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The eurozone has to address where it goes from here. I do not believe that there is any will among the nation states to see the eurozone collapse. But if they are not to see it collapse they must move forward into a much more federal structure. We have to see a much bigger role played by the European Central Bank and the eurozone reconciling itself to the fact that there will have to be fiscal transfers to some of these nations. A great date has been dreamt up of 2013. When that was originally dreamt up it seemed quite a long way away but it is getting nearer and nearer. Sovereign debt is guaranteed up until 2013 but one has to start asking now what will happen after 2013. Will places such as Greece and Portugal suddenly become competitive when they are not competitive today? The answer is no and there has to be a completely new construction of how the eurozone is managed. I am afraid that that all points to it becoming a much more federal organisation. Whether that means that the eurozone will succeed, I do not know. If it becomes federal, it will certainly survive for much longer than it otherwise would.

2.01 pm

Baroness Maddock: My Lords, as has already been said by the two previous speakers, in or out of the eurozone, effective economic governance in the European Union is important to all member states and particularly to us here in the UK. The noble Lord, Lord Harrison, has clearly set out the remit and context of the report from Sub-Committee A of the EU Select Committee, of which I am a member. In the short time that I have, I will concentrate on the role of sanctions in future economic governance of the EU.

As has been said, the Commission's proposals on sanctions will not apply to the UK by virtue of its opt-out from membership of the euro. As the noble Lord, Lord Harrison, set out and as I indicated in my opening remarks, the UK has a vital interest in ensuring that these proposals succeed. Our sub-committee report recognised that the markets will play a key role in promoting sensible fiscal behaviour by member states by charging higher interest rates to those countries deemed to have lax fiscal policies. However, the markets have not always proven effective at this in the past. There is a need for a further mechanism to ensure compliance. This is where sanctions fit in. The Government have recognised this-and recognised it in our report.

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The sub-committee concluded that the Commission's proposals for a more graduated sanctions regime would help dissuade irresponsible fiscal behaviour. Sanctions will be easier to apply and more of a credible threat if they start off small and are available earlier in the process. Again, the Government have agreed with the committee's assessment of this. As has already been said, one of the greatest failings of the current system of sanctions has been that member states have found it too easy to avoid sanctions when they have broken the rules. France and Germany breached the stability and growth pact in 2002-03 and this led to a conflict between the Commission, which wanted to impose sanctions, and the Council, which refused. In the end, France and Germany managed to persuade the European Council to relax the rules governing the stability and growth pact.

Several sub-committee witnesses argued that sanctions should be made fully automatic. This was the line taken by the European Parliament, which feels that automatic sanctions would prevent member states from negotiating their way out of sanctions. However, the sub-committee concluded that fully automatic sanctions were a step too far and would remove any room for judgment. We supported the Commission's proposals for reverse-majority voting, which would require a majority to vote against sanctions to block them, as opposed to the current system where the majority have to vote in favour. While the sub-committee believes that this discretion is necessary given that the EU is a political union of sovereign member states, it is vital that the Council shows that it is willing to take tough decisions and levy sanctions when the stability and growth pact is breached. The Government agree in their response that the efficacy of the sanctions regime will depend on the degree of political will in the Council. Will the Council be willing to take tough decisions on sanctions when the crisis is over?

We considered various other suggestions on sanctions. At the insistence of Germany, the Van Rompuy task force report did not rule out the possibility of removing voting rights in Council from those countries breaking the stability and growth pact. The sub-committee did not believe that this would be an appropriate sanction and would raise significant questions about legitimacy and sovereignty. Can the Minister confirm that the UK will block this proposal from being taken forward if Germany proposes it once again? The Government also stated in their response that there are a,

rather than removing voting rights. Could the Minister indicate what those might be?

As I stated at the beginning, only member states within the euro area can have sanctions imposed upon them. However, the Van Rompuy task force report suggested that enforcement mechanisms should be extended to all member states, excluding the UK, in the multi-annual financial framework. The committee thought that this was quite inappropriate. The Government's stated intention is that they would oppose these suggestions. Can the Minister confirm that they will stop any attempt to extend sanctions beyond the euro area by any such means?

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2.05 pm

Baroness Hooper: My Lords, this is an important report and I take this opportunity to congratulate the noble Lord, Lord Harrison, on the way in which he has both shepherded his sub-committee into preparing it and set the scene in opening the debate today. Although he covered the ground thoroughly, I will emphasise two points.

First, standing outside the euro area, as the United Kingdom does, gave the sub-committee an interesting opportunity to view the issues raised in the Commission's proposals in a rather objective way, while realising and acknowledging that we are not an island alone unto ourselves. That the UK's financial investment sector had and has substantial investments in the euro area means that we are directly affected by whatever goes on there-that is apart from the fact that some 60 per cent of UK trade is within the European Union. The state of the economies of those trading partners has a direct impact. We need to be fully aware of and involved in all European Union policy developments in the area. In all fairness, this and the United Kingdom's undoubted expertise in the financial sector have been acknowledged and welcomed. Not one witness who gave evidence to us suggested that we were in any way interfering in eurozone business.

Secondly, the report refers to the deepening problems and evolving policy responses. In the few short months since its publication, it is quite clear that things have moved on. The contagion theory has been proved. Ireland and Portugal have joined Greece in asking for help. We are looking at a moving target at the same time as trying to find ways to prevent any of this happening again in the future. Those who believe in the inevitability of the business cycle may well be proved right. This is unlikely to be the last report on the subject.

The main question I wish to ask the Minister relates to institutional reform. The sub-committee's recommendation and the Government's response indicate that, whatever happens in terms of strengthening and reinforcing institutions, we do not want any new institutions. I understand that there are some quite tricky negotiations going on between the Council and the European Parliament before next week's 20 June meeting. This results from the European Parliament's wish for a greater role in fiscal and macroeconomic surveillance, the right to call Governments to account and its support for the use of reverse-majority voting. Can the Minister confirm what, if any, objections the Government have to the European Parliament's proposals? Is he concerned that the United Kingdom Government could be more sidelined as a result?

As has been said, in general our report broadly supports the six main proposals before us from the European Union. There can be no doubt that things will continue to change, that there will be more use of financial regulation in a more proactive way in future, or that there needs to be more co-ordination between monetary and financial policy. Although our report was published in March, today has turned out to be appropriate for our debate. Not only do we just precede the ECOFIN meeting next week but also we follow the Chancellor's Mansion House speech last night. Today

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also sees the first meetings of the Bank of England's new committee charged with spotting signs of danger in advance-just the sort of thing that we are talking about. I trust that the evidence collected for our report as well as the conclusions that we have drawn will make a useful contribution to their tasks.

2.09 pm

Lord Woolmer of Leeds: My Lords, I, too, join colleagues on the committee in thanking the noble Lord, Lord Harrison, the staff of the committee and our special adviser for ensuring that an excellent report was produced on these important issues. I recognise the importance of the euro and the eurozone to the United Kingdom. I also recognise the various measures being put in place for strengthening Governments, dealing with short and long-term crises and establishing a new financial regulatory infrastructure are all extremely important institutional developments.

The markets appear to have considerable confidence in the future of the euro. I shall return to that in a moment. But-and there is a but in my mind-there is the position of Greece, certainly, and Ireland. I regard the sovereign debt situation in those countries as ultimately unsustainable. Our report draws attention to the distinction between solvency and liquidity, and there is a fundamental insolvency problem in Greece and probably in Ireland, too. Ultimately, that will have to be dealt with. Having a new institutional strength and institutional structures, and being determined politically to ensure that they work more effectively in future, will be constantly undermined if the markets simply do not believe that one or two countries are going to default. There is a real risk that that continued uncertainty will undermine long-term reform.

Sooner or later, that problem will have to be dealt with. I well understand, politically, why 2013, or a period two or three years hence, has been set, although I, like the markets, doubt whether the certainty of no default can bear fruit. There is an understandable reluctance for Greece to be seen to be getting away with what is seen as profligacy-of course I understand that. Any way in which that is dealt with, ultimately, will have to be seen in the context of major reforms and fiscal probity in Greece. Ireland is in a very different situation, indeed; there were entirely different causes. But ultimately, those countries in one form or another will have to have some of their debt written down, however that takes place.

I pose one or two questions to the Minister. The European Commission is reported to have examined the consequences of various ways in which Greek debt at least might be adjusted-although I have not had the opportunity to read it myself. Were Her Majesty's Government party to any consultation on the production of that document, and have they formed, or are they in the process of forming, any assessment of the possible consequences of the possible adjustments in debt of Greece and Ireland? It would be very helpful to the committee to know that.

I end where I started. The markets appear not to believe that the almost certain default by Greece will undermine the euro. They do not believe the mantra that if Greece defaults, the euro is under serious

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threat. That is not what they say. They have been wrong before and they may be wrong on this occasion. However, if they are right, ultimately Greece may be able to default in part, in a controlled way, and even Ireland may be able to do so-and I believe that the Irish and Greek politicians will be greatly relieved.

2.13 pm

Lord Haskins: My Lords, when I was reading the Van Rompuy report last night, on the very day when Greece appeared to be on the verge of spiralling out of control, I had a feeling that we had all been sleepwalking through a surreal nightmare in the past few years and were continuing to do so.

I have always liked the expression, "Closing the stable door after the horse has bolted". It seems as if this is what we are trying to do. But a number of horses have escaped from this eurozone stable and have yet to be recaptured. There is no point in making the stable secure if there are no horses inside. That is why resolving the immediate crises in Greece and Ireland, particularly, is so critical. Better economic governance is an academic exercise until that has been achieved. However, assuming-and this is a big assumption-that by 2013 the horses are all back in their stables, there is the question of whether the proposals from the Van Rompuy taskforce are sufficient to make the doors more secure or whether we might have to consider knocking the eurozone stable down altogether and rebuilding it into something called "fiscal union".

There is one very good reason why the present proposals may work. That is, to coin another equestrian metaphor, "Once bitten, twice shy". I do not believe that in the short term the various guilty parties will repeat the errors that they made which created the crisis in the first place-though having experienced three other banking crises in my business career, I am quite sure that over time the banks will behave badly once again.

The idea of a European semester is a good one, in which all member states would present, discuss and co-ordinate their fiscal policies on a regular basis. Early signs of misbehaviour within national economies will be identified and, consequently, the markets will react before it is too late. But I have reservations about the proposals to strengthen sanctions against breaking the stability and growth pact. I am sure that when some unfortunate Commission official turns up at the Élysée Palace to collect the fine for some French misdemeanour, he or she will get a pretty dusty answer. The most effective sanctions should, of course, come from the markets, which failed lamentably to do so in the run-up to the present crisis. Incidentally, I was very surprised to hear President Obama in Westminster Hall the other day speak about the crisis in the past tense. If the semester process is not opaque, the markets will be much better equipped to respond appropriately. There will be no more dodgy Greek statistics, no more skulduggery in the Anglo Irish bank, no more raising Greek debt as being of the same quality as German debt, and no more sleight of hand between Goldman Sachs and the Greek Government-as well as a greater understanding of the link between private, corporate and sovereign debt.

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The Commission rightly wants to see more pressure on countries that run large deficits to reduce them, but I remain sceptical as to whether it will be able to bring much pressure on countries that run large surpluses, although I agree that excessive surpluses are not desirable.

I have two other worries about how events may be moving. First, let me quote from Monday's Financial Times and a piece by Larry Summers, who was until recently President Obama's European guru. He said that the financial crisis was,

but that ironically and paradoxically, it will be,

Therefore, this may not be the time to raise their levels of equity too quickly. It is better to wait for the upswing-if, and when, it comes.

2.18 pm

Lord Marlesford: The noble Lord, Lord Harrison, had a very steady hand as the crisis migrated through Sub-Committee A, and we are grateful to him for that. Both the euro and the euro area are in crisis; they are both in a critical condition and need intensive care. The euro is, in my view, wildly overvalued and several of the member states are, as we know, on the brink of default. The European Central Bank is so loaded up with toxic debt that it is in danger. The Irish Finance Minister, Noonan, recently asked the IMF to get a haircut for the AngloIrish debt; that would not be very wise or safe for the ECB.

What I find astonishing is the undertaking given at Seoul at the G20 by several Finance Ministers, including my right honourable friend George Osborne, that there would be a guarantee of European sovereign debt up to 2013. We asked a number of our witnesses about it, and no one was able to spell that out. I really think that the Minister has a wonderful opportunity to enlighten us in that regard. Given that Her Majesty's Government are a part of it, we should know exactly what the commitment means and how it would work. Nobody appears to know.

The Government are absolutely right to say that the UK will not sign up to the EU permanent crisis mechanism. I congratulate the Government on setting up the Financial Policy Committee, with its twin remits: first, to reduce systemic risks and, secondly, to enhance the resilience of the UK financial system. Systemic risks, of course, cover both the fault lines in the financial system infrastructure and the cyclical threats from unsustainable levels of leverage, debt or credit growth. That is our solution and we are in that playing an important part in dealing with further threats to this country.

As so often, the EU's reach is greater than its grasp and Mr Trichet's proposal for a European ministry of finance is such an example. He said that,

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the EU-

Personally, I do not think that really is a runner-certainly not as far as the UK is concerned. However, Mr Trichet is perfectly logical and having identified the fundamental flaw in the concept of the euro, he is sensibly putting forward what could help.

Personally, I believe what should happen is that individual euro countries should be enabled to leave the euro area without having to leave the EU but should be able to continue to use the euro, if they wish. It would probably be sensible for them to do so. Nobody is going to be prepared to buy recreated Mickey Mouse currencies. Finally, if China and the US, particularly China, are to be the world's economic locomotives we have to try to see that northern Europe, at least, can prosper and sustain those unfortunate countries in the south, which are going to suffer greatly from the inevitable deflation.

