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21 July 2010 : Column GC39



21 July 2010 : Column GC39

Grand Committee

Wednesday, 21 July 2010.

3.45 pm

The Deputy Chairman of Committees (Baroness McIntosh of Hudnall): My Lords, before the Minister moves the first statutory instrument to be considered, I remind noble Lords that in the case of each order, the Motion before the Committee will be that the Committee consider the order in question. Motions to approve the orders will be moved in the Chamber in the usual way.

Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010

Copy of the SI
Copy of the Report

Considered in Grand Committee

3.46 pm

Moved By Lord Freud

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, the Government are committed to reinvigorating pensions, and a robust protection regime for company pensions is essential so that people have the confidence to save. Noble Lords will be aware that Parliament legislated, with cross-party support, for a new regime. The Pensions Act 2004 created two new bodies, the Pension Protection Fund and the Pensions Regulator. These bodies are delivering improved protection for scheme members, helping to renew confidence.

These two sets of draft regulations, which the previous Government consulted on, will respectively mean that the UK Government meet a European Commission ruling and ensure that the protection regime operates effectively. The first set of draft regulations concerns the Pension Protection Fund and a state aid issue. I hope that noble Lords will bear with me if I am not able to answer some detailed questions which I am sure will emerge. BT plc has appealed to the Court of First Instance on the state aid ruling, and last Friday the High Court concluded a hearing brought by the trustee to determine the precise meaning of the scheme's Crown guarantee. Some answers from the court are likely next week, but several key issues remain to be explored by the court after that.

Noble Lords will be aware that the Pension Protection Fund was set up in 2005 to protect members of eligible pension schemes which are mostly final salary defined benefit schemes. It does this by paying compensation to members of eligible pension schemes when the sponsoring employer has become insolvent and there are insufficient assets in the scheme. The PPF is financed through levies on eligible defined benefit schemes, residual assets of pension schemes transferring into

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the PPF and investment returns. The administration costs of the PPF are paid for by money provided to the board by Parliament. This money is then recovered by an administration levy from schemes eligible for the PPF. A small number of schemes do not pay the PPF pension protection levy or the PPF administration levy. These are defined benefit pension schemes with a full Crown guarantee and therefore do not require the protection of the PPF.

A Crown guarantee is a promise given by a public authority to stand behind the liabilities of a pension scheme should the scheme wind up in deficit. The precise nature of the Crown guarantee and what it protects varies, but broadly the result is the same-these are schemes whose liabilities are ultimately underpinned by the taxpayer. In some cases, the Crown guarantee covers only a particular part of the scheme, certain members or certain benefits. These are known as "partially guaranteed schemes". Such a scheme would have to pay an administration levy only in respect of the part of the scheme that is not covered by the guarantee.

In many circumstances, Crown guarantees for pension schemes do not present a problem as the sponsoring employers are not commercial entities operating in a competitive market. In 2009, the European Commission reported on an investigation into whether the Crown guarantee for certain liabilities that BT had to the pension scheme gave rise to an incompatible state aid. The Commission decided that the non-payment of the PPF levies by the BT scheme could not be justified under EU rules because it relieved BT from charges that its competitors had to pay and was therefore an incompatible state aid. It is important that the Government do not unduly distort competition in competitive markets through state aid. Consequently, the UK Government were required to cease the incompatible state aid and ensure that the BT scheme paid the full PPF levies.

In February 2010, the previous Administration made regulations by negative resolution to remove the exemption from paying the PPF pension protection levy. This followed consultation last autumn on draft regulations. This pension protection levy is set by the board of the PPF, is intended to raise £720 million in 2010-11 and is one of the ways by which the PPF funds the compensation payable to members of schemes in the PPF. This set of regulations will complete the action and remove the exemption from the PPF administration levy where it gives rise to an incompatible state aid. This second levy funds the running costs of the PPF and is set at the much lower level of £22 million in 2010-11. These regulations are the final part of implementing the Commission's decision. The Commission's decision in respect of the BT pension scheme applies only to that scheme. However, the Commission will expect the UK Government to apply the same reasoning to schemes in a comparable legal position, and where the facts are the same. These regulations are therefore drafted in such a way.

I turn to the Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010. The Pensions Regulator commenced operations in April 2005. It was established as an arm's-length body and charged with regulating workplace pension

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schemes. Noble Lords will be aware that Parliament gave the regulator important powers, with cross-party support, to address the risk of avoidance activity. Avoidance is an attempt by a sponsor employer deliberately to walk away from its statutory pension obligations-for example, as part of a corporate restructure-or to offload them onto the Pension Protection Fund. This activity would have serious cost implications for those schemes that will remain responsible for paying the PPF pension protection levy.

One of the regulator's main powers to address the avoidance activity is the contribution notice. This requires a cash sum to be paid to the scheme, or to the board of the Pension Protection Fund, up to the value of the sponsor employer's full statutory debt to the scheme. There are legal tests to ensure that this power is used appropriately. For example, the regulator must be of the opinion that it is reasonable to exercise its powers and it must have regard to certain factors, where relevant, when forming its decision. These factors include the avoidance of involvement of the person in the act of avoidance, and the connection or involvement which the person has or has had with the scheme.

The Pensions Act 2008 amended the contribution notice power to close a loophole. The problem was that under the 2004 Act, the regulator was prevented from issuing a notice to any scheme other than the one in relation to which the avoidance occurred. This meant that an employer could avoid a contribution notice by transferring the members to another scheme. Requiring the employer to pay funds to the original scheme would not assist those transferred members, so a contribution notice might not be justified. Parliament agreed legislation, with support from all sides of the House, to permit the regulator to direct the notice to the scheme to which the members had been transferred.

These draft regulations, which are required under the 2008 Act, simply set out how the regulator must calculate the amount to be specified in a contribution notice where members are transferred from a defined benefit to a defined contribution scheme. The 2004 Act already provides the means for calculating this amount in respect of defined benefit funding rules, and these regulations provide the means for calculating the contribution notice sum where those rules do not apply. There are important safeguards, including that decisions to use the contribution notice must be made by the regulator's determinations panel, which is independent of the evidence-gathering part of the regulator.

