Secondly, I congratulate my noble friend Lord Eatwell on solving the problem with which, as your Lordships know, the noble Lord, Lord Barnett, and I are obsessed: that is, the “must/may problem”. My noble friend has solved it in a really interesting way. He does not use “must” or “may” but “will”. I would like the Minister to ask the Bill team whether it would consider going down the path of using “will” rather than “must” or “may”.

Lord Sassoon: If the noble Lord, Lord Peston, could persuade his noble friend to rein back to just a couple of amendments a day, I am sure that we could carve out time to look at all sorts of semantics. However, I shall stick to the substance of this amendment, which seeks to place the bank under a statutory duty to ensure that the oversight committee has,

“adequate economic, legal and research support”.

I entirely agree with the sentiment behind this amendment. As we have already discussed this afternoon, the non-executive oversight committee has a very important job to do in reviewing the Bank’s performance and will require access to the information and analytical support that it needs. That is why, for example, the legislation makes it clear that members of the oversight committee have access to the meetings and papers of the MPC and FPC and have a specific remit to commission work and reviews from external bodies and experts.

It is a well established principle that it is the responsibility of the governing body of any organisation to ensure that its members and sub-committees are properly supported. I recognise that the Bank was slow to realise that the external members of the MPC required dedicated resource and support. I am confident that the Bank has learnt its lessons on this. Both the MPC and the FPC members have access to all the analytical and secretariat support that they need. I am wholly confident that the Bank will similarly make

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support available to the oversight committee to make sure that it is adequately supported without the need for legislation on this point. I hope, therefore, with the further reassurance on that, the noble Lord will see fit to withdraw his amendment.

Lord Eatwell: What the noble Lord has said does not address the important issue here. He said that the oversight committee will have access to papers, be able to commission work and have access to the secretarial and research skills of the Bank. However, the point of this amendment is to give what every non-executive group really needs, which is access to independent advice. Any non-executive group of which I have been a member has always prized its access to independent advice: that is, its ability to seek advice outwith the immediate organisation of which it is a part.

The point has been made around the House this afternoon that the Bank of England is different in a series of ways with respect to its overall organisation. It is also different in terms of the sorts of powers which it will exercise. Therefore, I feel very strongly that it is important that the oversight committee, which is, after all, the committee of non-executives, has access to independent advice. It is regrettable that the Government feel that assurances are enough. I entirely accept that the noble Lord and, indeed, the officials who have looked at this question feel confident in giving their assurances but they cannot bind their successors. The point of this amendment is to ensure that successors who hold this responsibility both within the Treasury and within the Bank recognise the importance of the advice and support that the oversight committee should receive if it is to do its job. I hope that the noble Lord will take that away and think about it although I probably hope in vain. Nevertheless, I beg leave to withdraw the amendment.

Amendment 3C withdrawn.

Amendment 3D

Moved by Lord Eatwell

3D: Clause 3, page 4, line 20, leave out “Bank” and insert “Oversight Committee”

Lord Eatwell: My Lords, I am afraid it is me again. These amendments refer to the decision to publish performance reviews. Let me remind the House that the performance reviews referred to in the particular clauses which are to be here amended are reviews that the oversight committee has commissioned or conducted. The amendment removes the Bank’s veto over the oversight committee: a veto which the Bill gives to the Bank—otherwise known as the governor—over the publication of such reviews.

Again, the Bank has form in this respect. As Members of your Lordships’ House will be aware, the Bank of England is the only major public institution directly involved in the financial crisis that has not seen fit to conduct and publish a full assessment of its own activities, procedures and policies during the crisis and to own up to the contribution it made to the crisis. The Financial Services Authority has done that as has the

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Treasury. The Bank has not seen fit to do that. The three reviews published last week have been very carefully circumscribed in their terms of reference to prevent proper consideration of the Bank’s record. You only have to read the Bank’s tepid response to the reviews—it did not refer at all to the comments on the Bank’s excessively hierarchical structure—to realise there is still a deep-seated cultural failing in this respect in the Bank. Where other organisations review what they have done, think through and learn from their experiences, the Bank seems to be unwilling to do this.

In these circumstances, it would be quite wrong to give the Bank a veto over the publication of the oversight committee’s reports. If this serious committee of non-executives—a majority of the court—put together a report and decide that it should be published, then why should there be a veto over them? The oversight committee is quite capable of taking the advice of the Bank, the governor or whoever on whether the publication is against the public interest. If the Government really want effective performance reviews and not whitewash I am sure they will support these amendments.

Baroness Noakes: My Lords, I share many of the frustrations that the noble Lord, Lord Eatwell, has exposed in relation to the reviews that were commissioned, late and inadequate, and I completely accept that the Bank’s response did not seem fulsome. However, I think we have to give the new Government’s arrangements within the Bank a chance. While the Bill says that the Bank will decide about publication, that should be the Court of Directors and, as we know, the Court of Directors has a majority of non-executives. I hope that they will be invigorated by the new context provided by the separate oversight committee. If we keep trying to make functions of the Bank be carried out by the oversight committee we will undermine the court. We need to ensure that the court is strengthened and takes its responsibilities seriously. I also sincerely hope that the Treasury Select Committee in the other place becomes more active in seeking to engage with the non-executives via the oversight committee on how things work in practice.

Lord Barnett: My Lords, I agree with my noble friend very strongly indeed. He has made a very strong point. I should declare an interest, I suppose. Until very recently I was probably the oldest living non-executive chairman of a plc. I hope I was a very active chairman. However, I know through many experiences of my own that some non-executive directors do not play a very constructive part, they just take their money and go and do very little—so there are two different kinds of non-executive directors.

I hope my noble friend manages to persuade somebody to change the name from the oversight committee. It is, as my noble friend Lord Peston said, a very strange name to have in the Bill, but it is not the only strange thing in the Bill. I hope the officials who advise the noble Lord, Lord Sassoon, will perhaps come up with a new name but on the whole I would like to commend the officials, particularly those headed by Mr Whiting. He has been extremely diligent in the job he has done on all sides of this Bill, sending things and meeting people. He has been excellent.

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I wish I could say the same about the Minister. I like him personally but I cannot say the same about his response to the amendments. My noble friend has made a very important point that an important committee here—whatever we call it, it is now called the oversight committee—can be overruled by the governor. I find that quite unacceptable. I do not know whether the noble Lord, Lord Sassoon, shaking his head means he cannot overrule it. I would be glad to hear that, but that is what it seems to be saying. I would like to hear how he puts that given the wording of the Bill, but for the moment I strongly support my noble friend Lord Eatwell.

5.45 pm

Lord Kerr of Kinlochard: I think one has to draw a line between the past and the future. I once again found myself very much in agreement with what the noble Baroness, Lady Noakes, said. If a report was made to the oversight committee and it believed it should be published, and the decision goes to the court, as it should because a subset of the court cannot decide that, it seems to me extraordinarily unlikely—almost unthinkable—that the governor, from a position of one or four against nine, would be able to overturn the view of the oversight committee. The decision must be taken in the court, but it will be a very rare occurrence when a decision as to what is the public interest is taken by the executives overturning the majority view of the oversight committee when the issue comes before the court, so I do not understand the amendment.

Lord Peston: My Lords, I do not understand the intervention. Why has the governor been given the power if he cannot use it? If you do not want him to use it you do not give it to him.

Lord Armstrong of Ilminster: My Lords, if I may take the semantic point raised by the noble Lord, Lord Peston, if the word “oversight” is capable of being misinterpreted why not use “supervisory”, which is just the Latin version and means exactly the same without the possible misunderstanding?

Lord Sassoon: My Lords, I am not at this point going to get sidetracked into semantics, fascinating though I find it, as noble Lords know. Let me echo again, because I had said already what a good job the Bill team was doing, that I completely agree about that. I am very sorry that the noble Lord, Lord Peston, thinks—I am sorry; I meant the noble Lord, Lord Barnett. Do forgive me. The noble Lord, Lord Peston, may think that I am doing an excellent job but I know that the noble Lord, Lord Barnett, does not. Anyway, it is entirely my fault and not the fault of my officials, as the noble Lord recognises.

Let me try to be brief on this one. This is not a question of the governor having a power to overrule the oversight committee, as other noble Lords have said. The construction in the Bill is that it is for the Bank as whole—the court of the Bank—to decide and to make an informed judgment whether damage might be caused by the publication of a report on a public

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interest test. I understand the starting point of the noble Lord, Lord Eatwell, which is some suspicion or concern that the people who commissioned the report—the oversight committee—should be the group of people who decide whether it should be published. However, it is appropriate for the Bank as a whole—that is, the court, with a majority of non-executive directors, as my noble friend has reiterated again—to take the decision.

Lord Eatwell: My Lords—

Lord Sassoon: Perhaps the noble Lord will let me finish. It is a decision of the Bank. The Bank is better placed to make that judgment and the noble Lord, Lord Kerr of Kinlochard, makes the point that it would be only in exceptional extraordinary circumstances —I cannot remember his exact words—that one would envisage this being overturned somehow on the whim, or rather the view, of the governor, when the Court of the Bank of England looks at it.

Let me make one more point before I give way to the noble Lord, Lord Eatwell, because one critical part of this is that the Treasury will receive copies of all reports, regardless of their sensitivity. I would expect the Treasury to come to its own view on whether each report is genuinely unsuitable for publication. If it believes that the public interest carve-out was not justified, it would challenge that decision where appropriate, because the Treasury ultimately has an even wider perspective on the public interest. It is therefore right to remember that there is that further fallback, because the reports in all cases will go to the Treasury. Let me, as well as asking the noble Lord to consider withdrawing his amendment, give way to him.

Lord Eatwell: I just wanted to ask a question of clarification. What particularly disturbed me about subsection (3) of new Section 3D was that it refers to “the Bank”. Can the noble Lord assure me that in that subsection “Bank” means “court”? If he can, I would be happy. That is the point that I was trying to make. I think that I confused the noble Lord, Lord Kerr, slightly in that respect.

Lord Sassoon: Yes, my Lords, the court is the governing authority of the Bank, and that is, I believe, completely the right construction for this particular matter.

Lord Barnett: What the noble Lord said just now seems to provide a new reason to change the name of the oversight committee. We do not need one. He is saying that the governor and the board of the Bank will know better than the oversight committee. Why bother with an oversight committee at all? That would be a simple solution.

Lord Eatwell: My Lords, I must say that I am very happy and I will now read through the Bill with great care and presume that wherever the term “Bank” appears, it means “court”. If that is so, I will check all the various clauses as we go along to ensure that

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“Bank” means “court” at all stages. If it means “court”, the Bill should say so and be clear—and that is what it is not.

Lord Peston: My noble friend should not really accept this, because no one reading the Bill could conceivably read the word “Bank” to mean “court”. “Bank” means the Bank, and the Bank, in practice, is the governor.

Lord Eatwell: With all due respect to my noble friend, these days, where matters are in dispute about the interpretation of Bills, reference is made to Hansard. The noble Lord has effectively amended this clause in his remarks by saying that “Bank” means “court”. On that basis, we have now clarified this section of the Bill considerably. We have had a successful debate and achieved something valuable.

Given the various comments on the name of the oversight committee, I must confess that until my noble friends pointed it out I had failed to notice the double entendre in that label. I thought that “oversight” meant to oversee or supervise. I take it as meaning “oversee”, and I will not go as far as my noble friends.

I will go through the rest of the Bill, note where it refers to the Bank and either write to the noble Lord or raise in the House those points at which there is ambiguity as to what “Bank” actually means. However, now that we are absolutely clear that in new Section 3D “Bank” means court, I am happy to beg leave to withdraw the amendment.

Amendment 3D withdrawn.

Amendments 3E and 3F not moved.

Clause 4 : Financial stability strategy and Financial Policy Committee

Amendments 3G and 3H not moved.

Amendment 3J

Moved by Lord Eatwell

3J: Clause 4, page 6, line 1, after “Committee” insert “and the Treasury”

Lord Eatwell: In Committee, I raised the issue referred to in the amendment and not only argued that should the Treasury be able to make recommendations to the FPC at any time—which it appears not to be able to, given that it is left out here—but proposed to make subsection (3) consistent with subsection (2) of proposed new Section 9A. The amendment would allow the Treasury to approach the FPC at any time.

After the Committee stage, the noble Lord, Lord Sassoon, was good enough to write to me on this matter. I appreciated that. In his letter, he argued that there was no need for specific statutory provision because the Treasury could make recommendations at any time as it already had a common-law power to do so. This was one of those “not necessary” defences.

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Therefore, the common-law power was the basis for the Treasury being able to make recommendations at any time.

I have considered this matter carefully and, after long reflection, I regret that I find the noble Lord’s argument unsatisfactory for two reasons. First, it is not good enough in the complexity of financial legislation to rely on the common law. There are people who will use this Bill who will not be lawyers and, even if they are, they may be lawyers who are not fully conversant with the common law. For example, many of our European Union partners are not conversant with the common law, and members of the relevant European Union regulatory bodies that will need to understand the Bill will not necessarily have familiarity with the common law that we would expect in common-law jurisdictions. Therefore, relying on the common law is not good enough in this legislation. We need real clarity about who does what to whom and we ought to include the Treasury in the provision so that everyone knows that it can intervene with the FPC at any time. The European authorities in particular, which will have a locus in this respect, would understand that point.