2.22 pm

Lord Liddle: My Lords, first, on behalf of the opposition Front Bench I congratulate my noble friend Lord Harrison and his committee on an excellent report. It shows that this House can bring an intelligence and clarity to complex issues that are unusual in the political world, and I sincerely congratulate them on that. Secondly, when my noble friends Lord Woolmer and Lord Haskins make the point that the recommendations of the Van Rompuy taskforce do not address the fundamental crisis that the euro faces, they are of course right. In my view, it is a crisis of solvency not liquidity that at some stage has to be addressed.

This economic governance package is not about the immediate resolution of the present crisis but about trying to make sure that we prevent future crises happening. From our perspective, the proposals here are an advance on the stability and growth pact. The stressing of the need to monitor the debt to GDP ratio, not the deficit, is good. The new emphasis on economic imbalances is good, as it is on credit conditions, the risk of asset bubbles and the new streamlined processes for monitoring member state budgets. Where we have ended up on the sanctions regime, which was mentioned by the noble Baroness, Lady Maddock, is right as well.

However, we have some reservations about this and some questions to ask the Government. First, on debt, Mr Hoban's letter says that the Government were concerned that on debt to GDP, the proposals might involve too much of a target-based, semi-automatic approach. However, they say that the proposals have been modified to make sure that that is not so. Could we have more of an explanation of how they have been modified? On this side of the House, we believe strongly that one should not take short-term actions on deficits which make the long-term position on debt worse, not better. It may be that that is what the present Government are doing in terms of their "too far, too fast" economic adjustment in this country but we would like to know more about avoiding that target-based semi-automatic approach.

Secondly, on the long-term challenges of debt to GDP, is there not a need for an emphasis on positive policies, social investment policies, to overcome issues

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such as the rising costs of ageing, so that we activate more people in the workforce and invest more in research, education and infrastructure to raise productivity? Is that not a positive absence from these proposals? Thirdly, are there not other measures that the EU could be taking to promote growth in the sovereign debtor countries-for example, bringing forward unused structural fund money or trying to develop, through the European Investment Bank, a cross-border infrastructure investment-which might help to revive the economies in countries such as Greece and Spain? What view do the Government have of that?

Finally, although I must sit down in a moment, the noble Lord, Lord Hamilton, made a very thoughtful speech on the role of the UK. I have disagreed with him on the EU Bill but his speech today was extremely thoughtful, as was that of the noble Baroness, Lady Hooper, about the impact on the UK. The Government have looked rather Janus-faced to me on these issues. They say at the start of their letter that economic shocks do not respect geographic borders and that it is very much in our economic and political interests to engage, but then they express reservations about engaging. What were the reasons for the Government deciding, for instance, not to join the euro-plus pact, where they might have been able to exert a positive influence on eurozone policies? What would be their attitude to future treaty changes that might lead to further steps towards fiscal union?

Lord Campbell of Alloway: My Lords, may I ask a very short question? Being very much impressed by the speech that has been made, what is the position of the Opposition? I am not quite sure what the policy of the Government is, but with vast extraterritorial commitments now, should there be a moratorium until we can retrieve our debt without borrowing more money to pay the interest? I do not say that they should be excluded for ever. I am not expert on these things but I would like to know what the noble Lord has to say.

Lord Liddle: Given that that is not a short question, while I have the greatest respect for the noble Lord, Lord Campbell of Alloway, I cannot conceivably deal with a question of such complexity without breaking the rules of the House.

2.29 pm

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I thank the noble Lord, Lord Harrison, and all the members of the sub-committee for their work on this issue and their excellent and timely report. I learn new things about the way in which this House operates on almost every occasion when I stand at the Dispatch Box. After seeing how the topics had been parcelled out and questions were fired at me from left, right and behind, I now understand what effective committee work is all about. In the brief time that I have, I will not be able to give detailed answers to all the questions. I thank all noble Lords who have contributed to this debate, in which the usual degree of repetition was absent; we have covered a very wide range.

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The euro area has had and continues to have a very tough time. The weak economic growth of the euro area is a symptom of the fundamental problem that is faced: weak economic governance. That is the starting point that the noble Lord, Lord Woolmer of Leeds, and other speakers have drawn attention to. In answer to the noble Lord's question about the current situation-there were also other references to restructuring packages-the Government's position on possible further bailouts for Greece is unchanged, and, incidentally, is the same as that of the French Finance Minister, Madame Lagarde: we do not want to be part of any second European assistance package for Greece. Indeed, no such proposal has been made. In answer to the broader question asked by the noble Lord, Lord Harrison, it would be wrong to rule in or out the participation of the private sector in any package for Greece or anywhere else. This important issue continues to be debated, though, and it should be.

I was interested in and pleased by my noble friend Lord Marlesford's discussion in this area, reminding us of what we are doing in this country, particularly with the proposals that the Government are bringing forward today to ensure that we have mechanisms in place to identify systemic risks and deal with them effectively. I thought for a moment that I had fallen asleep, it was 4.30 pm and we were already talking about the financial regulatory structure in the UK, which we will be doing later today. Following last year's EU economic task force and in the context of the ongoing difficult situation, the Commission brought forward six draft pieces of legislation on fiscal and macroeconomic surveillance that aimed to strengthen current monitoring mechanisms and to give early warnings of economic problems in member states. It proposes tough sanctions for euro area countries that step out of line. I will come back to sanctions in a minute.

I stress that we are not part of the single currency but, as the committee's report notes, a stable eurozone is firmly in the UK's interests, as is ensuring the success of measures to bring it to economic stability. I trust that there is no doubt about that. I am sorry that the noble Lord, Lord Liddle, thinks there is anything Janus-faced about it; we are working hard and co-operatively to ensure that the measures are appropriate.

Many commentators agree with the committee that the euro area's problems were caused by tensions between centralised monetary policy and decentralised spending decisions. The proposed legislation seeks to address that through increased co-ordination. In broad terms, the Government welcome the pragmatism of the proposals. We support the refinements to the stability and growth pact that will help to prevent countries from running unsustainable deficits in good times. As the committee report notes, a gradually escalating system of sanctions will mean that member states think twice before breaching the pact.

The noble Lord, Lord Haskins, rightly noted that the most effective sanctions will and must come from the market. A number of questions were nevertheless properly raised about sanctions. We agree that a limited use of reverse qualified majority voting should ensure that member states cannot avoid sanctions through political deal-making at ECOFIN of a sort that was

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seen from member states in the past. On the questions asked by my noble friends Lord Hamilton of Epsom and Lady Maddock, we think that reverse QMV is one way to address the sanctions question. There should be limits to the use of reverse QMV. We do not think that it would be right to remove voting rights more generally. That would require a treaty change, and the UK would have the right to veto any such proposals.

I reassure the House, specifically my noble friend Lady Maddock, that the UK is not subject to sanctions under the stability and growth pact. The treaty is clear that they apply only to euro area countries. In addition, the UK's opt-out protocol that was negotiated at Maastricht is clear that we are exempt from such fines.

Another issue that my noble friend raised was the extension of sanctions in the next financial perspective. I assure her that the Van Rompuy task force report clearly stated this with regard to sanctions under the stability and growth pact and under the next financial perspective. Sanctions may be rolled out for other euro area member states but not applied to the UK, so I hope that the position is clear.

I should perhaps clarify a point regarding the fiscal proposals. The noble Lord, Lord Liddle, asked about this. The Government did not disagree with the principle of a benchmark for assessing the pace of public debt reduction. Getting debt on to a downward path is of course essential for the eurozone members just as it is for the UK. However, we had concerns that the original Commission proposal was too rigid and might not take sufficient account of debt dynamics that are beyond a member state's control. I am pleased to report that we have sought amendments in council to clarify that the benchmark really will be a benchmark rather than a concrete rule.

The Government agree with the committee's view that while fiscal discipline is important, it will not be enough to prevent or manage future crises. That will require the EU to have the right macroeconomic warning mechanisms to identify them and the right tools to manage them. Economic imbalances are already monitored under the broad economic policy guidelines and the Europe 2020 initiative, but that has lost momentum in recent years. The Commission proposes a more systematic way of identifying economic imbalances through a scoreboard of economic indicators. I am sure that noble Lords will agree that transparent analysis of member states is important, and these indicators will help to achieve that.

I understand the note of caution that the committee has sounded in its report. Yes, the success of this monitoring will depend heavily on the degree of political will in council, but ECOFIN will now be forced to consider the evidence from the indicators on the scorecard. The Government agree with the committee's recommendation that the composition of the scoreboard should be subject to regular review, and we are negotiating to achieve that. The Government also agree with the committee that all these systems must be intelligently interlinked. We want to see Finance Ministers having realistic discussions of policy problems, drawing on evidence from Europe 2020, the stability and growth pact and European Systemic Risk Board recommendations, if necessary. We want clear, frank

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recommendations for member states, and help and support for them when they act to improve their economic position and boost growth.

Finally, the proposals for a euro area crisis resolution mechanism, or European financial stability mechanism-the ESM-as it is known, are being debated in parallel to these legislative discussions. The need for them was stressed by my noble friend Lord Hamilton of Epsom and the noble Lord, Lord Woolmer of Leeds. The Government very much support the ESM, which will provide euro-area countries with the financial equivalent of a parachute. We agree with the committee's view that conditionality is vital and that there must be no question of this being free money for fiscally irresponsible member states. Like the committee, we welcome the explicit recognition that the IMF will play a technical and advisory role in all future uses of the ESM.

The Hungarian presidency wants to finalise this package of legislation by the time that presidency ends on 30 June. My noble friend Lady Hooper pressed me on the details of this. I regret to say that the ECOFIN discussion on this was at an informal dinner earlier this week that was not minuted. There are some difficult issues, of which my noble friend is clearly aware, which need to be resolved. The Hungarian presidency is working on them, and the European Parliament intends to schedule a vote on the package next week.

I emphasise again the importance to the UK economy of achieving lasting economic stability within and beyond the eurozone. This is the central aim of this legislative package. Throughout the negotiations, the Government have striven to achieve genuine strengthening of economic governance while preserving this Parliament's sovereignty over all aspects of economic and financial policy. I am satisfied that we are on track to achieve those objectives and that the report of your Lordships' European Union Committee has made a most useful contribution to that process.

2.43 pm

Sitting suspended.

2.46 pm

Police Reform and Social Responsibility Bill

Committee (6th Day) (Continued)

Clause 123: Licensing policy statements

Amendment 241ZC

Moved by Lord Brooke of Sutton Mandeville

241ZC: Clause 123, page 86, line 39, at end insert-

"( ) In section 9(1) after "of" insert "not less than"."

Lord Brooke of Sutton Mandeville: My Lords, during the passage of the Licensing Act 2003, in a gesture that was helpful to local authorities as licensing authorities, the Government introduced in Section 9(1) a provision that:

"A licensing committee may establish one or more sub-committees consisting of three members of the committee",

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who would then serve as the licensing panel on an application. I do not know if the Government then foresaw the use that local and licensing authorities might make of this provision. A present consequence of Section 9(1) is that, on a particular interpretation, licensing panels can in practice be reduced from three to two. That has the effect of making the chairman, who has a casting vote, decisive, and thus has the effect of single-person decisions. This is habitual in one London borough licensing authority, which I am led to believe is Camden; and I declare an interest as I was once a member of Camden Borough Council. It is used regularly in others and even occasionally in Westminster, where I was a Member of Parliament.

I realise that my amendment to make it "not less than" three members may not be adequate to correct this situation, although I have taken advice. However, I hope that my noble friend the Minister can at least accept the spirit of my amendment. It is a stand-alone amendment, and the others in this group relate to Clause 125. Indeed, my concerns with Clause 125 standing part will follow smoothly on from Amendment 241C of my noble friends Lord Clement-Jones and Lord Astor. I will therefore defer my remarks on Clause 125 to follow on from that amendment, thus now yielding the Floor to the noble Baronesses, Lady Finlay of Llandaff and Lady Hayter of Kentish Town, whose Amendments 241D and 241DA are on a different issue. I beg to move.

Baroness Finlay of Llandaff: My Lords, I wish to speak to Amendment 241A in this group and the subsequent amendment, which is in the name of the noble Baroness, Lady Hayter of Kentish Town, who is also supporting my amendment. I should make it clear that these two amendments have not been tabled because we disagree on this issue; we agree so totally and fundamentally that these two amendments are almost belt-and-braces measures. I would have liked to add my name to the noble Baroness's amendment. They are very slightly different but in no way less important.

The Bill constitutes a very important opportunity to address drink-driving and the catalogue of deaths and casualties that occur on the roads because of alcohol consumption. We both would like to bring down the legal blood alcohol level from 80 to 50 milligrams per hundred millilitres of blood; that would bring us in line with many other countries in Europe. However, the best way forward seems to be to see whether all the measures to be implemented under the Bill have an effect on alcohol consumption-hence the concept of their being subject to a review-and for the review to look at legal limits specifically.

What is the size of the problem? It is estimated that nearly 12,000 reported casualties-5 per cent of all road casualties-are the result of someone driving when over the legal limit and that the number of such people who were killed in 2009 was 380 or 17 per cent of all road fatalities. It is important to remember that pedestrians are sometimes knocked over in these incidents and have a much higher risk of being killed than the person who is in the car, who is usually the person who is over the limit. The injuries

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sustained by pedestrians are more likely to be fatal as they suffer head or facial injuries, which tend to be more severe.