In my view, there is no undue impact on business, and consultation responses supported this. These regulations will in fact provide certainty for business on how this power works. In my view, the provisions of the Occupational Pension Schemes (Levies) (Amendment) Regulations 2010 and the Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010 are compatible with the European Convention on Human Rights. I commend the two sets of regulations to the Committee.

Lord McKenzie of Luton: My Lords, I thank the Minister for a precise and extensive explanation of these orders. Given that, as he indicated, they were

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promulgated under the previous Government, it will come as no surprise that we do not propose to oppose them. Notwithstanding the fact that I had command of the Pensions Act 2008, I do not propose on my account to delay the Committee much on these issues.

There are just a couple of matters in relation to the contribution notices on which I wonder if the Minister could update me. I went back and read a bit of the Hansard debate-sad person that I am-and it reminded me what a joy that episode was in my life. I recall that there were issues around the extent to which anti-avoidance measures should be written into the primary legislation to give assurances to businesses, trustees and sponsors of pension schemes, and how much should be left for a code of practice and other means to maintain flexibility to be able to ensure that new avoidance devices that came along could be properly addressed. On that issue, does the Minister's experience to date-I accept that that experience to date has not been extensive-suggest that the balance of that approach was right? It was a matter of some debate at the time. Are there any emerging avoidance schemes of which we are aware, where we think that the anti-avoidance framework is not sufficient or does not give sufficient powers to the regulator to address those issues?

In the past there were proposals for insurance-based schemes that would, it was suggested, negate the need to pay the PPF levy because an insurance company would stand in the stead of the PPF. At the time, because the PPF was emerging and still something of a fledgling body, the previous Government were not prepared to entertain that, although there were issues about whether the benefit of an insurance contract could be a contingent asset for PPF purposes in doing the calculations. Will the Minister update me on whether there has been any further progress in those sorts of schemes and whether the current Government are minded to take a different view from the one that we took?

The levies order is pretty straightforward and we do not take issue with it, although I ask the Minister if he could give us a general update on the PPF and where it stands in the context of the current pensions framework. In the immediate past there were a number of challenges about whether the PPF would be able to withstand the thrust of new schemes that might be entering into the PPF-I think our line at the time was that there was 20 years' worth of cash flow there, and that was the key driver. An update on that would be helpful, perhaps with an idea of the number of schemes currently covered by it.

4 pm

More specifically, with regard to the BT issue, having reflected and read the paperwork, I wonder if the Minister can help me out on one point. I accept that it is not appropriate today to debate the court's position on the detail of what the guarantee may or may not cover, but I hope he can help me out on just one issue. I was looking at the consultation on the draft regulations that covered these regulations and others, and paragraph 26 says that,

Does that leave us in a situation where, although the extent of it may be subject to some debate, the pension scheme is protected in part by a guarantee but there is a PPF levy payable, in a sense, in respect of both that part and the unprotected part? If there is effectively double coverage, how is that going to work out in practice? Presumably, the guarantee would top up in excess of the 90 per cent, but how does the Minister see that working? On what basis is the PPF levy calculated-both the admin levy, which is the particular subject, and the general levy?

Apart from one very minor other point, those are my only questions and, as I said, these will not stop us supporting the orders. Paragraph 7.2 of the Explanatory Memorandum on the levies says:

"Schemes which have a Crown guarantee given in relation to a particular part of the scheme, certain members or certain benefits, are eligible schemes and are known as 'partially guaranteed schemes' and only pay an administration levy in respect of the guaranteed part".

Is that right?

Lord German: My Lords, I, too, intend not to keep the Committee long. I shall raise a few further questions on both these orders, particularly on the levies order, just for explanation purposes.

I declare an interest: my daughter works for BT and is a member of its pension fund. I recognise that this set of regulations on the levy is still subject to legal actions, and those have not been exhausted. I also note, of course, that the regulations themselves apply more universally to the Crown guarantee, and those who would be affected are not exclusively in the name of that one company. Could we have some indication of the existing companies that may already be entrapped or changed by this regulation? I am particularly interested to note that there are former railway pension schemes that may be caught in this regulation, but it would be useful to know who else would be affected and whether they would be affected in both the partial and the full sense.

I recognise that these regulations affect only the administration levy and that the House has already dealt with the regulations in respect of the levy as a whole. The state aid recommendation, as expressed by the European Commission, applied only in respect of BT. I note the Government's comments that they expect other bodies in the same field that have been caught by this change to be encompassed in the regulation. I wonder whether and how the Government are going to move with the other companies who will be affected by it, and whether they will be expected to pay a backdated administration charge, because the impact on the pension schemes is important-especially as that is a contemporary issue for occupational pension schemes. Have the Government made any assessment of the impact that these regulations and the preceding regulations that affected the whole of the levy payments will have on those schemes? Will that make a substantial difference to the benefits that they can offer within those occupational schemes?



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Can my noble friend indicate how other bodies that are currently in receipt of the Crown guarantee, and which then move into a situation whereby they would not naturally receive that under the European direction that we have been given, would be affected? What tests would be applied to determine whether the regulations would kick in? Would such a test be whether they are privatised, to use an old-fashioned word, or whether they are in a competitive situation? Or do both tests apply? It is probably the case that the determination will have to be based on one or both of those tests and I should be grateful if the Minister could tell me which of those apply.

In respect of the regulations on contribution notices, there is only one area on which I should like to ask my noble friend a question-in relation to paragraph 7.3 of the Explanatory Memorandum, which states:

"The policy intention ... is to provide a calculation which offers equivalent protection".

Does that mean, in effect, that if there was a move from one scheme to another, the benefits that would be received by members of that pension scheme would therefore be the same? Or is there a different definition of equivalence which I perhaps do not understand?