Secondly, a fundamental problem with the regulatory system before the crisis was the lack of communication between the Treasury and the Bank, as the noble Lord himself argued in Committee. I am sure that he will remember saying that a real problem with the tripartite structure was that the Chancellor of the Exchequer and the Governor of the Bank never met. He said:

“One of the major problems leading up to the financial crisis was that the tripartite committee did not meet at principals level”.—[Official Report, 10/7/12; col. 1052.]

The amendment re-emphasises the need for regular communication and co-operation between the Treasury and the Bank in general, and the Treasury and the FPC in particular, given the FPC’s macroeconomic responsibilities.

As I said, there are two reasons for the amendment. First, we should not rely on the common law as there are lots of people who are not conversant with the common law who need to understand this relationship clearly. Secondly, we need to reiterate the importance of regular communication between the Treasury and the Bank, especially the Treasury and the FPC. I beg to move.

6pm

Lord Sassoon: My Lords, I find it is bizarre and slightly disappointing to see this amendment again. My noble friend Lord De Mauley explained in Committee why the FPC requires an express power in statute to make recommendations whereas the Treasury does not. As the noble Lord, Lord Eatwell, recognises, I wrote to all interested noble Lords on 2 July setting out that explanation again, so I had rather hoped that the matter was resolved. I fear I should again explain the legal position, which is that the Government are clear that both the Treasury and the FPC should be closely involved in the ongoing development of the Bank’s financial stability strategy. I am happy to put that on the record. I have said a lot of other things which I am happy to be quoted on, such as comparing the practice under the old tripartite regime of people

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not talking to each other on a regular basis with what I now observe, which is much more regular communication. However, by amending this part of the Bill, I suggest we will not do anything more on that front. The Government are clear on that, which is why subsection (2) of new Section 9A of the Bank of England Act, as inserted by Clause 4 of the Bill, requires the court to consult both the FPC and the Treasury before determining or revising the Bank’s financial stability strategy. We do not need to overlabour the point, but it is a critically important one that the noble Lord raises and it is in there.

Moreover, the Government’s view is that neither the FPC nor the Treasury should have to wait to be formally consulted on the strategy. This should be part of the normal ongoing dialogue. If either body wishes proactively to suggest changes or amendments to the Bank’s strategy for financial stability, it should and will be able to do so. In order to ensure that this is the case, it is necessary to create an express power for the FPC to make recommendations to the court regarding the Bank’s strategy. As I have said before, this is because the FPC is a creation of statute, which means that the FPC’s main functions need to be set out in the legislation. That is why new Section 9A gives the FPC a power to make recommendations to the court on the financial stability strategy. If the provision did not exist, it would be unclear whether the FPC had the power to do so. In contrast, it is not necessary to create specific statutory provision to allow the Treasury to make recommendations. The Treasury already has a common-law power to make recommendations at any time to whoever it wishes.

Of course, the noble Lord, Lord Eatwell, does not challenge that underlying basis, but he makes a huge drama out of European authorities and overseas bodies needing to understand whether the Treasury has authority to do this, that or the other. I find it very unlikely that European bodies would need to do that, but if they did, their lawyers would understand very clearly the common-law construction, which would be explained to them. If we went down the line of not relying on the common law in legislation, I hate to think how a Bill like this would grow like Topsy.

I am genuinely puzzled by all this, but I hope that the explanation of the common-law position is clear and that it can be explained in these unlikely situations that the noble Lord postulates. Of course, these European authorities will have the benefit of reading Hansard as well. It is an important point that the interaction is much better than in some respects it has been in the past. We expect that to be the case. I would like to think that perhaps we have finally put this point to rest and I ask the noble Lord to withdraw his amendment.

Lord Eatwell: My Lords, it would be easier to withdraw the amendment if the noble Lord had actually answered the points. Essentially, all he has done is reiterate the common-law point and make the rather bold assumption that European-trained lawyers on the European Systemic Risk Board would understand the common law. However, if he is confident that that is the case and that a suitable number of British-trained lawyers, or the equivalent, can be seconded to that body, then perhaps things will work out in a satisfactory

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manner. I am glad to hear that he is confident that the interrelationship between the Bank, the Financial Policy Committee and the Treasury is ongoing and regular today as it was not in the past. That is a considerable improvement and I am pleased to have that assurance. However, there is an important element in financial legislation which the noble Lord overlooks. Financial legislation in a global financial market has to be really clear to all those around that market who read it. Simply saying, “We know because we are trained in the common law,” is really not good enough. I was trying not to change the relationship but to make it clearer. However, given that the Government are apparently not interested in doing that, I beg leave to withdraw the amendment.

Amendment 3J withdrawn.

Amendment 3K not moved.

Amendment 3L

Moved by Lord Eatwell

3L: Clause 4, page 6, line 9, leave out “3 years” and insert “1 year”

Lord Eatwell: My Lords, once again, we return to an issue that we discussed in Committee and I promised at that time to return to it on Report. I am keeping that promise. Subsection (6) of new Section 9A requires the court to review the financial stability strategy once every three years. That is far too long. Let us consider what has happened over the past three years. Since 2009 there has been a fundamental change to the overall economic environment, a radical change in government policy, and a double-dip recession. Really significant things have happened, which should be taken on board in assessing the strategy. The idea that, over that period, the court would not review the financial stability strategy in the light of events is, I believe, inconceivable. If the court really is going to review the strategy in the light of events, the markets need to know that. A regular report once a year would be a significant reassurance, even if that report says no change. Indeed, that would be a significant reassurance to the markets that the financial stability strategy is unchanged.

I quite understand that strategies are not designed to be the creatures of current events, but it is important to learn from events and not plough on regardless when the facts change. An annual review would provide the court with ongoing insights into the systemic risks associated with the financial stability strategy. That is far better than a review which is postponed, as facts change, for three years.

Let us then suppose that something really dramatic happens so that there has to be a review before the three-year time limit is up. What effect will that have on confidence? How much better to pursue the reasonable strategy of an annual review, both to ensure that the financial stability strategy is up to date and to provide appropriate confidence that the Bank’s strategy deals with matters with which the markets are concerned. I beg to move.

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Lord Phillips of Sudbury: My Lords, I wonder whether the noble Lord, Lord Eatwell, has taken sufficient account of the provision in proposed new Section 9A(1)(b) that allows the court to review the strategy at any time. There is reference later in the proposed new section to revision of the strategy. I would have thought that those provisions covered precisely the concern that he correctly raised.

Lord Hodgson of Astley Abbotts: My Lords, I am slightly concerned at the proposed obligation to conduct an annual review. The role of directors is constantly to keep a strategy under review and to see whether it is still relevant. However, to impose this would impose a burden. A proper strategy review is an extremely expensive and far-reaching undertaking. It would be far better to have a backstop of a three-year requirement and rely on the good judgment and good sense of the directors, in particular the non-executives, to call for more frequent reviews as and when they are needed. It is inconceivable that we would go through the sorts of events that we have been through since 2008 and that non-executives would sit and say, “We do not need to look at the strategy”. It is part of their role to do that and we should rely on their judgment, not on process, with a backstop of the three years, as proposed.

Lord Myners: My Lords, I will pick up on a term in the final sentence of the contribution of the noble Lord, Lord Hodgson. He referred to relying on the judgment of the non-executives. Many issues around the court will depend on the quality of the people appointed, and how they conduct themselves. A slightly less than perfect structure, superbly implemented, is likely to give a better outcome than a perfect structure that is poorly implemented. The Minister on a number of occasions referred to best corporate practice. Can he envisage any situation in which a corporate board performing effectively would not carry out an annual review of strategy? Every board of which I have been a member has had an annual strategy session to look again at past strategy and in many cases endorse or modify it in the light of circumstances. Regardless of what we say here, court directors seized by their legal responsibilities would almost certainly want to carry out an annual review. Does the Minister agree with that observation?

Lord Sassoon: My Lords, I certainly agree with the construction of my noble friends Lord Phillips of Sudbury and Lord Hodgson of Astley Abbotts. I think that essentially they are agreeing with the noble Lord, Lord Myners, that boards will take sensible views on these matters, and that we do not need to require the court to review the Bank’s stability strategy on an annual basis because a perfectly sensible arrangement will emerge that will to some extent involve a strategy that is set for a longer period than a year. Clearly, to some extent, a strategy needs to look out further—as the noble Lord, Lord Myners, agreed. Equally, of course a board will look to see how a strategy is going on a more frequent basis.

I have not changed my view since Committee on the lack of need for the provision proposed in the amendment. The interventions in this discussion reinforced my view. The legislation does not set out how regularly the

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Bank’s strategy should be reviewed. In practice the court has revised the financial stability strategy on an annual basis. That is understandable, given the sheer volume of legislative and other changes that there have been in the system of financial regulation in the past three years. On the other hand, as the noble Lord, Lord Myners, agreed, a strategy needs also to be a longer-term, forward-looking document. We do not need to hardwire in an annual review and suggest in any way that we require a short-term, business-plan view to be taken rather than a genuine strategy. That is why new Section 9A will require the court in future to revise the strategy at least every three years—so that it is a longer-term document—but there will also be flexibility for the court to revise the strategy earlier. I continue to believe that a three-year timeframe is the correct requirement for the Bill. It leaves plenty of flexibility.

I will add that I am conscious that in talking about this matter I use “court” and “Bank” to mean different things. I did not want to prolong the earlier debate, but I did not say then that court equals Bank. I am sure that the noble Lord, Lord Eatwell, did not believe that to be the case, or that I suggested it. What I suggested in the earlier context was that there were certain critical issues on which the court would take a decision. The matter that we talked about—the public interest test in connection with publishing reports—was one. Here is a clear example of a case where we are talking about the court setting a strategy for the Bank. There will be many more examples as we go through the Bill of cases where “court” and “Bank” mean different things. We need to look at each instance as it comes up. With that slight digression, I hope that the noble Lord has been comforted by this further discussion of the strategy timeframe issue.

6.15 pm

Lord Eatwell: My Lords, we are debating two things at the same time. I will refer first to my amendment dealing with the timing of reviews of the financial stability strategy. Writing into the Bill that there should be a backstop of three years is a major mistake because it creates the possibility—even probability—that a review will have to take place in a shorter timeframe, as the noble Lord, Lord Phillips, pointed out. If that is done, what will be the effect on confidence? It will give the impression that the Bank is panicking and is not willing to go to its three-year period; it has suddenly had to shorten things. The reaction will be: “My gosh, something is really going wrong”. That is why the notion of an annual review has solidity and regularity. It fits in with the publication of the financial stability review, which is twice per year. So every year there would be a review, even if it endorsed a policy of no change to the financial stability strategy. Including the three-year figure is a major mistake because it will tend to excite apprehension when reviews take place more frequently.

Lord Phillips of Sudbury: Is the noble Lord not assuaged by the wording of the Bill, which seems to be extraordinarily wise? It calls for a strategic review, which it later defines as coming every three years. It then states that the court of directors must,

“from time to time review, and if necessary revise, the strategy”.

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Surely that is exactly what the noble Lord was talking about. If circumstances take an unexpected and dramatic turn, that stipulation is precisely germane. I do not see why the noble Lord is not satisfied with what seems to be an extremely sensible arrangement: a report every three years, but also a power of review.

Lord Eatwell: I am sorry that I did not make myself clear. I was referring to a review taking place other than at three years and the effect that that might have on the confidence of the markets. They might feel that the Bank is not sticking to its usual three-year timetable but is bringing things forward because something is going badly wrong that it knows about and perhaps the markets are not fully informed about. An annual review is embedded in so many companies. The annual away-day where everybody goes off and does the annual review is such a standard procedure that I think the three-year business is a mistake.

I want to return to the noble Lord’s revisionist comments on the position that he took on the earlier amendment when we were referring to the business of the oversight committee and the public interest notion of publication. I asked the noble Lord whether in this section Bank meant court. I think that I made clear that if it did mean court, the best option would be for it to say so. Therefore, the best option would be for him to come back at Third Reading and say, “Look, the word Bank occurs all the way through the Bill. It is used in different contexts in different places and let us be absolutely clear who is responsible. We will amend this clause at Third Reading to say ‘court’ because that is what I mean. It is not what I say; it is what I mean”. Let us now say that the noble Lord means court.

I was quite deliberately saying that if the noble Lord really wants the word Bank to mean court throughout the Bill I would read through it. I was confident that I would have no difficulty finding a number of cases where he did not want it to mean court. That is why he has now stood up, having received the advice of his officials, to correct what he said earlier.

Lord Sassoon: My Lords—

Lord Eatwell: I am just finishing.

With respect to new Section 3D, it is important that we are clear that Bank means court there. We will take on advisement what the word Bank means elsewhere in the Bill.