The number of hospital admissions due to road accidents in general is enormous. There were 39,000 admissions following road traffic accidents in 2009. Looking just at the drink-driving statistics, an average of 3,000 people are killed or seriously injured each year in drink-driving collisions, and nearly one in six of all deaths on the road involve these drivers, as I said. However, the biggest problem occurs with youngsters. Drink-driving among young men in the 17 to 29 age group is particularly high. Provisional figures from 2004 show that some 590 people were killed in crashes in which a driver was over the legal limit, 2,350 were seriously injured and 14,000 were slightly injured. The key group comprises the 17 to 24 year-olds, of whom 6.3 per cent who were breath tested after an accident failed the test. That compares with an average for all ages of 4.4 per cent. People in this age group seem particularly liable to drive when they have had too much to drink and to have an accident when over the drink-drive limit. Recent data from police checks in England and Wales show that one in 20 of under 25 year-olds who were stopped were over the legal limit. That translates into 1,746 young drivers because more than 27,000 people were stopped by the police in total.

How do we stop this catalogue of deaths and serious injuries, not only of people who are over the limit but among others? How do we stop the carnage of young lives that are wasted because they have been driving while over the limit? They may not even realise that they are over their limit but their ability to drive safely is seriously impaired. Fatalities often result from stupid little things such as not looking properly, having slightly slower reactions and driving a little too fast on a wet road. That is the background to these amendments. We cannot leave a Bill like this, which is trying to tackle a major social problem, without addressing this alcohol-associated carnage on our roads.

Baroness Hayter of Kentish Town: My Lords, I declare my interests as chair of the All-Party Parliamentary Group on Alcohol Misuse, and as a member of CADD, the Campaign Against Drinking and Driving. As I have already said in the House, members of that body have lost a relative through drink-driving.

I am happy to support the amendment moved by the noble Lord, Lord Brooke of Sutton Mandeville. I will take his wise words on how to tackle these matters back to Camden. I also support Amendment 241A, standing in the names of the noble Baroness, Lady Finlay, and myself, and Amendment 241B, standing in my name, which would have the effect of reducing the blood alcohol level for young drivers, should the review show a case for further reform action.

Statistics on death as a result of alcohol impairment are well known, if not acted upon. We tend to concentrate on death but life-shattering and painful injuries are also a major issue. Indeed, it is mostly thanks to medical advances practised by people such as the noble Baroness, Lady Finlay, and others, as well as the speed and expertise of rescue crews and paramedics, that many who would otherwise have died following

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these accidents have been saved. However, they are not necessarily saved from a life of pain and impairment. As the Select Committee in another place has emphasised,

because drivers were over the limit. The Transport Committee also agreed that,

However, as we know, the Government do not support such a reduction, at least for the moment, and nor did the committee, despite the wise recommendation of a reduction to 50 milligrams by Sir Peter North, although the Transport Committee would prefer a 20 rather than 50 milligram limit, which is effectively zero.

Despite the lack of action, I do not give up hope. In particular, it is worth looking within the generality of drivers at the susceptibility of the young to the effects of alcohol. This would also help to achieve the Transport Committee's aim that the Government should work to achieve a 20 milligram level by first introducing a lower limit for young drivers. New Zealand has recognised that young bodies are more affected by alcohol. It therefore has lower limits for young drivers. As its data show, young people start with a relatively high crash risk. For drivers under 20, even at 50 milligrams their risk of having a crash is six times the level of a driver over 30 years of age with the same alcohol consumption. That is why the drink-drive limit in New Zealand is 20 milligrams per 100 millilitres for those under 20.

The evidence is clear: drink for drink, young drivers are more likely to have accidents than older drivers, quite apart from their level of experience. New Zealand is planning further action to deter young people from drinking and driving, with policies closer to those of America where the drinking age is 21. The Federal Highway Administration estimates that having a drinking age of 21 saves 1,000 young American lives a year, so New Zealand is going to raise the purchase age for alcohol to 20 years. The House will be delighted to hear that that is not where I want to go, but I want to protect our young drivers-and, as the noble Baroness said, their victims, whether they are on the streets or in the cars of those young drivers-from any temptation to drink before getting behind a wheel.

3 pm

It is well recognised that driving impairment and crash risks increase with increasing blood alcohol levels. Even at levels of between 50 and 80 milligrammes, drivers with increased blood alcohol levels are six times more likely to be involved in a fatal crash than those who have not drunk at all. Among drivers killed or seriously injured in the United Kingdom, 87 per cent of those aged between 16 and 24 were over the limit compared with just 13 per cent who were under it. Looking at the figures for all drink-drive accidents rather than injuries, 900 of the 7,500 drivers were under 20-double the accident rate, in relation to the number of licence holders, of the 30-to-34 age group. In terms of miles driven, accidents are six times more likely to occur among that young age group compared with the number among those aged between 30 and 34.

Tens of deaths and hundreds of serious injuries could be prevented by reducing the limit. With this amendment we have a chance to start on the path of

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preventing these deaths and injuries by helping young people to say no to drinking and driving. Eight in 10 people in the United Kingdom already believe that if someone has drunk any alcohol they should not drive. Well over half the members of the AA-by which I mean the Automobile Association, not Alcoholics Anonymous-support a lower blood alcohol level. I am sure that the public's support would increase further if they were asked about young people's limits, not because we blame the young for their youthful drinking but because we do not want young lives to be lost, and because they are at greater danger to themselves.

Furthermore, because our ages are on all our driving licences-sadly, in the case of some of us-it is very easy to determine who would be covered by the new law. With the new digital roadside reading devices it becomes possible to have the exact reading at the point of testing, which has not been possible before, when later analysis of blood had to be relied on.

I hope that the Minister will in reply indicate the Government's willingness to look at the possibility of a lower limit for young drivers or new drivers. It would be a sensible step that could save lives.

Lord Clement-Jones: My Lords, I can be brief in speaking to Amendment 241C. I very much commend Clause 125, which sets in place a review of the effect of the amendments to the licensing scheme. It is common ground between us, whatever side we may be on, that the proposed amendments are highly significant. The Bill provides for a review to take place after five years. In view of the significance of these amendments, Amendment 241C is designed to make that review occur every two, not five, years. That would be much more appropriate, given the significance of the changes that will have been made by the Bill.

Lord Brooke of Alverthorpe: I support the noble Lord, Lord Brooke of Sutton Mandeville. There is a range of issues here that cannot wait five years to be reviewed. The amendment proposing a review after two years would be far more acceptable. I also want to draw the attention of Ministers to reports produced by this House way back in 2002, when the European Union Select Committee reviewed drinking and driving legislation and compared it with that of other European countries. The report pressed the case for the limit to be reduced to 50 milligrammes. The puritan Lord Brooke of Alverthorpe chaired that committee, so I recall it very well indeed. We must keep raising these issues, although time may pass by without speedy implementation.

It was interesting that when I was pulling out my papers on this issue, I came across a press cutting with the headline:

"MPs and peers cast eye on Lords reform".

The article continued:

"A committee on Lords reform is today expected to seek to allay fears that the issue has been kicked into the long grass by agreeing a timetable to put forward proposals by October".

That article was dated 9 July, 2002.

Lord Brooke of Sutton Mandeville: My Lords, given that Clause 125 is totally composed of reviews, I wanted to add a word on the review of ministerial guidance.

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I do that absolutely in the spirit of Amendment 241C, spoken to by my noble friend Lord Clement-Jones, in terms of acceleration.

Much of the way in which the Licensing Act 2003 has been interpreted has been by virtue of ministerial guidance required under Section 182 of that Act. While the currently proposed legislative changes to that Act have been widely welcomed, they will take time to bed down. If the ministerial guidance were immediately to be reviewed and rewritten-it was last reviewed in November 2010; it has been a running process since 2003-subject to public consultation, many of the concerns addressed in the coalition Government's consultation could be dealt with by providing more balanced guidance to licensing authorities to support them in getting to grips as soon as possible with the adverse effects of licensing.

In terms of involving the community, there should be an explicit statement in the guidance that local people and their representatives have an important locus in formulating policies, and that the invitation to consult on local licensing policy should ideally be simple and jargon-free, backed up by something like a crystal mark. However, the best way to involve the community more is to improve public awareness of licence applications. The Government could help by revising the currently very prescriptive rules for advertising applications that often do not work. I give an example that was, I think, mentioned in our previous debates. There are fewer and fewer local newspapers, and the advertisements in them are usually in tiny print on inside pages. The responsibility for advertising the applications should be passed to licensing authorities that can decide the most effective way to advertise applications, including circulating notices by post, on the basis of full recovery from the applicant of their reasonable costs.

What I am about to say may go beyond the scope of this clause, but it would help greatly if local councils, in response to representations from the public and responsible authorities, were to be allowed to introduce policies controlling the cumulative impact of licensed premises-such a provision was precluded from the 2003 Act-whereby the licensing authority can prevent a build-up of problems, rather than waiting until they have occurred.

Lord Stevenson of Balmacara: My Lords, those of us involved in this debate for some time are beginning to recognise there is a risk of Brookes to the right and Brookes to the left addressing us from slightly different perspectives, but with the common cause of improving the legislation. We should be careful to get our Brookes in the right order. We must also be careful, as we debate these issues, not to fall into the camps of the puritans or nannies. Labels are hard to get right on this. This group of amendments is particularly odd. It includes an important technical amendment tabled by the noble Lord, Lord Brooke of Sutton Mandeville. We should also be grateful to the noble Baroness, Lady Finlay, and my noble friend Lady Hayter for allowing us to debate drink-driving.

When I considered this issue some time ago, the wisdom that emerged from those who were looking at it was that the problem of drink-driving largely affected

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the older generations who had perhaps grown up when social conditions were different, whereas the young had got the message that you did not drink and drive. It was a bit like the success of the seat belt campaigns that resulted, after time and effort put in all round, in everyone, or at least the younger generation, getting the hang of the fact that you had to put your seat belt on as you got into the car.

Certainly, I do not have any problem with that; my children do not seem to either. They do that immediately. We borrow from that in the sense that the younger generations picked up that you do not drink and drive; it was something that you just did not do. They organised who was going to drive when they went out. The problem came with the elderly and retired, who perhaps felt that they could hold their drink and drive. The evidence that we have heard today, especially from the noble Baroness, Lady Finlay, is that that is not the case: far too much drink-driving is going on among those groups who previously have not done so. The figures are simply horrific. The catalogue of deaths is too much.

It is not just those who are driving. We have heard in this and earlier debates of the collateral damage caused by drinking. Those who drive cars where other people have been drinking find themselves less able to concentrate and drive well. Pedestrians and others who are not involved may also run into trouble.

The evidence is compelling. If you add to that the sense that the younger generation are taking harder drinks, spirits rather than softer drinks such as wines and beers, I wonder whether we have this the right way round. Should we not hear the argument for allowing people to drink and drive, rather than debating whether there is a safe limit at which people can drink and drive?

I realise that I am stepping a little further than my party has previously been on this, but we are in the delightful situation of having a policy review, so I am taking advantage of what I assume is a blank piece of paper. I sense a little support from my Back Benches. The evidence points us in one way, and we should examine the issue more carefully than simply trying to debate the niceties-although I accept that it is a serious point-of whether 80 milligrammes is right or whether it should be lower for younger people. Perhaps the Minister can add that to the list of issues that she will tackle while she remains in post-which in some ways I hope is not a long time, but long enough to allow her to make some progress here. Driving is a social condition to which we have a permissive approach, and we would not want to change that, but we recognise that matters such as the use of seat belts, phones, drugs, cigarettes and drinks all impact on safety. As a licence is issued to people to drive, it should be accompanied by other measures. The Minister is already building up a list, so I look forward to hearing her comments.

3.15 pm

Lord De Mauley: My Lords, Amendment 241ZC would amend Clause 123, which deals with local licensing policy statements, to amend the separate provisions in the Licensing Act 2003 about the composition of a licensing sub-committee. I am grateful to my noble friend Lord Brooke of Sutton Mandeville for his letter

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to my noble friend Lady Browning giving us advance warning of his contribution today. I understand that he has a specific concern that some sub-committees may be sitting with fewer than three members. We believe that the law is clear on this point, but I assure him that the guidance will clarify that sub-committees with fewer than three members sitting will not be quorate.

Clause 125 imposes a duty on the Secretary of State to review the effect of those clauses in Part 2 that impose a regulatory burden on businesses or civil society organisations. This follows the Government's commitment in the coalition agreement to,

My noble friend asks when the statutory guidance required under Section 182 will next be reviewed. I hope that he will be reassured when I say that we will be making a substantial revision of the guidance as part of the process of implementing the Bill after Royal Assent. I can also confirm that the statutory review will consider the effects of the measures on the scheme established by the Licensing Act, including consequential amendments to secondary legislation and guidance. We also intend to make regulations requiring licensing authorities to advertise applications on their websites. They must already do so in the case of reviews.

Amendments 241A and 241B would include the effect of drink-driving in the statutory review. They would also commit the Government to changing the law on drink-driving in particular ways if the review demonstrated an increase in drink-driving. I must say at the outset that I appreciate the intention behind these amendments. I assure the Committee that the Government are committed to take further action to tackle drink-driving, building on the long-term reductions we have seen in the toll of road casualties that it causes.

However, the proposed amendment would be difficult to implement in practice. It is not feasible to have an alcohol limit of zero, suggested by paragraph (b) in both Amendments 241A and 241B, for a particular class of drivers, because it is sometimes possible to detect the presence of alcohol in the bodies of people who have not consumed alcoholic beverages. Furthermore, it would be difficult to link any changes to the incidence of drink-driving directly to the provisions of the Bill. Indeed, it is challenging even to measure the incidence of drink-driving. It is not self-reported and offence data are influenced by enforcement practices.

