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House of Lords

Tuesday, 20 November 2012.

2.30 pm

Prayers—read by the Lord Bishop of Bath and Wells.

First World War: Centenary


2.36 pm

Asked by Lord Clark of Windermere

To ask Her Majesty’s Government what plans they have to commemorate the centenary of the First World War.

Lord Wallace of Saltaire: My Lords, on 11 October this year the Prime Minister announced a series of measures to commemorate the centenary of the First World War. The Government’s preparations will include national commemorations for key events, including for the outbreak of the war on 4 August 2014. Key partners in this include the Imperial War Museum, the Commonwealth War Graves Commission and local groups and schools across the country.

Lord Clark of Windermere: I thank the Minister for that Answer and the Government for the way in which they are approaching this very delicate commemoration. As it is so delicate, is the Minister aware that it could be easily sidetracked? The Government seem to share the view of most of us that the aim of the commemoration in this country is to recognise the extraordinary bravery, courage, heroism and gallantry of the millions of conscripts and volunteers who came forward to do their patriotic duty before returning to civilian jobs. Will he therefore be vigilant that nobody seeks to sidetrack this commemoration into other purposes, such as glorifying militarism?

Lord Wallace of Saltaire: I entirely share the noble Lord’s concerns. The Prime Minister in his speech at the Imperial War Museum to launch this said that the important elements that the Government wanted to see in this process of commemoration, which will last about five years, are remembrance, youth and education. This huge series of events in our history and in the history of a large number of other countries included an awful lot of civilian and industrial issues. It transformed the role of women. The Bradford Industrial Museum will be among those leading a recollection of what happened in the transformation of the industrial base of that northern city. So we will be commemorating a great deal which is not simply about the Armed Forces.

Lord Howell of Guildford: What part will be played by the Commonwealth in this commemoration, since so many Commonwealth or imperial troops died in that war?

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Lord Wallace of Saltaire: My Lords, the Australians and Canadians are ahead of us in their plans. I have read the extensive Australian report on what they plan. The variation between different Commonwealth countries as to how much they want to be engaged is marked at the moment. For example, the South Africans want, among other things, to remember the South African Native Labour Corps and in particular the sinking of a ship in the English Channel carrying 800 members of the South African Native Labour Corps from which, sadly, no one was rescued. So there are a number of sensitivities, including about the Indian army, which we are well aware of and which we are already actively discussing with other Commonwealth countries.

Lord Dannatt: Will the Minister expand on the educative aspect of what he said, on the basis that mistakes were clearly made in the run-up to 1914, and that future generations must understand that the failures of diplomacy and politics at that time must be avoided in future?

Lord Wallace of Saltaire: My Lords, this is aimed at secondary schools. Of the £50 million allocated for the commemorations, £5 million has been targeted at secondary schools, with the intention that every secondary school in England will be supported in sending two students and one teacher to Commonwealth cemeteries on the continent associated with the local communities from which they are drawn. I should perhaps add that the advisory board which has now been set up for the commemoration of World War I is about to hold its first meeting in support of the Secretary of State for Culture, Media and Sport. It includes eight Members of the current House, including the noble Lord and me.

Baroness Bonham-Carter of Yarnbury: My Lords, can I make a suggestion rather than ask a question?

Noble Lords: No.

Baroness Bonham-Carter of Yarnbury: I suggest that we use this opportunity to commemorate the women who played such a vital role in the First World War, working in the fire service, the police service and factories.

Lord Wallace of Saltaire: That is absolutely part of what we intend to do. To illustrate what we are thinking of, the Commonwealth War Graves Commission has suggested that on 4 August commemorations might take place at two of its cemeteries. The first is Brookwood Cemetery in England where a number of nurses who served in France are buried, as are soldiers from most Commonwealth countries who died in England while suffering from their wounds. The second is Saint Symphorien Cemetery outside Mons, which was established as a German war cemetery where the Germans buried the first British soldier killed in the First World War and where the last British soldier killed in the First World War was buried just after the Armistice was signed.

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Lord Morgan: My Lords, should we not recognise—I think that the Minister wisely does—that the First World War was a very important chapter in our social and cultural as well as our military history? Should we not therefore focus on aspects such as the role of women, the centrality of trade unions in our life and the sensibilities of war poets, who were disgusted by that obscene episode? Should we not focus on that rather than, as I fear Remembrance Sunday is becoming, a celebration of militarism?

Lord Wallace of Saltaire: My Lords, this year I watched the Remembrance Sunday commemoration very closely from the Foreign Office and I did not think that it had become more militaristic. I was also struck and encouraged that a number of veterans from other countries were marching in the parade. That is also highly desirable. It is not entirely, therefore, a national or nationalistic occasion.

On the question of the wider social context, that is absolutely part of what we will do. In my area, the Saltaire History Club and the Bradford World War One Group—there is one—are already discussing how they will look at the impact on the mill in Saltaire, which turned over to producing khaki cloth and all the other dimensions. A large number of its workforce ended up being women.

Lord Cormack: My Lords, can we make 4 August 2014 a day of national reflection, with all the shops closed and with a proper opportunity for everyone to consider precisely what terrible things happened in a war on which, on the very last day, when the Armistice was signed, twice as many people were killed as have been killed in Afghanistan?

Lord Wallace of Saltaire: My Lords, 4 August is not the easiest day in the year to ask people to reflect solemnly on anything. One of the questions with which the Government are currently concerned is: which is the most appropriate day, and what to do? Perhaps I might also add that while the British wish to commemorate the beginning of the war, the Somme battle and the end of the war, many of our Commonwealth partners and allies will want to commemorate other dates: Vimy Ridge for the Canadians, Gallipoli for the Australians and New Zealanders. There is therefore quite a lot of delicate negotiation about how we manage all this. Finally, among the great expertise in this House, the noble Baroness, Lady Henig, has given me a copy of her volume, in Chinese, on the origins of the First World War, which I am very happy to lend anyone who would like to read it.

Employment: Science and Technology


2.45 pm

Asked by Lord Cotter

To ask Her Majesty’s Government what plans they have to encourage young people to pursue careers in the science and technology based industries, and in manufacturing.

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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Marland): My Lords, the Government have a range of activities aimed at encouraging young people into science and technology careers. This includes funding the Science Technology Engineering and Mathematics Ambassadors programme and the finals of the National Science and Engineering Competition at the Big Bang Fair. We also support the Careers Profession Alliance to improve training for careers professionals to ensure that young people have access to high-quality guidance.

Lord Cotter: I thank the Minister for that Answer. There is still a very big issue here when it comes to young people and careers advice and guidance. Does the Minister agree that we should have far more face-to-face help for young people? Many need encouraging to go into manufacturing and technology. Would he agree that this Government need to emphasise this face to face, rather than by looking at computers?

Lord Marland: I naturally agree with the noble Lord that face-to-face careers advice is very important. That is why we have started the careers advice programme and why we have these ambassadors throughout the country. However, we have to start at the very bottom. I am very grateful to my noble friend Lord Baker of Dorking, who started the university technical colleges, 50 of which are about to be rolled out in the next five years. It is an incredibly exciting new endeavour, focusing particularly on skills from the engineering and mechanical training point of view, which has not been done for many years.

Lord Wigley: My Lords, is it not ironic that at a time of such high unemployment, and we in Wales have the highest level of youth unemployment of any country in Britain, many of our manufacturing concerns have to look overseas to recruit people with science and technology capabilities, whereas so many of our own graduates and others with science skills are enticed away from industry into financial institutions in the City and elsewhere? What do the Government have in mind in order to try and ensure that there is adequate information available for young people and, indeed, that enough young people go into science and technology in order to meet the demands?

Lord Marland: The noble Lord makes a very good point. That is why we have commissioned the Perkins review to look at this, which will be reporting towards the end of this year. We will publish the review in December. We have a significant undersupply in this particular area, as the noble Lord has rightly said. I am looking forward to seeing the recommendations in the Perkins review, which we will take very seriously. However, we are doing a number of other things. We have See Inside Manufacturing, which allows schools to go into manufacturing. As I said earlier, we have the STEM ambassadors—for example, Rolls-Royce has 580 ambassadors going out and encouraging people to come into manufacturing, and British Aerospace has 500. The National Careers Service will help people under 18 through our Directgov website. This is a critical point, though, and I acknowledge it.

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Lord Baker of Dorking: I thank the Minister for mentioning the technical colleges. Is he aware that only a fortnight ago the Royal Academy of Engineering said that our country will be short of 100,000 qualified engineers by 2020 and a million technicians? The only educational institutions in our country that are seeking to fill this gap are the university technology colleges, which I am glad to say have all-party support. They are employer-led, university-supported colleges for 14 to 18 year-olds. Will he do everything he can to ensure that we have more than the 33 that have been approved and the 20 that are applying? We need several hundred of these.

Lord Marland: There is no doubt about it; the noble Lord is completely right. We are scratching at the surface. We will probably end up, with the current budget, with 30,000 people at the marvellous UTCs. It is a new project that the noble Lord is starting with great energy, if I may say so. It has full support from this House and, indeed, the Government.

Baroness Turner of Camden: Would it not be a good idea to revise the WISE campaign—women into science and engineering—with which the EOC had considerable success many years ago? If we could get the WISE campaign reorganised, it is quite possible that we would have some assistance from the TUC because it would certainly be interested in increasing the number of women interested in science and technology.

Lord Marland: The noble Baroness quite rightly says that there is an undersupply of women in engineering and, particularly, in manufacturing. I talk to my daughters and they all seem to want to go into fashion, which probably means that they have an alternative career. It is important that we get women into these areas, and there is no barrier to entry for women getting into them. We must encourage them, as we must in all areas.

Lord Avebury: My Lords, what consultations have the Government held with the engineering institutions on how to encourage more young people into engineering?