On that basis, the Government are absolutely right to pursue both sets of regulations.

Lord Freud: My Lords, I thank noble Lords for their contributions and I am glad that we were able to take the noble Lord, Lord McKenzie, on such a romantic trip down memory lane, although I sensed a little bitterness in his observation.

The first set of regulations addresses a fairly narrow issue relating to state aid. They are intended to address the rare situation where a reduction in the PPF levy for a pension scheme with a Crown guarantee, sponsored by a commercial entity, provides an unfair advantage. The regulations will ensure that the UK Government have complied with the European Commission's decision and met their obligations. The second set of regulations provides the means for the regulator to calculate the amount of a contribution notice in certain cases, but only where the grounds for the use of this power have been met.

I turn to the points raised in the debate, and first to those made by the noble Lord, Lord McKenzie. He asked whether insurance contracts can be used. They may indeed qualify as contingent assets for the purposes of calculating the PPF levy, although there have been no recent representations on this matter and no changes in the law are currently planned.

The noble Lord asked what the experience of the Act had been in practice. As he said, these are early days, but I have pleasure in assuring him that, so far, the Act, which I acknowledge he was responsible for, appears to be working well. The noble Lord asked about activity in terms of emerging avoidance schemes. There are none that the Government are currently aware of. As he will know, the department and the Pensions Regulator work together closely in order to monitor the effectiveness of the legislation and ensure that it remains robust. He also drew our attention to paragraph 7.2 of the Explanatory Memorandum and the phrase,



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I have pleasure in confirming for him that he has not found a flaw in the regulations because that is exactly-

Lord McKenzie of Luton: My Lords, the copy I have before me states,

Lord Freud: I thank the noble Lord for that. I have in front of me a piece of paper stating "the non-guaranteed part", and it should be the non-guaranteed part. I hope that he does not have an earlier misdraft. I can assure him that the draft regulations we are considering use the term "non-guaranteed part". If an earlier incorrect draft has been floating around and if that is in any way our responsibility, I of course apologise. But in the correct form it is "non-guaranteed part". I have to congratulate him on his eagle-eyed spot, albeit of what would seem to be an out-of-date version.

The noble Lord asked where we stood on the levy. I have some information about that which will be handed over immediately. There are now 160 schemes in the PPF, and no doubt he will also be pleased to learn that the movement in the markets has meant that the deficit in the Purple Book has narrowed very appreciably. As of 30 June, it stood at around £21 billion.

I turn now to some of the points raised by my noble friend Lord German. He quizzed me on how this situation may affect other companies. The regulation reads rather misleadingly as if it is a very wide universe, but in practice, BT is the only commercial company operating in the marketplace where these regulations are relevant. We do not need to think about how this might affect other companies because there is only one other organisation with a partial guarantee, and that is Bradford & Bingley, which has been cleared by the European Union.

On the BT consultation, covered in paragraph 26, the guarantee to the company does not give it aid because it takes effect only at the time of insolvency. Where it does provide aid is by reducing the PPF levy while the company is extant.

Lord McKenzie of Luton: I am sorry to interrupt the noble Lord again, but I think that was a point that I may have touched on. Is there a potential for us to end up in a situation where if in fact BT were to become insolvent and therefore could not meet its obligations-obviously there is a big "if" attached to that-the scheme would have the benefit of the guarantee and would have had the benefit of PPF protection? My question concerns how those two things sit together and on what basis the levy is computed in those circumstances.

Lord Freud: I thank the noble Lord for that smack-on-the-nose question. It is much harder to give a smack-on-the-nose answer, because we are waiting to find out the implications of the legal case. The noble Lord is asking me to pile hypothetical on hypothetical and it is not possible at this stage to give a sensible answer. We could go on piling up the hypotheticals, but it would rapidly become silly, so I crave his patience

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at this stage. It is simply not possible to wonder how the different levels of guarantee and PPF protection may or may not interrelate.

4.15 pm

I turn again to my noble friend Lord German's point about equivalent protection. The meaning there is that members get the same financial benefit from the contribution notice irrespective of the nature of the receiving scheme. My noble friend asked whether, if we were to move to a company in a similar position-as he knows, that is a pretty limited universe-that would give rise to incompatible state aid. His question about what will happen in future is another difficult hypothetical. As we learn the outcome of this potential series of court cases, anyone privatising a state asset will be able to take that into account as they devise how to provide a Crown guarantee or whether a partial guarantee is appropriate. Again, the question is too hypothetical.

I hope that I have dealt with all questions to the satisfaction of noble Lords. I thank them for their good questions: it is a pleasure to deal with them. I commend these regulations to the Committee.

Motion agreed.

Occupational Pension Schemes (Levies) (Amendment) Regulations 2010

Copy of the SI
Copy of the Report

Considered in Grand Committee

4.17 pm

Moved By Lord Freud

Motion agreed.

Control of Donations and Regulation of Loans etc. (Extension of the Prescribed Period) (Northern Ireland) Order 2010

Copy of the SI
Copy of the Report

Considered in Grand Committee

4.18 pm

Moved By Lord Shutt of Greetland

Lord Shutt of Greetland: My Lords, the order would make a short extension to the period in which donations and loans to Northern Ireland political parties may be made confidentially. Noble Lords will be aware that political parties across the United Kingdom must report to the Electoral Commission donations and loans received above certain thresholds. Political parties

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in Northern Ireland also must abide by these reporting requirements. However, due to ongoing concerns about intimidation in Northern Ireland, the Northern Ireland (Miscellaneous Provisions) Act 2006 made provision for details of any donations reported by Northern Ireland political parties to be held confidentially by the Electoral Commission.

The Act, however, was also clear that these confidentiality arrangements would apply only for a temporary period-referred to in the Act as the prescribed period. The prescribed period is scheduled to expire on 31 October 2010 unless an order is made to extend it for a period of up to two years. The order before us today would make such an extension to the prescribed period, but only for a period of four months. I shall briefly explain why. I understand that the previous Government had committed to a full public consultation before a decision would be taken on whether to extend the existing confidentiality arrangements or provide for increased disclosure. That consultation was delayed due to the talks at Hillsborough Castle earlier this year, and then by the general election.