The Government recently responded to an independent review with a package of measures to improve the effectiveness of the existing drink-drive limit. We have decided not to change that limit, for the reasons I have given: that would impose social and economic costs that are not matched by potential benefits. I also point out that other countries may have a lower limit, as the noble Baroness, Lady Hayter, mentioned, but even then they do not necessarily have a better record on reducing drink-drive casualties.

However, we consider this to be a very important area. We have announced a range of measures in the new strategic framework for road safety to help the police enforce the law against drink-driving more

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efficiently. These include: removing the option for drivers who fail an evidential breath test by 40 per cent or less to request a blood or urine test; mandating drink-drive rehabilitation courses for disqualified drink-drivers; and developing portable evidential digital breathalysers to make it possible for the police to get evidence at the roadside and other locations.

We do not suggest that any given quantity of alcohol is safe. To some extent, I am in line with the noble Lord, Lord Stevenson, on that point. Our message is clear: do not drink and drive. If motorists do not take that advice and exceed the limit, they deserve stiff penalties.

Amendment 241C, introduced by my noble friend Lord Clement-Jones, would require the Government to review the effect of the clauses after two years. The review date of five years, for which the Bill provides, fulfils the Government's commitment to review new primary legislation that imposes a regulatory burden on businesses or civil society organisations. This timescale has been established as a standard period across different review processes, including the post-legislative scrutiny we are addressing here. We have also announced our intention to review the parts of the alcohol measures that are not subject to statutory requirement in the same five-year period.

Furthermore, if there are warning signs that the legislation is having unintended consequences, nothing in the Bill prevents an earlier review on an exceptional basis. Such a review might be triggered, for example, if evidence from the licensed trade or civic society organisations demonstrates that a measure in the Bill is causing significant harm not matched by any benefits in targeting alcohol-related problems.

However, it would be a mistake to impose a two-year review as a statutory requirement. Five years has been established as a guideline supported by the practical justification of the need to gather sufficient information to enable the effect of the regulation to be properly understood. The production of statistics necessarily lags some time behind events, so a review within two years risks having too little information available on which to base its conclusions. I therefore ask that the amendment be withdrawn.

Lord Brooke of Sutton Mandeville: My Lords, I am grateful to noble Lords who have spoken in support of my amendment and remarks. I am never quite sure whether the penultimate "a" in the geographical title of the noble Lord, Lord Stevenson, is a long "a" or a short "a", so I shall simply refer to him as Lord Stevenson.

Lord Stevenson of Balmacara: For the avoidance of doubt, I refer the noble Lord to the Companion. He really ought to try it, because there are two Lord Stevensons, and it would be very confusing for me if he were in some way confusing me with the other Lord Stevenson, as the noble Lord did with Lord Brooke earlier.

Lord Brooke of Sutton Mandeville: I am grateful for that correction. I shall therefore refer to the noble Lord, Lord Stevenson, as Lord Stevenson of Balmacara, and he can tell me afterwards if I am right.

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The noble Lord alluded to the contributions made by me and my namesake, the noble Lord, Lord Brooke of Alverthorpe. Investing $20 with a particular printer in the midwest gave me the telephone numbers of 18,000 people called Brooke spelt in the way that the noble Lord, Lord Brooke of Alverthorpe, and I spell it. I demonstrated that 5,000 of that 18,000-much the largest phalanx-were in West Yorkshire. By definition the noble Lord, Lord Brooke of Alverthorpe, is much more senior to myself. Only one-eighth of my blood is from West Yorkshire, but three-eighths is from Ulster, which in Gilbertian language passes for Yorkshire in the dusk with the light behind you, and indeed vice versa.

My principal gratitude is to my noble friend the Minister whose answers were entirely satisfactory and I am extremely grateful for them. I feel bad about adding one question to him. I am delighted to hear that the guidance will insist that licensing authorities print the applications on their website. However, that still leaves open the question that I raised with him under Clause 106 last week, on which he very kindly said he would write to me, about the difference between 28 days after the application is received and 28 days after the application is put on the website. I hope that I will get an encouraging answer on that subject between now and when the guidance is issued. I am grateful to him for nodding his head. I beg leave to withdraw the amendment.

Amendment 241ZC withdrawn.

Clause 123 agreed.

Clause 124 agreed.

Clause 125 : Review of effect of amendments on licensing scheme

Amendments 241A to 241C not moved.

Clause 125 agreed.

Clause 126 : Late night levy requirement

Amendment 241CA

Moved by Lord Clement-Jones

241CA: Clause 126, page 88, line 11, at end insert-

"( ) Nothing in this Chapter applies to holders of club premises certificates."

Lord Clement-Jones: My Lords, we now move to the very important part of the Bill relating to the late-night levy. The House may be relieved to hear that I shall speak extremely briefly to Amendment 241CA and to Amendments 241EA, 241GA, 241GB, 241KA, 241MZA and 241SA. The arguments about private members' clubs have been made already under the EMRO discussion.

The Minister said there are clubs and clubs, but the arguments are very powerful for private members' clubs to be dealt with differently under the EMRO and

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the late-night levy provisions. I hope that the Minister will give that further thought since private members' clubs have a self-regulatory process, and if that process is not properly operative then they should not receive private members' club premises certificates. It is as simple as that. They are subject to greater regulation than ordinary licensed premises and for that very reason should be excluded from the operation of the late-night levy.

Moving on to the next group of amendments, Amendments 241D, 241E, 241F, 241G, 241L and 241M, I am afraid that I will be slightly longer. Amendment 241D extends the ability of licensing authorities to determine the extent of the geographical spread of the levy area so that it need not apply to the whole local authority area. This is one of the great weaknesses of this provision for the late-night levy. It is a very blunt instrument, dealing with the whole of a local authority area.

Amendment 241E deals with Clause 126(4), which prohibits the licensing authority from applying the levy as it is currently stated in only part of its area. Removing this provision would allow licensing authorities to designate a particular town or city centre within its control as being liable for the late-night levy rather than being totally broad-brush in its approach. A large number of trade organisations are particularly concerned about the untargeted nature of the proposed late-night levy. A licensing authority may not decide that the late-night levy requirement is to apply only in part of its area, which means that community pubs in particular will be affected by a requirement which is presumably really aimed at addressing the challenges in town and city centres. The power can only be applied across a licensing authority district as a whole rather than a specific area, and its untargeted nature means that many responsible businesses will be caught.

A late-night levy can be imposed irrespective of whether a bar is a source of disturbance. Ultimately it is unfair that any licensed premises operating in a responsible manner should have to pay such a charge when the best course of action would be specifically to tackle the irresponsible operator or indeed individual members of the public who cause problems.

The Government justify this measure on the basis that the easiest, most effective way of dealing with the issue is to go for the whole council route because it is viewed as less bureaucratic, and that the levy must be attractive to licensing authorities by being simple to introduce. However, we must not put the levy on to properly run businesses. If they are forced by a combination of the levy and EMROs to close at midnight, as I said to an earlier amendment, this will simply mean that young people will spill out on the streets at 11 pm, as they always used to do, which is clearly not going to be conducive to public order. It is patently unfair, as was pointed out in Committee in the other place, to impose a charge on a business which may be 20 miles away from the source of the problem, and it cannot be justified.

It is understood that premises could apply to the licensing authority to reduce their hours without being charged a fee but it should be recognised that this option still places a cost on businesses, not just in their

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management time or legal fees in making such an application but also in potential lost revenue from reducing the trading time of their business.

Moving on to Amendment 241F, the levy will be applicable to any premises holding a licence to sell alcohol under the Licensing Act 2003 if it is open for just one day after the time stipulated in the late-night levy, which will most likely be midnight. This means that any pub, hotel, restaurant and so on which has permission to sell alcohol, even on just one night in the year, will become liable for the levy, and this will catch many venues with restricted late-night opening to cover such events as New Year's Eve and bank holidays. That is the reason for inserting "15" instead of "one" in this amendment.

Amendment 241G is very similar to a previous amendment on EMROs. It ensures that premises that open late only once a year on New Year's Eve are not required to pay the levy. This would alleviate an unnecessary cost burden on thousands of small pub businesses which would otherwise have to pay the levy. The Bill makes provision to impose a late-night levy on all premises licensed to sell alcohol between midnight and 6 am. The levy would be imposed at the licensing authority's discretion across the entire local authority area. The funds raised would cover the costs of policing and other arrangements for the reduction or prevention of crime and disorder in connection with the supply of alcohol between midnight and 6 am. As it stands, the late-night levy unfairly penalises responsible retailers by applying to all licence holders and not just those who trade irresponsibly by contributing to alcohol-related disorder. This new measure will indeed introduce further costs for responsible businesses when powers to deal with irresponsible traders already exist.

I move on to Amendment 241L. As the Bill stands, licensing authorities could introduce an early-morning restriction order beginning at 12.30 am and running through to 6 am, and impose a levy on all premises that remained open until 12.30 am. Surely it is not intended that this combination of EMRO and levy should punish those caught out in this way. I beg to move.

3.30 pm

Baroness Hamwee: My Lords, I have Amendments 241DA, 241H, 241J, 241K, 241N, 241R and 241S in this group. There is a concern that the late-night levy will not be used very much because of the bureaucracy and costs involved in the scheme, and because only a few local authorities have enough late-night venues to make it worth them running the scheme. We wait to see but, again, my concern is about central prescription.

I understand that the Government regard the levy as a tax and so say that it must be prescribed centrally. I wonder whether that is a bit circular. Can you be a bit circular? You either are or you are not-perhaps it is elliptical. If a local authority had discretion regarding the amount of the levy to reflect the costs, would that make it a charge rather than a tax? Therefore, to mix my metaphors, I am not sure which is egg and which is chicken in all this, but I firmly believe that the levy should be locally determined on the basis of full cost recovery.

I asked the Local Government Association about the costs associated with late-night operation, and

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your Lordships will not be surprised to learn that the list includes things such as street cleansing, taxi marshals and clearing up in the widest way after the large amount of activity late at night.

The consultation with local authorities on the regulations that relate to all this will be very important but there is a big cost. Because of that, I have transposed the 70:30 split so that in my amendment 70 per cent goes to local authorities to deal with things such as community safety initiatives, regulatory costs and other matters which I have already mentioned. After all, although I know that the police, too, could do with lots more money, they are already funded for areas of high-priority policing. The LGA has commented to me that police commissioners will be attracted to the idea of acquiring 70 per cent of the levy and may place significant pressure on their local authority to bring in the scheme. However, how the police's 70 per cent should be spent or, perhaps more importantly, where, is not specified. The money could be raised in one area of the police force but used in another.

Amendment 241D reflects the concern of my noble friend in his amendment that local authority areas are not homogenous. If this new power is to be brought in it would be sensible for it to be focused and directed. Amendment 241H would take out the prescription of the amount of the levy. It is fair enough for it to be calculated by way of the formula, which is what Clause 129(1)(b) provides, but not the amount-Clause 129(1)(a) refers to that. I mentioned the 30:70 split which is referred to in Amendment 241N. Amendments 241R and 241S are about prescription and Amendment 241K is a proposed new clauseto provide a power for each licensing authority toset the levy for the reasons to which I have already alluded.

Lord Stevenson of Balmacara: My Lords, we seem to be running into a little more difficulty with this group of amendments in terms of what the Bill is trying to achieve, and I look forward to the Minister's response. Although, you can see where this idea has come from in the sense of the additional costs and other burdens on those with responsibilities in licensing areas, it seems to be a rather overbureaucratic approach. The overlap with the EMRO is not clear to understand-that point has already been made by other noble Lords. The reason why some aspects of this form of imposition are centrally determined and run by the Home Office and some are left to local areas is not at all clear. There is a problem about the scale and extent to which in any authority it would be sufficiently worth while for the licensing authority to introduce a local levy of this type. The case has yet to be made for a late-night levy.

Alongside that runs the argument that businesses already contribute to the community through their business rates. A proportion of revenue from business rates goes to fund local police and fire services-indeed all services-that will be drawn on in the sense that the Bill addresses this point. It seems to us that the late-night levy unfairly penalises responsible retailers by applying a levy to all licence holders and not just those who are trading irresponsibly. Funds raised in out-of-town centre premises will finance additional policing and other measures targeted at the late-night disorder in town

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centres because that is where it happens. Is it really fair for a village shopkeeper to pay for reducing disorder that they could not possibly have caused?

Businesses that sell alcohol and put on live music contribute to the community through their licence fees. Licence fees for selling alcohol and for regulated entertainment reflect the costs to the licensing authority of administration and enforcement of the licence. The point has been argued before and we think that it is fair. The proposed late-night levy would be a third tax-an additional cost and a stealth tax on the ability to operate at odd times of the day and night. It would affect small music venues that operate past midnight with entirely disproportionate consequences.

I wonder whether the Minister is aware that the CBI said recently that the late-night levy proposal contradicts the Government's ambition for the creative industries to provide a key pillar of growth in the economic recovery and seems to be undoing some of the Government's good work in supporting small live music venues.

Baroness Browning: My Lords, it might be appropriate if I begin by reminding the House that the late-night levy was a coalition commitment that we would permit local councils to charge more for late-night licences to pay for additional policing. Unlike other measures that we have discussed so far in relation to this licensing section of the Bill, which specifically give more tools to licensing authorities to deal with the problems that they experience with crime and disorder related to drinking and alcohol, this clause is quite different. I am well aware that the noble Lord, Lord Brooke of Alverthorpe, asked in our debate on an earlier amendment whether there was a change in the Government's approach to this. If I say yes, it is clearly demonstrated in this particular clause because the clause is not about a measure under which licensing authorities would intervene to address specific problems of alcohol consumption. This is exactly what it says on the packet; it is a tax that is specifically for the repayment to the public services funded by taxpayers for the on-costs that they incur as a result of the late-night economy.

