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What problems arise? First, as the noble Baroness has pointed out, the thresholds used in means-testing are extremely and unacceptably low-a disposable income of £3,398, not simply of the defendant himself but taking into account the income of his partner and any support that he might have from relatives or friends who live in the same household or support it. That is an unacceptably low threshold, which will apply to a large number of people. Then there is the question of the capital involved; £30,000 is the threshold for capital. What the report fails to take into account from a practical point of view is that, if a convicted defendant does have any money, he is likely to have it seized from him under the Proceeds of Crime Act-a matter that we discussed yesterday. If he is assessed at the beginning of the proceedings, just after he has been arrested, what account can possibly be taken in a Crown Court trial if he does not get bail and loses his job and if that causes severe problems to his partner and if, at the end of the day, when the case is completed, any capital that he or she may have is removed through the Proceeds of Crime Act? What consideration has been given to those practical points?

My first major point is that it is quite wrong to make the assessment of a person just as he has been arrested. It is wrong practically and in principle. He is presumed to be innocent until he has been proved guilty; at that point, when he has been proved to be guilty, and in the light of the circumstances of that time, as well as those of his partner and his home and

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whether applications have been made under the Proceeds of Crime Act to take whatever assets he has, it would be sensible to carry out a means test to determine if and whether he should produce any contribution to his defence.

There is a further issue in that regard. While the defendant is in prison or on bail, he is subject to all sorts of other pressures that cannot be foreseen by a means test before the trial procedures begin. Unless there is built into the system the possibility of reassessment, which means more cost and more bureaucratic work, he is under considerable difficulty.

I turn to other points of concern. The partner whose income is taken into account may have children and those children may suffer as a result of a conviction and any sentence that is passed or any order that is made. The noble Baroness referred to the question of defendants who are unrepresented. The Minister will know from his own experience just how difficult it is for a judge conducting a trial at which the defendant is unrepresented. If he chooses not to incur the expense that would be involved in having legal representation, the trial would be prolonged, made difficult and would cost more. That is a matter that does not appear anywhere in the impact assessment-the cost of implementing a policy that will include the additional costs of court proceedings.

5 pm

So when one sees that the impact assessment claims that it will deliver gross savings of £52.4 million per annum-it is as exact as that-one has to take that figure with a pinch of salt. My second main question is: when will this be reviewed? When will rational consideration be given to the effects of the scheme and to how much money has actually been saved? The initial set-up costs are estimated at £12.2 million and the ongoing costs are at £13.5 million per annum-presumably those can be calculated a bit better-but the gap between the costs of running the scheme and what is recovered may simply be so narrow as to make the whole thing unworkable and unnecessary, as has happened on a previous occasion.

Then there is the calculation of debts. It often happens that a defendant has large debts, possibly overdrafts at the bank but much more likely credit card debts, that have to be serviced. The impact assessment has not seriously looked at that, but it says that 40 per cent to 50 per cent of households in the defendant population are likely to be in debt. On one hand you have the bureaucratic costs of running the scheme; on the other, you have the possible additional costs of court proceedings through underrepresentation; thirdly, you have the social costs that arise from the fact that debts will not be paid and partners and children will all be in a difficult position. I hope that the Minister will give us some assurances that, when the scheme goes through, it will be subject to regular monitoring and reports of the results of that monitoring and whether the guesstimates that appear in the impact assessment have proved to be true.

Lord Bach: My Lords, I am grateful to the noble Baroness and the noble Lord for their contributions and helpful questions. It is right, with a new scheme

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such as this, that questions should be asked of it. The answer is that we will know the result only once the scheme has been tried. I can say that the early-adopter phase will be used to test the processes and I assure the House that, for obvious reasons, we will want to continue closely to monitor the impact of these pretty fundamental changes. Towards the end of next year a full review will take place of how this has worked out.

When I thank the noble Lord and the noble Baroness, though, it is not just for the comments that they have made but because they expressed support in principle for the idea that those who are convicted of offences in the Crown Court and who can afford to pay should have to pay some part, if not all, of their costs, so that the precious legal fund that the noble Baroness talked about can be spent on those who really need the help that it provides.