There is clearly now an expectation in Northern Ireland that the current prescribed period will not be allowed to lapse without full consultation. It is important for the Government to take full account of the views of all interested parties on the issue before coming to a decision on how best to proceed. However, there is now insufficient time to conduct such a consultation and to prepare and pass any subsequent necessary legislation in advance of the current confidentiality period expiring on 31 October 2010. For this reason, I believe that a short order extending the prescribed period for donations and loans to Northern Ireland parties for a further four months is needed. I beg to move.

Baroness Crawley: My Lords, I thank the Minister for setting out the order so clearly. This is my first opportunity to welcome the noble Lord, Lord Shutt of Greetland, to his new post. I wish him well in what I have always found an absorbing and fascinating brief on Northern Ireland matters. I make clear from the outset that we support the order, but I would like to put one or two questions to the Minister. I am of course happy for him to write to me on more detailed questions if he wishes to do so.

As I said, we support the order. This is a very important issue and it is vital that there is a proper period of consultation with the political parties and the wider community. The extension of the prescribed period enables that consultation to occur. I ask the Minister to confirm when the consultation period will start and when he anticipates being able to reach a conclusion about the way forward. Importantly, will he be meeting all the political parties during that period? Of course, we recognise that these are early days for the new ministerial team, but have the political parties in Northern Ireland expressed any views to Ministers about the best way to proceed?

We all want the system of political loans and donations to be as transparent as possible. At one time, there appeared to be an emerging consensus that the prescribed period should be allowed to lapse, to reflect the political progress that had been made in Northern Ireland over

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recent years. In view of the heightened threat level and increased attacks on the police, is that view changing? Perhaps the Minister would say a little more about current thinking about the threat level.

Specifically, what assessment have the Government made of the research into party and election finance carried out by the Electoral Commission and published last July? The majority of groups who took part in that survey acknowledged that the threat of intimidation remained an issue, but felt that Northern Ireland had moved on sufficiently to make the details of donors public without major repercussions. Does the Minister agree that, whatever the outcome of the consultation, there will be no justification for extending the prescribed period simply on the grounds that political donations should be regarded as a personal matter?

Can the Minister confirm whether, if the decision is taken to end the prescribed period, the reporting of loans and donations will start at the point when the period ends or at the point when the legislation originally came into operation? I am sure he will appreciate that it is important that this is made absolutely clear during the consultation as there may be a view that while confidentiality should end, those loans and donations already made in good faith and in confidence should remain protected.

As the Minister will know, loans and donations to political parties in Northern Ireland can be made by Irish citizens and a range of Irish registered organisations. Given that the confidentiality arrangements extend to them as well, how will the ending of the prescribed period affect their donations? What discussions have the Government had with Ministers in the Irish Government on this issue and what weight will the Government place on any representations that they might make? This has always been a sensitive aspect of the issue and it is important for noble Lords to understand the Minister's approach to this specific element of the consultation.

Finally, these are complex issues and I am sure that the Minister appreciates how important it is that noble Lords have a clear understanding of how the Government are approaching this important consultation and the decisions that will flow from approval of the order today.

Lord Trimble: My Lords, I begin by welcoming the noble Lord, Lord Shutt, to the first occasion on which he is to take a statutory instrument through this Committee. We are delighted to see him engaged in matters regarding Northern Ireland, and I hasten to assure him that if anything I say during the next few minutes appears in any way critical of Ministers in Northern Ireland, it does not refer to him or, indeed, to the other present incumbents of the Northern Ireland Office.

I cannot resist the temptation to refer to paragraph 7.2 of the Explanatory Memorandum. The phrase that leaps out from that paragraph is the reference to,

The word "exercise" is either redundant or a Freudian slip. It is quite different to say that a full consultation is to be conducted as opposed to a consultation exercise. The emphasis and meaning are quite different, and I hope that as a result of this, we will never see the word

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"exercise" again. I am satisfied in my own mind that the officials who wrote this meant "exercise" and not "consultation". That observation may be more pointed than perhaps it should be, but it reflects my feelings on the matter.

I noted the references in my noble friend's speech introducing the regulations to their genesis in the 2006 Act, and that evidently this issue was raised in the talks that took place at Hillsborough earlier this year. That underlines the highly political nature of this, not just because it refers to political parties but because it is a highly political matter. I know that the legislation simply provides another four months in which to conduct the consultation, but I feel entitled to make some comments on the underlying issue of the exemption from the publication of political donations.

This of course is advantageous to those parties which have something to hide about the nature of their finances, and there is a political party in Northern Ireland whose published finances have never been accurate or, in my view, truthful. Thus the regulations enable that party to continue to conceal some aspects of its finances. That reflects, if I may say so, what I am quite satisfied is the dominant attitude of the Northern Ireland Office-that all issues relating to Northern Ireland should proceed on the basis that the first concern is to keep Gerry happy. That has been the dominant influence on policymaking in the Northern Ireland Office for several years-more years than one would like to refer to. If that seems somewhat exaggerated, just remember this: there would not have been an agreement on Good Friday if the Northern Ireland Office had had any influence in the negotiations that week. It was its exclusion from the negotiations that generated the possibility of there being an agreement. We who took part in that will never forget the great contribution made by the then Prime Minister in coming over and excluding the Northern Ireland Office from the discussions and conducting them himself.

Regrettably, in subsequent months and years the Northern Ireland Office regained its influence over policymaking, and the bad advice and bad influences which flowed from that. At the beginning of this century, the settled attitude of the Northern Ireland Office was, as I have mentioned, reinforced by evolving the doctrine that one had to bring in the parties at the extremes, at the expense of those moderate parties that had actually made progress, in order to "cement" the situation. Of course, bringing in the extremes has not cemented the process in the way the NIO said it would. The uncertainties have remained, and they have been touched upon already.