Lord Marland: Naturally, we have been talking with the Royal Academy of Engineering and the Royal Society on this issue. We are having a very keen dialogue with them.

Lord Young of Norwood Green: My Lords, we welcome the efforts of the university technical colleges, careers advisory and others, but what we really need for young people is more apprenticeships. That has to be the focus. I have looked at the figures in this area, and they are rising but slightly. There is one area where the Government could make a positive contribution, and that is in public procurement contracts. We still have a Government who will not insist that, every time a public procurement contract is let, those who get it have to indicate how many apprentices they will take on. Will the Minister explain why the Government will not move on this issue? After all, this would be a case of them leading by example.

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Lord Marland: We have inherited a scheme that carries that out. Obviously, we are going to look at it because this Government’s single aim is to get people back into manufacturing and work. Indeed, this morning we announced an increase in the employer ownership pilot grant to £150 million. We are encouraging businesses to upskill and invest in R&D. The Government have committed £150 million to it. There is a range of things that we are doing to improve the workforce and to diversify our country back from a financial service centre to a broader base, but that takes time; it does not happen overnight.

International Law: Use of Drones


2.53 pm

Asked by Baroness Falkner of Margravine

To ask Her Majesty’s Government what is their assessment of the legal and diplomatic implications of the use of drones across national boundaries.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi): My Lords, the British Government’s position is that the use of unmanned aerial vehicles against targets is a matter for the states involved. We expect all concerned to act in accordance with international law, including taking all feasible precautions to avoid civilian casualties when conducting military operations.

Baroness Falkner of Margravine: I thank my noble friend for that reply. She will be aware that international human rights law permits the intentional use of lethal force only when necessary to protect against a threat to life and where there are no other means, such as capture, available. Targeted killings are not lawful as the action has to be strictly necessary and proportionate. Given that the use of armed drones engages four major UN conventions as well as Article 51 of the UN charter, will she tell the House what measures the UK is taking to abide by international law and to encourage allies, such as the United States, to do the same?

Baroness Warsi:In all our discussions when these matters are raised, we expect all states concerned to act in accordance with international law and to take all feasible precautions to avoid civilian casualties. We understand that the UN special rapporteur for human rights and countering terrorism intends to give consideration to these issues of drone strikes in a future report to the UN General Assembly.

Lord Anderson of Swansea: The use of drones may be effective or ineffective, productive or counterproductive, but is there any difference in principle between the use of drones and the use in armed conflict of rockets or artillery across national frontiers?

Baroness Warsi: My Lords, I can comment only upon the actions of the United Kingdom and I assure the noble Lord that the Government are mindful of all their obligations under international law when they engage in military activity.

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Lord Hamilton of Epsom: My Lords, does my noble friend accept that if a drone can remain poised for some hours above a target, it is less likely to create collateral damage than almost any other form of shelling, or the missiles to which the noble Lord referred, or any other form of trying to kill people?

Baroness Warsi: My noble friend is probably more of an expert on these matters than I am. I cannot answer that question; I am not familiar enough with the practice of how drones would operate over lengthy periods.

The Lord Bishop of Bath and Wells: My Lords, in the light of the unknown number of civilian casualties as a result of drone attacks in Pakistan, when no armed conflict has been declared and the United States is not at war, does the Minister agree that such attacks are illegal under international humanitarian law and that there is now a need for an enhanced arms limitation treaty?

Baroness Warsi: The right reverend Prelate raises an important point. I can confirm to the House that the UK has not used armed drones against targets in Pakistan. It is a matter for individual states engaged in those practices to discuss those matters.

Lord Judd: Does the Minister not agree that there is great urgency in this situation? There is a real danger that we could slip into an age of political assassination, targeted killing and the condoning of extra-judicial murder. Is there not also a danger that, if this trend continues without careful international deliberation about its implications, we could slip into an age in which war becomes an easier management option as distinct from a really grave step to take after everything else has been tried?

Baroness Warsi: The noble Lord is right to raise the matter; this is an important issue and an important debate. In fact, it was on the front page of the Times today and has been on the front pages of many of our newspapers over time. He will be aware of parliamentary interest in both this House and the other place. In relation to the UK’s conduct, specifically in Pakistan, I can confirm that we do not use armed drones against targets there. We do use unmanned air systems—drones—in Afghanistan, predominantly for surveillance and recognisance tasks.

Lord Alderdice: My Lords, in addition to the method of technology described already, we now have the possibility of attacks not only by land, sea, air and space but in cyberspace. This is highly complex and had the Stuxnet attack on Iran taken place in any of the other four media, it would have been regarded as a declaration of war. It is no longer clear what a declaration of war amounts to when it is in cyberspace. Will my noble friend the Minister describe what work the Government are doing legally and diplomatically to clarify declarations of war in this new medium?

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Baroness Warsi: I am not sure what specific work is ongoing in relation to that, but I can write to the noble Lord to confirm. Of course this is a highly difficult issue; there are emotions and views on both sides of this argument. However, using unmanned air systems in Afghanistan provides vital intelligence for us in support of our forces on the ground.

Lord Triesman: My Lords, I wholly understand the Minister making the point that we have not used our armed drones in Pakistan or in many other settings. She plainly cannot be pressed for whether we believe it was legal or not because, on that basis, it is legal. Can she tell the House what will be the character of the evidence that we might give to the UN special rapporteur? Will it be made available to the House through the Library, so that we can get a full appreciation of the circumstances in which we use drones and make an assessment for ourselves?

Baroness Warsi: The noble Lord will be aware that there is an ongoing legal matter—a judicial review—in relation to some of the questions that he raises. In relation to the specific evidence and discussions that we will be having with the special rapporteur, I will certainly consider that and, if appropriate, report back to the House.

Banking: Offshore Accounts


2.59 pm

Asked by Baroness Williams of Crosby

To ask Her Majesty’s Government what estimate HM Revenue and Customs has made of the value of offshore accounts held by British citizens in the Channel Islands; and what steps are being taken to investigate them.

Lord Newby: My Lords, HMRC estimates that UK citizens hold approximately £19 billion in bank deposits situated in Jersey, Guernsey and the Isle of Man together. The UK has double-taxation agreements with Jersey and Guernsey, and uses these in support of its work in investigating tax evasion. HMRC will also be using the more recent tax information exchange agreements in a similar way. Through the establishment of a specialist offshore co-ordination unit, HMRC continues to enhance its capacity in combating all offshore tax evasion.

Baroness Williams of Crosby: My Lords, my noble friend will know that Jersey is one of the most secretive tax havens in the world. In a tax haven, neither corporate profits nor other profits of a corporate nature are taxed, nor are capital gains. Will he say whether there is any way in which those large, wealthy corporations which make their profits out of the UK consumer in this country can be persuaded or cajoled by HMRC into paying the taxes that they should? Secondly, can any steps be taken to prevent illegal profits—I am referring to those from, for example,

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fraud and theft, including Mr Paulo Maluf of Brazil—from being placed in secret accounts in a way that enables such people to escape international justice altogether?

Lord Newby: My Lords, I do not think that I will be able to help the noble Baroness in the case of Mr Maluf, who is a Brazilian citizen. We are not in a position to comment on his case. In respect of international corporations, the key thing is the extent to which we can extend international co-operation in that respect, which is why the recent announcement of the UK Chancellor and the German Finance Minister, following a G20 Finance Ministers’ meeting in Mexico, was very important. We are now looking at concerted international co-operation to strengthen international tax standards. However, at the moment, it may mean that international companies can pay less tax than they would otherwise owe. We are trying to catch up with new forms of commerce and to make sure that tax is paid in proportion to where people are undertaking their business.

Lord Barnett: My Lords, I declare a past interest as a senior partner in an accountancy practice. Does the Minister recall that the advice best given is the thickness of a prison wall between tax avoidance and tax evasion? We all welcome everything that the Government are doing to try to deal with the evasion side. However, does the Minister accept that there is a serious problem on the avoidance side in that there is a danger that an accountant could be held in abuse of his work and could be sued for negligence if he does not give advice on the best form of tax avoidance?

Lord Newby: My Lords, when it comes to tax avoidance, it is important that we begin to tilt the balance towards what is considered acceptable behaviour. That is one of the reasons why we will be introducing in next year’s Budget, or Finance Bill, a general anti-abuse rule. Those, including accountants, who undertake tax schemes, the principle purpose of which is to avoid tax, will find themselves subject to the rigour of that rule.

Lord Soley: The noble Lord mentioned talks with Germany. Is he able to tell us how many companies of European origin, or individuals of European origin, are also involved in the Channel Islands as, if you like, tax exiles? Bearing in mind the disgraceful evidence we saw in the House of Commons the other week from Google, Amazon and Starbucks, should this be addressed at a European level? If that is happening—one of the countries involved was Holland and I would guess that the Channel Islands are probably involved as well—we really should address this issue at a European level because what has been happening is absolutely unacceptable.

Lord Newby: I obviously agree with the noble Lord’s latter statement. Many recent examples clearly are unacceptable, which is why we have taken a great interest in, and are looking forward to hearing more about, the initiative that the EU Commission

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has taken this week in terms of reformulating what constitutes a tax haven. He is right that we can do a certain amount ourselves but we are going to deal with this international issue only through international co-operation.

Lord Forsyth of Drumlean: My Lords, will my noble friend clarify the position, as I genuinely do not know the answer to the question? Are we able to deal with companies such as Google and Starbucks and others which are not paying the tax that they should pay in this country or are we constrained by European law from being prevented from doing so?

Lord Newby: I can reassure the noble Lord that we are being constrained not by European Law but by international accounting standards. There is no suggestion that Starbucks and the other companies are breaking the law but the accounting standards allow them to manipulate the point at which they take a tax charge on revenues that they raise.

Lord Hamilton of Epsom: My Lords, would it be possible to stop Google paying the minimal amount of tax as it is an international global company in whatever part of the world where the tax is the lowest?