Lord Sassoon: I merely wanted to say that I was not standing up to correct anything I said before: I stand exactly by everything that I said before. I wanted to head off the noble Lord, Lord Eatwell, from wasting a lot of time by going through and analysing the precise meaning and the underlined way in which the powers of the Bank would be exercised situation by situation in the Bill. It is up to the court as the governing body of the Bank as to what it takes unto itself and what it delegates to the executive of the Bank. I was merely trying to make a helpful suggestion that perhaps the noble Lord would find himself doing quite a lot of wasted work if we went too literally down this path.

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Lord Eatwell: My Lords, I am sorry to prolong this, but now we are told that the court can delegate to the executive of the Bank. Is that the case in new Section 3D, which we discussed before? I am sorry to prolong this but I thought that the noble Lord made absolutely clear that in that section, Bank meant court—not a delegation to the executive or the governor or anyone else. He actually said himself, if I recollect accurately, that the court contains the nine members of the oversight committee, they would be sitting there and therefore they would not contradict themselves. There was no notion of delegation. They had a role. It is very important that legislation, particularly in financial policy, is clear. Can we please be clear on this particular element?

Lord Sassoon: I do think that the noble Lord, Lord Eatwell, is trying to get into semantic games. There is an important point. I was completely clear before and I think it is understood. It would be complete nonsense if a recommendation on such an important matter of the oversight committee, which is a committee of the court of the Bank, was taken by anything other than the court itself. That is plain and completely clear. That is what I said before and that is what I stand by. It would be absurd to suggest that the court would delegate such a matter. That is what I said and that is clear. But there are plenty of other matters throughout the Bill on what the Bank does where, equally, it would be ridiculous to suggest that the court did something itself and did not delegate.

Lord Eatwell: Well I rest on the proposition that I made earlier. If that is what the noble Lord means, why does he not say so instead of leaving this ambiguity on the face of the Bill?

However, returning to the issue of three years, I think that it is unfortunate for the reasons that I have spelt out. Annual reviews are completely usual and normal in the corporate and financial worlds. Everyone knows what they are. Three years leaves too much of a gap for unfortunate and disturbing events to occur that could then be exacerbated by the Bank’s seeming need to change tack at that time.

I hope people go away and think a little about this. I know that I almost certainly hope in vain, but hope springs eternal. In the mean time, I beg leave to withdraw the amendment.

Amendment 3L withdrawn.

Amendment 3M not moved.


Amendment 4

Moved by Baroness Noakes

4: Clause 4, page 6, line 25, leave out “2 members” and insert “one member”

Baroness Noakes: In moving this amendment, I will also speak to Amendment 5 in this group. In so doing, I hope to give the noble Lord, Lord Eatwell, a break from his obsession with the difference between the court and the Bank.

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The amendments concern membership of the Financial Policy Committee. In Committee, the noble Lord, Lord McFall of Alcluith, and I tabled an amendment that reflected the conclusion of the Treasury Select Committee in another place that there should be a majority of external members on the FPC to mitigate against groupthink. The Joint Committee that examined the Bill had reached a similar conclusion.

The Bill prescribes 12 members of the FPC in total. There should be six from the Bank, the chief executive of the FCA, four external members and a representative from the Treasury. I will ignore the Treasury in my remarks because the Treasury person cannot vote and his views can be ignored quite a lot of the time according to Schedule 1. I will talk about the 11 active and voting members.

The Government like to portray this composition of the FPC as a 6:5 split, putting the chief executive of the FCA in the external-to-the-Bank category, with six internal to the Bank and five outside. But the chief executive of the FCA, while he is external to the Bank, is not a completely independent member because of the many and varied associations and interactions between the FCA and the PRA which are envisaged in this Bill. While the chief executive of the FCA will have independent responsibilities in relation to the FCA, he will inevitably be susceptible to the kind of groupthink that the Treasury Select Committee warned against. The de facto ratio in the Bill is 7:4, because seven members have custodianship of the financial system as part of their day jobs and only four would be independent of that. I do not believe that that ratio is a healthy one.

In Committee, my noble friend the Minister argued against having external members in the majority because it would interfere with the holding of the Bank of England to account in some way. I think that that is a highly arguable position but my noble friend will be relieved that I am not going to argue with it this evening. Instead, I propose with Amendment 4 a more modest rebalancing of the FPC and I am delighted that my noble friend Lady Wheatcroft and the noble Baroness, Lady Kramer, have added their names to this amendment.

6.30 pm

By virtue of Amendment 4, one of the Bank of England insiders would come off the FPC so that the Bank membership would then be the governor, the three deputy governors and one other Bank member, probably the executive director for financial stability, the person covered by Amendment 6 in this group. There would then be 10 members; five Bank insiders, one from the FCA and four independent external members. The external members would not be in the majority but their relative position within the FPC would be better balanced. An alternative way would be to increase the size of the external component of the FPC and Amendment 5 does this by adding one extra external member, which would take the total active membership to 12, five of whom would be independent members.

In Committee, my noble friends Lord Hodgson and the Minister objected to the FPC getting larger because it would become unfocused and unwieldy, and I completely

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agree with this. When Sir David Walker produced his report on bank governance in 2009 he included a particularly interesting annexe on the psychological and behavioural aspects of boards. One paragraph from that said:

“The optimum size of a sub-committee—”

—and that is what the FPC is—

“is between 5 and 9. To ensure quality thinking and effective interaction, sub-committees should be groups of not less than 5 and not more than 9. At 5 a group becomes more of a team, at 7 thinking is optimised; above 9 the ability of the cognitive limit of the group is exceeded”.

So I do not advocate my alternative, Amendment 5, and note that even with the modest change in my Amendment 4 the FPC would number 10, or 11 if you include the Treasury, and would thus be outside the cognitive limit referred to in Sir David Walker’s report. If the Government cannot face telling the Bank it cannot have two extra people on the FPC, the solution is available to them by adding one, as in Amendment 5, although the Government would have to recognise that this solution would be sub-optimal. I beg to move.

Lord Myners: My Lords, I support the amendment in the name of the noble Baronesses, Lady Noakes, Lady Wheatcroft and Lady Kramer. I, too, have been struck by the potency of the Walker report appendix on group effectiveness, drafted by the Tavistock Institute. My experience leads me to conclude that the larger the group, the less effective it becomes. The R-squared is actually extraordinarily high and making the FPC any larger would not be the right solution, although it would be better than doing nothing.

Amendment 4 is, in my judgment, significantly superior to Amendment 5 and I think the noble Baroness, Lady Noakes, has, as she so often does, put her finger on the issue. It is almost certainly the governor who is insisting on having this right to appoint additional people to the committee. The past culture of the Bank is that it speaks with a single voice and that voice expresses the opinion of the governor. The more people around the committee table who therefore speak with that single voice, the better it is from the perspective of the executive. From the perspective of a functioning committee, that is almost certainly not an optimal outcome. In fact, if the Tavistock Institute had been invited to comment on the existence of a cabal or blocking group within a committee, I am sure it would have been even more powerful in its views about its appropriate constitution.

The central thrust of everything we are doing in helping the Government get this legislation through Parliament is to try to ensure that we have as many checks and balances in place as is appropriate. One of them must be a check on the strength of the voice of the executive of the Bank on these committees and, while both of the amendments put forward by the noble Baroness, Lady Noakes, will achieve that, Amendment 4 is preferable to Amendment 5.

Baroness Wheatcroft: My Lords, Amendment 4 will achieve an improvement in the balance of the FPC and I support the other amendments in this group, tidying-up amendments which would bring the number

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of extra appointees from the Bank down to one instead of two. It is obviously better to have a balance, if we can, between the Bank team and the outsiders—as they will undoubtedly feel that they are to start with.

We have heard about groupthink. There obviously has been a fair amount of groupthink at the Bank in the past, although it is worth remembering that on the Monetary Policy Committee the Governor of the Bank of England has been outvoted on several occasions, so it is possible for people to disagree with the governor and for the committee to go against him. However, on the basis that a balance would be better, bringing down the level of Bank people represented on the FPC would be an improvement.

Lord Deben: I merely suggest that in these detailed discussions, when we hear mainly from those who are very expert, it is as well to consider views from outside, from business as a whole. A trick which all businessmen know is that there are two ways in which you can control a committee. One is to have a very small committee mainly related to you, and the other is to have a very large committee in which you know very well that you can organise the dynamics. I am much impressed with the arguments of the noble Baroness, Lady Noakes, who has put her finger on a very important issue. I hope that the Government would accept that nowadays there is a good deal of expertise looking at these matters and the Tavistock Institute has much of it. I would be unhappy if we suggested that we knew better than its experience, over a very long time, of how best to do these things. I hope the Government will see this as a perfectly reasonable thing, a balanced situation. The noble Baroness, Lady Noakes, and I do not always agree on matters—indeed, there are lots we disagree on—but on this occasion, coming from my understanding of trying to run boards and companies, this would be a good thing to do and not to do it would seem a little perverse.

Baroness Kramer: My Lords, I cannot pretend to have the expertise on boards that the previous speakers have had and I do not want to repeat the very powerful arguments they have made; I merely add two quick comments. I think that the Minister will have understood from the debate that has gone on for much of today that there is still a general uneasiness over the amount of power that flows to the Governor of the Bank of England under this new framework. Here is a sensible way to put a bit more challenge into the system. I think that we all feel that a bit more challenge would be a good way in which to make sure that the governor has to do the thing that is the greatest check on any individual: to persuade others to go along with him. That is rather more necessary in an absolutely core function, one of financial stability and economic growth.

Secondly, we have all been somewhat concerned about the role of the FCA and the kind of status that the chief executive of the FCA may have in comparison to his peers in the regulatory family that falls more directly under the Bank of England. His role becomes a little more pivotal when you look at Amendment 4 and I suspect that that is no bad thing. It also makes sure that the FCA voice is heard rather more clearly

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and independently than it might have been without this amendment. I hope that the Minister will take all that on board.

Lord Eatwell: My Lords, I have added my name, as has my noble friend Lady Hayter, to Amendment 5, which is the second-best amendment of the noble Baroness, Lady Noakes. However, even in this second-best version, achieving what the noble Baroness, Lady Kramer, referred to as “a bit more challenge” is an excellent and desirable objective.

Lord Sassoon: My Lords, this is an interesting and important area. The balance of the FPC’s members between the Bank and non-Bank executives is an issue that has been raised a number of times in this House, in another place and in the committees that have scrutinised the Bill. My noble friends who have spoken to this issue have done so with characteristic clarity and eloquence.

There is clearly an important argument about the possibility of rebalancing the membership of the committee away from the Bank executives and towards the external members. The external members will need to provide an outside perspective and challenge function to the deliberations of the FPC and, crucially, Amendment 4 achieves the important objective of enhancing the role of the non-Bank members while avoiding creating a situation where the Bank would be in a minority on the committee, which would make it virtually impossible to hold the Bank accountable for the FPC’s actions.

I see a great deal of sense in the alternative ways of doing this, but in the Amendment 4 approach rather than the Amendment 5 approach—the second best approach, as we now know it. I could not talk in the language of cognitive limits and other good stuff but, in a practical sense, I understand why having only nine voting members, which is comparable with the MPC, is better than having 11 members with a Treasury observer. Making the FPC larger by creating additional members would risk making the group unwieldy, and I now understand—which I did not before—that the Tavistock Institute provides a theoretical underpinning to what I see as a practical argument.

On balance, the proposal put forward by my noble friends to rebalance the committee by removing a Bank member is not only preferable to the one of adding an external member but has some attractions. The tone of my noble friend Lord Deben’s remarks was to assume that of course I would dismiss all this out of hand. However, this is a serious point and the committee has come back to it. We have been here before in a number of respects and it is important.

Amendment 6 would ensure that it is the executive director with responsibility for the analysis of markets who would be removed from the FPC. Although the person in this position may have an important role in providing information relating to financial markets to the committee, it is true that this role could be achieved without that person being a voting member. The executive director who would remain as a voting member on the FPC would be the director with responsibility within the Bank for financial stability, and I agree that that executive director would seem to be the appropriate person.

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The remaining amendments are consequential in nature and simply remove a later reference to the executive director with responsibility for the analysis of markets and reduce the quorum of the FPC from seven to six, reflecting its reduced size.

6.45 pm

So where does this leave me? Given the importance placed on this issue by the House, reluctant though I am to agree on many things, although I agree on some, with the noble Lord, Lord Myners, and even though I would go a different route—the noble Lord, Lord Eatwell, clearly shares the view of the House about the desirability of rebalancing—I accept the thrust of my noble friend’s amendments. If my noble friend will permit me, I would like to reflect on the debate, and particularly on the wording of the amendments, to make sure that we have got it right. If my noble friend will consider withdrawing her amendment now I will commit to tabling a government amendment at Third Reading to rebalance the membership of the FPC by removing a Bank executive as provided in Amendment 4 and the following consequential amendments.

Baroness Noakes: My Lords, I thank all noble Lords who have taken part in this important debate and I thank the Minister for his welcome remarks. I believe the technical response in this situation is “bingo”. With that, I beg leave to withdraw my amendment.