I hope that the change of Government will produce a change of outlook and of policy. I hope too that Ministers will get control of the department and ensure that the attitude which states that "everything has to be done to please Gerry" ceases to be the case. This reinforces the point made by the noble Baroness: the consultation should be with all parties, and all parties should be equal in it. We cannot have a situation where one party is more equal than everyone else. That has to end. Until it does, the Northern Ireland Office will continue to be the unhappy place for the people of Northern Ireland that it has been for far too long.



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4.30 pm

Lord Tyler: My Lords, before I come to the substance of the order, I want to draw attention to a process issue that I hope the Minister might clarify. On today's Order Paper there is reference under this order to the first report from the Joint Committee on Statutory Instruments. Those who read the record of today's debate might think that it was funny that there was no reference to that report. The answer, of course, is that the excellent committee that does such wonderful work on behalf your Lordships' House found that there was nothing in the order that needed reference. In future, should we not have some reference of that sort? Otherwise, it is quite misleading to make reference to a report that says that there is nothing to report.

I am grateful that my noble friend Lord Trimble went before me, because he speaks with a great deal more personal and practical experience of the situation in Northern Ireland than those of us whose political experience is all on this side of the Irish Sea.

We should put on record that Members in all parts of your Lordships' House must be disappointed that it is judged necessary to bring this order forward in this format today. I and my colleagues on the Liberal Democrat Benches have pressed for the greatest possible transparency in relation to donations to political parties in all parts of the United Kingdom. The point that my noble friend has just made should in due course apply equally throughout the United Kingdom. In that context, it is important that we recognise that this is, we hope, a temporary situation that we are dealing with, and it should not continue a moment longer than necessary.

The measures that have been in place since October 2007, where political parties in Northern Ireland have had to report donations to the Electoral Commission but full publication has not been required, are clearly a step in the right direction. This, however, surely still falls far short of full transparency.

As other Members of your Lordships' House will no doubt refer to today, we all recognise that the situation in Northern Ireland is far short of the ideal that we would all like to see there. I notice that the Independent Monitoring Commission, in its report of 26 May this year, said that dissident republican groups,

In those circumstances, we should not underestimate the serious consequences of full publication of donations to all political parties in Northern Ireland.

There is reference in the Explanatory Memorandum to a full review and consultation, to which the noble Baroness referred. It is deeply frustrating that the previous Government were unable, for good reasons, to carry out that review as originally intended. We are now effectively faced with a fait accompli in this order.

During the passage of the Northern Ireland (Miscellaneous Provisions) Bill in 2006, concern was expressed by my noble friends about the ability of the Secretary of State to extend the prescribed period by order. Indeed, we tabled amendments in both Houses to remove this power from the Bill. We were anxious

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that this could turn into a long-term arrangement whereby the Secretary of State could just go on and on renewing this provision, with no impetus either to review the situation or to come back to Parliament with primary legislation. We recognise and support-and I am sure that all Members in this House will give credit to-the new Government in facing up to this situation.

As has already been said, priority had to be given to the devolution of policing and justice powers to Stormont in the talks at Hillsborough earlier in the year. However, we cannot allow that delay to getting on top of this problem to continue ad infinitum. The fact that the previous Government were unable to move on this should not mean that we do not now move as fast as we can. In that context, I am delighted that only a four-month delay is being talked about, rather than the possibility of a delay of up to even two years.

However, as the noble Baroness has said, it would be helpful if my noble friend indicated exactly when the full review is to take place and what sort of consultation is intended. The Explanatory Memorandum simply states that that will begin "shortly". That is the most misused word in the parliamentary lexicon, and I hope that my noble friend will give us more advice on that.

Can my noble friend also tell us what role the Electoral Commission will have in this process, looking of course at the whole of the United Kingdom and the relevance of the order in that context? I should declare an interest as a member of the informal advisory group of parliamentarians to the commission.

It is also important to recognise that the longer-term aim must be to achieve full transparency and equality across the United Kingdom. Can my noble friend indicate what the terms of reference for the consultation will be? Will the emphasis be on securing a change in Northern Ireland to bring the arrangements closer into line with the rest of the United Kingdom, or will the objective be to maintain the status quo?

Finally, it is the Government's clear intention to carry out a full and proper review of the legislation in the near future, and I am delighted that a relatively short period is being suggested for that. A prescribed period of four months is more acceptable in this context than the usual many, many months. I hope that the result of the consultation will be that we can move forward, because the points made by the noble Lord, Lord Trimble, and which other Members may make, are extremely important. We should be very careful that we move forward responsibly, but we should be clear about the destination that we seek to reach.

Lord Bew: My Lords, I, too, am very glad to have the opportunity to welcome the noble Lord, Lord Shutt, to his position at the Dispatch Box with responsibility for Northern Ireland affairs. This is a relatively uncontroversial proposal. I am glad that we are talking about only a four-month extension. Like the noble Lord, Lord Tyler, I hope that the short period of four months indicates the seriousness of intent of the new Government, and the fact that they will not allow this matter to drift. I understand also that any new Government must take account of the

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difficult security situation in Northern Ireland, and that there are complexities that require a degree of consideration. However, there are reasons why the current situation is an unhappy one, and I will briefly remind the Committee of them.

One reason is that our electoral law is characterised by increasingly greater transparency. It separates Northern Ireland from the broad process of UK electoral law. However, people arrive in this Parliament from Northern Ireland in a context where the circumstances of their election are different. This could have been very dramatic after the last general election. For example, if a rainbow coalition had been formed, the role of the Northern Irish MPs who had been elected under a significantly different electoral law would have been very significant. The position of the five Sinn Fein MPs-whether or not they had come to the House-would have been particularly important and a matter of public controversy. Commentators would have said, "Hold on, these chaps were elected in a different context in which the whole financial basis of their campaign was not open to normal public scrutiny". The Government were on thin ice on this point. The noble Lord, Lord Rooker, conceded this in 2007 when he stated:

"I fully accept the point ... that, come the next general election, people will be able to question legitimately from where the parties have got the money".-[Official Report, 23/7/07; col. 636.]

