now seems unlikely that the scope of the directive will be expanded in this way. That is disappointing, but we are pleased that the European Commission is looking at the area of digital products, although its conclusions will not come in time for action through this directive. The UK Government have committed to ensuring that our domestic laws provide adequate and appropriate protections for consumers when they purchase digital products. It is our intention to do this through a consumer rights Bill which will also simplify our existing consumer protection rules on unsatisfactory service provision. We hope that our work will inform the Commission's thinking on these important issues.

I now turn to the comitology procedure-I thought that this had something to do with astrology before I encountered the directive, but I now know how much in error I would have been-which has exercised a number of noble Lords. The Commission proposes that the procedure should be used to update and amend the list of banned and grey contract terms. The Government have concerns about whether the use of the comitology procedure is appropriate given the importance of these lists. Although the procedure would provide a degree of flexibility to respond to contractual terms that raise the issue of unfairness, there is also a clear risk that it could be opaque and may not adequately take account of the views of national Governments and stakeholders. We know that other member states share the concern expressed in the committee's report.

We are aware of the strong concerns about the adequacy of the Commission's impact assessment-a number of noble Lords referred to it. Like the noble Baroness, Lady Howarth, the Government are pleased that the Commission has recently produced a comparative table setting out the impact of the directive on consumer protection in each member state and an accompanying note on important issues such as the scope of the directive, which also concerned noble Lords. We are also pleased that, through its work on the consumer markets scoreboard and on cross-border e-commerce, the Commission is making important progress in gathering additional evidence to support its policy-making.

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I shall try to answer some of the points raised. The noble Baroness, Lady Howarth, wanted to probe whether we would support differentiated harmonisation. The UK Government support full harmonisation in principle, but I have already indicated that the directive in its current form does not meet our requirements and we recognise that in some areas full harmonisation may be difficult to achieve. If that is so, we will need to consider alternative solutions such as differentiated harmonisation, but we should aim to find fully harmonised solutions wherever possible. However, we recognise that there are some areas, such as information requirements, where member states need greater flexibility.

The noble Lord, Lord Kirkwood, asked about Article 42 and inserting criminal penalties into civil law contracts. Article 42 has been brought in from existing directives. We do not think that it is the Commission's intention to apply criminal penalties to breach of contract. We have raised this as an issue and expect some clarification.

The noble Lord asked whether there would be an impact on Scottish law. Most of the directive covers fields where the law of the UK in general is the same. However, there are areas where there are differences between England and Wales and Scotland. The key point relates to the limitation period for contractual disputes. Five years applies in Scotland and six years in England and Wales. We have consulted Scottish stakeholders and the Scottish Executive; the noble Lord, Lord Kirkwood, will be pleased to learn that we regularly talk with them.

One of the nuggets of this debate was definitely Donoghue versus Stevenson. It became an even more beautiful nugget when the noble Lord, Lord Lyell, explained to me that it concerned a decomposed snail in a bottle of Stone's ginger wine, which I think is still for sale. I shall treasure my new knowledge of the relevance of Donoghue versus Stevenson.

Lord Woolf: Would the Minister mind if I just drew his attention to the fact that eventually it was found that there was no snail in the bottle?

Lord Young of Norwood Green: It is just like being told that the tooth fairy no longer exists. The noble and learned Lord has destroyed another illusion, but I thank him for the information.

I think that I have already covered some of the points made by the noble Lord, Lord Borrie. He has already received enough plaudits for his contribution; if we give him any more, he will not get out of the Chamber. We share his concern about the reduction of protection.

The noble Baroness, Lady Wilcox, spoke about the need for plain English and not having something that becomes almost a lowest common denominator. I believe that I have addressed her point about the full impact assessment.

The noble Lord, Lord Whitty, feels that we need to start again. I am not sure that we would share that view, but we share his underlying concern about ensuring a real improvement in consumer rights in going down this road. I believe that I have addressed most of the points made by noble Lords. If I have missed any, we will communicate in writing.

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I reiterate the Government's support for the principles that underpin this directive: consumer protection and the internal market. However, it is clear that there is much more work to do to secure a directive that meets both these objectives. We agree with the committee that the directive can be approved during negotiations; it should not be scrapped or rejected out of hand.

I have just realised that I did not pick up all the points made by the noble Lord, Lord Razzall, who rightly said that we should not be complacent even about our own rights and that there are areas capable of being improved-he gave us numerous examples. I share the view of the noble Lord, Lord Hunt, that we will not get a total media bypass on this issue, because it genuinely creates a lot of interest. My noble friend Lord Whitty will in any case ensure through his work that there will not be a media bypass. Another pleasurable part of the debate was his reminding us about the law of unintended consequences and the cones helpline. What a poignant moment that was. I can assure him that we can retain auto-enrolment. We share his concern about clarity, which is vital.

The Government are working hard to secure amendments to the directive that will provide the necessary levels of consumer protection and clarity. We are making progress and I remain optimistic that we can secure the necessary changes to achieve an overall high level of consumer protection.