I welcome the opportunity to put on record the principles and thinking behind this levy. First, the levy, as set out in the existing framework, will provide a much needed power for licensing authorities. It will allow them to raise a valuable contribution toward policing costs resulting from the late-night supply of alcohol. To meet this purpose, it must be paid by all who profit from the practice, wherever they are placed. Secondly, the levy will be simple for licensing authorities to adopt; I do not agree that it will be bureaucratic. Thirdly, and finally, the levy will be a fair and proportionate contribution from businesses to enforcement costs. Processes will be transparent and local services will be accountable. In many of our towns and cities, the police experience considerable costs in keeping the late-night environment safe. Alcohol-related crime and disorder are rarely isolated to specific premises. Those on a night out will often visit a variety of premises. Just as businesses share the benefits of customers moving around, they should also share some of the costs generated by the supply of alcohol late at night.

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The application of the levy must be as wide as possible. It will be paid by all businesses that profit from supplying alcohol late at night, subject to some exemptions and reductions. On this point, I will consider the lead amendment in the group. A wide variety of premises operate under club premises certificates. Removing all liability would exclude contributions from many businesses that also profit from selling alcohol in the late-night environment. We will consider exemptions and reductions in consultation before writing secondary legislation. I hope to explore the different types of business that operate under a club premises certificate before preparing our consultation. Therefore, we should not put this blanket exemption in the Bill. I say to my noble friend Lord Clement-Jones that I did not mean to be flippant in my earlier remark about club premises. I hope he will take it from me that while club premises benefit from the late-night economy, I accept that there are different types of clubs and I hope that he will take some comfort from the fact that we will consider very carefully in consultation the exemptions and reductions before secondary legislation is introduced.

If we gave a licensing authority the power to target the levy on a specific part of its area, this, too, would mean that fewer businesses would contribute. This would risk the levy raising barely enough to cover administrative costs and failing in its objective of raising a meaningful amount for the police. That is what we intend to do where the levy is applied: raise a meaningful amount of money for the police, who in turn must cover the costs of policing.

I am aware of concern that the levy is not sufficiently targeted. However, we must be clear that it is not designed to target specific pockets of crime and disorder. Clauses and amendments that we debated earlier focused on the need for the licensing authority to have the flexibility to target and focus on the areas that it deems have problems. The levy is not about that; it is about raising money for the police. I am still committed to helping communities tackle areas with specific alcohol-related problems, and I hope that other measures in the Bill will address that. We have already discussed early-morning restriction orders, which are there to address those sorts of problems. This power will enable licensing authorities to restrict the sale of alcohol in specific areas, at specific problem times on specific days. We have addressed the need to enhance the powers of the licensing authority, but that is not the purpose of the amendment.

Many other changes have been proposed in the amendments, and many ideas expressed. Some amendments would remove the burden of licensing authority accountability processes. The processes are necessary; licensing authorities should not worry about incurring costs from introducing the levy. They can deduct their administrative expenses from the levy receipts. As well as the levy funding the additional costs-not total or hypothecated costs, but as a contribution to the overall cost of policing-there is a facility for the local authority to deduct its administrative expenses from levy receipts.

3.45 pm

A number of amendments seek to grant more local authority discretion, such as in setting the level of charge. However, we believe the charge must be nationally

16 Jun 2011 : Column 943

set to ensure that it is a standardised, fair and proportionate contribution from businesses. In light of the high policing costs that I have already described, I believe it is right for the police to receive the bulk of the contribution. We must also be careful not to create extra evidential burdens for licensing authorities in having to justify their choices of area and charge. The levy will not be another alcohol disorder zone, which was extremely bureaucratic. In fact, it was so burdensome that no local authorities adopted it.

One amendment considers corporate responsibility initiatives as a potential reduction from the charge and another looks at exempting New Year's Eve. We mentioned these special exemptions and special days in other amendments. I can assure noble Lords that our upcoming consultation will consider exemptions and reductions in relation to members of business-led initiatives and special occasions. I am aware that many business-led schemes seek to mitigate late-night alcohol conditions and problems, particularly anti-social behaviour, and there will be an opportunity in the consultation period for representations from businesses that have already adopted them to make their views known. On this basis, these amendments pre-empt our public consultation.

With regard to other special occasions, I am confident that we have made good provision for premises to use temporary event notices. All these amendments reflect some of the wider discussions that took place during the development of the levy scheme and its ongoing analysis by our partners. I believe that we have struck the right balance. Significant administrative and legal burdens have purposely been avoided. We have created a tool which licensing authorities can easily use. The late-night levy will be a proportionate contribution towards policing costs shared by all businesses that profit from selling alcohol in a safe late-night economy. I ask the noble Lord to withdraw his amendment.

Baroness Hamwee: I shall make two points on the Minister's comments. First, she said that the standard level of the levy needs to be set nationally to ensure that there is a proportionate contribution from business. Is it not the case that there will be different costs in different areas? That is in the nature of the diversity of the country and of local authorities. Therefore, to set a standard levy may not reflect that diversity.

My second point is about Part 1-that seems so long ago that I wrote down the title of the Bill and then realised that we are still on it. We talked a lot about the need for police forces and local authorities to work in collaboration and co-operation, and I hope we will come back to this on report. In proposing that more resources go to local authorities, perhaps the Government will see that in the context of local authorities working with their police forces to deal with the impact of some of the difficulties arising from the late-night economy.

Baroness Browning: I hope I can reassure my noble friend that this levy has been designed to raise money for the police, who bear the brunt of late-night enforcement costs. As such, we believe they should receive the majority of the levy revenue after administrative expenses have been deducted. The local authority now works with the police and in future will work with the police

16 Jun 2011 : Column 944

and crime commissioner, so there will be a very close working relationship between the two to identify whether a licensing authority wishes to apply the levy.

My noble friend mentioned disproportionality in the levy charges. They have yet to be set. We have published only indicative figures. We currently plan to structure the levy charges on the existing licence fee bands, which, as my noble friend will know, are predicated upon the rateable value, so although this will be nationally set, it will be indicative of regional differences in bandings. In that way, we hope to have fairness and proportionality in the way in which the charges are structured.

Lord Clement-Jones: My Lords, I thank the Minister for her response, which I found to be rather a curate's egg. Of course, I accept that the levy proposal was in essence contained in the coalition agreement. She will notice that no clause stand part debate is proposed from this or any side of the House. I do not think there is a great quarrel around the House with the principle of the levy. Certainly, I did not pick that up during the debate. It is all about the way in which the levy will operate and the interrelationship with EMROs. In particular, it is about the nature of the exemptions and the blanket nature of the levy.

I am pleased to hear that the Minister in the consultation will reflect the different types of clubs and will specifically look for different types of exemption, which is welcome. I would never apply the word "dusty" to this Minister's replies, but I did think that the Home Office is erecting quite a brick wall to the idea that one can be rather more flexible about the way in which the levy operates. I know that the Minister said that it was not a crime and disorder provision but was all about policing. However, it seems grossly unfair that in a local authority with a mixture of rural and urban, the rural pubs, many of which are struggling, have to pay a levy when they will not see a policeman in a million years. Why on earth should they pay for this?

A huge issue is involved, which seems contradictory. This Government are, I think, the first Government to appoint a Minister with responsibility for community pubs, which was a great thing. He is doing a great job but in a rather different department from the Home Office. However, the policy does not seem to be joined up. Here we have a great deal of work going on in DCLG about planning and the various aspects of the survival of the community pub. We have the Government in a very welcome fashion supporting a Private Member's Bill that I have put forward about live music, which is designed to preserve the community pub, and certainly the smaller community pub, in many ways. However, here we are with a provision that will directly impact on them if their local authority is a large one that includes a lively, to say the least, city centre. That is a major problem.

Baroness Browning: I have heard what my noble friend says, and I of course understand the situation for rural pubs, having represented 650 square miles of rural Devon for nearly 20 years. I will take away what he has said. I cannot make any promises today, but I hope he will remember that I said that there would be a consultation on exemptions. The point that he has made today will be noted.

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Lord Clement-Jones: My Lords, I thank the Minister for that reply. I knew that if I carried on talking for long enough she might respond. I will have to use that technique on more occasions. In the mean time, I thank the Minister for her response and beg leave to withdraw the amendment.

Amendment 241CA withdrawn.

Amendments 241D to 241E not moved.

Clause 126 agreed.

Clause 127 : "Relevant late night authorisation" and related definitions

Amendments 241EA to 241GB not moved.

Clause 127 agreed.

Clause 128 agreed.

Clause 129 : Amount of late night levy

Amendments 241H to 241J not moved.

Clause 129 agreed.

Amendment 241K not moved.

Clause 130 : Payment and administration of the levy

Amendments 241KA to 241MZA not moved.

Clause 130 agreed.

Clause 131 agreed.

Clause 132 : Application of net amount of levy payments

Amendments 241MA and 241N not moved.

Clause 132 agreed.

Amendment 241P

Moved by Lord Clement-Jones

241P: After Clause 132, insert the following new Clause-

"Accountability of police

(1) The local police force must provide a written report to the local authority at the end of each levy year where a levy is applied to the local authority area.

(2) The report is to be submitted to the local authority within 12 weeks of the end of the levy period.

(3) The report must contain-

(a) details of the amount received through the levy and the amount spent by the police in policing the areas covered by the late night levy during the hours that it applies; and

(b) details of the impact of the levy on crime and disorder in the area covered by the levy."

16 Jun 2011 : Column 946

Lord Clement-Jones: My Lords, I can be brief on this amendment and Amendment 241Q, which is grouped with it. These new clauses would ensure that there is accountability for the funds raised and distributed to the police and the licensing authority, which are not obliged under the Bill as it stands to apply the moneys to the late night levy area. They are able to use the funds within their general expenses as they see fit. These proposed new clauses will ensure that those who are subject to the levy are informed about the application of the funds, which are to deliver improvements in the area to which they are applied. I beg to move.

Baroness Browning: My Lords, while other amendments have tried to reduce administrative processes, these two amendments attempt to add a publishing requirement on the police and the licensing authorities. I hope that noble Lords will agree that transparency already exists in the late night levy design. I believe that the levy will achieve an appropriate level of transparency and no further reports are required. We will require licensing authorities to consult on proposals and publish the expenses they incur in administering the levy. The police are being reformed to make them more accountable.

Let me deal first with the police. The money given to the police from the late night levy will go into the police fund for the force area and be subject to the relevant scrutiny processes. We believe that it will be a waste of police resources and unnecessary bureaucracy to require the police to provide a report for the levy spend in particular. Further checks and balances will exist under police and crime commissioners. The PCC will be publicly scrutinised by the police and crime panel. Any data used in that scrutiny will be made public unless they are operationally sensitive, and PCCs will also be subject to freedom of information provisions.

With regard to the licensing authority, transparency is provided in the pre-levy consultation process. This consultation will consider, among other things, the services which the licensing authority intends to provide from its levy revenue. The authority will then write to all affected premises to inform them of its final decision. The public will not need yet another publication setting out how the licensing authority spends the levy funds. Further, the Bill will require licensing authorities to publish a statement of the administration expenses which they have deducted from the levy revenue. The licensing authority, as an integral part of the council, is of course accountable to the public.

The late night levy is light on administration and process. It has been designed as a contribution towards policing costs from those who profit from the sale of alcohol in the late night. To require an assessment of the impact of the levy on crime and disorder, as these amendments seek, would confuse the objective of the late night levy with tools such as early morning restriction orders which, as I have already mentioned in response to previous amendments, are specifically designed to tackle particular pockets of alcohol-related crime and disorder. I believe that necessary transparency is adequately provided for to ensure that levy receipts are spent in an appropriate way.

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4 pm

Lord Clement-Jones: My Lords, I thank the Minister for that quite complex and useful response. Her argument is that there are many ways, other than those provided by the amendment, in which transparency is achieved. The amendment also seeks accountability, which is also an important principle that is involved. I shall read what the Minister said extremely carefully and consider whether the existing framework is adequate to explain what the levy is devoted to, and how useful it is in the context. I am very grateful to the Minister for her reply and beg leave to withdraw the amendment.

Amendment 241P withdrawn.

Amendment 241Q not moved.

Clauses 133 and 134 agreed.

Clause 135 : Introduction or variation of late night levy requirement: procedure

Amendments 241R to 241SA not moved.

Clause 135 agreed.

Clause 136 : Permitted exemption and reduction categories

Amendment 241T

Moved by Lord Clement-Jones

241T: Clause 136, page 94, line 24, at beginning insert "other"

Lord Clement-Jones: My Lords, I shall not detain the House too long. It would be easy to spend time talking about some of the schemes that would justify an appropriate discount. However, I shall first move Amendment 241T. By a strange quirk of grouping, the Minister has already partly responded on the concept of a discount for these community-type schemes. The effect of these amendments would be to require the levy to be reduced by 50 per cent per premises participating in well established, recognised corporate responsibility initiatives-specifically, Best Bar None, business improvement districts, Purple Flag, Pubwatch, community alcohol partnerships and other similar watch initiatives, all of which demonstrably reduce the incidence of crime and disorder in town centres. These could be undermined if participating businesses were required to fund all these bespoke schemes and a more general levy. To acknowledge the contribution and investment that industry has made to improving standards and addressing challenges in the night-time economy, particularly in town and city centres, it is therefore appropriate that these high-profile initiatives are identified in the Bill as requiring a reduced levy. This will also safeguard the initiatives themselves and encourage further take-up in areas where such partnership approaches do not yet exist.

I dare say that many of us have received correspondence from some of the projects, particularly the business improvement districts. I have received several of those.