The Government were well aware of this and took a calculated risk. In the extreme form that we faced, in which a Government might have been formed which was influenced by MPs who had been elected under an essentially different electoral law, the crisis did not eventuate; but it came close enough for the matter to be taken very seriously.

The noble Baroness, Lady Crawley, hinted at another point concerning the role of Irish citizens and their ability to make donations. I understand that it is a reasonable position that the meaning of the Good Friday agreement is broadly to give a new recognition to those who consider themselves British, British and Irish or Irish. There is a certain logic to opening the door to contributions from Irish citizens; but the difficulty is that the definition of citizenship in the Irish constitution goes well beyond those who live on the island of Ireland to include a large chunk of Irish America. The Good Friday agreement does not give a new recognition, or new rights, to people who consider themselves Irish and American-but this legislation does. Again, the question that I hope the Government will take into account when they look at the matter is whether it is wise to continue with that arrangement. As I said, I welcome the noble Lord, Lord Shutt, to his new position and say that this proposal is uncontroversial.

4.45 pm

Lord Lyell: My Lords, I was made aware only this afternoon that this order was going to be discussed. I hope that the Committee will allow me two or three minutes to add my voice of approval to everything that has been brought forward by the Minister. I am delighted to see that at least one other chartered accountant is taking good care of the financial and other affairs of Northern Ireland. I attempted to do so

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in my time, but received a stern admonition from the noble Lord, Lord Bannside-with reference to Matthew's gospel-to remember who was Caesar and who was God.

I looked at the policy notes. My noble friend Lord Trimble referred to paragraph 7.2, but I looked at paragraph 7.1. In the fifth line, noble Lords will find the magnificent words "donor intimidation". I say to noble Lords who I think in Northern Ireland we call "of the minority community"-in Scotland, we call them left footers-that those who have received spiritual guidance from our pastors will know that donor intimidation is one method whereby funds tend to be allocated towards the church. However, since then I have had a stern rebuke from one Member of your Lordships' House from Northern Ireland, who pointed out that many a true word might be spoken by me in jest, but there is a serious problem in Northern Ireland when certain individuals are disclosed as contributing to a political party. That, I regret, used to be the case, even before my time in Northern Ireland, which is 25 years ago.

My noble friend Lord Trimble mentioned this, but the noble Lord, Lord Bew, went far beyond the island of Ireland to America and elsewhere. How one can make the legislation, of which all of us approve, bite and be effective, if one has to seek whence come those contributions globally-perhaps even wider than America or Canada-will be appallingly difficult. I hope that the Minister will in the period of four months be able to take the first step. I am not sure what the first step will be until 1 March 2011. At least if the first step can be taken, we should no doubt get some opportunity or report before full reform of your Lordships' House takes place, when hereditary Peers such as me may no longer be here. Then we may get some answers to the query that came to my mind. Donor intimidation can be a frightening prospect. I hope that my noble friend will be able to reassure me on that aspect.

Lord Shutt of Greetland: My Lords, I thank all noble Lords who have spoken, in particular for the kind words that they have said about me. I trust that I can deliver, as some say in Ireland, in my response.

The noble Baroness, Lady Crawley, made several points. As is often the case, several noble Lords asked when the consultation is to start. In the early summer? We can say that it will be within weeks rather than months. That is the timescale. The whole consultation will last for 12 weeks. The noble Baroness asked whether Ministers will meet the parties. That may well be part of the process. When we consult, a document is produced. We ask people to come forward with ideas and say what we are consulting on. In response, people can write, but it may well also be appropriate for the political parties to meet Ministers to express their views. I am not aware of any views that have been expressed so far, but I am clearly aware of the recent problems in Northern Ireland and the bouts of violence that have occurred in the past week or so. Of course, one never knows how things are moving in that area. A consultation will take place within that 12 weeks. I hope that it will be a wonderfully peaceful 12 weeks,

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but if it is not, that will obviously have some bearing on how the consultation goes and what people have to say at that time.

Baroness Crawley: I am grateful to the noble Lord. I think that that was the point I was making: because of the particular circumstances at present in Northern Ireland, a slightly more active consultation rather than a passive one, including all the parties, would be preferable, from a senior ministerial point of view, to just waiting for responses to come in.

Lord Shutt of Greetland: I thank the noble Baroness for that. I have to say that Ministers will be happy to talk. That is on the record. She said that she hoped that we would not accept that making donations to political parties was just a personal matter and no one else's concern. That would not wash at all; such a position is not taken by anyone and, clearly, the whole basis of this legislation is to make the whole process transparent.

The noble Baroness also mentioned the situation regarding old donations and old loans made prior to a potential change. That is part of the consultation over whether there would be retrospection or whether the clock would start at a particular time. One cannot prejudge this. That issue must be part of the consultation.

She then mentioned Irish citizens. This consultation is not about changing that relationship. Reference has been made to it, but if the position is to be opened up, it will be opened up as far as Irish citizens are concerned. There is no sense that there will be a secret position for them and not for others. The rules would affect them in exactly the same way.

The noble Lord, Lord Trimble, referred to the consultation exercise. I understand exactly what he said. In plain English, the word "consultation" would do in Greetland as I suspect it would do in Northern Ireland. Perhaps "exercise" could well be deleted; "consultation" would do for me. In Northern Ireland one always has to be careful to have a policy of "steady as she goes" and do one thing at a time. The noble Lord mentioned his concerns about the position of the Northern Ireland Office, and said that he hoped that there would be a change in policy. All that I can say now is that we are talking about this order, about this period of four months and about whether or not there is publication. I do not think that I can go too far down the track in dealing with the entire work of the Northern Ireland Office. I had better leave it at that-a little at a time.