As we have made clear, the UK Government support full harmonisation of consumer rights where there is evidence that minimum harmonisation and the resulting divergence in laws create barriers to trade and reduce consumer confidence. We will continue to work with the Commission and other member states to find solutions that can be accepted on a full harmonisation basis wherever possible, but we recognise that it may be difficult to achieve this in some areas.

We will not achieve the potential benefits that the directive can bring simply by insisting that all current UK provisions remain unchanged. All member states must be willing to amend and adapt their rules to achieve workable solutions to ensure that consumers across the whole EU benefit from the directive, but I stress again that it should not be at the expense of the clear protection that already exists.

Likewise, simply setting the level of consumer protection at the highest possible level will not necessarily benefit consumers or traders. The increased costs to business will simply be passed on to consumers, and increased burdens may force traders to withdraw from some markets, resulting in a reduction in consumer choice. So there is a balance to be struck in consumer rights.

We have been negotiating this directive in council for a year now. While the progress has been slow, we are making progress towards agreeing solutions on a number of key issues. Following the elections this year, the European Parliament has recently begun its detailed consideration of the proposal. We expect its report in the first half of next year.

The Government will continue to work with our European partners to improve the text of the directive so that it brings benefits for both consumers and businesses in the UK and across Europe. As we stated

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in our consumer White Paper published earlier this year, it is our intention to implement the directive through a consumer Bill of rights that will simplify and modernise UK consumer protection legislation so that all key consumer protections are contained in a single piece of legislation, making it easier for traders and enforcers to understand and apply the law and for consumers to understand and assert their rights.

I could not conclude this debate without once again thanking the noble Baroness, Lady Howarth, and the committee for a really valuable piece of work and an outstanding report.

11.49 am

Baroness Howarth of Breckland: My Lords, I thank all noble Lords who have taken part in a remarkable and in-depth debate. The committee will be reassured that so many other noble Lords in the Chamber have thought about these issues in such depth and continued to fight on behalf of the consumer while remembering that we also have to encourage business.

I was pleased that the noble Baroness, Lady Young, talked about information and that other noble Lords talked about clarity. Something that we were very concerned about was that many of our consumers do not understand our laws or their rights, even as they stand. For example, I speak as a consumer who discovered that when my garden gates did not work appropriately I could have sent them back within six years. This came as a surprise to me. Many consumers out there do not understand their rights.

If we make things more complex-and some of the links with contract law would make consumer rights extremely complex-rather than having straightforward regulation, our consumers will find it even more obscure, and Consumer Focus and Which? will have a harder job to make ordinary people aware of their rights. That is why the committee is so concerned that the Government should continue to fight for this directive to be clarified and to have a good basis in relation to consumers in the UK.

When the Minister began to reply, what he was saying sounded really encouraging, as though the Government were accepting what we were saying, until he got to the last paragraph, which, as I could see, somebody had written for him. Then we had this sort of speak: "Well, it will all be all right when we get there and we have to keep the balance". I say to him that the devil is in the detail and, while he gives these broad reassurances, the right to reject and the issues about mixed contracts and all the things that we have debated this morning remain important to consumers. As we come to an election, I am not sure who will be prepared to give up those rights that the electorate find so extraordinarily valuable. Furthermore, I do not believe that doing so will improve cross-border trade-and I do not think that my committee believes that or that the report reflects that belief. We heard from many in industry that consumer confidence increased trade; that would be true across borders, too. Therefore, if Europe has good consumer law, that is more likely to improve cross-border trade than going down to a minimum of rights.

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This morning we have some visitors from the Commission, who have been listening to the debate. I should say to the noble Baroness, Lady Hooper, that we met a number of people from other jurisdictions when we went through this subject. We were encouraged and helped by them. We were interested that other countries wanted us to keep our present level of consumer protection, because they wanted to get to it themselves.

In conclusion, I give special thanks to the committee. As a chair, you tend to get the accolades, which I always think is rather unfair. I had an extraordinarily able committee, whose probing, questioning and intelligence meant that we ended up with the report that we have before us. We also had an exceptional special adviser in Professor Geraint Howells, whose work I commend, as did the noble Lord, Lord Borrie. Our staff, the committee clerks and advisers, work to translate the committee's views and the witnesses' evidence into the report.

The one thing that I may have achieved as the chair is improving the clarity of the English. When I joined the Select Committee, I could understand about as much of what was going on as I did about the snail in the bottle. After my constant grumbling, and that of the noble Lords, Lord Grenfell and Lord Roper, I think that we speak plainer English, even in Select Committee. That is absolutely vital, because it reflects back to what we are saying about consumers and people in our communities. It is not that people are unintelligent but, if we do not explain to them what their rights are, how they can be understood and what they can do to improve their position, they have no hope of doing so.

Motion agreed.

Rail Freight (EUC Report)

EU Committee Report: on Recast of the First Rail Freight Package

Motion to Take Note

11.55 am

Moved By Lord Freeman

Lord Freeman: My Lords, I shall translate into plain English what this debate is about-the need to strengthen and implement EU law to create an open and competitive rail freight market. After all, the original purpose of what is now the European Union was a common market in which goods and services could move freely and competitively.