Lord Newby: This is why we need increased international co-operation and why the G20 initiative is so important. Obviously if people can just shift off all their revenues to a low tax jurisdiction, some companies are going to do so. We are working very hard with our international partners on this because we have a common interest in making sure that these companies pay a fair share of tax.

Lord Tunnicliffe: My Lords, the Minister mentioned £19 billion that is tied up in Jersey related to UK citizens—a very precise figure. Does this mean that there is sufficient transparency, and that we have a sufficient viewing, of what is happening in Jersey? Do we have sufficient HMRC resources addressing that? And if the answer to both of those is yes, does he have a feel for the amount of money that the UK Exchequer could expect out of these people if we were better able to get hold of that money through agreement?

Lord Newby: My Lords, in terms of resources, the Government have committed an extra £917 million over the current period to combat tax avoidance and evasion. That money is now being redirected with HMRC. It has led already to several convictions involving overseas tax evasion. The fact that £19 billion of funds is held by UK citizens in Jersey does not mean that £19 billion is improperly held in Jersey. A very large proportion of that money is there perfectly properly. We have to understand that simply because you have a bank account in Jersey does not of itself mean that you are a crook.

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Enterprise and Regulatory Reform Bill

Order of Consideration Motion

3.07 pm

Moved by Lord Marland

That it be an instruction to the Grand Committee to which the Enterprise and Regulatory Reform Bill has been committed that they consider the Bill in the following order:

Clauses 1 to 7, Schedule 1, Clause 8, Schedule 2, Clauses 9 to 14, Schedule 3, Clauses 15 to 20, Schedule 4, Clause 21, Schedules 5 and 6, Clauses 22 to 24, Schedule 7, Clauses 25 and 26, Schedule 8, Clauses 27 and 28, Schedule 9, Clause 29, Schedule 10, Clause 30, Schedule 11, Clauses 31 and 32, Schedule 12, Clauses 33 to 35, Schedule 13, Clauses 36 to 45, Schedule 14, Clauses 46 to 49, Schedule 15, Clauses 50 to 52, Schedule 16, Clauses 53 to 55, Schedule 17, Clauses 56 to 63, Schedules 18 and 19, Clause 64, Schedule 20, Clauses 65 to 68, Schedule 21, Clauses 69 to 80.

Motion agreed.

Crime and Courts Bill [HL]

Order of Consideration Motion

3.07 pm

Moved by Lord Taylor of Holbeach

That the amendments for the Report stage be marshalled and considered in the following order:

Clause 1, Schedule 1, Clauses 2 to 4, Schedule 2, Clause 5, Schedule 3, Clauses 6 to 8, Schedule 4, Clause 9, Schedule 5, Clauses 10 and 11, Schedule 6, Clause 12, Schedule 7, Clauses 13 to 15, Schedule 8, Clauses 16 and 17, Schedules 9 to 11, Clause 18, Schedule 12, Clause 19, Schedule 13, Clauses 20 to 24, Schedule 16, Clause 25, Schedule 17, Clauses 26 to 28, Schedule 14, Clause 29, Schedule 15, Clause 30, Schedule 18, Clauses 31 to 33.

Motion agreed.

Caravan Sites Bill [HL]

Order of Commitment Discharged

3.07 pm

Moved by Lord Avebury

That the order of commitment be discharged.

Lord Avebury: My Lords, I understand that no amendments have been set down on this Bill and that no noble Lords have indicated that they wish to move a manuscript amendment or to speak in Committee. Unless therefore any noble Lord objects, I beg to move that the order of commitment be discharged.

Motion agreed.

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Middle East: Gaza and Syria


3.09 pm

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi): My Lords, with the leave of the House, I will repeat a Statement made by my right honourable friend the Foreign Secretary earlier in the other place. The Statement is as follows:

“Mr Speaker, with permission, I will make a Statement on Gaza, the Middle East peace process and Syria.

The whole House will be united in concern both at the intolerable situation for the residents of southern Israel, and at the grave loss of life and humanitarian suffering in Gaza, including the particular impact on children.

On 14 November, the Israeli Defence Forces began air strikes against the Gaza Strip in response to a sharp increase in rocket fire. Hamas and other militant groups responded with rocket fire, although these attacks have been reduced in the past two days. As of today, three Israeli citizens have been killed, including one woman and one child, and at least 109 Palestinians have been killed, including 11 women and 26 children.

Although we have made it clear that Hamas bears principal responsibility for the start of the current crisis, we are also clear that all sides have responsibilities. We quickly called on Israel to seek every opportunity to de-escalate its military response and to observe international humanitarian law and avoid civilian casualties. At the meeting I attended in Brussels yesterday, EU Foreign Ministers condemned the rocket attacks on Israel and called for an urgent de-escalation and cessation of hostilities. We have also warned that a ground invasion of Gaza could lengthen the conflict, sharply increase civilian casualties, and erode international support for Israel’s position.

We wish to see an agreed ceasefire that stops the rocket attacks against Israel and ends Israeli military operations. Efforts to agree a ceasefire are continuing as I speak, and the United Nations Security Council will continue discussions on the situation today. More open access in and out of Gaza is part of any longer term solution. We pay tribute to the efforts of the Egyptian Government and the United Nations Secretary-General to secure an agreed ceasefire, and have supported these efforts over the past few days. I discussed these with my European colleagues yesterday, and with the Egyptian, Israeli and Turkish Foreign Ministers over the weekend, as my right honourable friend the Prime Minister did with Prime Minister Netanyahu and President Morsi. My honourable friend the Member for North East Bedfordshire, the Under-Secretary of State, is in Ramallah today, where he will meet President Abbas, after visiting southern Israel yesterday.

There is no military solution to the crisis in Gaza or to the Israeli-Palestinian conflict. Peace becomes harder to achieve with each military confrontation, each loss of life, and the creation of facts on the ground. The only way to give the Palestinian people the state that they need and deserve and the Israeli people the security and peace they are entitled to, is through a negotiated two-state solution, and time for this is now

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running out. This requires Israelis and Palestinians to return to negotiations, Israel to stop illegal settlement building, Palestinian factions to reconcile with each other and the international community, led by the United States and supported by European nations, to make a huge effort to push the peace process forward as a matter of urgency.

While there is any chance of achieving a return to talks in the coming months, we continue to advise President Abbas against attempts to win Palestinian observer state status at the United Nations through a vote in the UN General Assembly. We judge that this would make it harder to secure a return to negotiations and could have very serious consequences for the Palestinian authorities.

Our collective goal must be a two-state solution based on 1967 borders with agreed land swaps, Jerusalem as the capital of both states, and a just settlement for refugees. So while we support Palestinian aspirations and understand the pressures on President Abbas, we urge him to lead the Palestinians into negotiations and not to risk paralysing the process. But we also urge Israel, equally, to make every effort to restart negotiations before the window for a two-state solution closes altogether.

The urgency is underlined by the conflict in Syria. The whole House will join me in condemning the barbaric violence by the Assad regime, which continues its aerial warfare against Aleppo, Homs and Damascus itself. Thirty thousand people have died already, and more than 100 are still being killed each day. Countless homes, clinics, hospitals and essential infrastructure such as water and sanitation systems have been destroyed or severely damaged. Between 1 million and 3 million people have been displaced from their homes. There are appalling reports of rape and sexual violence by government forces and militia, and as a form of torture in regime detention centres, which the United Nations Human Rights Council-mandated Commission of Inquiry has said could be prosecuted as crimes against humanity. There are now well over 400,000 refugees in neighbouring countries. The impact on young Syrians is particularly acute, since 50% of all Syrian internally displaced people and refugees are children.

We are increasing our humanitarian assistance as the crisis grows and winter approaches, and our appeals to other members of the international community to give far more to UN relief efforts. Our £53.5 million in humanitarian assistance so far includes £9.7 million to the World Food Programme to feed 80,000 people inside Syria each month; £4 million to the UN Refugee Agency to provide shelter and other basic relief items; and £9.7 million to other relief agencies for medical services and supplies, food parcels, water and sanitation services, distribution of blankets, and hygiene kits. In neighbouring countries, we have given £10 million to the UN Refugee Agency to provide shelter, protection, registration, and water and sanitation services to refugees; £5 million to the World Food Programme to feed 20,000 refugees; and £6 million to UNICEF to provide education and trauma support for children, and water and sanitation services for refugees. In Cairo last week, I called on other countries to increase their contribution to the relief effort, which the UN has described recently as “critically underfunded”.

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However, what is urgently needed is a political transition to a new and legitimate leadership that reflects the will of the Syrian people and that can end the violence and begin to rebuild the country with regional and international support. On 11 November there was a major breakthrough in Doha, with the establishment of the National Coalition of Syrian Revolutionary and Opposition Forces, which has been welcomed by many Syrians.

Last Friday, I met the president and two of the vice-presidents of the national council on their first visit to Europe. I sought assurances from them in three areas. First, I urged them to commit themselves to developing their political structures, widening their support among all sections of Syrian society, and agreeing a detailed political transition plan for Syria. Secondly, I encouraged them to use the next Friends of Syria meeting, which we hope will be held in Morocco next month, to set out a plan for Syria’s future in detail. Thirdly, I urged them to show a clear commitment to human rights and international humanitarian law, including the protection of all religious communities and unfettered and safe access for humanitarian agencies.

In response, the national coalition’s leaders stressed their determination to build on the Doha agreement and to leave the door open to other opposition groups to join them. They spoke of their intention to win the trust of Syrians from all communities, to be a moderate political force committed to democracy, and not to repeat the abuses of the Assad regime. They told me that their priority was protecting the civilian population against attack and focusing on achieving a political transition. It would be for the people of Syria, they told me, to approve a future government. These are important and encouraging statements by the national coalition. It has much to do to win the support of the Syrian people and co-ordinate opposition efforts more effectively, but it is strongly in the interests of Syria, of the wider region and of the United Kingdom that we support it and deny space to extremist groups.