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The Nottinghamshire Leisure business improvement district experience is extremely interesting. Some of the correspondence relates to the community alcohol partnerships, which have also been very successful. I understand that the Government plan to recognise in guidance, and perhaps in regulation, the nature of these schemes and the fact that they will receive discounts. However, I hope that they can be a little more forward in the Bill by recognising that that will definitely be provided for. I beg to move.

Lord Stevenson of Balmacara: My Lords, I support the previous speech and the amendments that it introduced. On this side of the House, we believe that premises that work with the police and local authorities to minimise crime and disorder should qualify for a reduction in the late night levy. I take the point made by the noble Lord, Lord Clement-Jones, that it would be helpful if this could be put in the Bill, not just because we like to see things in legislation but because it is so important that we recognise what they are doing.

In many cases, for example, these venues are safe havens for young people. If you put young people in a protected environment rather than having them out on the streets you are doing some public good. In a sense, that is something that we want to encourage and we would be grateful if it could be considered in that way. Well run and responsible venues already participate in voluntary schemes to combat anti-social behaviour, and if they are forced to close at midnight to avoid the levy then they will effectively be throwing their young clientele out of a safe venue onto the streets.

Baroness Browning: My Lords, licensing authorities will have the discretion to decide which of the exemption and reduction categories they will apply in their application of the levy. Although I am unable to accept these amendments, I welcome their overall intention. It is precisely these types of premises and the schemes that they run that we want to consider for reductions from the levy charge. However, the amendments would prejudge our public consultation on exemptions and reductions, which we will introduce through regulations.

We have already begun the design of that consultation through a number of working groups, with representatives of the trade, licensing authorities and the police. I would urge noble Lords to await this consultation so that we might have the opportunity fully to consider the views of our partners. There are many schemes, such as the ones mentioned this afternoon, that allow the business community to work together to address some of the negative effects of the sale of alcohol in the night-time economy. I support the principle that drives these local initiatives. However, there is a range of such initiatives and we need to consider the breadth of these schemes and how we might define workable categories for reductions. On that basis, I ask noble Lords not to press their amendments.

Lord Clement-Jones: My Lords, I thank the Minister for that reply, which gives all the right signals in terms of the kind of scheme that would be included. Of

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course, I was trying to prejudge the consultation to a degree, but I elicited a response from the Minister that is helpful.

Having reached the last amendment dealing with the licensing and levy in Part 2, I must say that an awful lot of weight is now being borne on the consultation. On many occasions replying to groups of amendments today, the Minister has relied on the efficacy and fairness of that consultation to business, particularly, but also to residents and local authorities. I hope that she gets it right because it is of huge significance that the balance and outcome of that consultation are fair. I beg leave to withdraw the amendment.

Amendment 241T withdrawn.

Amendments 241U to 241X not moved.

Clause 136 agreed.

Clauses 137 to 139 agreed.

Clause 140 : Amendments of the Licensing Act 2003

Amendment 241Y not moved.

Clause 140 agreed.

Clause 141 agreed.

Amendments 242 to 244 not moved.

House resumed. Committee to begin again not before 5.10 pm.

Southern Cross


4.10 pm

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, I shall now repeat as a Statement the Answer given earlier today by my honourable friend the Minister for care services to an Urgent Question tabled in another place about the steps that the Government are taking regarding Southern Cross Healthcare. The Statement is as follows.

"The Government have made it very clear that the welfare of residents living in Southern Cross homes is paramount. We appreciate that recent events and media speculation have caused concern to residents in Southern Cross care homes and their relatives and families. I very much regret that. I would like to assure everybody that no one will find themselves homeless or without care. The Government will not stand by and let that happen.

Department of Health officials have been in frequent contact with Southern Cross's senior management over the last three months and that will continue. We are engaged with the company, the landlords and lenders and are monitoring the situation closely. The Government are acting to ensure that all parties involved are working towards swift resolution, with a

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comprehensive plan for the future which must have the welfare of residents at its heart. It is for Southern Cross, its landlords and those with an interest in the business to put in place a plan that stabilises the business and ensures operational continuity of the care homes. That work is happening and we must let it continue. Let me be very clear: this is a commercial sector problem and we look to the commercial sector to solve it. All the business interests understand their responsibilities. The Government are also working closely with the Association of Directors of Adult Social Services, the Local Government Association, local authorities and the CQC to ensure that robust local arrangements are in place to address the consequences in the event that the company's restructuring plan failed to put the business on a stable footing.

Yesterday, a meeting took place between Southern Cross, lenders and the landlords' committee. They agreed to work together to deliver a consensual solution to the company's current financial problems over the next four months. They also made clear that the continuity and quality of care to all 31,000 residents will be maintained and every resident will be well looked after. This is a welcome development and the Government are encouraged by this positive agreement by the main stakeholders. The exact details of the restructuring plan over the next four months will be set out over the next few days and the following weeks. The Government will continue to keep close contact with the process. I will keep the House informed.

Local authorities have a duty to provide care to anyone who has an urgent need for it. All parties are aware of their roles and responsibilities should that happen and will take decisive action to ensure that no resident is left homeless or without care. The statement released yesterday provides further reassurance that the continuity of care of the residents is at the centre of the consensual restructuring agreement".

That concludes the Statement.

4.13 pm

Lord Beecham: My Lords, I thank the noble Earl for repeating the Answer to the Question raised in the other place. While news of yesterday's agreement is welcome and will, I hope, reassure Southern Cross's residents and their families, a number of questions arise.

First, it is understand that Her Majesty's Revenues and Customs is a major creditor. Has it been involved in the discussions and is it comfortable with the outcome to date? Secondly, will the Government ensure that both they and the Local Government Association-representing the interests of many of the residents, including but not limited to those who are publically funded-will be involved in any further discussions over the future of the company's operations? Thirdly, what steps if any have the Government taken or will they take in relation to the company's workforce, for whom this is also a most anxious time? According to today's Times, 42,500 of them have already had their contracts ripped up and are facing the prospect of 3,000 jobs being lost.

As for the underlying, systemic issue, do not these events underline the folly of the previous Conservative Government in effectively driving local authorities out

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of the provision of residential care by deliberately financially disincentivising such provision in favour of the private sector? Can it be healthy for five or six private companies to dominate the market to the extent of around 36 per cent, with Southern Cross alone supplying 31,000 out of 170,000 places? Is it not totally unacceptable for frail and vulnerable elderly people to be treated like commodities, to be bought and sold as part of some ingenious financial engineering?

Did not Mr Hammarberg, the Council of Europe Commissioner for Human Rights, have a point, as reported in the Telegraph, when he singled out for criticism the UK model of privatised social hair combs-sorry, I meant to say care homes; I am not too familiar with combs these days. He went on to say that privatisation, "is not the solution", with a high number of privatised care homes in crisis. Is he not right to express concerns that,

and that companies,

The Answer to the Question proclaims:

Is that not too narrow-one might almost say, too much like an accountant's view of the problem? Would not the Minister agree that this is first and foremost a health and social care issue? Is not the commercial aspect very much part of the problem? Does not this in fact send out warning signals in relation to the role of the private sector in the provision of healthcare and whatever emerges as the reborn Health and Social Care Bill?

Finally, will the Government support and encourage co-operative, mutual and third sector organisations to engage in the future running of at least some of the Southern Cross care homes, if the rescue package does not succeed? In the longer term and in any event, will they promote a mixed economy of such care provision across the country to include local authorities and the private, voluntary and community sectors?

4.17 pm

Earl Howe: My Lords, I am grateful to the noble Lord, Lord Beecham, for his comments and questions. He asked a number of the latter. First, he asked specifically about the HMRC. I asked that question myself of my officials. It is quite clear that any discussion with Her Majesty's Revenue and Customs has to be a matter for the company. HMRC makes its own judgments in any discussions with companies. It is a separate statutory body; it may not be lobbied by another government department, nor is it at liberty to discuss the detail of individual company tax affairs with anyone outside HMRC. So it is very much in the hands of the company if it so chooses to enter into the kinds of discussions to which the noble Lord alluded.

The noble Lord asked whether the LGA would be involved in the discussions over the company's future. As is clear from the Statement, we regard the primary agents in this matter as being the company, its landlords and the lenders involved. They are the people on

16 Jun 2011 : Column 952

whose shoulders a restructuring plan depends. Nevertheless, he is right to suggest that the LGA is important in this context; it is involved with the discussions that we have had and will continue to have for some time-not only with the LGA, but with ADAS and the CQC, as well as the representatives of providers-to work through and define better the responsibilities of each party involved, so that if problems arise at a local level, either in this context or in any other similar context, the response will be appropriate. It is important to have that clarity of responsibility.

The noble Lord asked about the Southern Cross workforce. The key point here is the safety and well-being of the residents. We tasked the CQC to enter into discussions with Southern Cross when it announced redundancies the other day. The CQC's role is to ensure that all care homes meet essential standards of quality and safety and it has confirmed that it will continue to require Southern Cross to demonstrate that all its homes are meeting these essential standards. Any failure to do so may result in enforcement action. I cannot go beyond that and comment on the prospects for the continued employment of the current workforce. All I would say is that the agreement reached yesterday will dispel a great deal of the uncertainty that they must have been feeling in recent days, because we now have the prospect of stability and certainty over the next few months as Southern Cross continues as a viable business with the support of its lenders and landlords.

The noble Lord moved on to suggest that it was the policies adopted by a previous Conservative Government in encouraging a diverse and plural market for care home provision that has brought us to this pass. I am slightly surprised to hear him say that because I think that one benefit of that policy has been a much greater array of choice open to individuals than there was before-and indeed a choice not just of location but of quality. To cite the problems of Southern Cross as a confounding factor to that is, I think, unfair. The problem with Southern Cross is not the quality of the provision of care but its business model.

I do not think that there has been any suggestion that the residents of Southern Cross homes have, as a generality, been badly looked after; rather, the issue is that the business model that the directors of Southern Cross adopted was unsustainable. We hope that the restructuring that is now apparently in prospect will address that and that the company can carry on giving the care that it has always done to its residents. Nevertheless, as we said last week when we had a Question in your Lordships' House on this topic, and in reply to the noble Lord's comment about individuals being treated as a business commodity-if I may rephrase his question-that is of course a distasteful idea. To the extent that that has happened, we must acknowledge it. All I would say is that it has not affected the care that those residents have received. If it has disadvantaged anyone, it has been the shareholders.

The noble Lord suggested that because the Statement made it clear that we regard this as a commercial matter for the commercial organisations to solve, therefore this is not a health and social care issue. Again, that is a little unfair. The Government do not for one minute shirk their own responsibilities in this matter. We have been absolutely at the front in encouraging all parties

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to come together to reach this consensual agreement, to place the interests of the residents first and to put aside private interests and prejudices as much as possible. It is very encouraging that the statement issued yesterday did just that. There is consensus between the key parties that the interests of the residents are at the front of their minds. The restructuring is something that they are aiming to work through in as short a time as possible. I believe that that is cause for encouragement.

The noble Lord asked about the future and what might happen, not only in the case of Southern Cross but, I took him to mean, in the care sector generally. I am sure that as we go forward, if all goes well, we will see the kind of diverse market emerging in care home ownership that we have in domiciliary care where, as the noble Lord will be aware, there is a very diverse range of ownership by social enterprises, charities and private organisations of one kind or another that provide domiciliary care. There is scope to make the residential care home sector equally diverse over time. However, as we do that, we need to ensure that it is not just a diverse market but a stable one. I am the first to acknowledge that lessons will need to be learnt from this sorry episode over Southern Cross. If I have failed to answer any of the noble Lord's questions, I shall certainly make up for that in writing.

4.26 pm

Baroness Barker: My Lords, after 13 years of a Labour Government who were not in any way reluctant to diversify the residential care market, there is an even greater plurality of providers than there ever was before. One issue that has arisen out of this case is the capacity of the CQC to evaluate the stability and viability in the long term of a company that is owned by a private equity firm. That is a complex task that might challenge even the Financial Services Authority. Does the Minister agree that in order to reach the stable and viable market that he has suggested, there is a need to look at this in a much wider sense than just this case? Does he agree that the discussions that must inevitably follow the publication of the Dilnot inquiry in July should focus on the role of private equity-funded companies in the residential care market and, as he has also suggested, in the domiciliary care market?

Earl Howe: My noble friend raises an important issue. As she knows, care providers have to be able to demonstrate to the Care Quality Commission that they have the financial resources needed to continue to provide services of the required quality. We have embarked on a wide-ranging programme of reform for social care. We are currently considering the Law Commission's recommendations for modernising social care law and, as my noble friend mentioned, the report of the Commission on Funding of Care and Support is imminent. There are many lessons that have to be learnt from the events of recent weeks. We want to reflect on them as part of our wider reform agenda for social care.

On private equity finance, I simply make my own observation to my noble friend: I do not think that private equity finance is at the root of the problems that we have been seeing but the business model, which is rather a different issue. It was the choices and

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decisions made by the management of Southern Cross that made the business fundamentally unsustainable. I do not see that as a reflection directly on private equity providers. We have been clear that we were going to take action to ensure that there was proper oversight of the market in social care. That is why the Health and Social Care Bill specifically allows us to extend to social care, if we chose to do so, the proper financial regulatory regime that we are putting in place for the NHS. However, I suggest that regulation is not the only solution; we need to approach this in a measured way, not least because there are complex negotiations under way. We need to look at social care reform as a whole, which is exactly what we have committed to doing.