Amendment 4 withdrawn.

Amendments 5 to 6C not moved.


Amendment 6D

Moved by Lord Eatwell

6D: Clause 4, page 7, line 6, leave out “subject to that,”

Lord Eatwell: My Lords, my noble friend Lord Peston, who tabled this amendment, had to leave earlier this evening, but he asked me to move it on his behalf. I do so because it is an important and valuable amendment.

In Committee, the Government conceded the arguments made by the Treasury Select Committee and by Members in the other place that the growth and employment objective should be written into the terms of reference of the Financial Policy Committee. However, they have undermined the pursuit of this objective by the way in which it has been incorporated into the Bill. The phrase “subject to that” in proposed new Section 9C(1)(b) makes the growth and employment objective secondary to the stability objective.

Perhaps the Government are over influenced by current events here. Any Government who have presided over the economic policy of the past two-and-a-half years and continually justified their own actions with reference to levels of interest rates and financial stability will undoubtedly be motivated to downplay the growth and employment objective in the Financial Policy Committee’s considerations. However, in the longer view this is surely a mistake. Under the Bill as currently

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constructed, the Financial Policy Committee could cite the financial stability of a persistent recession as evidence that the objective has been met—stability, but the stability of the economic grave.

How much better that the Financial Policy Committee should take a balanced and mature view of the relationship between financial stability and growth and employment? I am confident that, if we get the right people in place, the committee will be able to take that mature view and would much better serve the overall financial stability strategy of the Bank. My noble friend’s amendment would achieve this and it deserves both serious consideration and support. I beg to move.

Lord Deben: I am distressed that the Minister should feel that on the previous occasion I suggested that he would be other than magnanimous, for he is always magnanimous. I speak in his support because we have to be very careful about constantly adding all the good things that we might like to have taken into account in all circumstances. Financial stability in these circumstances is exactly what we should be saying first and we refer to the other, perfectly rightly, because it is necessary. I find it incredible that any committee, in any circumstance, would get up and say it thinks it is a frightfully good idea to have the stability of total sterility. I do not understand where the noble Lord, Lord Eatwell, really thinks that anybody would come to that conclusion. This seems a totally unnecessary amendment and I hope very much that the Minister will refuse it.

Baroness Kramer: My Lords, I feel positively disturbed by this amendment. I am far more concerned that ultimately we will have to resist the optimism and buy-in to “all is going well, let’s take the leash off”, and the erosion of regulation and structural protection. It is important that financial stability should be the primary objective for the Financial Policy Committee. It was important to add the economic growth objective to sit alongside it, but in a secondary role—to say that if the requirements for financial stability are met, the committee should make sure that, alongside and within that, economic growth has the chance to take place. That is an appropriate balance, which has been achieved by earlier amendments to this Bill.

To pull away that protection now and put us back exactly where we were—perhaps I may say, under the last Labour Government—would suggest that people have not learnt their lessons. That is the great fear: we have a crisis and people immediately react to counter the crisis. However, my goodness, our memory is short. As soon as times become good, it is very hard for a regulator to continue to impose constraint and manage risk. It is absolutely crucial that we make clear that this is meant to be a permanent feature of the Financial Policy Committee, not just a feature for now.

Lord Phillips of Sudbury: My Lords, I will add a rather mundane legal point. I do not believe that the amendment tabled by the noble Lord, Lord Peston, would achieve anything, even if it were accepted. Subsection (1), whose two limbs cover the matters to which the Financial Policy Committee must have regard, is quite clear about the stability objective. However, in

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a situation where the Government had no objective for growth, it would not bite, even if you took the words “subject to that” out of the clause. That is, as I said, a very mundane lawyer’s point.

Baroness Noakes: My Lords, I recall that when the previous Government set up the Monetary Policy Committee, they formulated its secondary policy objective in precisely this form, “Subject to that”. Can the Benches opposite explain when they had a damascene conversion on this topic?

Lord Sassoon: No? Sometimes silence speaks volumes. We can all—

Lord Eatwell: I am sorry, I will say something. The Monetary Policy Committee has had a damascene conversion. You can see it in the quantitative easing policy. Indeed, the Treasury continuously encourages the Bank to take a more aggressive monetary policy with respect to growth and employment and to ignore the high rate of inflation.

Lord Sassoon: My Lords, first, this is well trodden ground for the House so I will be brief. In any case, my noble friends have all made extremely telling points, which knock this one pretty comprehensively on the head. The FPC’s primary focus must be financial stability. That is its primary purpose, in the same way that the MPC’s primary focus must be price stability. Both financial and monetary stability are necessary prerequisites for stable and sustainable growth, so both committees already contribute to growth by achieving their primary purposes. Subject to doing so, they should act to support the Government’s economic objectives. The result of giving the FPC dual, equally weighted objectives for financial stability and economic growth would be to allow the FPC to take action that would damage financial stability with the aim of encouraging growth. This would take the FPC outside its remit and expertise, and frustrate its primary purpose—which has got to be financial stability.

I do not believe that the model proposed in this amendment is appropriate or workable and I ask the noble Lord to withdraw it.

Lord Eatwell: My Lords, this has been an intriguing discussion, since it appears to ignore the economic history of the last two years. I was struck by the comment from the noble Lord, Lord Deben, that nobody would possibly accept the notion that financial stability was important when growth was absent. He should come more often and listen to the noble Lord, Lord Sassoon, justifying the current policies of the Government. The Minister continuously says it is vital that the policy which has produced zero growth over a year, and leaves us with a level of output about 3.5% lower than the peak in 2008, is entirely justified by the need to secure financial stability. He refers to low interest rates and financial stability all the time. If the noble Lord would like to hear someone justify that position, he can just turn up and listen to the noble Lord, Lord Sassoon, justifying the Government’s policy. He will get that straightaway.

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Lord Deben: The noble Lord really must not interpret what I said in a way that is convenient for his argument and then blame the noble Lord, Lord Sassoon, for speeches that I have certainly heard and with which I agree. All I am saying is that the noble Lord’s idea that somehow or other, unless this is in here, nobody will take any notice of growth at all and that everyone will want a kind of sterile system is just not true. Nor is it sensible.

Lord Sassoon: I really do not want to prolong this too long, but the idea that somehow financial stability is the same as a sustainable fiscal position is really stretching the concepts a bit far. However, there we are.

Lord Eatwell: I was merely describing the way that the noble Lord continuously justifies the current squeeze that the Government wish to exert on the economy. The other really intriguing point is that it is the Government’s amendment that has introduced the growth and employment objective here, but he now tells us that it is outwith the committee’s expertise. So he has now introduced an amendment that is outwith the expertise of the committee that he has asked to consider it, even if as a secondary objective. I have been very struck by the debate, which has also failed to recognise, as I suggested earlier, the dramatic change in policy by the Monetary Policy Committee, urged on by the Government. This amendment simply attempted to believe, perhaps naively, that the Government might recognise what is happening in the policy-making of their institutions at the moment might give the FPC some credit for being able to make a mature and balanced judgment, given its overall responsibility for financial stability. However, I was no doubt overly naive there. On that basis, I beg leave to withdraw the amendment.

Amendment 6D withdrawn.

Amendment 6E

Moved by Lord Eatwell

6E: Clause 4, page 7, line 19, at end insert—

“( ) factors likely to lead to a loss of confidence in the financial system as a whole”

Lord Eatwell: My Lords, this amendment seeks to include in the list of factors that are to be considered as systemic risks the factors likely to lead to a loss of confidence in the financial system as a whole. I am afraid that this is a significant bugbear among those of us interested in the economic foundations and problems of systemic risk. The list of elements that are included here—

“structural features … distribution of risk … unsustainable levels of leverage, debt or credit growth”—

are all essentially microeconomic. They miss the whole point about macroprudential regulation and the macroeconomics of risk, which the FSA tried to put forward in the Turner review and the US Treasury put forward in its review. They missed all that. The point is that at the macroeconomic level, there can be a transmission of risk which is not observable in the

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microstructures of the market, and is transmitted through a loss of confidence. Factors which can lead to a loss of confidence may not be identifiable in precise microeconomic connections.

I understand that this list is not intended to be exhaustive. That is why I composed this amendment to be a very general statement. I was not attempting to be precise, just presenting factors which can lead to a general loss of confidence. The point is to recognise that the systemic risk which we encountered in the last four or five years does not derive simply from the observable microeconomic variables listed here, but derives—most importantly, or at least, equally importantly—from the general loss of confidence which can sometimes be associated with these variables, and sometimes with others.

7 pm

That is why I wanted to include some recognition of what has now become the accepted economics of systemic risk, the macrogeneration of risk. Macropropagation of contagion as risk is a crucial element which must be taken into account in any assessment of overall financial stability related to general macroeconomic systemic issues. After all, what is the definition of macroprudential regulation? It is concerned with matters which are not associated with the characteristics of individual firms. That is what it is about. That is why it is important that that dimension should be included in the overall considerations of the FPC. It is simply the recognition, if you like, of where the analysis has got to, and indeed, what we have learnt over the last three years. I beg to move.

Lord Sassoon: My Lords, again, this was an issue on which there was a comprehensive debate in Committee. As set out in subsections (1) and (2) of proposed new Section 9C of the Bank of England Act, the FPC is tasked with contributing to the Bank’s financial stability objective by identifying and monitoring systemic risks and taking action to reduce or remove those risks.

Subsection (5) defines “systemic risk” to mean,

“a risk to the stability of the UK financial system as a whole or of a significant part of that system”.

That means that any risk to UK financial stability is captured within the FPC’s remit. At the prompting of the Joint Committee that scrutinised the Bill in draft, we added subsection (6) to underline the fact that,

“it is immaterial whether the risk arises in the United Kingdom or elsewhere”.

Let me be clear: the FPC must identify and address any risk that could compromise the stability of the UK financial system regardless of its origin.

The purpose of subsection (3) is to specify certain types of systemic risk which the FPC should look for. This does not limit or restrict the FPC’s remit in any way. In other words, just because a systemic risk is not listed in subsection (3) does not mean that the FPC has any less of an obligation to identify, monitor and address it. There could perhaps be a temptation to continue adding to subsection (3) in an attempt to try to define all possible sources of systemic risk. But this would be a fruitless, and potentially counterproductive, endeavour.

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Amendment 6E seeks to add,

“factors likely to lead to a loss of confidence in the financial system as a whole”,

to the list. I agree that a loss of confidence can magnify cross-sectional or structural risks captured in the financial system. But I do not believe it would be appropriate to expand subsection (3) in this way. As I have said, the list is not intended to be exhaustive, rather it is designed to highlight the broad categories of systemic risk that have been identified by academic research, something which the noble Lord is rightly keen that we should factor in. Subsection (3) as it stands already serves this purpose by describing the main categories of cross-sectional and cyclical risk. I hope that, on the basis of this explanation, the noble Lord will withdraw what I continue to see as an unnecessary amendment.

Lord Eatwell: Before the noble Lord sits down, I heard but one argument against the case that I was making, which was that it was not appropriate. Will he explain why it is not appropriate?

Lord Sassoon: My Lords, I thought that was what I had done in the last three minutes. I explained that this is not an exhaustive list. Yes, the factor that the noble Lord identifies is an important consideration, but we have included the much more specific categories of systemic risk which are identified in the research. If we started putting looser considerations in there, it would be difficult to know where the list should stop. Indeed, as one extends lists like this, it risks by implication leaving out other important factors. I do believe that subsection (3) and the whole of proposed new Section 9C as drafted completely embrace the ability and the requirement for the FPC to pick up what the noble Lord is getting at, but does not run the risk of us trying to draft in some of the other things that we all might be able to think of.

Lord Phillips of Sudbury: Before my noble friend sits down, will he comment on the essential point made by the noble Lord, Lord Eatwell, about the risks defined in subsection (3) covering only “micro” rather than “macro” risks? It does seem that the language is actually “macro”. It talks about systemic risks, structural features and so on. Does the Minister agree?

Lord Sassoon: Yes, I agree with my noble friend. He makes an important point.

Lord Eatwell: Well, yes, my Lords, the logic of the noble Lord’s argument is either to accept my amendment or delete proposed new subsection (3) altogether, because one has to ask: what does it do? It says:

“Those systemic risks include, in particular”.

In particular, this is what the committee should be looking at. That is misleading in that it focuses on structural issues of the economy, which are microeconomic —on leverage and on debt, which are microeconomic, and on credit growth, which is moving into the more macroeconomic area. What it fails to do is to take in the general point of the loss of confidence which can come from other sources.

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As I pointed out when I introduced this amendment, I deliberately constructed it so as not to get into the trap of attempting to produce a detailed list. It certainly does not do that. It simply alerts the committee. If the committee is to be alerted to deal with a number of factors in particular, it seems that it should also be looking in particular at those factors which might lead to a general loss of confidence in the economy as a whole.