On the basis of the assurances I received and my consultation with European partners yesterday, Her Majesty’s Government have decided to recognise the National Coalition of Syrian Revolutionary and Opposition Forces as the sole legitimate representative of the Syrian people. As the president of the national coalition said to me on Friday, recognition imposes responsibilities on the coalition, and we will continue to press it to uphold its commitments.

I can also announce a significant increase in practical support for the Syrian opposition by the United Kingdom. First, we will invite the coalition to appoint a political representative to the UK, and we will offer support to it as it sets up its political and humanitarian structures. Secondly, we will provide a £1 million package of communications support, which could, for instance, include mobile internet hubs and satellite phones to improve the coalition’s ability to communicate inside Syria. Thirdly, we will urgently deploy a stabilisation response team to the region to work with the coalition to develop its plan to meet people’s basic needs in opposition-held areas. The team will draw up recommendations for areas for further UK assistance.

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Fourthly, and separately, my right honourable friend the Secretary of State for International Development is looking at increasing our assistance to Syrians affected by the conflict. This could include increasing our humanitarian medical assistance for wounded Syrian civilians who need access to treatment by providing UK funding for hospitals and mobile clinics, and training for health workers. We intend to launch new work to build on our existing work to support victims of sexual violence in Syria.

This new package of UK support amounts to around £2 million of immediate commitments, and we will look to expand this considerably in the coming months. This comes on top of the training that we have already provided for citizen journalists, human rights advocates, doctors and Syrian activists, and the generators, communications equipment and water purification kits for unarmed opposition groups and civil society organisations that I announced during the summer.

Alongside that increased political and practical support, we are pressing the EU to increase its support to civil society in Syria, and I raised this at the Foreign Affairs Council yesterday. We will continue to increase the pressure on Assad and those who support him through EU sanctions, including seeking accountability through the United Nations commission of inquiry process.

We also expect there to be discussions in NATO in the coming days about supporting the security of Turkey, and we will continue to work with all of Syria’s neighbours to help them mitigate the effects of the crisis. We will step up our support for political transition and our planning for the day after Assad.

Finally, we will continue to support the work of the UN and Arab League envoy Lakhdar Brahimi, and renew our efforts to persuade Russia and China to work with us at the United Nations Security Council. I will take every opportunity to urge my Russian and Chinese colleagues to support a political and diplomatic solution to the conflict in Syria. Without such a solution, everything that they and we most fear is coming closer, including ever greater loss of life, instability in neighbouring countries and an opportunity for extremists to pursue their own ends.

The basis for such a political settlement is clear. A credible alternative to the Assad regime is emerging that has the growing support of the Arab League, the European Union, the United States and an increasing number of other countries, and we have an agreed basis for a transition in the form of the Geneva communiqué, which all permanent members of the United Nations Security Council signed up to in June. In the absence of that political and diplomatic solution, we will not rule out any option in accordance with international law that might save innocent lives in Syria and prevent the destabilisation of a region that remains critical to the security of the United Kingdom and the peace of the whole world”.

My Lords, that concludes the Statement.

3.22 pm

Lord Triesman: My Lords, I thank the noble Minister for repeating the Statement made in another place. It is right that the Statement should include in its title the

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“Middle East peace process” and bridge a number of issues, although I wish later in my remarks to comment on whether there is such a process. However, allow me to start with Gaza.

This outbreak of hostilities is a tragedy for the entire region. If ever there were a day for calm minds, calm reflection and a self-denying ordnance on our part about blame focused on any one side, that is surely today. Today’s task is the achievement of a durable ceasefire and to thank and encourage the Egyptians for their efforts in arriving at that conclusion. All of us will feel the deepest dismay and abhor the acts of violence that are causing a loss of lives on a great scale, and we have witnessed this mounting calamity day by day. Since Operation Pillar of Defense began last Wednesday, as the Minister has reported to us, more than 100 Palestinians and three Israelis have died, mostly civilians.

It was in response to rocket attacks from Gaza that Israel launched its military response four years ago. The express goal of destroying the apparatus of terror, as they said at the time, left 13 Israelis and 1,400 or more Palestinians dead. Yet, despite that, over 1,000 rockets have been launched in the past year and, as we know, some of them can now reach Tel Aviv and the outskirts of Jerusalem. The certainty of a greater loss of life in any ground assault should make the objective of the international community and the United Kingdom the immediate cessation of violence and the urgent negotiation of a durable ceasefire.

We support the call by the United Kingdom Government for no extension of the conflict through a ground offensive. We welcome the decision of the Israeli Government not to launch such an offensive at this stage but we also urge that diplomacy is given a chance under Egyptian and United Nations stewardship, and urge all parties not to insist on any artificial deadlines. Experience shows that heightened tension, rather than a desire that propels people towards peace, tends to follow an artificial deadline when a viable negotiation is in play. The rocket attacks on southern Israel are wholly unacceptable. No Government, least of all the Government of this country, would tolerate the targeting of its citizens. The failure over many decades to achieve a two-state solution continues to lie at the heart of the problem.

I join the Minister and her noble friend the Foreign Secretary in saying that this cannot be resolved by military means—it requires a political solution. Do the Government have a view on the steps that they should take to advance the negotiations should a ceasefire be achieved—the ceasefire for which we all earnestly hope? What assistance will the Government give to the quartet and its envoy Mr Blair, who are plainly working hard in the region? Does the Minister agree that steps are imperative to assist the Palestinian Authority if it is to play any truly significant role? Would she agree that leaving Hamas in the key role without the full engagement of the Palestinian Authority would be an ill judged step in this circumstance?

Without a cessation of violence, the concept of the peace process is doomed, and a ceasefire is not the only urgent issue. Those who have seen civilians—men, women and many tiny and terrified kids—in the overstretched hospitals of Gaza will know that the

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hospitals already lacked many of the basic resources that they needed to treat their patients and they now face even greater burdens. What steps can Her Majesty’s Government take to ensure that medical and humanitarian personnel and the material resources that they require have unrestricted access to Gaza?

The inward flow of those resources is as vital as stopping the inward flow of arms, especially of Iranian rockets, a longstanding objective of the quartet. What discussions are we having with the Egyptians to intercept the rockets that detonated this current crisis? My right honourable friend Douglas Alexander in another place rightly said today of the peace process that there is no peace and there is no process. Mr Hague’s Statement sounds, if anything, a touch optimistic, despite the seriousness and the gravity which he has injected into it. I worry about the realism with which he talks of a peace process involving President Abbas when it is clear that President Abbas’s position is being weakened by the day.

We have called for a full United Nations diplomatic initiative and we welcome the engagement of Ban Ki-Moon in that. As a permanent member of the Security Council, what are the Government’s priorities in discussions with the United Nations? Does the Minister agree that outbursts of military action have never produced a lasting peace, whoever started the action, including those firing the rockets? Does the Minister agree that a key barrier to peace negotiations is the expansion of illegal settlements that undermine the prospects of a contiguous Palestinian state and set back almost any realistic prospects?

The Opposition believe that an enhanced status for the Palestinians should be discussed at the United Nations’ General Assembly and should be supported by the United Kingdom as an aid to negotiations. In the absence of peace negotiations, and because the process is paralysed, an initiative is urgent. It is hard to believe that the two-state proposition can survive the current impasse for very long. We believe that the Foreign Secretary does not have the balance right when considering the status of the Palestinians. What will our stance be on this issue at the General Assembly?

I turn to Syria, briefly but not with any implication that it is secondary. On the contrary, I have had the opportunity at this Dispatch Box to say how seriously I believe we should all take the crisis in Syria. I have said in your Lordships’ House that this murderous regime, venting unspeakable violence and terror on its citizens, is an affront to the entire civilised world, and all parties in the Security Council should long since have recognised that fact. It is clear that the different communities in Syria are ever more estranged and hostile to one another, and that the prospects of an agreed solution are becoming ever more remote. The likelihood of events intruding into other countries in what is already a febrile region becomes ever more likely and, for those reasons, continuously more dangerous to us all.

In our judgment, the Security Council has failed the United Nations and, perhaps even more significantly, it has failed the people of Syria. Some members have argued that all that this does is reflect the divisions in the Syrian opposition. However, we are now in new terrain that in my judgment the Russians cannot ignore.

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On 11 November in Doha, agreement was reached on the first vital steps to establish a new Syrian national coalition. These are early steps but they are very encouraging steps; I share that view with the Minister. The Labour Party has called on the Government to recognise the coalition, and for those reasons we strongly welcome today the announcement that they do so. That is a great encouragement.

If this coalition is to be a unifying force, what will Her Majesty’s Government do to ensure that it is well resourced with peaceful materiel? Will the Government say today that they will sustain the European arms embargo in order to make clear the distinction between peaceful materiel and non-peaceful materiel? I say, with genuine respect, that the £1 million worth of communications equipment is unlikely to do the job of sustaining the initiative; it is not the significant amount that is needed to do so.

Among the peaceful needs lies the need for humanitarian aid, as the noble Baroness has said in repeating the Statement. What proposals do the Government have to increase substantially the flow of that aid, which is now so desperately needed? What steps will the United Kingdom take in New York to encourage the Russians to shift from a candidly disastrous position? Even now, perhaps especially now, Russia could add its weight to diplomacy rather than to protecting Assad’s repression. What role do the Government believe NATO can play in this current crisis? It is quite right to emphasise Turkey’s security and, as a member of the alliance, Turkey will no doubt be focused on that. What are we adding to the argument?

I look forward to hearing from all sides of the House the same degree of concern about Syria that is often reserved for others in the region. It is a porous region with porous borders and levels of aggression that are, on occasion, enormous, not least as a result of the Syrian dictatorship, which poses massive risks to us. The detonator in this region could go off anywhere. Syria is a loose cannon. It is essential for us to deal with that fact as with any other if we are to see an overarching peace in the Middle East.