I shall try to deal with some of the important questions that have been asked. The noble Lord, Lord Thomas of Gresford, rightly pointed out that the previous experience in this field has not been entirely happy, to say the least. One of the reasons for that is that the costs rather overwhelmed the amount of money that came in. We have been very conscious indeed in creating this new scheme to try to make sure that that does not happen. Of course, there will be start-up costs. We know that there will always be some cost in running this, but we are as sure as we can be at this stage-before the early adopters and before the scheme comes into force-that this is a better scheme and better planned. It also has more chance of satisfying the principle that we all agree with, which is that convicted defendants should, if they possibly can, pay for their criminal trials. That is in the same way as happens now in the magistrates' courts, which saves the Legal Aid Fund a considerable amount of money.

The noble Baroness made some interesting points about the HCCs; perhaps I may come to those at the end. Both the noble Lord and the noble Baroness asked about the number of unrepresented defendants and whether that has risen in the magistrates' court since the new scheme came in some years ago. I do not have the figures, but I will of course write to them. However, defendants appear unrepresented for a number of reasons and perhaps I may say a word or two about that important point. We believe that introducing the new scheme will not have an unduly adverse effect on the number of unrepresented defendants, but it is something that we shall be looking at closely.

It is perhaps worth noting that under the old Crown Court means-testing scheme, abolished in 2001 when the threshold for income contributions was lower than we now propose, only 0.3 per cent of defendants appeared unrepresented. Current figures from Her Majesty's Courts Service suggest that about 0.05 per cent of defendants appearing before the Crown Court represent themselves, equating to a figure of about 45 defendants out of a total defendant population of some 90,000. As I say, defendants appear unrepresented for a number of reasons, and we will use the early adopter phase to test out our belief that the introduction of means-testing will not lead to a significantly greater number.

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The noble Baroness asked how much would be saved, and the noble Lord, Lord Thomas, gave the estimate-and it is, of course, an estimate. We think that £50 million per year is a reasonable estimate. Perhaps I might pray in aid that we thought when the magistrates' court scheme came in that we would by now be saving about £80 million per year, which is about the figure that we are presently saving. We think that that £50 million is a cautious figure. The noble Baroness asked about the costs of expert witnesses. We are looking very hard indeed at those costs, as part of the quite controversial consultation paper which we put out in August. We agree that the costs of experts across the field are too high and take up too much of a finite budget. We have set out the options in that consultation paper.

The noble Lord asked about the modelling scheme. We believe that that is based on a wide variety of surveys undertaken over a considerable period and that those data sources are fairly comprehensive and reliable. The same modelling was used to develop the magistrates' court means-testing scheme. I must straightaway put right a mistake that I have made; I am grateful to those advising me, as the savings in the magistrates' court scheme have not been £80 million per year as I said, but £80 million in total since it began. That £80 million total is in the three years that the magistrates' court scheme has been in operation. I am sorry to have misled the House, even if it was only temporarily.

Lord Thomas of Gresford: Taking that figure, it means that the savings have been rather less than £30 million a year for the very many more defendants who appear in the magistrates' courts than appear in the Crown Court. If the savings are to be on that sort of level in the Crown Court, are we not getting very close to the estimated costs?

Lord Bach: The noble Lord will know-and I certainly know from experience-that costs in the Crown Court are rather higher than costs in the magistrates' court by a very large multiplier. Indeed, if one looked at the cost of legal aid in the magistrates' court compared to the Crown Court, one would see that the Crown Court took up a huge amount of criminal legal aid costs, so it is not a direct comparison. Let me not try to rewrite history. The early days of the magistrates' court scheme did not work particularly satisfactorily. Changes had to be made. It is now up and running well. Those are the total savings at this time.

I was asked about the impact on vulnerable defendants. Enforcement action will be taken only against the defendant and each case will be treated on its merits. Proper safeguards exist for vulnerable people. The noble Lord, Lord Thomas, made a point about it being more sensible to assess on conviction. Our experience-and, I think, that of the courts generally-is that recovery from convicted defendants has been administratively cumbersome and produced very few savings for the fund. That has been a disappointment, and so we feel that this new system is appropriate.

Lord Thomas of Gresford: My Lords, I am sorry to interrupt again. Does the Minister accept that acquittals are, as a percentage, much larger in the Crown Court?