So if the Government really wish to ask the committee to focus in particular on some things, I would like my amendment to be accepted. If, on the other hand, it is quite happy to rely on subsections (5) and (6), I suggest that subsection (3) be deleted, so as not to create this spurious concentration on a particular list of points.

However, given that the argument has made little progress, I beg leave to withdraw the amendment.

Amendment 6E withdrawn.

Amendments 6F to 6Q not moved.

Amendment 7

Moved by Baroness Noakes

7: Clause 4, page 12, line 13, at end insert—

“(1A) If the Treasury considers it appropriate to proceed with the making of an order under section 9L, the Treasury may lay before Parliament—

(a) a draft order, and

(b) an explanatory document.

(1B) The explanatory document laid under subsection (1A) must—

(a) introduce and give reasons for the order,

(b) explain why the Treasury considers that the order serves the purpose in section 9L, and

(c) be accompanied by a copy of any representations received from the FPC or the Governor of the Bank.

(1C) Subject as follows, if after the expiry of the 40-day period the draft order laid under subsection (1A) is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.

(1D) The procedure in subsections (1E) to (1H) shall apply to the draft order instead of the procedure in subsection (1C) if—

(a) either House of Parliament so resolves within the 30-day period, or

(b) a committee of either House charged with reporting on the draft order so recommends within the 30-day period and the House to which the recommendation is made does not by resolution reject the recommendation within the period.

(1E) The Minister must have regard to—

(a) any representations,

(b) any resolution of either House of Parliament, and

(c) any recommendation of a committee of either House of Parliament charged with reporting on the draft order, made during the 60-day period with regard to the draft order.

(1F) If after the expiry of the 60-day period the draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.

(1G) If after the expiry of the 60-day period the Minister wishes to proceed with the draft order but with the material changes, the Minister may lay before Parliament—

(a) a revised draft order, and

(b) a statement giving a summary of the changes proposed.

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(1H) If the revised draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the revised draft order.

(1J) For the purposes of this section, an order is made in the terms of a draft order or revised draft order if it contains no material changes to its provisions.

(1K) In this section, references to the “30-day”, “40-day” and “60-day” period in relation to any draft order are to the periods of 30, 40 and 60 days beginning with the day on which the draft order was laid before Parliament.”

Baroness Noakes: My Lords, this has taken me a little by surprise—I thought I had another few minutes’ rest before we got to my amendment.

Amendment 7 deals with the parliamentary procedure for approving the Treasury’s direction to the FPC setting out the macroprudential measures that the FPC can impose on the PRA and the FCA. Under proposed new Section 9N of FiSMA, as inserted by Clause 4 of the Bill, the procedure is to be the draft affirmative one. My amendment seeks to convert that into a super-affirmative procedure.

The draft affirmative procedure requires parliamentary approval of the draft of an order before the final order is actually made. It gives slightly more opportunity for parliamentary scrutiny than an ordinary affirmative order, but the end result of the parliamentary procedure is binary—it is either approved or not. Such an order is not amendable and the only option available to either House would be to reject the whole order. The political composition of the other place effectively means that an order is always passed, whether draft or not. It does not matter whether the debate is in a Committee Room or, as has been suggested by the Chancellor of the Exchequer, on the Floor of the House. The end result is the same. In this House, technically we can reject an order but by convention we do not do so. It has happened only very rarely and is rightly regarded as a nuclear option.

Like the Joint Committee that scrutinised the draft Bill, the Treasury Select Committee in another place concluded that the content of an order setting out macroprudential measures deserves an enhanced level of parliamentary scrutiny. The Treasury Select Committee believes that the situation satisfies the Erskine May formula that talks of the super-affirmative procedure being used where,

“an exceptionally high degree of scrutiny is thought appropriate”.

The super-affirmative procedure in my amendment would require the Treasury to set out, in some detail, why the order is to be made. It would allow either House of Parliament to make recommendations on the draft order, which the Government would have to have regard to before returning with the final version of the order. Neither House would have any power of amendment but would have the power to recommend amendments, which the Government would have to consider.

It was suggested in Committee that macroprudential measures are very technical and not amenable to amendments—the noble Baroness, Lady Kramer, made this point. That may or may not be correct, depending on the particular measure. It is certainly true that the wider economic impact of the use of macroprudential tools is a proper subject for parliamentary debate, and either House may well want to say to the Government that their chosen tools are perhaps too wide or not

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wide enough. In contentious cases, Parliament may well say that the tools should be sunsetted or should be subject to additional reporting to Parliament on the impacts of the measures over time. Many important things could come out of a proper parliamentary debate that may or may not represent suggestions for amendment.

I have no particular concerns about the initial macroprudential toolkit. The FPC has been open about what it wants and why, and the Government are consulting transparently on their draft order. However, the initial tools are probably the easy ones because they largely align with international developments, and my amendment is directed at the development of the measures over time. For example, the FPC deliberately held back from asking for loan-to-value or loan-to-income powers, recognising that these should be decided by Parliament and that a full public debate would be necessary before such measures were introduced. If enforced, loan-to-income or loan-to-value rules could have a massive impact on the availability of mortgage credit and therefore raise wider societal issues as well as financial stability ones. Without the backstop of the super-affirmative procedure it is far from clear how Parliament could ensure that its—or anyone else’s—voice would be heard.

7.15 pm

The Government’s main objection to this enhanced parliamentary scrutiny concerns the potential for delay. If the macroprudential measures were straightforward and uncontroversial, I do not believe that the super-affirmative procedure would add a very significant delay. If there are concerns and matters are contentious, the process certainly could take longer under the super-affirmative procedure—but so it should if there is to be effective parliamentary scrutiny. I do not believe that the time limits set out in my amendment, allowing up to 60 days, are unreasonable.

The limits that I am proposing are more modest than those which the Government accepted in your Lordships’ House during the passage of the 2011 Public Bodies Bill because, unlike that Act, my amendment omits a prior 12-week public consultation period. I could have argued that what is good for the abolition of a minor quango ought to be the minimum standard for something which could impact on the financial health of our economy and our citizens, but I have proposed a shorter timetable for macroprudential tools.

I also stress that my amendment has absolutely no impact on the ability of the Treasury to make—and remake—an order in urgent cases using the made affirmative procedure under new Section 9N of FiSMA. I doubt there will be many instances where a macroprudential measure is genuinely urgent but I am completely prepared to trust the Treasury if the need for urgent action arises. My amendment is directed at what I believe will be the normal case, where careful deliberation and scrutiny are desirable before making law.

I conclude by reminding noble Lords that the way that statutory instrument scrutiny generally works gives almost all the cards to the Government and almost none to Parliament. In opposition, we got this

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and I hope that my Front Bench remembers it today. The super-affirmative procedure is the right approach to orders that are potentially of huge significance to the economy and individuals in this country. I beg to move.

Lord Sassoon: My Lords, of course, this is another issue that was discussed at some length in Committee. The Government recognise the importance of proper public and parliamentary scrutiny and accountability for macroprudential tools. That is why the Bill requires that macroprudential orders be subject to the affirmative procedure.

The Government have given a number of undertakings to further demonstrate our commitment to ensure transparency and effective scrutiny of macroprudential orders. In another place the previous Financial Secretary to the Treasury, Mark Hoban, clearly stated the importance that the Treasury places on taking a consultative approach to policy-making, and that he expected this to apply to macroprudential tools. In addition, my right honourable friend the Chancellor of the Exchequer has said that he would be happy for debates on tools to take place on the Floor of the House, subject to arrangement through the usual channels.

The Government have also committed to consult on their proposals for the FPC’s initial toolkit. I note that my noble friend has no complaint on that score. Nevertheless it is important to recognise that the consultation document containing the Government’s proposals, a draft order and an impact assessment on those proposals was published on 18 September. The consultation will run for a full 12 weeks. In Committee a number of noble Lords highlighted the 90-minute restriction on debates and the inability for orders to be amended. However, I believe that consultation and the statement made by the Chancellor address these concerns effectively. I encourage noble Lords to read the consultation and respond if they feel able to improve the drafting of the order. I also hope that the relevant parliamentary committees will make their views on the Government’s proposals known.

Importantly, the Government’s stance on the parliamentary control of these macroprudential orders has been endorsed by the Delegated Powers and Regulatory Reform Committee. Maybe I did not notice it, but I do not think that my noble friend referred to the DPRRC. I know that she regards the committee, in her words, as an early warning system of problems for Parliament to address. In this instance, it has considered our proposed procedure and determined that there is not a problem to address.

As I suspect my noble friend knows, the DPRRC has stated:

“The importance of the power is recognised by the application of the draft affirmative procedure or, in urgent cases, the 28-day ‘made affirmative’ procedure … The Joint Committee on the Draft Bill and the House of Commons Treasury Select Committee have recommended an enhanced affirmative procedure for the non-urgent orders, based on that in the Public Bodies Act 2011. But the affirmative procedure provided for in the Bill should be a sufficient safeguard against inappropriate use of these powers”.

It is also important to remember that orders made under new Section 9K will not always be major pieces of legislation. It could be the case that minor technical

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amendments need to be made to the tools over time. Under such circumstances, requiring the super-affirmative procedure would be a disproportionate use of parliamentary resources. I note that my noble friend has made some adjustments to the super-affirmative procedure that would make it less onerous, and she has addressed those at some length in her remarks. I still feel that her proposal would require a disproportionate amount of parliamentary time and resource.

The bare minimum amount of time to pass an order under these proposals is 40 days, which can be increased to 60 days by resolution of either House or by recommendation of a committee of either House. The time taken to make an order where the consultation process shows that substantial changes are required is even greater. Even once the 60-day period has elapsed, this amendment would require the Treasury to obtain prior approval to the amended instrument before it could be made. This would introduce a significant amount of uncertainty around the time it would take to amend the FPC’s macroprudential toolkit.

I have stated many times that the Government place great importance on public and parliamentary scrutiny of the macroprudential tools. Given the steps already in the Bill and the commitments made by this Government, I ask my noble friend to withdraw her amendment.

Baroness Noakes: My Lords, I am disappointed with my noble friend’s response on this. He has repeated that in the other place there can be a debate on the Floor of the House, but the location of a debate on a statutory instrument is completely irrelevant. The outcome is exactly the same. He has rested on the full process for the early order but, as I said, those ones, with a high degree of international agreement on what the early phase of macroprudential tools should be, were easy to do. That is not really an issue. My noble friend rightly raises the Delegated Powers and Regulatory Reform Committee, for which I have the highest respect. I have equally the highest respect for the Joint Committee which scrutinised the draft Bill, and high regard in particular for the Treasury Select Committee in another place, which has been tireless in its scrutiny of this legislation. I have two committees to play one.

The best parliamentary procedure would in this instance be the super-affirmative. I can only say that I am extremely disappointed with my Government for hiding behind the easiest option of parliamentary procedure, but I will accede to my noble friend’s request and beg leave to withdraw.

Amendment 7 withdrawn.

Consideration on Report adjourned until not before 8.25 pm.

Housing Benefit (Amendment) Regulations 2012

Motion to Approve

7.24 pm

Moved by Lord Freud

That the draft Housing Benefit (Amendment) Regulations 2012 laid before the House on 28 June be approved.

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Relevant documents: 6th Report from the Joint Committee on Statutory Instruments, 7th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 15 October.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, we have already conducted a debate on these regulations in Committee and I am under no illusion about the strength of feeling that many noble Lords have on this measure. Clearly we have been through the issue thoroughly as we went through the Bill. We went through that a number of times. The Commons gave us a response and noble Lords will remember that at the conclusion of those debates I proposed undertaking some research to make sure that we understood the impact of this measure. On that basis in the Bill process it was decided not to proceed any further.

Let me summarise some of the main issues. We are not introducing this change lightly. There are a number of important principles behind this reform. There is a major financial imperative behind it; there is a compelling argument for reining in housing benefit expenditure and spending more generally. I know that many noble Lords do not disagree with the need to bring spending under control, but would no doubt wish to find a saving of £500 million a year from somewhere else. The question is, exactly where from? I have not yet heard any clear alternative for finding this kind of saving. That is why it would be quite wrong for the Government to backtrack on this measure now.

Another reason for this reform is that we believe that it will result in more efficient use of social housing stock over time, which in turn should help us to tackle some of the overcrowding. At the very least I hope that noble Lords agree that we need to do everything we can to improve the way that we use our housing stock. Doing nothing is not an option, not when we are paying for something approaching one million extra bedrooms for those affected by this measure and when there are more than a quarter of a million households living in overcrowded conditions in the social rented sector in England. In 2010 we inherited the highest level of overcrowding in the social rented sector since the published data began in 1993, with 7.1% of those households in England living in overcrowded accommodation. That is a fact we cannot ignore.

The noble Lord, Lord McKenzie, has asserted that this measure will risk costing more than it will save. Even if some people move—the Housing Futures Network research suggests that around 25% of people might move—that does not mean that we will not save money.

Where a claimant moves to smaller accommodation, it is important to consider the bigger picture rather than to look at just that one household. Even where a claimant moves into the private rented sector, that frees up accommodation in the social rented sector that can be relet to other families needing that accommodation. The relet may still generate housing benefit savings if, for example, the property is offered to claimants who would otherwise be renting privately or who were currently placed in more expensive temporary accommodation. I beg to move.