3.35 pm

Baroness Warsi: My Lords, first, I apologise on a personal level. Unfortunately I suffer from migraines which, among other things, impair my speech. I apologise in advance if I do not sound completely coherent today.

The noble Lord makes some very important points and there are very few with which I would disagree. He says that my right honourable friend the Foreign Secretary and I are optimistic about what can be achieved in relation to the current crisis; I would argue that we have no option. For too long the international community has failed in relation to the Middle East peace process and our overriding objective now is to ensure that we secure an agreed ceasefire on both sides and, in the mean time, to avoid civilian casualties. We must also call for both sides to abide by international and humanitarian law while the crisis continues.

I can assure noble Lords that, almost on an hour-by-hour basis, we are engaged with discussions about the region. The Prime Minister has spoken with the

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Prime Minister of Israel and with President Morsi of Egypt, which is playing an important and constructive role in this matter. My right honourable friend the Foreign Secretary is in touch with his opposite interlocutors and the Parliamentary Under-Secretary of State, the Minister responsible for the Middle East, is in the region. We engaged with our EU colleagues at the Foreign Affairs Committee yesterday and all efforts are being made to try to achieve a ceasefire. There is some hope but we cannot say what the outcome of those ongoing discussions will be; we are however hopeful and optimistic at this stage.

We have also made it absolutely clear that an escalation of this matter, a ground invasion, is not the way forward. Huge international condemnation would follow. The noble Lord is right, however, when he asks where the peace process will be taken thereafter. Let me assure him that no decision has been made about how the United Kingdom would vote at the General Assembly. We recognise the pressure that President Abbas is under but we are trying to encourage him and all sides to continue to give a negotiated peace agreement another opportunity. We are running out of time; many Ministers have stood at this Dispatch Box and said that this is a vital moment. Let me say, this is a vital moment. I think we have a year, the next year, to make real progress on this matter. It is why we are stressing to our colleagues in the United States that they must take a leading role in this and why we are making all efforts to ensure this matter is raised in their minds.

On Syria, it was right for us to increase our support to the opposition as it became more coherent. Noble Lords would accept, I think, that our support has been on a stepped basis as we have engaged and encouraged the various factions within the opposition to come together. We now have some specific assurances and it is upon those assurances that we can give the more specific support.

Embargo and licensing of arms is an ongoing matter. We will keep under constant review what we can and cannot give and sell to nations around the world. Resourcing has to be there and I hope the noble Lord will accept from what I said in my opening statement that this is the case. We have ensured that we are playing our part but we are encouraging the wider community to play its part also. It is important, for financial and political reasons, that there is broad-based resourcing and we are encouraging other nations to play their part.

My right honourable friend the Prime Minister made clear his views on how the United Nations Security Council had failed Syria. I do not think he could have been any clearer in the words that he used at his address to the General Assembly. We are using all opportunities during discussions with Russia and China; indeed my own discussions with the Russian ambassador were very much focused on movement that we hope they can accept over time.

3.40 pm

Baroness Ramsay of Cartvale: My Lords, does the Minister agree that Israel has the right to defend its citizens from rocket attacks from Gaza and to try to

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destroy Hamas’s arsenals? Does she further agree that the international community must now focus on de-escalation and finding a sustainable ceasefire—with emphasis on “sustainable”—because a temporary ceasefire will do no one much good; on finding a political solution to the present Gaza crisis; and on reviving the Middle East peace process, which has been allowed to go dormant but is not dead? Does the Minister agree that the peace process is still the best show in town and the only hope for achieving a two-state solution, which is surely the answer to a lot of the problems?

Baroness Warsi: The reality check for the region is in the matter raised by the noble Baroness—that is, that the window of opportunity for a two-state solution is quickly closing. We are stressing that in our discussions with both Israel and the Palestinian Authority. It is in their interests, as it is in ours, for there to be a negotiated solution. We are also stressing that in our discussions with the United States. That is why we think that, at this stage, it would be better to encourage the Palestinian authorities to move down the path of a settled solution as opposed to a vote. We have also made it clear that we have not made a decision in relation to that vote, and whatever decisions are taken are not permanent decisions.

Baroness Falkner of Margravine: My Lords, I am slightly surprised at the tone of the Statement. It seems to imply that the United Kingdom Government have ruled out support for a UN vote and yet, on the same hand, the noble Baroness said that she thinks there is only about a year left in the peace process. Does that mean that if the Palestinians come to us at the end of a year and ask for our support, we will give them a positive assurance that we will support them? Hoping against hope for talks to result in a peace process may well be overoptimistic. On Syria, we heard on 15 November that the Security Council was looking at options and I notice that a stabilising response team is now going to be deployed to the region. Can the noble Baroness assure the House that if further materiel is given to the Syrian coalition forces, all safeguards will be put in place to ensure that it does not get into the wrong hands?

Baroness Warsi: My Lords, yes, I can absolutely give my noble friend an assurance on the second part of her question: these matters are being looked at extremely carefully. That is why we have a stepped approach in relation to support. I can assure my noble friend that these are ongoing discussions. The immediate crisis is at the forefront of our minds and it must be dealt with now. I can assure her that the decision on the United Nations General Assembly vote has not been taken. We are using our relationships and all efforts to make sure that the ultimate aim of a negotiated two-state solution is achieved, and we keep reminding people of the best way of achieving that.

Lord Hannay of Chiswick: My Lords, I thank the Minister for her repeated assurances that no decision has been taken about the vote in the General Assembly on the status of Palestine. However, does she not recognise that the way in which the Statement was cast

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was highly negative in that effect and that the reference to the possibility that a voting of a resolution might paralyse the peace process is, frankly, a travesty? The peace process is paralysed by the position of the Prime Minister of Israel, who has been refusing to enter negotiations with President Abbas for a very long time. The idea that some action of the United Nations—which would, in any case, not involve recognising Palestine as a member of the United Nations but would be an intermediate status—could not possibly be said therefore to paralyse something that is already paralysed. Does she not further recognise that the consequences of Britain’s negative vote in those circumstances could be quite serious and would be very damaging to the position of President Abbas, who is already in great enough difficulties as it is?

Baroness Warsi: That is exactly why it is important for these Statements to be repeated in this House. It is important that the views of this House are taken on board. I and officials who are listening will make sure that this is taken back. We make it very clear in all our discussions with Israel that time is running out for a negotiated two-state solution. We have made it clear that of course they have to make progress in relation to the building of illegal settlements and in getting back to the negotiating table. As I said in the Statement, we use the same approach in relation to President Abbas. We encourage him to take the necessary steps to ensure that this matter is resolved through negotiation.

Lord Judd: My Lords, the missiles into Israel are wrong and they are totally counterproductive. That cannot be said too strongly. But the settlements, with all their security arrangements, roadblocks and the rest, are wrong and totally counterproductive in the irritation and humiliation that they cause every day to ordinary Palestinian people. So, also, was the prolonged blockade that was undermining the whole economic, educational and health infrastructure of Gaza.

Both sides have been strengthening the intransigent and extremist arguments on either side. As friends of both, we cannot overemphasise the counterproductivity too strongly. But will the Minister agree that any lasting peace has to belong to the people of the region and cannot be imposed? In that sense, talks must be as inclusive as possible. If they are not inclusive—as we learnt in Northern Ireland, it is a matter of talking to people with whom it is not very comfortable to talk—the danger again is that one is strengthening the extremists and the militants.

Baroness Warsi: The noble Lord raises some important points. I think he would agree that success in the challenge of getting to the negotiating table those who do not even accept the basic principles laid out by the Quartet is probably much further away. But the challenge we have at the moment is that we are finding it difficult to engage those who do abide by the Quartet principles. Therefore, what is needed more than ever is political will on the part of those who, as the noble Lord says, consider themselves to be friends of both the Palestinians and the Israelis. That political opportunity is now: the United States has had its elections and the President is in his second term; and Israel is in election mode, with

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its elections being concluded by early next year. This provides an opportunity when, as I have said many times now, the window of opportunity is shrinking.

The Lord Bishop of Bath and Wells: My Lords, I welcome the Statement from the Minister today. The experience of peacemakers in all situations is that there are certain defining moments. From what she has said, she believes that there have been a number of defining moments in these two conflicts—in Israel/Palestine and Syria. For a peace process to be effective, it has to be managed on a multilayered level, not just from a political perspective but from a community perspective as well. In what ways can Her Majesty's Government encourage and nurture that process both in Syria and in Israel/Palestine to build that kind of construct so that there can be, as it were, a cohesive approach to this peacemaking task?

Baroness Warsi: The situation is slightly different in relation to the two areas. In Syria, in terms of the immediate violence, we have been dealing with a crisis over a lengthy period. However, as I said in my Statement, we have through the DfID programme been funding a number of individuals including journalists and human rights activists who are logging and recording information. If you send out a clear message that there will not be a culture of impunity in these matters, that starts to build the reconciliation process.

On Israel, Gaza and the West Bank, there are a number of programmes of which I am sure the right reverend Prelate will be aware. Some are based on religious grounds, where religious leaders have come together to build peace, and some are being done through educational projects and through the voluntary and charity sector. I had the privilege of seeing a sports project when I visited. I agree that peace cannot just be imposed from the top down; it has also to be built from the bottom up. However, in a situation such as this, I fundamentally believe that real progress will be made when we start showing real political will.

Baroness Morris of Bolton: My Lords—

Baroness Symons of Vernham Dean: My Lords—

Lord Elystan-Morgan: My Lords—

Baroness Tonge: My Lords—

Lord Wallace of Saltaire: My Lords, I think that it is now this side’s turn and then perhaps those on the opposite side who are trying to come in might stand up in a queue, so to speak.