Lord Campbell-Savours: My Lords, on the question of the business model that the Minister just referred to, does not this whole sorry saga reveal how completely out of touch with the world of reality were the main board and executive directors of Three Delta, who advised the Qatar Investment Authority to spend billions buying property in the healthcare sector on the back of inflated and totally unrealistic rent levels paid by companies such as Southern Cross? Were the Qataris made aware of the huge risk involved? What were the so-called great and the good like Sir Peter Middleton, Nick Land, Sir Christopher Howes and David Mellor-a former government Minister-doing when any estate agent in the commercial property sector could have told them that the commercial care property market was both overgeared and overpriced?

Finally, will Messrs Scott, Murphy, Sizer and Colvin, formerly directors of Southern Cross, be prosecuted for insider dealing in Southern Cross shares when they privately promoted the sale of shares in the months immediately prior to their profits warning and collapse in the share price? Is this whole affair not riddled with greed and stupidity?

Earl Howe: My Lords, I fear that I am unable to answer the noble Lord's questions, for which I apologise, but I understand why he has asked them. If I have some concise answers that I can send him, I will certainly do so by way of a letter.

I think that the noble Lord and I agree that we are looking at a fundamentally unsound business model. As I understand it, it is a unique business model in the care home sector, where a deliberate decision was taken for the company not to own its own care homes but rather to pay the rent on them. The market clearly moved against it in more than one sense. The company's problems are partly attributable to the occupancy levels of some of their care homes. Southern Cross occupancy levels have gone down, I understand, more than those of other care homes. It is not about fee levels; other providers of residential care are not in the same position as Southern Cross. I believe that Southern Cross's problems relate to the rental agreements-the leases-that they entered into. It is those things that the restructuring aims to fix.

Lord Brooke of Alverthorpe: My Lords, I thank the noble Earl for his Statement. I listened carefully to what he said about the need for clarity on where

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responsibility lay. He also stated that there were lessons to be learnt. Will he say when the Government will conclude their review of these lessons, and when and how they will make them public? With the imminent privatisation of the Royal Mail, which has a lot of property worth quite a lot of money, will the Minister say whether some lessons learnt in this exercise might be useful in the context of ensuring that we do not run into similar problems there?

Earl Howe: My Lords, I would love to be able to comment on the Royal Mail, but noble Lords will be sorry to hear that I have not received the necessary briefing. On the timescale of our review, as I indicated to my noble friend Lady Barker, there are a number of elements to our review of social care policy. One is the Dilnot report, which we are expecting at the beginning of July. Another is the Law Commission report. However, a third is undoubtedly the lessons learnt from this episode. It is fair to say that it would be rash of me to give the noble Lord a date on which we will conclude all three strands of that review. It is likely that we will be able to be more definite later on this summer.

Lord Clinton-Davis: If it becomes clear within a reasonable time that Southern Cross and others are unable to put the business on a stable footing, what will then happen, primarily to the residents but also to the workforce? Can the Minister suggest what he has in mind as a fallback position?

Earl Howe: My Lords, the Department of Health is being very clear with the company that we expect it to maintain service continuity and quality of care while the restructuring process is going on. As I have said, our principal concern is for the safety and well-being of the residents of the care homes that might be affected. The CQC will pay particular attention to any care homes where there is a concern that quality may be at risk or inadequate. We are continuing to talk to ADASS, the LGA and the CQC to ensure that contingency plans are in place which will allow for the continuation of care under any eventuality. If the noble Lord will forgive me, I would rather not be drawn into hypotheses as to what might happen if the restructuring does not take place. We must encourage the company to believe that that is the prime and sole option before it. If there is ever a question of a change in the arrangements for providing residential care to any resident of a Southern Cross care home, or indeed any other, the rights of those residents remain absolutely clear in law. The duties of local authorities are absolutely clear in law. I believe that all residents in Southern Cross's homes can rest assured that local authorities are well seized of those duties and processes.

Baroness Morgan of Drefelin: My Lords, the Minister has reassured the House that he does not see Southern Cross as the first of many providers to go into crisis. Can he share with the House the advice that he has had to enable him to give us those assurances that Southern Cross is not just the first of a number of providers to go into crisis?

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Earl Howe: My Lords, I cannot issue a government guarantee on the continuing business health of every single care home provider in the country; that would be extremely rash. Of course, we know that over the years some providers have gone out of business. What we are seeing in the country at the moment is much more of a trend towards looking after people in their own homes rather than in residential settings. At the same time, the market is doing the opposite because there are more and more elderly people requiring care of some kind. This industry is not going to disappear overnight or, indeed, at all. Over the indefinite future we will require a residential care home industry, particularly as the number of elderly continues to increase. The key will be to ensure that the quality of provision is maintained. Competition will undoubtedly remain, but it is a telling indicator of the current state of the market that there is an overprovision at present of about 50,000 care home places nationally. That perhaps is a sign that local authorities are successfully meeting the wishes and needs of their service users in providing care in the settings which most people want; namely, their own homes.

Baroness Masham of Ilton: My Lords, what safeguards are being put into place so that this situation does not happen again in other care homes and possibly in hospitals?

Earl Howe: My Lords, I think I have already indicated that the Government are proactively engaged with all the key parties involved in this situation, not just Southern Cross but the LGA, ADASS, the CQC and others. The precise situation in which we find ourselves with Southern Cross is unlikely to arise again because my understanding is that the business model adopted by Southern Cross is unique. Nevertheless, every privately operated residential care home business will, no doubt, have its own level of business risk, whatever that may be-either slight or something rather less slight. However, the alternative that the noble Lord, Lord Beecham, seemed to desire was a return to the state provision of care homes. The noble Lord is shaking his head, and I am glad of that, because I think neither his party when in government, nor certainly ours, would wish that on the public. I think that all of us believe in choice for the individual, and this is what the current market provides. Nevertheless, there are risks.

The noble Baroness asked about hospitals. To the extent that NHS care is delivered in independent settings, a business risk is inevitably associated with that. However, we are clear in the Health and Social Care Bill that there needs to be a system whereby essential services are protected for the benefit of patients. When the Bill reaches us, we will no doubt debate those provisions.

Baroness Wall of New Barnet: I am sure that the noble Earl will be assured that my noble friend did not imply or say what the noble Earl thought he said. It is really important for us to focus on the business side of this issue and the economics of how it is run. The noble Earl is absolutely right to say that there is no complaint at all-in fact, all the carers of residents in those homes are distressed because they may be moved

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from somewhere that has taken care of their people. It is important, therefore, that none of us loses sight of the real issue-the care of these people, which has been good. Otherwise, the home would be in a very different state and, God forbid, we would be having a very different discussion if the issue was the care of the residents rather than the economics of running the home.

How deeply is the Care Quality Commission involved in this? My own trust has been talking to the CQC because, as the noble Earl will know, there are knock-on effects for hospitals all around the country when those homes are under threat, and on what might happen to elderly people who would normally be discharged from hospitals into those homes. We should all please remember-I am sure that the noble Earl is remembering-that the patients really matter in this, and we should ensure that we get them into safe places where they are looked after. The economics of this are very important, and I am not in any way dismissing that, but we need to measure that up against the care that has been provided for those people in Southern Cross homes, and, I hope, will continue to be provided. The care is valued. It is about the market that goes on out there, and any of us would be foolish to suggest that there is an alternative.

Earl Howe: I am grateful to the noble Baroness, and I am also clear about the position of the noble Lord, Lord Beecham. She is of course right. Our first concern should be for the safety and welfare of residents. That is why, as I said earlier, some time ago we asked the Care Quality Commission to engage in close discussion with Southern Cross when the news of the impending redundancies was made public. We did that precisely to ensure that standards would not be compromised. My understanding is that there are no concerns on that front. Southern Cross has, in that sense, behaved impeccably in ensuring that residents have not suffered, other than from the inevitable uncertainty that the publicity over this matter has generated. Going forward, the principles that the noble Baroness has articulated are absolutely right. However, she would agree with me-as I think she did-that questions need to be asked about the financial models adopted by care homes or, indeed, by any independent business providing public services.

Lord Campbell-Savours: Were we not told after Jon Manel of the BBC's exposure of what was going on in care homes in 2008 that lessons would be learnt and that there would be a review; and was not an inquiry set up by the department at the request of the then Minister, the noble Baroness, Lady Thornton? Were we not given assurances that that would not happen again? Is not the reality that these reviews and statements about lessons to be learnt all end up in the long grass, because this area of care is basically out of control?

Earl Howe: I do not agree with the noble Lord that this area of care is out of control. The situation that arose at the time to which the noble Lord refers was of quite a different nature from the one we are looking at at the moment. As I recall, it was about the quality of

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care delivered in particular care homes. We now have the CQC, which is responsible for policing quality of care across the NHS and social care. The previous Government put that arrangement in place. We are content with it. We think that the arrangements are robust. The CQC does very good work.

Of course, with the best will in the world, mistakes occur. One can easily point the finger at the CQC. As I said, in the case of Winterbourne View, that would be an easy but unfair thing to do. All that the CQC can be expected to do is to take a snapshot at any given moment of what it sees and hears. When I say that lessons need to be learnt, I reiterate to the noble Lord, Lord Campbell-Savours, that my counterpart in the Department for Business, Innovation and Skills is considering the lessons to be learnt about the business models that apply not just to the care home sector but generically where public services are provided.

Regulatory and Banking Reform


4.47 pm

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I shall now repeat a Statement made in another place by my honourable friend the Financial Secretary to the Treasury. The Statement is as follows.

"It is now well known that the tripartite system set up by the previous Government failed spectacularly in its mission to maintain stability. The decision to divide responsibility for assessing systemic financial risks between three institutions meant that in reality no one took responsibility. The crisis dramatically exposed this flaw and cost the taxpayer a vast amount of money.

We cannot allow another crisis such as the one we have just witnessed. Shortly after taking office, we set in train a consultation on reforming our system of financial regulation. Today, after two extensive rounds of consultation, I am presenting to the House a White Paper, including draft legislation, setting out the blueprint for a completely new system of regulation. Let me summarise the main proposals.

A permanent financial policy committee will be established inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous interconnections and stop excessive levels of leverage before it is too late. It has already started operating on an interim basis and is having its first formal meeting today. Subject to legislative progress, the permanent body will be in place by the end of next year.

We will abolish the Financial Services Authority in its current form and transfer its significant prudential functions to a new prudential regulatory authority that will sit in the Bank of England. The prudential regulatory authority will focus on microprudential regulation. It will bring judgment to the vital task of regulating the soundness of individual firms that manage risk on their balance sheet, particularly banks and insurance companies. But we recognise, of course, that these types of firms engage in very different types of

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business, which is why we propose to provide the PRA with a specific statutory objective for its insurance responsibilities.

We are bringing a new approach to protecting consumers. A new financial conduct authority will oversee the conduct of financial services firms, the operation of markets and the protection of consumers, with new powers to ban the sale of toxic products. I can confirm that as an integral part of its mission to secure better outcomes for consumers and investors, this authority will also have a new duty to promote competition. Judgment, discretion and proactive intervention will be the hallmark of our new regulators.

We are bringing forward this draft Bill for pre-legislative scrutiny, for which a Joint Committee of both Houses will shortly be convened. We are seeking valuable input from Members on both sides of this House. It is in all our interests to get this right.

Last year we also established under Sir John Vickers an Independent Commission on Banking to resolve the debate around the structure of the banking sector in the UK. I am sure the whole House will join me in paying tribute to Sir John and his fellow commissioners for the excellent job they are doing.

The commission's interim report put forward two particularly important proposals: bail in, not bail out, so that private investors, not taxpayers, bear the losses when things go wrong; and a ring-fence around better capitalised high street banks to make them safer and protect their vital services to the economy if things do go wrong. I can confirm that the Government agree in principle with both these proposals.

Of course, we will await the commission's final report, but I can tell the House that any reforms will need to meet the following principles: all banks should be allowed to fail safely without affecting vital banking services, without imposing costs on the taxpayer, through reforms that are applicable across our whole banking industry and in a manner consistent with EU and international law. I can also confirm today that we welcome the commission's recommendations on increasing competition in retail banking and we are working closely with it to achieve this aim.

We are also taking the first steps towards normalising the Government's involvement in the financial sector. One legacy of the crisis is that today's taxpayers have a direct interest in several banks through large-scale guarantees and shareholdings. We do not believe the Government should be a long-term investor in financial institutions. It will take some time, possibly several years, before we can make a complete exit from our investments in the banks.

Today I can confirm the start of that process. On the advice of UK Financial Investments, we have decided to launch a sale process for Northern Rock. This follows extensive work over the past three months to consider potential options for returning Northern Rock to the private sector, while generating the best possible taxpayer value. The sale process will be open and transparent and in line with state aid rules. I have already written to the chair of the all-party parliamentary group on mutuals to reassure him that any interested parties can bid for it, including mutuals. This reaffirms the Government's commitment to actively promoting the mutuals sectors. This does not mean that other

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options to return Northern Rock plc to the private sector have been ruled out. However, I believe that at this point in time a sale process is most promising.

I also want to make the House aware that, following an application by the Bank of England to the High Court today, Southsea Mortgage and Investment Company Ltd, a very small bank, has been placed into the bank insolvency procedure. This follows a decision by the FSA that Southsea no longer satisfied the FSA's threshold conditions for operating as a deposit-taker. As such, the Financial Services Compensation Scheme has been triggered and eligible depositors with balances up to the limit of £85,000 are safeguarded. Eligible depositors with amounts in excess of the insured limit of £85,000 may be entitled to receive a share of their savings above this limit as part of the insolvency process.

Finally, I would like to update the House on the ongoing negotiations on international financial regulation. When I was in Brussels yesterday, my message was clear. We must learn the lessons of the crisis and create the foundations for stable and sustainable growth without fragmenting global markets. That is why global standards are strongly in our national interest. Much of the debate has focused on the implementation of the Basel III accord and we have been busy making the case for implementing it in full right around the world, including here in Europe. Last week's IMF assessment supported our arguments for minimum standards here in the EU, with discretion for national authorities to increase them where necessary.