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Amendment to the Motion

Moved by Lord McKenzie of Luton

As an amendment to the above Motion, at end to insert “but this House regrets that the measures under the draft Regulations to introduce size criteria restrictions to the calculation of housing benefit for working age claimants living in the social rented sector are blunt and take no account of whether alternative accommodation is available; will result in cuts to the incomes of some of the poorest in society; fail to provide sufficient safeguards to protect the most vulnerable claimants and ensure that they are not pushed into poverty and homelessness; will not achieve their aim of tackling under-occupancy; and will risk costing more than they will save.”

Lord McKenzie of Luton: My Lords, for many people who are out of work, disabled or on low incomes, housing benefit is a crucial safety net and a vital support to help pay the bills at the end of the month. I am moving this Motion of Regret at the measures to introduce size criteria restrictions in the calculation of housing benefit for working-age claimants living in the social rented sector because we see this as a very important issue.

It is but one of the changes to housing support introduced by the coalition which overall will result in around 2 million households receiving lower benefits. The National Audit Office tabulates the range of losses as running on average from £5 a week for those affected by the CPI uprating of local housing allowance to £91 a week for those affected by the overall benefit cap. The size criteria restrictions—called the bedroom tax by the noble Lord, Lord Best—are estimated by the DWP to affect 660,000 claimants with an average weekly loss of £14. Most underoccupy, as defined, by just one bedroom with the average weekly benefit loss being £12. Half of those affected will lose between £10 and £15 per week. Of those affected, 390,000 will be local authority tenants and 270,000 will be housing association tenants. Alarmingly, 420,000 of the households contain a family member with a disability. Noble Lords will recall the extensive and intense debates on this issue and the strong views expressed by your Lordships’ House in opposing these measures. The Minister referred to them a moment ago.

The overriding issue is fairness. The arguments have not changed and will not go away. Hundreds of thousands of tenants have been penalised for the circumstances in which they find themselves, with no ready means, for most of them, to mitigate what is perceived to be their alleged offence. Of course we recognise the need to deal with the deficit, but it is who you choose to bear the burden that is at issue here. In an era when we are producing tax cuts for millionaires, we are asking 660,000 of the poorest people in our country to bear a cut of £14 a week. Most people deemed to underoccupy will not have a smaller alternative property to which they can move. All housing benefit claimants of working age considered to have spare bedrooms will see their benefit cut by 14% for one extra bedroom and 25% for two or more extra bedrooms.

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The reality is that this is not a serious attempt to address underoccupancy but is about cutting people’s benefit.

Of course underoccupancy must be addressed. We agree with the Minister on that. Many councils have imaginative schemes to do so for the elderly, who are not affected by these regulations, as well as for working-age tenants. The DWP’s own impact assessment is clear that there is a mismatch between household size and the availability of suitable houses in the social sector for underoccupying claimants to downsize to. The NAO’s report reached the same conclusion, noting that there is a mismatch between need and availability. Modelling by the National Housing Federation found that while 180,000 social tenants in England are underoccupying two-bedroom houses, only 85,000 one-bedroom social homes became available for letting in 2011-12. It concludes that the lack of mobility in the sector is not a product of tenants needlessly underoccupying larger homes but rather of the logjam created by a national shortage of affordable homes.

What choices do tenants have if they are to avoid the benefit hit? The Government say that they can make up the shortfall by using their other income or their savings, which is the same argument we heard in relation to the benefit cap. Is this really living in the real world? What level of savings do the Government think these families may have? An alternative is that tenants can move into work or work longer hours. This is notwithstanding that many are not, under the stringent rules that apply to conditionality, required to be available for or seeking work. For those who are, it presupposes that they are not already trying to, that the current claimant obligations are somehow deficient and that the level of support available via the work programme is not helping them. As for taking in a lodger, for many, this will be an unworkable and unreasonable option putting the safety and privacy of the family at risk.

The alternative is to take the hit or move to accommodation that better suits the current size of the household, assuming that it is a stable size. But where? It is not very likely in the social rented sector, where there is not only a shortage of supply but, as has been identified, a dearth of one and two-bedroom properties. A move to the private rented sector would inevitably lead to higher rents and higher benefits. There would be no certainty of that being cancelled out, as I think the Minister suggested, by a move in the opposite direction to a cheaper area, but given the allocation policies of local authorities, that is likely to be only in the private rented sector.

The Housing Futures Network found that 50% of claimants would not be likely to move home when they were faced with a cut. Over one-third considered that they would be likely to run into arrears, so we have a certain recipe for driving the poor into greater poverty and debt. We have seen the now-familiar tactic of the bit extra in the discretionary housing payment fund each year, albeit funded by bumping up the percentage reductions for underoccupancy. While this will undoubtedly give some help where the properties of disabled claimants have been subject to significant adaptations and to foster carers between placements, it should be compared with the annual cut of half a billion pounds that the Treasury is seeking.

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A review of the consequences of this is right, but it will not help with the misery that these provisions will cause in the mean time. The discretionary housing payment fund has a fixed budget and is having to cover an increasing range of circumstances, as we discussed on the benefit cap when my noble friend Lady Lister referred to it as “the loaves and fishes” concept. We challenge whether it is an appropriate or sufficient method to deal with disability issues. The DWP’s equality impact assessment shows the disproportionate effect the size criteria measure will have on the 420,000 sick and disabled tenants. An additional £25 million of discretionary housing payment for tenants whose homes have been adapted will undoubtedly be challenged as being insufficient mitigation, and rightly so. It is not a reliable safeguard against rent arrears, evictions and homelessness for chronically sick and disabled tenants.

True to form, the Government seek to offer some justification for this approach by juxtaposition with some other group, in this case, those in the private rented sector. As we have heard, the argument goes that private rented sector claimants receive housing benefit for accommodation based on the reasonable needs of their household, while in the social rented sector, it is based on the accommodation that they occupy. This is not comparing like with like. The nature of the tenancies is different and, in any event, when tenants are first placed in accommodation in the social rented sector, it would typically have regard to the size of the family. The reality is that household composition and need can change over time. The changes may not be permanent. Families grow with children and reduce as children fly the nest. The logic of underoccupation provision is that each change should drive a change of home; what a nonsense. It is a back-door way of undermining security of tenure in the social rented sector.

The National Housing Federation is deeply concerned that no flexibility has been given to social rented sector landlords to define whether a property is underoccupied. For example, if a home has a double bedroom and two box rooms, according to the regulations it would be underoccupied if a couple and two children were living in it, despite the reality being that the home is fully used. If the landlord reclassifies the property as a two-bedroom unit, it would lose money, which simply does not seem right. This is just another anomaly of the system.

This is a grotesque experiment in behavioural economics. The department has no idea how tenants will react, and the Government do not seem to care. Indeed, they hope that tenants will sit tight and take the hit because that way the Treasury maximises its saving. It is a callous piece of public policy that will put people into debt, drive increased homelessness and fracture communities, and we should have none of it. I beg to move.

Baroness Turner of Camden: My Lords, I rise to support my noble friend in his amendment. I agree with him fully that the new regulations before us are unfair to vulnerable people. They are being introduced at a time of a housing crisis that is particularly acute in places such as London. The situation in London is

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that rents are too high and wages are too low. The right to buy was fine for some, but it reduced the number of social homes available for rent. The social homes should have been replaced but, of course, that did not happen. Now local authorities are already looking to acquire premises for alternative social housing, often on sites very many miles away from where the individuals concerned are actually living and where they have some sort of support. This would be particularly difficult for people who are disabled, for disabled people require the support services that are often where they happen to live. It is quite unfair that they should be placed in the position of having to worry about future housing.

As far as London is concerned, my own neighbourhood has a particularly acute situation. When I first moved to West Hampstead, the area in which I now live, it adjoined Kilburn and was never regarded as a very posh area. Unfortunately that is no longer the case. The rents now being charged are absolutely enormous, and I do not understand how ordinary working people can be expected to afford them. It is quite common for large houses to be converted into one-bedroom flats, and the landlords charge as much as £500 a week for a one-bedroom flat. That is the kind of area and range of accommodation that is available in the area, and I do not see how working people on very low incomes can possibly afford it.

As for underoccupancy, quite frankly domestic circumstances for people change. Children move away; sometimes, nowadays, they move back because they cannot find anywhere to live. There are people who require support because they are ill. Sometimes they die. Domestically the whole situation changes for people, and it is unfortunate that they should be placed in the position of worrying, every time there is a domestic change, about what is going to happen to their living accommodation. It really is quite unsatisfactory.

As for general housing, I well remember what the situation was like at the end of the war—I am old enough to remember that. There was an acute social housing crisis because a lot of London had been bombed and there was no accommodation available. So what did the then Labour Government and the subsequent Governments do at that time? They had a very bold policy of social housing that was radically put up; we used to call these houses prefabs, and some of them are still in existence. There was a set of regulations that involved rent tribunals. In those days, if you were overcharged, you could go to a rent tribunal and your rent would be reduced. That meant that you could go on living in your accommodation. If you were concerned about it, the rent tribunal had the final say about what the rent should be. That meant that your rent had some relationship to the general level of wages, and therefore people were able to go on living in their homes because they had legislation to support them.

7.45 pm

In my view the situation in London is so serious and so dire that the Government should be looking at something rather like that, because unless you can do something about the level of rents that are being

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charged, those people are not going to be able to afford to live in London at all; and that is a ridiculous situation. I hope that the Government will think seriously about what has been said this evening, in particular about what my noble friend has had to say in his amendment, which I fully support.

The Lord Bishop of Norwich: My Lords, there is a logic, if a rather cold one, in suggesting that those on housing benefit should not be supported from the public purse if they live in homes larger than they need. However, as we have already heard, it is the lack of availability of alternative accommodation in reasonable proximity that may make this proposal so socially disruptive and prompts me to support this amendment.

If, as we are told, 660,000 households will be affected, a great many people might be on the move. A couple in middle life whose children have left home would be entitled to only one bedroom, although they may have lived in their rented home for many years. There would be no room for an adult child to return after a failed relationship, which then creates a greater burden on much-needed housing. It would be tough on those in their 50s in this situation when their pensioner neighbours would be excluded from the reach of this regulation. Households such as this will be given a stark choice: move to a smaller home or take a substantial cut in housing benefit—on average, £14 a week. Housing associations are telling us that even if people want to move, there is not sufficient housing stock of the right size to enable them to do so. In practice, tenants will mostly have no choice but to remain in their own home and cover the shortfall out of their other income; this on top of reductions in council tax benefit and rising fuel prices.

A significant proportion of those who will be affected have become single because of the breakdown of relationships and, in many cases, the removal of their children elsewhere. They want to see them regularly. What looks like unoccupied space in the house is very important to them. Many single people rely on the local social networks that they have built over the years. That is where they find such stability as they can. A job, even a poorly paid, part-time one, may be lost and not replaced. Depression may set in. Alcohol or drug abuse may compensate for loneliness. Social disruption has economic consequences. While the housing budget may reduce, other budgets may rise. Worst of all, those affected may think that they are not treated as being of much value in our society. A loss of human dignity has a great many social and spiritual consequences. We save a bit of money, perhaps, but we are a lot worse off in all sorts of other ways.

What concerns me is that that will not be simply an urban problem. In rural areas the possibilities of alternative accommodation are even scarcer, the disruption greater, and the harm to diverse social networks larger. The Christian charity Housing Justice estimates that between 25% and 30% of rural social housing tenants will be affected.

One reason why rural deprivation is so hidden in our small villages, hamlets and settlements is that they often have the very wealthy, the vulnerable and those living on benefits living in close proximity, even in

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small numbers. That is one of the reasons why rural England is comparatively socially healthy. People in rural areas often cope with smaller incomes than their urban counterparts, while the cost of rural living is actually higher. They live more simply, even if their accommodation is a bit larger than seems logical to someone devising a system in a government department. It would be a tragedy to undermine all this, and I believe that the potential cost to our social fabric, especially in rural areas, could be very large indeed.

Baroness Lister of Burtersett: My Lords, we have heard some powerful speeches in support of the amendment. I take us back to the debate in Grand Committee on 15 October and what the Minister had to say:

“A lot of people will decide that they will have enough money or that they will be able to take in a lodger or take extra work. Those are the kind of decisions that we expect to happen in the marketplace”.—[Official Report, 15/10/12; col. GC 485.]

How many of us think of our homes as the marketplace or the decisions that we make around our homes as market decisions? We are not just talking about bricks and mortar; we are talking about the homes that people live in and the local roots that nourish them. The Minister made it sound so simple, saying that people will decide whether they have “enough money”; we are talking by definition about people on a low income, as my noble friend Lord McKenzie said. Or, the Minister says, they can “take in a lodger”; my noble friend has explained why that is not always appropriate. Or, the Minister says, they can find “extra work”; that is not so easy, either to get a job or increase one’s hours.