Baroness Morris of Bolton: My Lords, perhaps I may pick up on a point made by the noble Lord, Lord Triesman, and, in doing so, declare an interest as president of Medical Aid for Palestinians. What is being done to address the critical shortages faced by hospitals in Gaza, where 40% of essential medicines and 60% of medical disposals were already at zero stock before the escalation, because of the blockade?

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Baroness Warsi: I know that my noble friend works tirelessly for the region and is deeply knowledgeable on the area. The humanitarian situation is extremely fragile, as she is aware, and has been exacerbated by events of recent days. Our assessment is that there is not at this stage a humanitarian crisis, because aid continues to flow from Egypt through the Rafah crossing and, intermittently, from Israel. A convoy of medical supplies managed to get to Gaza on Sunday, and food distribution is functioning—we understand that there is probably about 30 days’ worth of food stock—but I absolutely take my noble friend’s point on the base from which we started.

Baroness Symons of Vernham Dean: My Lords, the Minister’s Statement was very full and I am sure that the whole House thanks her for that. I should also like to thank her right honourable friend Mr Alistair Burt for all the work that he is doing—I think that he is an excellent Minister for the Middle East.

My noble friend Lord Triesman asked whether there is a Middle East peace process and the noble Lord, Lord Hannay, emphasised that the process is in effect paralysed—a dreadful word to use but, alas, an accurate one at the moment. Does the Minister really believe that a two-state solution is still possible? She said that time was running out; she has given it a year. Yet Israeli settlements continue to be built and, on the other hand, there is a hopelessly split leadership in Palestine between Fatah and Hamas. The demographics in Palestine tell their own story about the Palestinians simply waiting for time to deliver the solution that they want.

Can the Minister also tell us what more we can do to help address Syrian violence when the United Nations is hopelessly split on what is going on in Syria? Syria is a client state of Russia. We have to face up to that and the United Nations process seems, again, to have become paralysed. This weekend in the United States, all the newspapers were talking about war—a terrible word to use. Will the Minister please continue to give us briefings in this House? In this time of acute danger, will she arrange for regular briefings—they need not necessarily be on the Floor of the House—so that those of us who are interested in these issues can be fully updated?

Baroness Warsi: I can of course ensure that that briefing happens, whether it is from me or the specific Minister in charge. It is absolutely right that noble Lords, many of whom have so much experience and expertise in this matter, are kept up to date and that we hear their views. I do not think that there is any option other than still to have hope and a commitment to the two-state solution, which is the only way in which we can give the Palestinian people the state that they need and deserve and the Israeli people the security and peace that have eluded that region for so long. The priority is now for the United States to lead a major push to restart negotiations, and we have made this clear to the Obama Administration. It appears to be the right time for a newly elected President in a second term to take this initiative. That offers the best opportunity of progress towards the ultimate goal of a two-state solution. I am optimistic but also realistic so, even with that optimism, I have said that time is running out.

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Lord Elystan-Morgan: My Lords, I congratulate Her Majesty’s Government on their recognition of the coalition Opposition in Syria. It is an act of wise diplomacy, entirely in kilter with the most basic rules of public international law. Can the Minister tell the House whether there are prospects of other countries, particularly other members of the Security Council, taking the same role? Am I right in thinking that up until now the only other member of the Security Council to have recognised this regime is France?

Baroness Warsi: These discussions are ongoing. I know that there are specific discussions with a number of states, including the United States, on how progress can be made. It is up to individual nations to go through that process but what has been important in recent weeks is the way in which the various opposition forces have managed to come together to form some sort of coherence as to initial progress and what can be done in the immediate future. It was right that while we built that relationship and before we formally recognised it, we sought specific assurances in this House. Many noble Lords have raised concerns about human rights abuses that have been committed in Syria on all sides. If Her Majesty’s Government are to be engaged with a recognised Opposition, it is right that they seek some specific assurances beforehand.

Lord Palmer of Childs Hill: My Lords, I thank my noble friend for the Statement that she read. I have only one small point and I will not take too long to make it. Can the Government not look on this disastrous situation as an opportunity? Opportunities come out of disasters and this is an opportunity to get not only the Americans to act, as the Minister suggested, but the Arab League. There was an Arab League initiative to bring both parties to the negotiating table without any preconditions whatever. The noble Lord, Lord Hannay, said it was Prime Minister Netanyahu who has refused to come to the negotiating table. Some of us would disagree with that. Let us put it to the test by getting the Americans and the Arab League to get people to come to the negotiating table now, to talk about not truces and ceasefires but a durable situation where there is a genuine cessation of hostilities.

Baroness Warsi: The noble Lord raises an important point. There is a famous saying in Urdu which loosely translates as, “It rarely rains when the fires are raging”. To try to reach final agreement on these matters when there is a crisis is difficult. It is important to have the agreed ceasefire. Foreign Ministers from the Arab League have been meeting in the region. Egypt and Turkey have been playing an extremely important role in trying to negotiate that. As part of that initial discussion to resolve the current crisis, discussions are ongoing in relation to a long-term solution.

Lord Anderson of Swansea: My Lords, part of any ceasefire agreement will surely include international monitoring to ensure compliance. Are we and our allies ready, if the call comes, to comply with military personnel to do just that, remembering that Israel will be very cautious because of its experiences of UNIFIL

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in Lebanon and the time when it left Gaza, with its effect on that frontier? On Syria, how can we properly call the coalition legitimate when it has been subject to no election to ensure its legitimacy? We are apparently prepared to receive a political representative, whereas France calls that representative an ambassador. Why the difference?

Baroness Warsi: In relation to the noble Lord’s suggestion about observers, we will respond to that situation as and when it arises. In relation to recognition, I think he would accept that it would be impossible to expect the Syrian opposition factions to be holding elections in Syria at the moment and to try to obtain legitimacy through the ballot box. We are trying to work with the various groups that have come forward in setting their own priorities. As they themselves say, this is a transitional council. Eventually, it is for the people of Syria to decide their future Government.

Financial Services Bill

Report (3rd Day)

4 pm

The Deputy Speaker (Lord Skelmersdale): My Lords, before calling the first amendment, I must remind noble Lords that the House has agreed to treat amendments in the first group as if it were in Committee. This means that if noble Lords feel that they must speak again, they may speak again but only for those amendments numbered in the first group.

Clause 7 : Extension of scope of regulation

Amendment 70

Moved by Lord Sassoon

70: Clause 7, page 43, line 33, at end insert “, or

(b) the setting of a specified benchmark.”

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I feel that I should warn you that my remarks on this group will be longer and more detailed than usual, because this group of amendments relates to Martin Wheatley’s review of LIBOR. This is a new area for this House’s consideration in the context of the Bill, as well as being vitally important.

LIBOR—the London interbank offered rate—is the most frequently utilised benchmark for interest rates globally. At the end of June this year, it was revealed that LIBOR had been subject to repeated attempts at manipulation over a number of years. The Government have been absolutely clear that any attempt to manipulate that important international benchmark is unacceptable.

Although misconduct was not confined to London, as banks and interbank benchmarks in a number of jurisdictions have also been implicated, the Government have moved quickly to restore the credibility of LIBOR, which is a key component of our financial infrastructure. It is vital that those who use and rely on LIBOR can continue to have confidence in its integrity.

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One week after the revelations emerged, my right honourable friend the Chancellor of the Exchequer asked Martin Wheatley, chief executive-designate of the FCA, to consider immediate reforms to the framework for setting LIBOR. Mr Wheatley reported his findings and made his recommendations at the end of September.

LIBOR is the most important interest rate benchmark globally, as it is used in a multitude of contracts, including bilateral and syndicated loans, interest rate derivatives, mortgages and variable-coupon bonds. Indeed, the Wheatley review estimated that at least $300 trillion-worth of contracts reference LIBOR. For that reason, it is imperative that LIBOR is comprehensively reformed with the minimum of disruption to international financial markets. The Wheatley review provides a 10-point plan to reform LIBOR, including recommendations to both Government and market participants. The Government welcome and endorse the Wheatley review recommendations in full, and are determined that they should be implemented by all parties involved without delay.

Accordingly, I have tabled three sets of amendments. First, Amendments 70 to 73 enable benchmark activities such as LIBOR and, potentially, any other benchmarks to be brought within the scope of statutory regulation under FiSMA. Secondly, Amendments 108 to 114 create a series of new offences designed to tackle misconduct in the financial sector, including a new distinct criminal offence for making false or misleading submissions in connection with the determination of a benchmark. Thirdly, Amendment 80 provides the FCA with a new rule-making power to require banks to submit to LIBOR and other appropriate benchmarks.

These amendments complement other market-led reforms to LIBOR as recommended by the Wheatley review, including the replacement of the BBA as the rate administrator, through an open tender process; the requirement for banks to make explicit and clear use of transaction data to corroborate LIBOR submissions; and a number of technical changes, designed to reduce the ability and incentives to manipulate LIBOR.

I will now explain the amendments in more detail. Martin Wheatley made an express recommendation to the Government that the submission to, and administering of, LIBOR become regulated activities. Amendments 70 to 73 enable benchmark-related activities to be specified as regulated activities under FiSMA. Amendment 70 inserts,

“the setting of a specified benchmark”

as a class of activity which is able to become a regulated activity under FiSMA. Amendment 71 defines “benchmark” as an “index, rate or price”, which is defined from time to time by reference to the state of the market, and is used for the purposes of determining sums due under contracts, determining the value of investments, or measuring the performance of investments. A benchmark will be capable of being regulated only if it meets this definition, but the definition has been drafted in such a way as to be able to capture many possible benchmarks, potentially including inter bank interest rate benchmarks such as LIBOR, equity or bond price indices, commodity benchmarks, and so on. Amendment 73 sets out the scope of activities

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related to the setting of benchmarks that may become regulated activities. The activities covered include, among other things, the determination of a benchmark, the provision of information to a benchmark and the administration of a benchmark.