My noble friend Lord Tyler referred also to timing, which I think I have dealt with. The emphasis is on trying to open up the position. The consultation is not to ensure that the status quo in Northern Ireland continues but to open things up. It demonstrates the Government's clear commitment to greater openness in politics. It is to find out whether donors will feel safe participating in the funding of political parties if confidentiality is removed. So we shall have to see what the consultation does indeed bring. The Electoral Commission will be fully consulted, and the commission itself certainly supports the draft order. The period of

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12 weeks for the consultation is in line with government best practice, and all interested bodies will be invited to respond.

The noble Lord, Lord Bew, also talked about greater transparency. He said that he thought there could have been a crisis at the most recent general election because of the situation of the different funding regimes as far as openness is concerned. I understand and accept what he has said about that, but this is a consultation in order to ensure that that is not the case. We hope, therefore, that this can be the way forward, but consultation is consultation; we have got something to consult about and we will have to see how it goes. We cannot pre-empt the results but we do not want to have any trouble in terms of compromising the security of individuals in Northern Ireland.

I conclude by referring to the contribution from my noble friend Lord Lyell. I think that there are chartered accountants in the Box, but I do not know whether those particular resources will be used. I spotted his reference to donor intimidation and I wondered whether he might be thinking about the ways in which donations are made. I understand that rather than coins, "soft" is also an important matter. Indeed, I thought that might be what he would have used.

Lord Lyell: I want only briefly to interrupt the kind words that my noble friend is using about me. I happened to be in Northern Ireland on Christmas Eve. When I took out the smallest note I could find to put in the collection box at the Catholic church, the man said, "My God, that's generous. Are you wanting change?". With that, I thank my noble friend.

Lord Shutt of Greetland: Donations are made in all sorts of ways-in coins, in "soft", by cheque and, we are told, in a few years' time we will have to do it in yet another way, which of course will require its own tracking. However, this order is about consulting on extending the status quo for a mere four months-for good reason-in order to find out what people believe is the right way forward and to give the Government time to legislate if legislation is needed. I trust that, in those circumstances, the Committee will support the order.

Motion agreed.

Communications Act 2003 (Maximum Penalty for Persistent Misuse of Network or Service) Order 2010

Copy of the SI
Copy of the Report

Considered in Grand Committee

4.58 pm

Moved By Baroness Wilcox



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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox): My Lords, the order before the Committee aims to strengthen both consumer protection and the regulatory regime concerning persistent misuse of an electronic communications network or service. It covers a number of misuses but focuses primarily on silent and abandoned calls. Misuse, as defined in the Communications Act 2003, is when a person uses an electronic communications network or service such that it causes another person unnecessary annoyance, inconvenience or anxiety. Examples of misuse other than from silent and abandoned calls include the misuse of automated calling systems, number scanning, misuse of a calling line identification facility, misuse for dishonest gain and misuse of allocated telephone numbers.

The order attempts to ensure that consumers are more adequately protected from misuse, especially silent and abandoned calls, and so makes the following provision: it raises from £50,000 to £2 million the maximum penalty which Ofcom can impose on anyone who persistently misuses electronic communications networks or services.

Silent and abandoned calls are usually made by marketing companies, which use a computerised calling device that dials a telephone number and automatically transfers the call to an available sales agent whenever a call is answered. If, however, no agent is available, the line is disconnected, which results in the consumer receiving an abandoned call. If no recorded information message is played, it becomes a silent call. Your Lordships will no doubt appreciate that such calls are very annoying and can cause distress, especially to vulnerable consumers. The fact that a caller's number is often withheld only adds to people's anxiety or frustration.

Such calls may also be generated by other organisations, whether in financial services or market research, or by companies engaged in number scanning activities, which dial a sequence of telephone numbers to find out which ones are in service; their purpose is to develop a "clean list" of numbers with commercial value.

The impact of silent calls is more than anecdotal. Research undertaken by Ofcom between December 2009 and March 2010 found that 73 per cent of respondents were very or fairly inconvenienced by silent calls. More than 5,000 consumers contacted BT's nuisance calls bureau in the three months to June this year. In the past month alone there have been more than 12,000 callers to the bureau who listened to recorded advice about silent calls. In the first half of 2010, Ofcom received 2,500 complaints about silent calls. I am sure, therefore, that your Lordships will agree that there is indeed a need for us to take effective action to protect consumers from unwanted calls.

Last year, Ofcom asked the Government to consider raising the maximum penalty for persistent misuse from £50,000 to £2 million. Ofcom considered that the current maximum penalty was not high enough to serve as a real sanction or effective deterrent to those who persistently make silent and abandoned calls to consumers. In 2008 Ofcom dealt with a serious case, where Barclaycard was found to have made an extremely

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large number of silent calls over an eight-month period. Ofcom was constrained in only being able to issue the £50,000 maximum penalty.

Ofcom has other penalty powers. These include turnover-based broadcasting powers, which it used in relation to the premium rate service phone-in scandal when GMTV was fined £2 million. Ofcom's view is that although harm is difficult to quantify in relation to silent calls, in that there is no financial loss, vulnerable consumers may still suffer. In such circumstances, a £2 million maximum penalty does not seem unreasonable.

Indeed, a 12-week public consultation, which ran from 26 October 2009, found respondents overwhelmingly in favour of increasing the maximum penalty to £2 million. We believe that the proposed maximum penalty will provide a more substantial deterrent to most call centres that employ up to 400 employees. Although it is possible that larger call centres may not be fully deterred, it is likely that the adverse media attention of a £2 million penalty will deter the most persistent offenders from making silent and abandoned calls.

Ofcom will work on a case-by-case basis where enforcement is necessary, taking a firm but flexible approach towards those who make silent and abandoned calls or engage in other forms of persistent misuse. Ofcom will monitor complaints and other cases that it receives. It will work closely with the different nuisance call bureaux to identify trends in silent and abandoned call rates, as well as the organisations making such calls. Where appropriate, Ofcom will use its formal powers to require information and is committed to taking decisive action, including the use of financial penalties wherever appropriate.