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Does he also accept that the proposed scheme means that assessment and means testing have to take place at the beginning, will possibly have to be reassessed in the light of circumstances, and that the bureaucracy then has to pay back all the money that has been recovered? There is a potential great waste of money in 40 per cent of cases.

Lord Bach: I do not believe that it is as many as 40 per cent of those who appear in the Crown Court, either for plea or for trial. We are talking about pleas and committals for sentence where a guilty plea has already been entered. It is a good deal less than 40 per cent. All these matters have been carefully considered in drawing up the scheme.

I turn now to thresholds, on which the noble Baroness and the noble Lord made interesting points. Thresholds take account of partners, dependants and all relevant outgoings. It is disposable income that counts. We believe that the calculation is generous. It incorporates a cost of living allowance that is weighted to reflect the defendant's family circumstances and number of dependants. The allowance, which is based on the categories of expenditure covered by the well-known expenditure and food survey, includes items such as food, non-alcoholic drink, utility bills, clothing, footwear, health, education and transport. In addition, the test takes into account a defendant's actual costs for income tax, national insurance, council tax, rent and mortgage payments, childcare costs and maintenance payments. Having made these deductions, it is only in those cases where the defendant's disposable income exceeds £3,398 a year that they will be liable to pay any contribution from their income.

The income threshold level and the range of allowances that we make before requiring a defendant to contribute is more generous than those recommended in a report by the Joseph Rowntree Foundation on minimum income standards in Britain. We are criticised by the Law Society for not making as generous an allowance for very young children as the Rowntree report proposes, but we make a more generous allowance for adult members of the family and believe that it represents a fairer deal for the defendant, their partner and dependants.

If defendants are assessed as being able to make a contribution from income, they will have to make six monthly payments. If they pay on or before the due date each month, they will have to make only five monthly payments. That aspect of the scheme will ensure that defendants do not overpay significantly from income. Any overpayment will be refunded at the conclusion of the case, with interest. There is also a hardship route that will act as an additional safeguard for those defendants who believe that they genuinely cannot afford to meet the costs of their income contribution.

I was pleased to hear the noble Baroness refer to high-cost cases. I hope very much that her comments represented the view of her party-I am sure that is the case-because this is a very important consideration. She said that the total amount spent on legal aid was £2.1 billion, with £1.2 billion being spent on criminal legal aid and the balance on civil legal aid, of which a large amount is family legal aid. Very high-cost cases

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are widely considered to take up too much of the Legal Aid Fund. Just over £100 million per year is taken up by very high-cost cases, which are defined as cases lasting more than 40 days, those estimated to last more than 40 days, or those estimated to last more than 25 days with a certain number of pages. We have just put out a consultation paper on very high-cost cases. One of its suggestions-there are a number of possible suggestions-is that cases should not be considered very high-cost cases until they reach 60 days plus, and that other cases should be paid for by graduated fee, as happens at present with Crown Court defence cases lasting fewer than 40 days. Savings would be made if that system were adopted. Importantly, those savings could go towards ensuring that junior members of the Bar do not have to bear the cut that we are likely to have to impose given the pressures on the legal aid budget and the need to ensure that we concentrate our legal aid spend as best we can on people who need legal help, particularly in these hard times. I am very grateful to the noble Baroness for having raised the issue of very high-cost cases.

I have spoken for quite long enough. I am very grateful to noble Lords for having made the points that they did. We are on a journey that we very much hope succeeds. I know that the House also hopes that it will succeed as that would mean that convicted offenders who had the resources to pay for their legal aid would pay for it. We will be watching what happens very closely because past experience shows that such schemes have not always succeeded. I know that not only we but also the noble Baroness and the noble Lord will be watching what happens closely.

Motion agreed.

Criminal Defence Service (Representation Orders, Appeals etc.) (Amendment) Regulations 2009

Copy of the Order
24th Report from JCSI

Criminal Defence Service (Representation Orders) (Amendment) Regulations 2009

Copy of the Order
24th Report from JCSI

Motion to Approve

5.19 pm

Moved By Lord Bach

Motion agreed.