I thank the noble Lord, Lord Faulkner of Worcester, for agreeing to answer this debate. The noble Lord, Lord Young of Norwood Green, in winding up the previous debate, acknowledged that one has to be very careful, because there are always one or two people who know more than you do about a subject. At least two noble Lords who are going to speak know far more than I do about it. I particularly thank the noble Lord, Lord Bradshaw, a member of Sub-Committee B, and the noble Lord, Lord Berkeley, whose knowledge

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and involvement in furthering an open and competitive rail industry, not just freight but passenger, know no bounds. His activities over the past 30 years in this field deserve congratulations and thanks from us all.

I thank colleagues on Sub-Committee B, which deals with the internal market, including Professor Chris Nash, who was our special adviser. Indeed, I think that he was an adviser on an earlier report on a similar topic. Thanks, too, to James Whittle, who has moved on to become second clerk to the Select Committee chaired so excellently by the noble Lord, Lord Roper. I am quite certain that James Whittle will go further and higher in his career-I hope, very much, in Parliament.

We took evidence from 23 different bodies and 14 of them gave oral evidence, an indication of the degree of concern, which I shall shortly describe, about the failings of the first rail freight package, which dates back to 2001. There have been several other attempts in the intervening years between now and then to try to develop a competitive market for rail freight, but the original initiative was eight years ago. We produced our report in June this year, and on the same day as publication had an informal response from the noble Lord, Lord Adonis, who was then Minister of State at the Department of Transport. I pay tribute to the degree of interest and expertise that he has developed over a great number of years in the rail industry. He welcomed the report informally. Then we had a formal response from Sadiq Khan MP, the present Minister of State at the Department of Transport. That came very quickly-in July. If Select Committees of this House are going to produce reports, a timely response from government is helpful to your Lordships and to those who represent us in Brussels, as well as to the Commission, Parliament and Ministers who have either given us evidence or taken an interest in our proceedings. I welcome the very positive response from Mr Sadiq Khan. There were areas of minor disagreement or reserve, which the Minister may wish to outline a little later on, but overall it was a positive response, and I therefore hope that the committee's report has been helpful.

The first rail freight package was delivered in 2001. It was a directive, and when concluding my remarks I shall come on to why I believe-I think that the committee generally agrees-that regulations are, frankly, sometimes more effective than directives. Although some would argue that it is not perhaps as democratic as a directive, which allows Parliaments to interpret into their own laws its purposes, a regulation says, "This is what should be done to develop a competitive market".

The purpose of the rail freight package was not only environmental-to take more traffic off the roads and onto the railways-but, more importantly, to try to open up an efficient and competitive market for rail freight moving within the European Union. Obviously, we have looked at the difficulties encountered by UK rail freight operators travelling through the tunnel, then through France to other destinations in Europe, and at the restrictions, problems and headaches that they have encountered. Eight years on, the Commission has finally realised that things have not worked out as well as they should. In June 2008, 24 member states

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were written to, pointing out where they had not fully complied with the requirements of the first rail freight package. I believe that, today, 21 out of that 24 are still in breach of their duties in implementing the directive. I do not wish to single out any particular countries, but I shall mention four that our rail freight operators seek to pass through: France, Germany, Spain and Belgium. I anticipate that those four are shortly to be subject to infraction proceedings for not implementing the package.

I appreciate that there has been an economic downturn and consolidation in the industry. Particularly in Germany and France, the larger railway undertakings have been able to snap up, at attractive prices, smaller operators. Once you get that consolidation, competition is therefore obviously under threat. Doubtless, the noble Lords, Lord Berkeley and Lord Bradshaw, and other colleagues, may wish to deal with that issue in greater detail, but for the convenience of your Lordships I shall run through the seven key conclusions that we reached.

First, we believe that, as in the United Kingdom, the infrastructure-that is, the track-should be under separate management and, indeed, ownership from the train operators. This happens in the United Kingdom, with Network Rail being separate from the passenger and freight train operators. That is important, because you enhance competition if the individual new entrant to a particular new industry is able to deal with a common infrastructure-of track ownership and maintenance-so that there is a level playing field not only for United Kingdom rail freight operators seeking to pass through European countries, but for anyone from the 27 nations.

Secondly, we believe that the regulators should be independent not only of the track owners and train operators but of Government. Government may appoint regulators, but the regulator-as in the United Kingdom's Office of Rail Regulation-is genuinely able to reach clear, justifiable and economically based decisions. In several European countries the regulator is either part of a government department or, indeed, controlled by the infrastructure under a manager. That cannot be right.

Thirdly, we believe that there should be a common definition and transparency in calculating the track access charge-that is, the charge that the freight operator pays to travel along the railway lines in an individual country. Those charges are not transparent at present. They vary widely across Europe, and if there could be a common formula for the calculation it would be fairer, and easier, for the freight operators to calculate the costs of moving their goods. Fourthly, we think that all of the freight operators should have open access to what we call rail services, such as terminals, ports and sidings. That is not true at present, and it is a restriction of trade.

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