One of Ofcom's main duties is to act in the interests of consumers. Under the Communications Act 2003, Ofcom can take enforcement action when it has reasonable grounds for believing that someone has engaged in persistent misuse. Under Section 128 of the Act, it can issue a financial penalty to any organisation that it notifies, and it can notify a company whenever it has sufficient evidence to indicate that the company has not acted in accordance with its policy on silent and abandoned calls. The penalty level is assessed, taking careful account of the extent of the identified misuse, and this increased maximum penalty level will allow Ofcom to impose a more proportional penalty to better fit the seriousness of the offence. The order will ensure that consumers are better protected from silent and abandoned calls, by implementing a higher, more appropriate penalty that is more consistent with the harm that the calls generate. Additionally, the order will help to reduce the need for some consumers to purchase, at their own expense, devices that combat silent and abandoned calls. I beg to move.

Lord Young of Norwood Green: My Lords, I welcome the order, which is hardly surprising as the previous Government initiated this legislation. We have been playing this role quite often recently. I also welcome the comments of the Minister. As she indicated, the aim is to deter, by ensuring that the cost of compliance is less than that of non-compliance, at least in most cases. Automated dialling that leads to silent and abandoned calls causes anxiety and distress. Since

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2007, there have been a number of cases involving large and well known companies-I will not name them all-and a high-profile case that the Minister did name in which Ofcom imposed the maximum penalty but would have gone further.

I will make a couple of points. How will companies be informed of the increase in the penalty? We hope that publicising the change will form part of the deterrent programme. I welcome Ofcom's monitoring review and the guidance and education procedures. However, will Ofcom require companies that use this equipment to confirm in writing that their procedures have been checked and are fully compliant?

Lord Razzall: My Lords, I support the order introduced by the Minister. To put this into context, one thing that nobody ever says, but which is true, is that before the automatic calling system technology was developed there was a huge number of "heavy breathers" who used to dial random numbers and hope that a woman would answer. I suspect that one reason why a lot of women are distressed by the automatic calling structure is that they remember the heavy breathers. They answer the phone thinking, "Oh my God, it will be a heavy breather". That is a significant problem, so I support anything that can be done to stop this. If the phone rings at our house in Wiltshire before 9 am, Jane always says, "Don't answer it, it will be an automatic call". On the rare occasions when I do answer, it is always an automatic call. They are a pest and a plague.

I apologise to my noble friend for not having raised before the issue of automatic calling by political parties during elections. I will not attack the party of the noble Lord, Lord Young, particularly now that he has had his hip done and is in a better position to defend himself. However, we all remember that during the 2005 election people were getting calls at 3 am from John Prescott, who has since become a Member of this House. I wonder whether in this context-this touches on the ambits of the Electoral Commission and of the Information Commissioner, who tends to take his predecessor's view that his remit does not extend to this-since it looks as though we are now the best part of five years away from a general election, the Government could look at automatic calling.

Lord Young of Norwood Green: If I may-

Lord Razzall: I cannot sit down because my knees are bad. I apologise for staying standing; imagine that I am sitting.

Lord Young of Norwood Green: I cannot resist saying that these were not silent and abandoned calls, but maybe in this instance the recipients wished that they had been.

Lord Razzall: I realise that this point is not an immediate priority because it does not look as though we are going to have a general election until 2015, but perhaps the Government could take on board that the extent to which these automatic calling systems need to be brought under control for elections is an area that could be looked at. I support the order.



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Baroness Wilcox: My Lords, I thank the Committee for its consideration of the draft instrument today. I think we have all agreed that this is an important issue, and I have been interested in the questions that have arisen from it. The noble Lord, Lord Young, rightly says that during his time as Minister he did a lot of work on this, and I am really only finishing the work that he started. I am delighted to do so today.

The noble Lord asked two questions. One was how people are going to be informed of the increase in the penalty. I am told that this will be publicised by BIS and Ofcom, and that Ofcom has a statement on persistent misuse on its website, which is kept updated. I do not know if that is the best that it could do; I am always worried that decisions are taken and then not best spread in the ways that we would hope. I sometimes wonder why we do not use magazines more often; we all read magazines, books and so on, and there are many other ways of doing this rather than just electronically. It is a good question and I would like to see a better answer than this, from us and from Ofcom.

The noble Lord's second question was about requiring companies to confirm in writing that they are fully compliant. Companies are required to abide by Ofcom's persistent misuse guidelines, which they receive on their website. Those are the answers to both his questions, which I hope he will find partially satisfactory.

Lord Young of Norwood Green: The companies get the guidance, but that is not confirmation. I cannot help feeling that if Ofcom knows which companies are using this equipment, it ought to get some confirmation from them that they have current procedures that have been checked and are fully compliant. That would not necessarily mean that the answer was totally correct but at least it would force them to answer that, rather

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than Ofcom just assuming, because its guidance is available, that companies are aware of this. I offer that as a possible reinforcement.

Baroness Wilcox: I thank the noble Lord. I would like to point this out to the Information Commissioner and see if he cannot study this and come up with some better answers.

My noble friend Lord Razzall asked two questions. He reminded us all about the calls from "heavy breathers" before this technology was developed. As a woman picking up a telephone, in the days before I went ex-directory, I have heard a heavy breather on the other end.

Lord Razzall: I'm not surprised.

Baroness Wilcox: Thank you. It is a worry, though-that awful pause when there is no voice on the other end of the phone. I think particularly of women on their own at home during the day, as well as older women who may be living alone and feeling very exposed. I have a fellow feeling for that.

The noble Lord moved on to political parties. I am interested to see what answer we can even give at this stage about the use of this technology by political parties in elections. We note the point and we will raise this, too, with the Information Commissioner. This is his area, and I am sure that he will be happy to have these things raised.

These have been valuable points and we are going to take them away with us. On that basis, I commend the order to the Committee.

Motion agreed.

Committee adjourned at 5.16 pm.


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