The precise activities and the range of benchmarks which will be brought within regulation will be specified in secondary legislation. Regulation of these activities will enhance and strengthen the FCA’s ability to make rules on benchmark-setting as well as the regulator’s ability to supervise directly and take regulatory action against persons involved in benchmark-setting processes.

The Wheatley review recommended that banks, including those not currently contributing to LIBOR, should be encouraged to participate as widely as possible in the LIBOR compilation process. Participation in LIBOR is currently voluntary; at present a total of 23 banks are members of different LIBOR currency panels. It is important that banks continue to play an active role in the process of submitting to LIBOR. In the absence of banks’ submissions, LIBOR would lack sufficient evidence to be an accurate reflection of bank borrowing costs and could eventually cease to be an authoritative benchmark. In an extreme scenario, the rate may not be able to be published. The failure or absence of LIBOR—given the vast number and variety of contracts that reference the benchmark—would lead to severely disruptive implications for banks, other institutions and international financial markets. While the benefits of LIBOR are enjoyed by all banks, only a small number of banks contribute to LIBOR. Some large banks do not currently submit to LIBOR.

While it may not be necessary for the FCA to use this power immediately—if at all—should the number of LIBOR-contributing banks fall, then the use of this power could be considered. To that end, the power outlined in Amendment 80 allows the FCA to impose requirements on authorised persons to participate in a benchmark, including by reference to any code or other document published by the person responsible for the setting of the benchmark, such as the benchmark administrator. This ensures that the precise detail of what information is required to be provided—in what format, to whom and at what time—can be determined by the administrator through their code, and not directly by the FCA.

At this point I would like to thank the noble Baroness, Lady Hayter of Kentish Town, for her eagle-eyed attention to the detail on this, and particularly to the version of the amendments we published in draft in October, which referred to a “code of practice”. As the noble Baroness suggested, this was not quite right in this context. The codes we are talking about here are not going to be confined to procedural or practical matters, so I agree with her that “code of practice” is not an appropriate description. It is a point with which I agreed, and I sought to amend the draft amendments before tabling them to refer simply to a “code”. The reference to a “code of practice” in subsection (2) of proposed new Section 137DA of the Financial Services and Markets Act was amended, but the reference to a “code of practice” in subsection (3) was overlooked, for which I apologise, but not by the

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noble Baroness, who has correctly spotted a drafting inconsistency. I am grateful for her pointing that out and can confirm if she presses Amendment 80B in due course, I fully intend to accept it. There may not be many other concessions today, but I thought I would get it in early. There is always one, so far.

The Wheatley review recommended the creation of a new criminal offence to provide an appropriate sanction for those who attempt to manipulate benchmarks, such as LIBOR. While such attempts to manipulate LIBOR could constitute a criminal offence under legislation other than FiSMA, the FSA, and subsequently the FCA, are not in a position to investigate and effectively prosecute such conduct. The Government agree with the conclusion of the Wheatley review that there is a strong case that the body responsible for supervising the conduct of firms in the financial services sector—that is, the FCA—should be able to investigate and prosecute misconduct in this area. Furthermore, the Wheatley review also recommended that the Government review the workability of the existing offences under Section 397 of FiSMA.

To this end, the proposed amendments repeal the existing Section 397 and create provisions for three separate criminal offences. In particular, Amendment 114 repeals Section 397, and Amendments 108 to 110 create the new criminal offences. Amendment 108 recreates the existing offence of making a false or misleading statement in Section 397(2), with modernised language because that offence originally dates back to 1939.

Amendment 109 widens the existing offence in Section 397(3) of misleading practices to include creating a false or misleading impression as to the market in, or price or value of, an investment for the purposes of making a profit or avoiding a loss. Amendment 110 creates a new criminal offence related to misleading statements and practices in respect of specified benchmarks, such as LIBOR. Amendment 111 deals with penalties for the new offences and replicates the penalties for existing offences under Section 397; that is, a person found guilty of these offences may face a prison sentence of up to seven years and an unlimited fine.

The other amendments in this group are related consequential amendments dealing with matters such as interpretation, procedure for the relevant secondary legislation that specifies to which investments and benchmarks the offences apply and references to Section 397 which, as I have explained, is being repealed.

The detail of the activities which are to be regulated under FiSMA and the investments, activities and benchmarks to which the new criminal offences apply need to be set out in secondary legislation. This secondary legislation will be subject to the draft affirmative procedure, so the prior approval of this House and another place will be required.

The Government’s current thinking is that LIBOR should be the only benchmark specified for the purposes of regulation and the new benchmark offence. The Treasury will begin a public consultation on these proposals shortly and, having considered the consultation responses, will seek to lay the orders in draft before Parliament as soon as the parliamentary timetable allows next year. This legislation has been designed so

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that additional activities and benchmarks can be specified as regulated as well as to allow the addition of further benchmarks for which the proposed criminal offence apply, should this be deemed necessary.

Indeed, the Wheatley review discussed the impact of the review’s conclusions on other financial benchmarks and recommended that international regulatory bodies, such as IOSCO and the FSB, develop international principles or guidance for the provision and use of benchmarks. Should these international initiatives conclude that regulation is required to other benchmarks, that is possible through amendments to secondary legislation.

I conclude by restating that it is imperative that LIBOR is both swiftly and comprehensively reformed, not only to restore and maintain credibility in the rate for the $300 trillion worth of contracts that reference it, but also to demonstrate that, in this country, such behaviour by individuals in the banking sector will not be tolerated. This Government believe that these amendments, alongside market-led reform of LIBOR, will restore global confidence in the rate. I beg to move.

4.15 pm

Lord Eatwell: My Lords, we on this side of the House broadly support the conclusions of the Wheatley report and commend Mr Wheatley and his team for the prompt delivery of such a comprehensive document. I say “broadly” because there are a number of details that we believe are not quite right and which require careful consideration in these—let us call them—quasi-Committee proceedings.

The grouping of all the amendments relating to LIBOR into a single group is exceedingly unwieldy and not conducive to constructive scrutiny. After all, as the noble Lord himself pointed out, there are three distinct elements within this group: first, the amendments designed to bring the setting of benchmarks within the compass of regulated activities under FiSMA; secondly, the rules requiring participation in the process of establishing the benchmark; and, thirdly, the establishment of criminal penalties for abuses of the process of setting a benchmark. Each of these three elements merits separate discussion. Rolling them all into one group just because they carry the label “LIBOR” is, to put the matter politely, extremely unhelpful.

For the purposes of this debate, at least, let us degroup the cumbersome group 1 into group 1A, definition of a benchmark; group 1B, establishing the benchmark; and group 1C, criminal offences. Group 1A encompasses Amendments 70 and 71. Amendment 72 is simply consequential. Amendment 70, which incorporates benchmarks into the order-making process, requires some clarification in that, as far as I can read through the existing FiSMA, an affirmative resolution of both Houses will be required for that order to be made. I think I heard the noble Lord say that in his speech, but he said so many other things as well that I hope he can confirm that incorporating any new benchmark into this process will require an affirmative resolution of both Houses.

Moving on to Amendment 71, which is the definition of a benchmark chosen by the Treasury, I disagree with what the noble Lord said. He asserted that this

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proposed new subsection would also cover commodity benchmarks and he was probably thinking of the recent scandals in the gas market and the accusations levelled at Barclays by the US authorities over the manipulation of the electricity market in California. These particular benchmarks were not specifically involved with investment, but would really come under the heading of trading. Amendment 71 refers to “relating to investments”. All the qualifications are in proposed new subsection (6)(c). Proposed new subsection (6)(c)(i) refers to,

“the interest payable, or other sums due, under loan agreements or under other contracts relating to investments”.

Proposed new subsection (6)(c)(ii) refers to,

“the price at which investments may be bought or sold”.

Proposed new subsection (6)(c)(iii) measures “the performance of investments”.

The scandal in the gas market was to do with trading, not investment. Similarly, I believe the problems in the Californian electricity market are to do with trading, not investment. Unless the noble Lord is extending the meaning of the word “investment” to include all trading activities, which, I suggest, is an abuse of language, then the commodity benchmarks are not included, as he asserted, in Amendment 71. Moreover, if this were true and what the noble Lord says is correct, why did the Financial Secretary to the Treasury make the following statement? He declared:

“The recommendation to consider the use of benchmarks in other financial and commodities markets will be taken forward through the relevant international bodies”.—[Official Report, Commons, 17/10//12; col. 25WS.]

If commodities markets were already included, why did the Financial Secretary say that there was to be a process to take them forward through international bodies? Given the rather lackadaisical attitude displayed by the Financial Secretary, which was quite out of tune with the repeated arguments for the necessity of speed that peppered the noble Lord’s remarks, why are the Government, with respect to these other benchmarks, taking the long, slow route through the international institutions when the revelations about commodity benchmark manipulation have been made over the past few weeks? After all, commodity market trading manipulation has just the same scale of impact, if not a greater impact, on ordinary households, as does the manipulation of LIBOR. Perhaps I may suggest to the noble Lord that if we look for clarity instead of the abuse of language, it would be worthwhile for the Government at Third Reading to extend the scope of the new subsection put forward in Amendment 71 to include trading as well as investment.

Group 1B, as I call it, comprises Amendment 70 moved by the Government and Amendments 80A to 80C, 80CA and 80D tabled by my noble friend Lady Hayter and me. Amendment 80 is the key to the Government’s approach to setting out the rules requiring participation in the benchmark. That participation involves two distinct types of legal person: first, those providing information for the setting of the benchmark and, secondly, the legal person charged with setting the benchmark. A peculiarity of this legislation is that it has an enormous amount to say about the former and virtually nothing to say about the latter.

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Proposed new Section 137DA, as inserted by government Amendment 80, refers to,

“the setting by a specified person of a specified benchmark”.