Banking Act 2009 (Exclusion of Insurers) Order 2009

Copy of the Order
1st Report from JCSI

Motion to Approve

5.19 pm

Moved By Lord Davies of Oldham

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Lord Davies of Oldham: My Lords, the order excludes insurance companies from the scope of the special resolution regime established by the Banking Act 2009. The regime provides the authorities with powers to resolve banks that are failing. The regime is also applied to building societies, and may be applied, by order, to credit unions.

The usual way of defining a "bank" in legislation is to refer to a UK institution that has a regulatory permission granted by the FSA to accept deposits, and then to refine that definition excluding bodies that are not to be regarded as banks. Sections 2 and 91 of the Banking Act adopt exactly that approach, but give the Treasury the power to add to the exclusions from the definition of bank by making orders.

The reasons for excluding insurers are clear. The special resolution regime was not designed for insurance companies. The Banking Act is, of course, an,

"Act to make provision about banking",

not insurance. This is also clear from the special resolution objectives. These refer explicitly to "banking services", "banking systems" and "protection of depositors", none of which are applicable to insurance companies.

The key provisions of the special resolution regime would not be suitable for use in the resolution of an insurance company and would require significant modifications if they were to be applied effectively to insurers. This reflects the differences in the structure of insurance and banking institutions, and the different ways in which they carry on their businesses, as well as the significant difference between banking and insurance as financial services. While the Banking Act provides powers to deal with mutual banks-building societies-there is no similar power to deal with mutual insurers, which perform an important role in the insurance industry in the UK. The statutory code of practice issued under Section 5 of the Banking Act refers only to banks and building societies. The banking reform consultation documents essentially referred only to banks and other institutions that carry out deposit-taking business.

However, it may be helpful if I explain why insurance companies often have a deposit-taking permission, which is why they are potentially caught by the definition of "bank" and the scope of Parts 1 to 3 of the Banking Act. Under the Financial Services and Markets Act 2000, institutions can apply for permission to carry on a number of regulated activities, such as accepting deposits and dealing in investments as principal or agent. Where an institution meets the conditions for authorisation, the FSA will issue a permission that lists all the regulated activities that the institution may undertake, and any restrictions that apply to those activities.

A view has been taken historically that, in some instances, the business of providing insurance might require a firm to accept deposits. Consequently, most institutions that are authorised by the FSA to carry on insurance business have the permission to accept deposits. This permission is granted for the purposes of carrying on insurance business.

Let me give an example of where an insurance company may need a deposit-taking permission. A life insurer may need to hold the proceeds of a matured

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policy while waiting for instructions from the policyholder as to what to do with the proceeds. To do this will require the insurer to hold a deposit-taking permission, but it can be used only in the course of carrying on its insurance business. I must emphasise, however, that even if an insurer has a deposit-taking permission, it does not carry out banking business. Indeed, insurers are prevented from carrying out deposit taking by European law. This is recognised in the limitation that the FSA applies to these permissions, under which insurers are limited to accepting deposits in the course of carrying on insurance business.

Like many industries, the UK insurance sector has been affected by the financial crisis. However, both the insurance industry and the UK's prudential regulation regime for the insurance sector have so far stood up well to testing economic conditions, and the insurance industry continues to provide a vital contribution to the UK economy.

As I have made clear, the special resolution powers are not designed to deal with insurance companies, and the Government believe that it is appropriate that insurers should be expressly excluded from the scope of the definition of a bank in Sections 2 and 91.

I apologise if I have repeated elements of the Banking Act, with which I know that the noble Baroness, Lady Noakes, and the noble Lord, Lord Newby, are all too familiar, given their exertions on the Act when it went through this House. I beg to move.

Baroness Noakes: My Lords, I thank the Minister for introducing this order. I was initially inclined just to nod it through as another example of the perils of legislating in haste, as we did with the Banking Act when it was considered in your Lordships' House earlier this year, but I will explore the reasons for the order a little further.

I accept what the Minister has said about the Banking Act being written primarily with banks in mind, but the situation is not quite as simple as that. As has been pointed out, credit unions and building societies, which are not banks, are specifically excluded from the definition of a bank but are given their own special enabling powers later in the Banking Act to ensure that provisions that are analogous to those for banks can be made-and, indeed, have been made for building societies-so that the equivalent of the special resolution regime can be created for them.

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