According to the National Audit Office report, one-third of households surveyed by Housing Future expect to fall into arrears as a result of this policy. According to Citizens Advice, other debts are likely to increase because, initially at least, people will try to prioritise their rent. Yet the Minister made no mention of debt or arrears as a likely solution, if that is a solution, even though debt is identified by the Government as a primary cause of poverty. One thing that we discussed in Grand Committee was the disproportionate impact of this policy on disabled people. There is evidence about the particular effects on disabled people of debt, and how debt can itself create mental health problems.

I come back to a point that I made earlier, and I have made before. I know that I probably sound like a broken record, but I refer to the impact on social networks when people move as a result of this policy—to people’s lives and to their being able to find work. Often lone mothers can use those networks for childcare, and so forth. The Minister mentioned the evaluation that will take place, which I welcome. In our last gasp, when we were discussing the then Welfare Reform Bill and this provision, the Minister committed that the monitoring would include the impact on social networks. In every subsequent reference that I have seen to that monitoring, I have not seen a mention of that, so I would be very grateful if the Minister could recommit this evening that that monitoring will include the impact on social networks.

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On discretionary housing payments, I will not labour the loaves and fishes point any further, but I would instead like to quote from the National Audit Office report that came out last week, which says:

“It is not clear how the current level of funding for Discretionary Housing Payments has been determined or whether it is likely to be sufficient for local authorities in tackling the impacts of reforms. The £390 million of funding over the Spending Review period represents around six per cent of the total £6.4 billion savings expected from Housing Benefit reforms during this period. This works out at around £200 per household affected … There is also no established process for reviewing the level of funding for Discretionary Housing Payments over time. For example there is no mechanism to assess whether the overall funding amount should change to reflect higher claimant numbers. Uncertainty about the basis for future funding in part reflects the fact that the Department is still reviewing how to provide support for housing as a result of broader welfare reforms … Monitoring of how payments are made by local authorities would improve the Department’s understanding of local need. At the moment monitoring is limited”.

I would be grateful if the Minister could tell your Lordships’ House what the department’s response is to those observations from the National Audit Office.

Letters have already been going out to people who are likely to be affected by this policy, and it is striking fear into their hearts. It is a mean-minded policy that shows scant concern for the lives of those affected—and, as the right reverend Prelate put it, shows no concern for the dignity of those affected. Human dignity is at the heart of human rights.

Lord Best: My Lords, the noble Lord, Lord McKenzie, attributes the phrase “bedroom tax” to me, so I take responsibility for this—because it is a tax. It is not about trying to ensure that people are allocated to the property that best suits their needs; it is about raising money and reducing the deficit. We all understand about deficit reduction. Where we differ on this is whether people on the lowest incomes should be contributing to that deficit reduction with what is in effect a tax. It is a payment, which the tenant makes out of their benefits—out of the other benefits they receive, such as disability living allowance, income support or child benefits. It goes to government; that is where the payment ends up, and it reduces the deficit. That is a perfectly valid objective, but I and others maintain that it should not be at the expense of people who are living on the very lowest incomes at present.

The noble Baroness, Lady Turner, attributed the underlying problem to the shortage of accommodation, which then means that rents are much higher than one would hope and expect that they should be. It is not the fault of the occupier that they pay a large rent. We say that it is a disgrace that people are paying these enormous rents, but it is not that people wish to pay large sums in rent; that is what the market has determined. It is very different in London, as the noble Baroness pointed out, as it is in so many other places.

I am collecting examples of people who have written to me with their own cases. One after another, they are cases in which any reasonable person would say, “In that particular case, it seems very unfair for people to have to pay a new tax that they didn’t pay before—in that case, I agree that there should not be this tax to be

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paid”. One such case I can cite comes from the diocese of the right reverend Prelate the Bishop of Norwich. I agreed very much with his words. I apologise to the Minister for repeating the content of an e-mail that I mentioned in Grand Committee, but it is such a typical case. The lady has lived 23 years in her council house and now it contains herself and her husband. It has three bedrooms. They have actually done quite a bit of work to the House; the garden is immaculate—this is their home. But it is a tax, and they will face a bedroom tax of £25 a week unless they can move out. They have been told that there is a place in another Norfolk town. It is 16 miles from where they live, but there will be a place there in due course. It is not available at the moment, but in due course they will be able to get a one-bedroom flat. The absolute last thing that they want to do is to leave the family home where they have been for 23 years, where their children still come back at Christmas and on other occasions, and where she has a base to look after her mother in the village. It will cost the social services an arm and a leg to have to send in carers to look after mum. At the moment she goes in three times a day: once in the morning, briefly at lunchtime, and once in the evening. She will not be there to do that once she has moved away to the town. This is all ridiculous, and anyone would say, “Look, in that case don’t charge them the tax. Leave them where they are”. Anybody can see that that is the sensible thing to do. However, it will be extremely difficult to make those special cases, and to find the resource that will bridge the gap in their rent in those cases.

8 pm

Today the housing associations are very often the organisations, along with local authorities, which will have to collect the tax. They become reluctant tax collectors because the rent that they receive through housing benefit will no longer cover all of their rent. That gap of £14 for one room and £25 for two, that extra amount, that tax, must be paid, and housing associations have to collect it. The housing associations are doing good things, in trying to make sure that the problem is mitigated, and they inform people, telling them in advance. However, as I thought the other day when driving along, it is a little bit like the warning sign that says, “Beware low-flying aircraft”. There are some things that you can be told—but what do you do? “Yes, I am told that there are low-flying aircraft, but I can’t do anything about it.” This is how people who have been told in advance will feel next year. They will not be able to do much about it.

Regarding the opportunities to move, in a year’s time there will not even be the one-bedroom flat 16 miles away. The landlords are not able to supply the accommodation. Housing associations are responsibly explaining the options to people, but an awful lot of them are making serious provision against mounting arrears, because they do not believe that people will hand over the £14 every week. That money will just accumulate. Even if they go to the courts—and I hope that a lot of housing associations will not take that course—and say, “We have arrears mounting up”, the courts will make an award of perhaps £10 a week to

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pay them off, when it was already £14 a week. It will not be helpful, and the arrears will need to mount to £1,000 or £1,200 before the courts will evict people on the back of this.

This simply means that the landlord—whether that is the local authority or a housing association—will lose some of the income that it had had before. Housing associations and councils use those rental resources to do more nowadays than simply put the roof on and collect the rents. These have become powerful and important local players in helping the big society, working with local charities, doing employment schemes and all kinds of things in local communities. Those are the things that will have to be cut. That is the spin-off; the unforeseen circumstances that follow; the coming consequences. When the housing associations have to make provision for 35% more arrears—which is what some of them are doing—there is less to spend within local communities. There is less money for the other things that they do in those communities. In the poorest areas, that is money lost.

The one hope for Ministers and for the occupiers of these properties is that we can get the discretionary housing payments, which will be an opportunity for local authorities. We could give local authorities—sensible people in local government—that discretion. It is not an ideal solution, because each case has to be treated on its own merits, and has to be constantly reviewed, but if a substantial sum of money were available to each council for discretionary housing payments, then we might be able to rescue a number of people who we are otherwise treating in a most miserable fashion.

I keep working out these sums. We hear of the extra sums that are available as discretionary housing payments, but when you work out how much money is available, and look at the size and magnitude of the problem, these figures do not add up. I will spare your Lordships my more detailed calculations. I was very pleased that the Minister was able to find some extra money for those cases where people’s property had been adapted, as the noble Lord, Lord McKenzie, said. In those cases, it would be a nonsense to move them out, as the adaptations would probably have to be destroyed and the other property adapted in the same way. That £30 million—£25 million for that adapted properties and £5 million for the foster parents, who have foster children in their home—is great stuff.

However, this is a tiny drop in the ocean; very small numbers of people compared with the 660,000 from whom we will need to draw, over a period of time, something like £550 million in savings on the back of the bedroom tax. Remember that that is part of the £2.2 billion total housing benefit savings. All of that money will come from tenants’ pockets, because we are not seeing rents suddenly going down dramatically. The tenants are those who have £2.2 billion to pay. These are very small sums—the loaves and fishes which we wish would miraculously multiply and feed the many thousands—and it does not look possible. I say to the Minister that the small illustrations that I am gathering are just the tiniest drop in the ocean compared with the very many letters that Members of Parliament will receive; all those e-mails that in the end will all come back to the Department for Work

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and Pensions, asking “What can we do about these circumstances, in which it is very foolish for the community at large, as well as for the residents, to carry on with what is a bedroom tax?”.

Lord Smith of Leigh: My Lords, I rise to support my noble friend’s amendments, and express my concern about the impact of this bedroom tax. Before I do so, I declare my interest as leader of Wigan council. I will provide some hard evidence from Wigan about the impact that this would have in Wigan. In terms of council properties in Wigan, some 4,708 properties will be subject to the potential for a bedroom tax: 3,600 of the one-bedroom and over, and just over a thousand of the two-bedroom. In the private sector a further 300 houses will be affected. The financial implications, if the bedroom tax was paid on council properties, would be £2.9 million—an average of between £9 and £29 a week, depending on the property, and a further £250,000 in the private sector.

In introducing the measure, the Minister raised two factors which he said supported this. First, it would help to reduce the cost of the housing benefit budget, and secondly, it would tackle overcrowding. He could have added a third, which he sometimes uses: encouraging return to work. I could not deny those objectives, which many of us would share, but we are saying that this tax will not achieve any of those objectives. Cost reduction will only occur, of course, if tenants do not move, and pay the costs. If they move—and the evidence is that some will do so—different things will happen. I can give the example of a current case in Wigan. A mother aged 51 shares a three-bedroom property with her 26 year-old son. If they choose to move into the private sector, as they have indicated they want to do, they will look for separate properties: the mother for a one-bedroomed flat, and the son probably for a bedsit. In Wigan, the average three-bedroomed council house rent is £74 a week; for a one-bedroomed private sector property it would be £89 a week; and for a bedsit probably a further £75. Rather than saving housing benefit, therefore, the Government would be paying £5,406 more for that particular family, if they choose.

The second issue is about overcrowding. In a letter to one of my local MPs, the Minister said,

“The Government only expect a minority of claimants affected would actually seek to move”.

If that is the case—if very few people move—then how will that help overcrowding? If they are still in the same place, then it will not help overcrowding. The message from my noble friend Lady Turner of Camden was very powerful. She explained the London housing market, but it is not like that in Wigan. The problem is that people will not move because of the lack of suitable properties to move into. An insufficient number of affordable houses has been built in this country by a succession of Governments. We are now beginning to pay the price for that. The current waiting list for a one-bedroom or two-bedroom property in Wigan is five years, so people cannot move into these properties even if they wanted to. We have no shortage of three-bedroom properties in Wigan. You can move into a three-bedroom property more or less straight away. Therefore, there is a geographical imbalance in housing markets and the flat rate bedroom tax will not work.

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According to the Department for Work and Pensions’ own figures, 42% of families in the north-west of England will be liable for the bedroom tax but only 22% in London and the south-east, so clearly the measure is having a bigger impact on the markets that do not need it.

The third issue is about seeking employment. There are at least four jobseekers for every vacancy in Wigan, and that probably understates the number of people looking for work, so the people we are discussing will be in a very crowded job market. The consequences of this measure are not what the Government think they will be; there will be unintended consequences. Noble Lords have mentioned the impact on rent arrears. I believe the Cambridge study claims that 42% of people may fall into rent arrears. In Wigan that would mean just under 2,000 families getting into arrears. Substantial arrears would lead to a commencement of the legal process. Whether we like it or not, there will be evictions, which cost around £6,000 each. These people will probably largely move out of the public sector into the private rented sector and the cost of housing benefit will rise.

Noble Lords have mentioned the impact that the measure would have on incomes. By definition, people who receive housing benefit are on low incomes. Therefore, if the bedroom tax is introduced on top of all the other things that are to be introduced, poverty will inevitably escalate. As I said when we discussed the Local Government Finance Bill, the likes of Wonga.com and all the other payday lenders will rub their hands at the thought of more and more clients coming their way, seeking to get themselves out of a crisis only to get into a much deeper one. As the right reverend Prelate the Bishop of Norwich indicated, we want families to stay together and fathers to take responsibility for their children, but this tax negates the Government’s claim to be a family-friendly Government.

I am not sure whether people in Wigan would take in lodgers but I certainly remember that when I joined the council some time ago one of the big issues we had to deal with was that of houses in multiple occupation, such as terraced properties that were taken over by a landlord who let every available space to different tenants. Those properties had inadequate kitchen and bathroom facilities and constituted fire and health hazards. They were terrible and the council largely got rid of them. However, I can see these types of properties appearing again in the current situation because people will not be able to afford anything better.

During debates on the Local Government Finance Bill we discussed the single person discount which reduces the amount of council tax payable by individuals living alone. Clearly, that constitutes underoccupation as regards most properties in Britain. It is somewhat ironic that we are keeping the single person discount as a council tax benefit but if you are renting a council house such underoccupation will result in you being charged the bedroom tax. This is an unsafe tax. As I say, I do not disagree with the Government’s objectives but I do not think that this tax will achieve them. I think we will find that it leads to an increase in housing benefit rather than a reduction and increases poverty in this country.