When the coalition Government came into office, questions were asked about the future of banking and regulation, but they had not been answered. It has been our job to resolve them. Our goal should be a new settlement between our financial system and the British people-a new settlement where the banks support the people, instead of the people bailing out the banks. This Statement today sets out the progress we have made towards building this new settlement and the actions we are taking to complete it".

My Lords, that concludes the Statement.

4.55 pm

Lord Eatwell: My Lords, I am most grateful to the noble Lord, Lord Sassoon, for repeating the Statement made by the Financial Secretary to the Treasury in another place. The Financial Secretary begins by commenting that the tripartite regulatory system failed. That is obviously true, and indeed a variety of other regulatory structures around the world also failed. In order to help us to establish a clear historical time line to understand what actually happened, will the noble Lord, Lord Sassoon, tell the House in which speeches prior to 2008 the Financial Secretary, the Chancellor or the noble Lord himself called for a tightening of regulation? Hindsight is a wonderful thing.

Continuing the theme of the rewriting of history, at the end of the Statement the Financial Secretary states that when the coalition Government came into office, questions were asked about the future of banking and regulation, but they had not been answered. I remind the noble Lord that domestically the most important road map for reform-the Turner review-was published

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in February 2009, and that the G20 conference that set the framework for international reform was held in September 2009. Far from there being no answers, most of the economic and financial analysis on which the Government's proposals today are based was done before the election.

I turn to more substantial matters. The Statement fails to make it clear whether the financial policy committee will have any powers. What will it actually be able to do? Will it, for example, have the power to impose leverage collars or loan-to-value ratios to calm a bubble? Will it have the power to impose pro-cyclical levies on banks? Given that the committee will be the focus of macroprudential regulation, what will its relationship be to the more general formation of macroeconomic policy? It is now obvious to everyone that fiscal policy can be a source of macroprudential risk, so what role, if any, will the committee have in the formulation of fiscal policy, even, let us say, at an advisory level?

The Financial Secretary states very emphatically that the prudential regulatory authority will focus on microprudential regulation. Does not this division between microprudential and macroprudential issues repeat the institutional rigidities and errors of the past? Given that the regulation of individual firms will require macro issues to be taken into account, what exactly is the difference between the risks that create macroprudential problems and those that create microprudential problems, and how will anyone know in advance of a crisis which is which?

The Financial Secretary states that the financial conduct authority will have new powers to ban the sale of toxic products. This really is very odd. Since in the recent crisis the toxicity of products was related to the macroprudential risks they created, how is this power invested in the arm's-length FCA to be related to the management of macro risk by the Bank of England?

I now turn to the future structure of the banking industry and the work programme of the Independent Commission on Banking, as covered in the Statement. First, we on this side heartily endorse the principles for reform set out in the Financial Secretary's Statement. We would, however, add a further principle: that the failure of a bank should not destabilise the real economy.

Secondly, the Statement endorses in principle the ICB proposition that there should be a ring-fence around high street banks. That sounds sensible and clear until one asks: what exactly is a high street bank? Does the Financial Secretary refer to banks that base their business only on high street deposits-the deposits of households and firms? Or, would it be acceptable for high street banks to have interbank lending, repos and other wholesale funds on the liability side of their balance sheet, given that it was the failure of these markets in commercial paper that was a major factor in the financial crisis? Will that ring-fencing apply to all banks offering retail services in the UK, whether they are British companies, subsidiaries of foreign companies or branches of foreign companies? Will it also apply to banks passported into the UK from other EU jurisdictions?

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We welcome the possibility that Northern Rock may be returned to the private sector as a mutual. I echo the question asked by the noble Lord, Lord Lawson, on Monday: in the model chosen for the privatisation of Northern Rock what weight will be given to the implications for future financial stability? Would not mutualisation be an important buttress of stability?

In the Statement the Financial Secretary also voices his support for the Basel III accord. As the noble Lord will be aware, at the centre of that accord is the increase in the minimum capital that banks are required to hold relative to risk-weighted assets. Is the noble Lord aware that the capitalisation of the banks in Ireland prior to the crisis exceeded the new limits proposed in Basel III? Why are the Government supporting such a feeble standard?

We welcome the publication of the White Paper and the draft Bill, and indeed the Government's agreement to pre-legislative scrutiny. We also note that many of the institutional structures to be given legal legitimacy by the Bill are already in place. There was a reference to the financial policy committee meeting today. Given that the Financial Services and Markets Bill, the predecessor of the Financial Services and Markets Act, underwent major changes, including institutional changes after the pre-legislative scrutiny by the committee chaired by the noble Lord, Lord Burns, is not the establishment of these structures, prior even to a Second Reading in another place, somewhat premature?

5.04 pm

Lord Sassoon: I am grateful to the noble Lord, Lord Eatwell, first, for making a clear admission that the tripartite system failed and therefore something needed to be done about it, and, secondly, for welcoming various of the other aspects of what we are doing, including our approach to bank failure and pre-legislative scrutiny. However, the fact that he starts with bracketing together a recognition of the failure of the tripartite system and then questioning the approach taken by my right honourable friend the Chancellor and others of us who are now in the Treasury and what we did in the past is remarkable. We got on to the case in opposition immediately the crisis hit and started to work practically on learning the lessons.

I completely agree with the noble Lord that fine work of analysis was done by the noble Lord, Lord Turner, particularly in his FSA report, and others, but the previous Government had a couple of years in which they signally failed. If they recognised the failure of the tripartite system, they certainly did not tell us then. They had two years in which they could have established an independent commission to look at banking. They could have done the work to analyse what would be a better system but they did none of that. Instead, my right honourable friend the Chancellor, when in opposition, commissioned work from people, including myself. We did a considerable amount of work that put us in a good position, so that when we got into office we launched the rounds of consultation that have led to today's White Paper. It is not therefore a question of hindsight being a fine thing but of getting on, learning the lessons and starting down the track of implementing a better system.

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The noble Lord, Lord Eatwell, went on to question the powers of the FPC. I appreciate that the White Paper is a long document to have absorbed in the past few hours and point to the discussion in it about the possible tools and powers that the FPC may have. In order to move forward on that, we have asked the FPC to come forward with proposals in the next few months-I expect them in the third quarter-for the tools and powers that it believes will be necessary and appropriate to enable it to carry out its function. For the avoidance of all doubt, I will confirm that the FPC will have no role in setting fiscal policy.

The noble Lord then raised the issue of macroprudential and microprudential risks. I thought that his analysis was interesting. Clearly there is a very difficult issue about where the micro and macro areas stop and start and how they relate to each other, which goes to the heart of the problem with the tripartite arrangement. The Bank of England was clearly responsible for analysis of the macro risks but was not given by the previous Government the tools to deal with the consequences of the problems that it found. On the other hand, the Financial Services Authority was responsible for the micro risks-and never the twain shall meet. I am surprised that the noble Lord does not give the Government credit for the fact that we have brought the macro and micro together under the umbrella of the Bank of England precisely to address the problem that he identifies.

The noble Lord mentioned toxic products. Some of these may have been related to macro factors, but one has only to look at the scandal of PPI-not to mention a string of other products wheeled out by the financial services sector over the past few years-to understand that toxic products are most often generated at firm level, and it is appropriate that the conduct authority should have powers to ban them.

The noble Lord went on to ask about the definition of the ring fence. The question of the ring fence should be left to the appropriate experts. The Independent Commission on Banking, chaired by Sir John Vickers, will in the second phase of its work focus on precisely how the ring fence will work; that is what it is doing at the moment. On the specific question of whether the ring fence will apply to EU-passported banks, the FSA's and in future the PRA's full rules will apply only to banks headquartered in the UK. EU bank branches that are passported into the UK have as their lead authority the EU home regulation, not the UK host regulation: therefore, any ICB proposals would be implemented consistent with EU law. That is one of the principles enshrined in my honourable friend's Statement.

The question of Northern Rock was raised. As I said, we want to see a competition and are required under state aid rules to have one that is fair and open to all parties. We would welcome mutuals participating in that bidding process. As to whether a mutual outcome would be a greater buttress of stability, that is open to question. Any bidder for Northern Rock or participant in our banking system needs to demonstrate a level of financial stability that meets the regulatory requirements. I think one should not draw a distinction between different categories of institution on that basis.

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The last point raised by the noble Lord was about Basel III and the Government's support for the higher capital requirements under it, I think pointing out that the capitalisation of the Irish banks exceeded the Basel III limits. That enables me to confirm that the Government's position on this is that for too-big-to-fail banks a capital buffer above Basel III is appropriate to ensure their resilience.

Baroness Kramer: My Lords, I must congratulate the Government on their courage in recognising not just the need to reform regulation and the regulatory system, which certainly was not fit for purpose, but to go beyond that to recognise the need to restructure the banking industry in the teeth of a lot of opposition from the industry itself, although a stronger case certainly needs to be made fully to convince all of us that ring fencing is a better strategy than division of the banks.

I shall ask the Minister two questions arising out of today. He talked a moment ago about a new regulatory system bringing together micro and macro, which is what we all wish to see, but he will be aware of the remarks made today by the Governor of the Bank of England, which were quoted in the Daily Telegraph, about reducing the burden of routine collection and focusing on the major risks to the system. He will know that the system collapsed in large part because securitisation and derivatives were piled on top of mortgage loans that were faulty and very often fraudulent. It was the failure to see the link between the micro and the macrosystemic that led to the crisis that we saw. Will he make sure that we do not now have a swing back in the other direction in regulation to systemic ignoring the relevance of the micro?

On the return of banks to private ownership, which is something we all wish to see, will he give some assurances that serious consideration will be given to schemes such as that proposed by my colleague Stephen Williams, MP for Bristol West, which would involve a distribution of shares in part to the public in order that they may gain some of the upside? The Treasury would still receive its funding, but on a deferred basis. Would he agree that UK Financial Investments, being a very silo organisation, is not likely to appreciate the potential benefits of that much wider engagement with the public, sharing upside reward with people who have suffered from the crisis?

Lord Sassoon:I am grateful to my noble friend Lady Kramer for her general support for what we are doing and her recognition of how far the Government have already gone in pushing forward with the structural and regulatory reforms. On the micro/macro link, I refer noble Lords to the full, and very interesting, remarks by the Governor last night at the Mansion House because he talked with great coherence and good sense about what the failure of the previous regulatory regime was, which was to collect a huge amount of detailed data that it was unable to analyse to draw out the conclusions.

However, in the new world, experienced bank supervisors are needed who are able to analyse and draw out the picture, which was never difficult-whether

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it was on securitisation or on a lot of other matters or funding models-before the crisis. There should be meaningful discussions with the banks in terms of the individual banks that they supervise about what this translates to in terms of the exposure of the individual bank's business model. If my noble friend were to read the Governor's full remarks, she would see that the Bank is absolutely where she would like it to be on its thinking on this. I got no sense of swing-back in it.

On ownership of the banks, we are well aware of the proposals that have come in, including that from Stephen Williams on mass retail participation. We and UKFI are actively considering mass retail participation as we think ahead to returning the banks into the private sector, which of course is not the same thing. A subset of it would be distributing the banks' shares for free or on some other basis, which raises value-for-money considerations and quite a lot of technical market considerations. But I can reassure my noble friend that all these proposals will be given due consideration.

Baroness Turner of Camden: My Lords, I have here a letter from Unite, the union representing the workforce at Northern Rock. As can well be imagined, the workforce is extremely concerned about its future. It points out that at its height Northern Rock had 6,500 employees. It also ran the Northern Rock Foundation with £200 million of investment in the area. Those in the workforce are concerned not only about their own jobs but about the general impact on the situation in the north-east, where there is a very high level of unemployment and where people have great difficulty in getting alternative work. In any situation in regard to restructurings and so on, it should be a major concern for the Government to ensure that whatever decisions are taken do not worsen the unemployment situation in the area. Everything possible should be done to ensure that employment is kept at a reasonable level. As regards Northern Rock, that does not seem to be the situation.

I am very glad that my noble friend on the Front Bench raised mutualisation because it seemed to me that that is a way in which it might be possible to maintain a much higher level of employment in the area. It is very important to bear in mind concern not just about the financial stability, important though that is, but about what happens to employment in the area and the general standing in the area of not only the financial situation but the economic situation generally.

Lord Sassoon: I am grateful to the noble Baroness, Lady Turner of Camden, because these considerations will be ones which prospective bidders for Northern Rock will be asked to address in their bids. Of course, the Government are very mindful of the situation in the north-east and its dependence on the public sector in particular. I am sorry that my noble friend Lord Bates is not here today because I am always refreshed by his reminder to the House that a lot of vibrant new business is being generated in the north-east. But I very much recognise, as do the Government, the problems, and the bidders will be asked to make a lot of these things clear when they come forward with proposals.

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Lord Higgins: My Lords, I welcome overall this Statement and the speech last night made by the Chancellor on related matters. In many ways, the Chancellor's speech spelt out what he intended rather more clearly than was done in the Statement today. However, I am very glad that he is sticking to his plan A for the economy, which was so clearly endorsed by the IMF recently. In response to the question of whether it was time to adjust macroeconomic policies, it gave the clearest possible answer-no.

As to regulation, it must be right that the Chancellor is scrapping the tripartite agreement, which had such disastrous consequences. The position was not quite clear from my noble friend's reading of the earlier Statement. My understanding is that what is being proposed is what the IMF calls a triple peak arrangement; that is, a new prudential regulator, a new financial conduct authority and a new macroprudential authority. Am I right in thinking that there are three bodies rather than two?

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