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8.15 pm

Lord German: My Lords, I apologise to your Lordships’ House for missing the first few minutes of this debate. I was involved in another debate in the Moses Room at the time and it was difficult to shift sufficiently speedily between that Room and the Chamber.

I can well understand why many noble Lords want to reprise our lengthy debates on the Welfare Reform Bill. I also understand why people still have major concerns in this area. I do not think that any noble Lord present would say that these changes will be easy to accommodate. Difficult decisions will have to be made. As we all know, the changes are intended to relieve some of the strain on the housing benefit budget. However, the only fair element is that the benefit we are discussing will be brought into line with the local housing allowance.

Some noble Lords share my concern about the future of housebuilding. As the noble Lord, Lord Smith of Leigh, said, the previous Government did not meet housing demand. I only hope that the present Government will be able to build extremely quickly the number of houses that are needed to cope with society’s demand for them. We await action as regards achieving the number of houses that are needed.

There are two major concerns about the way these regulations will be implemented. The first is the ability of the housing stock to adapt and provide accommodation of the size needed in each area in order to allow those who wish to move to a different sized property to do so. The second issue relates to the changes affecting specific groups of people. I would like to ask some questions in relation to both those issues. I preface my remarks with mention of behavioural change. I have heard it said frequently in your Lordships’ House and in Committee that people’s behaviour in this area is of the worst kind. However, people do not always behave in a way that leads to the worst outcome for them. Some people behave differently.

There are two key issues I would like to ask questions about. My first question to my noble friend is: what assessment has the Department for Work and Pensions made, given the contact it now has had with people who will be affected by this measure, about the likely outcomes and the directions people will take as a result of what is happening? There undoubtedly will be, of course, some people who will wish to move. The issue then is the ability of the housing stock to be adapted very swiftly. Can my noble friend tell us what discussions there have been with housing associations, local authorities and private landlords to see whether adaptations can be made for people to move, probably into smaller properties, where house building has moved onto larger properties? Where are we in readiness for the sort of behavioural changes? I hope my noble friend the Minister can tell us.

I also wanted to ask about the £30 million of DHP—the £25 million for adapted properties and the £5 million for foster carers. This was an issue we pursued at some length during the course of the passage of the Welfare Reform Act. This was a very welcome area but I would like to really understand the Government’s dynamic on adapted properties. Will £25 million be provided over a longer period and what

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assessment has been made of the need for that length of time? Will £25 million be sufficient to cope with what it is thought will be the behavioural arrangements for people who live in adapted property where it would make no sense whatever for them to be moved on?

The second area I would like to investigate is rurality and rural housing, mentioned by the right reverend Prelate the Bishop of Norwich. Having spent some considerable time as an elected Member trying to get more social housing into rural communities, I do not underestimate the difficulties there have been in building social housing in rural communities. It is very much more difficult if people want to move to have to move away from a rural community into a quite different environment altogether. What estimate has my noble friend the Minister made of the demand and the pressures there will be on rural housing? Has he taken into account the community shift that would have to take place given the shortage of accommodation in rural areas and often the very high price of private sector rented accommodation there?

I also want to examine the issue of redesignation of properties. This is also one of the approaches that some housing associations are looking at. For example is a bedroom really a study or is a partition wall not really a partition wall? Have there been any discussions with housing associations and social landlords about the role and about designation, and about who has the authority to redesignate housing in this area? There is undoubtedly some scope for action for here. There is no national register of what is a room size. It would very difficult and probably a bureaucratic nightmare to try to create such a reference document. However, is it possible to look at the way in which housing associations can define their property differently where the circumstances provide and who would have the authority to undertake the redesignation, which may take some of the pressure off the ability to find appropriate housing? I do not envy the job of the Government and my noble friend the Minister in undertaking this obviously difficult task and I would be grateful if he could give me some answers to those questions.

Lord Freud: My Lords, this has been a powerful debate and I will do my best to answer the questions. We dealt with an enormous number of questions in Grand Committee and so, rather than me going on for a very long time, I would like to suggest that I confine my responses to the new issues that I have not already dealt with and then leave my responses on the other matters that are on the record in Hansard.

The noble Lord, Lord McKenzie, referred to the NAO report and to 2 million households receiving lower benefits. That assumes that claimants will not adjust their behaviour by doing the things that we are hoping they will do, such as taking on work, moving to more affordable or more appropriate accommodation, and so on. We are beginning to see evidence from local housing associations that with the change from 50% to 30% people are changing their behaviour.

As regards the point about the pressure on the supply of affordable housing, the early signs from the LHA are that there is no discernable impact on the levels of homelessness, which have remained steady. The housing

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benefit claims from people renting in the private rented sector are increasing, which suggests that people are able to find affordable accommodation.

The noble Baroness, Lady Lister, referred to the NAO report and to its observations on the monitoring of discretionary housing payments. We are currently considering the recommendations in the report and will look at how feasible it is to monitor the way that DHPs are used.

I have dealt with the point raised by the noble Lords, Lord McKenzie and Lord Smith, about movements. There are movements of people from underoccupied homes, presumably to smaller homes, which will allow larger families, if they are being supported in the private sector, to have cheaper accommodation and gain from making that exchange.

As regards the issue of room sizes, raised by the noble Lords, Lord McKenzie and Lord Best, and whether there should be an adjustment for single bedrooms, we wanted to keep the system simple and did not want to introduce something that might require landlords to go around measuring rooms. Indeed, the stakeholders, including the National Housing Federation, have welcomed that. It is therefore up to landlords and tenants to decide between them whether a property is appropriate for their needs.

When it comes to designation of what exactly constitutes a property, it is up to landlords to take that decision. They are unlikely to do that on a wholesale basis, but there will be individual properties where it makes sense for landlords to redesignate them as not being appropriate. There may be an individual property for which it is straightforward to do that. To be honest, we are not expecting there to be a massive effect, but there may be some instances of that.

The noble Baroness, Lady Turner, asked about temporary changes of circumstances. There are housing benefit rules to protect households from either temporary absence, such as going into hospital or being on remand, or where the death of a member of the household would result in the reduction of housing benefit. For example, housing benefit provides up to 12 months’ protection from rent restrictions if there is a bereavement in the family.

The right reverend Prelate the Bishop of Norwich asked about non-resident children. Where the tenant has non-resident children, housing benefit may already be paying for a room for the child or children in the place where they usually reside. It would be double provision potentially to fund an additional room in both parents’ properties.

The issue of rural impact was raised by the right reverend Prelate and my noble friend Lord German. The use of the percentage reduction, rather than a flat rate, means that the impact, because it is proportionate, is likely to be lower because rents are likely to be less in rural areas. On the specific question asked by my noble friend Lord German on the approximate amounts, roughly 10% of the impact is likely to be seen in rural areas.

As to my noble friend’s question on what evidence we have received so far, the responses by local authorities and housing associations indicate that there is a lot of

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activity—whether you are talking about the West Midlands making best use of a stock partnership that brings together seven local authorities and 11 housing associations in finding people the right number of bedrooms, speed dating in the London Borough of Southwark, or the Stockport homes initiative to look for joint tenancies. Indeed, Wigan Council, the council of the noble Lord, Lord Smith of Leigh, and Wigan CAB have developed Wigan Housing Solutions, which acts as a social lettings agency and is a natural progression from the existing bond-guarantee scheme. It is a bridge between the private and social sectors, with Wigan Housing Solutions helping to relieve pressure on the housing waiting list. There is a lot of activity.

8.30 pm

My noble friend asked what we are doing about the housing shortage. That was probably his most important question. We are investing to provide more new homes for rent and to bring more empty homes into use, along with other measures substantially to increase housing supply. Our additional funding includes a £10 billion debt guarantee scheme to support delivery of new homes purpose built for private rent and for additional affordable housing. That is on top of the existing £4.5 billion investment in new affordable homes in the period to 2015, which will lever in an additional £15 billion of private finance. All this will help deliver up to 170,000 affordable homes by 2015 for rent and affordable home ownership. Already, 48,000 affordable homes have been completed in 2011-12.

We have put in place safeguards for the most vulnerable. As noble Lords have pointed out, we have added another £30 million to the discretionary housing payment fund. From 2013-14 that will make £90 million each year available to local authorities, and that is before including the extra we have added for the benefit cap changes. Of course, it will not cover every single shortfall and is not meant to, but we expect local authorities to think carefully about how they prioritise these payments and there is no reason to believe that they will not target help at the most vulnerable. There will be some difficult cases but it is too soon to know precisely how claimants might respond to these changes. However, claimants will not be left without access to advice and support to help them through these changes. I have already touched on some of the excellent examples of how landlords are responding to these changes. That is an activity that we want to encourage.

We will explore the effects of the size criteria changes through our research, including the effects on homelessness. Initial findings will be available in 2014, with the final report available in late 2015, and we will consider any findings very carefully. Our research will give us something tangible on which to base our future direction in continuing to tackle these long-standing housing problems. That is a responsible approach and one that is consistent with what we intend to achieve in terms of improving our supply of housing and the nation’s fiscal situation. As might be expected, we do not rely solely on research to tell us about the impacts from our reforms. The department monitors its policy changes in other ways, such as through feedback from stakeholders, local authorities, ministerial correspondence

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and contact from claimants, as well as through our own administrative sources. We will have a good idea of how these changes are bedding in.

We have debated at length the point made by the noble Lord, Lord McKenzie, that the measure is blunt and takes no account of whether alternative accommodation is available. Amending this measure so that it applied only where no alternative accommodation was available is simply not feasible. It would be very complex to make decisions about what constitutes alternative accommodation. In fact, it is not a blunt instrument. We have chosen an approach that gives claimants an opportunity to respond to the changing fiscal environment behaviourally. We are trying to find savings where it is possible for claimants to find different ways to meet a shortfall. That is why we have chosen to proceed with this measure.

There is nothing new in these regulations that we have not debated at length and several times. I have given a clear assurance about carrying out research on the effects of this change. That is something noble Lords asked for and something I have put in place. I hope noble Lords will understand my disappointment at this amendment being tabled, particularly when we seem to be going over old ground. I have done what I can to explain the Government’s position and I hope that I can urge the noble Lord not to press the amendment.

Lord McKenzie of Luton: My Lords, I start by thanking all noble Lords who spoke in the debate, particularly those who spoke in support of my amendment. I think that that was all noble Lords apart from—not surprisingly—the Minister, with perhaps a degree of equivocation from his noble friend on the LibDem Benches.

My noble friend Lady Turner spoke movingly about how the measures were unfair to vulnerable people—we heard about the London experience in particular—and about the impact of the right to buy scheme, about which we all too readily forget. The right reverend Prelate the Bishop of Norwich spoke about the changes that take place in family groups over time. He and a number of other noble Lords acknowledged that there is insufficient housing stock. He spoke in particular about the rural dimension and the cost to the social fabric of disrupting the current arrangements.

My noble friend Lady Lister, as ever, spoke movingly, in particular on the point that homes should not be treated as a marketplace; that is not how we should view things. The impact of social networks was a strong theme that she rightly continues to pursue.

My noble friend Lord Smith told us about his practical experience of how these things are playing out in the area for which he has responsibility; about the problems arising from the lack of suitable alternative accommodation; and about the impact on rent arrears. He also gave us some history about HMOs and the drive to get rid of them in the past.

The noble Lord, Lord Best, confirmed our view that this is about raising money, not tackling underoccupation. The noble Lord made the point that it is not the fault of occupiers that they have to pay higher rents; it is the fault of the market. He spoke in

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particular about the significance of all this to housing associations, which effectively will have to collect the tax, about what it means to their finances, and about how potentially it could restrict the role that they can play and have played in the big society.

The noble Lord, Lord Freud, talked about the NAO figures and said that they did not assume behavioural change. I accept that, but it is exactly the basis on which the Government have costed the savings that they hope to achieve. He said that homelessness appeared to be steady under the current statistics. The reality is that the big impact of the changes that are coming is just about to start. The underoccupation rule will come into effect in April, along with the benefit cap. These will be the big drivers of change and concern, driving people into debt and homelessness. That is yet to come—a point made by the noble Lord, Lord Best.

The Minister said that he was unhappy to see the amendment before us tonight. I certainly do not propose to press it, because it would not change anything. The points that noble Lords raised are already on the record, or will be as a result of this debate. I do not promise the noble Lord that he has seen the last of this. We feel very strongly that the contributions in the Chamber tonight focused predominantly on the problems that the legislation will create. We are getting closer to them as the regulations come towards implementation. I have no doubt that we will have to return to the matter again and again in the hope that we can persuade the Government to change course. The circumstances that will arise when the regulations come into effect will help the Government realise how draconian, unfair and unjust their provisions are. In the mean time, I beg leave to withdraw the amendment.

Amendment to the Motion withdrawn.

Motion agreed.

Financial Services Bill