But as regards who this specified person might be or even what might be the process by which they are specified, who has the responsibility for specifying them and with what characteristics they are endowed, on all these matters the Bill and the government amendments are entirely silent. Mystified, our team asked the Bill team for the answers to those questions. Following a long and what we interpreted to be a somewhat embarrassed silence, the answer was that all this was to be left to later. That is not good enough.

Mr Wheatley’s report suggests that the responsibility for LIBOR be taken from the BBA, which anyway does not want it any more, and given to another body determined by tender. Here we part company with Mr Wheatley. It is not clear that a private organisation that has the experience and the expertise to set a benchmark will not also have serious conflicts of interest. It is especially not clear because the Government have so far failed to publish the criteria which they believe any successful tender should fulfil. All we know is that a committee has been established under the noble Baroness, Lady Hogg, to define the criteria and to establish the tender process. Before examining the tender process, will the Minister tell us why the Government did not consider establishing an independent body to set LIBOR? After all, one of the most important benchmarks in this country was for many years set by such a body, the Retail Prices Index Advisory Committee. Why was that model not followed in this case? Why is there this putting out to tender?

Turning to the route chosen by the Treasury, why, given the continually professed urgency of LIBOR legislation, does the committee to be chaired by the noble Baroness, Lady Hogg, still have no membership other than the noble Baroness herself? What brief is the noble Baroness working to, what criteria is she expected to work to in establishing a tender process and what characteristics is she expected to seek in the specified person? Why is the Bill totally silent on these matters?

The fact that these serious matters are, to quote the email we received, being left for later not only suggests complacency on the part of the Government—they are putting on a show of doing something rather about the LIBOR scandal than actually doing something—but it also places a number of serious question marks over the legislation as drafted.

The amendments in my name and that of my noble friend Lady Hayter in group 1B address some of these deficiencies, though I confess that more time and more careful scrutiny would probably not only allow us to prepare more focused amendments but would also reveal other deficiencies in the current drafting.

Amendment 80A refers to the,

“code or other document published by the person responsible for the setting of the benchmark”.

The responsibility for setting the code, like so much in the LIBOR amendments, is rather amorphous. We suggest that the Financial Reporting Council might be included as a possible institution for setting and regulating

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the code. The reason is obvious to anyone who has worked with the FRC or studied its activities. The FRC is the only body in the UK that has general oversight over such codes of conduct in the financial services industry. For example, the FRC oversees the codes produced by the professional bodies—the Institute of Actuaries, the Institute of Chartered Accountants and so on—ensuring that their codes are appropriate to the needs of the organisation. It oversees supervision in enforcement.

Of probably even greater importance, though, the FRC includes independent persons in its council. This means that it is not just the actuaries who agree their code or the accountants who agree their code. So we have introduced the FRC into the Bill at this point—remarkably, the only point in the entire Bill at which it might be mentioned—in order to stimulate the Minister to say that, in setting a code to control behaviour of those participating in the setting of the benchmark, the responsibility will not be given to insiders—to the bankers—to establish their own code. There must be the same sort of external oversight as that practised by the FRC to ensure that the code is objective, effective and enforced. How will the Treasury ensure that that is the case?

Amendment 80B, which the Minister has already referred to, tabled by my noble friend Lady Hayter, would clear up a drafting error in the Government’s amendment, establishing consistency in references to the code. I asked my noble friend what would happen if she decided not to move it, and I think the answer is that the Government would be embarrassed—but there we go.

Amendment 80C addresses a serious deficiency in what we believe is the Government’s proposal with respect to the specified person responsible for setting the benchmark. We understand that the committee—as yet not established under the chairmanship of the noble Baroness, Lady Hogg—will devise procedures and rules for a tender process to select the specified person.

First, what if that person does not perform satisfactorily? What if there is another scandal with LIBOR or some other specified benchmark? Who then steps in to clean up the mess? At the moment it has been the Treasury and the FSA/FCA, but this is in circumstances in which the BBA wishes to give up its role. What if the specified person is underperforming but does not wish to give up the role? Moreover, it is not clear at the moment whether the award of a tender is to be time-limited or whether it might be subject to some sort of review. We need to be clear. Who is responsible on an ongoing basis for awarding and revoking the tender?

Secondly, what happens if there is an interregnum? There might be a delay in awarding the contract, or it may be that the specified person runs into difficulties—goes bankrupt, for example, or simply wishes to resign. Who picks up the reins then?

The purpose of Amendment 80C is to ensure that the credibility of the benchmark is sustained by its continuity. The FCA, in our amendment, has that fallback responsibility. The amendment is suitably general so that the FCA may decide to deal with the difficulties in the way “it deems necessary”, but at least

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the amendment ensures that someone is ultimately responsible, not simply for regulating the setting of the benchmark but for ensuring that one is actually in place.

4.30 pm

Amendment 80CA is there as an acknowledgement of the rather uncooked status of the LIBOR amendments in group 1B, as tabled by the Government. With the scope of the urgent benchmark legislation unclear and the key role being given to a specified person—on whose appointment, job description and, if necessary, removal and substitution the Bill is entirely silent—and with uncertainty surrounding the process and timescale of the transfer of LIBOR from the BBA to the new specified person, it is imperative that Parliament be given the opportunity to assess the performance of these various known unknowns once the Act has come into force. This amendment calls on the Government to report back to Parliament within a year of the Act becoming law on the progress being made towards the extension of the scope of regulating activities to benchmarking. It is vital that the Treasury be held accountable to Parliament for the process that it is setting in play and for those elements that are to come later.

Amendment 80D addresses the problem that the Bill is entirely silent on the procedure for identifying the specified person, both initially and, as I said just now, on an ongoing basis. Let us remember that this legislation will not only potentially cover the setting of LIBOR but will also encompass the setting of other benchmarks. It will probably be necessary in future to establish other specified persons responsible for specified benchmarks. It is surely right that Parliament should have sight of the rules and procedures being followed in identifying the person responsible for the specified benchmark. It would be helpful to know who is doing the specifying and what criteria they bring to bear. It cannot be the case that this procedure should be purely reactive, being wheeled out only when there is a crisis. So, if there is to be an active procedure, what is it? Does the Minister not agree that we should be told? Does he not agree that it is right and proper that it should be subject to parliamentary scrutiny? While acknowledging that the Treasury Select Committee has an enormous amount of work to do, does he not agree that it is the appropriate body to which the rules should be referred?

I have some comments on what I have referred to as group 1C of these amendments—those dealing with criminal offences. In general, this seems to be the best thought-through and coherent of the government amendments before us. However, I have two queries. The first concerns the defence against the accusation of making misleading statements contained in Amendment 108(3), which refers to price stabilisation rules. There are other consequential references to that matter elsewhere. I am concerned that this potentially introduces a very strong defence. For example, in the recent Barclays LIBOR scandal, price stabilisation would have been a legitimate defence, especially with respect to the post-crisis manipulation. Perhaps this defence was not available in the United States, and perhaps the pre-crisis manipulation was so blatant as to compromise Barclays’s post-crisis activities. Was

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either of those the case? More generally, is this not a potential bolthole for those now forewarned of the consequences of manipulation?

My second query concerns what for me is a persistently puzzling characteristic of the drafting of the Bill—the confinement of the offences to the United Kingdom. Amendment 108(4) refers to misleading statements, which must be made,

“in or from the United Kingdom”.

Does this mean that a global bank’s office in New York, or perhaps even a British bank’s office in New York, could make misleading statements with impunity?Similar statements are made with respect to misleading impressions in Amendment 109(10), specifically misleading statements with respect to benchmarks in Amendment 110(6).

I really do not understand this. LIBOR is a global benchmark set in London. It is relevant to global financial institutions, as well as a myriad of smaller institutions, which know no juridical boundaries in their operations, statements or impressions. Why do the Government seek to limit Britain’s jurisdiction in this way? I am sure that the American Government would not be so coy.

To sum up, some of these amendments—not all—give the clear impression of having been prepared in haste, with crucial elements being left until later. Some of the work has been well done, some of it less so. This is particularly and disturbingly true with respect to the operation of the new scheme for setting benchmarks that these amendments seek to establish around Amendment 80. We on this side have tabled constructive amendments to deal with that particular weakness, and I hope that the Government have the good sense to accept them.

Baroness Kramer: My Lords, this is an important piece of legislation, and I very much welcome it. I think that this House, along with the rest of the country, was shocked at the manipulation of LIBOR. It may have had the silver lining of at last persuading the banks that they had to take reform seriously, but certainly it was a stain on the reputation of the City and it put further in danger the economic recovery and the financial services industry in this country; so it was significant.

I think that in this House generally, and certainly among my colleagues, we very much welcome the Wheatley review. I was able to be at the launch of that document in the City. There were many present who were from outside the UK, and the consensus in the room was, “He has basically cracked it”; that Wheatley had found the mechanism and a series of reforms that could give us a LIBOR measurement that was clean, that would be respected and that could contribute to the purpose that LIBOR has served in rate-setting for many documents, instruments, investments and loans across the globe. I think that the attempts to put the necessary legislative pieces in place are well reflected in the document that we have in front of us today.

I have just a few questions for the Minister. Like others, I am somewhat concerned about the breadth of the general statement on benchmarks. LIBOR is not mentioned specifically anywhere in these amendments, so in breadth and scope it has about it a certain air of

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ambiguity. We suffer, of course, because this comes late in the process of legislation and therefore is not accompanied by the notes that would have been available and would have provided much further discussion had this been part of the original document. There are many issues. As the noble Lord, Lord Eatwell, said, some people will look at the manipulation of the gas market and wonder whether that can be encompassed by this legislation; others will wonder whether the FTSE 100, which is an index used in a number of investments, could be encompassed. One could go through a fairly long list. Would the Minister be willing to put in the Library, through a letter or a note, some record that gives us a grasp of the scope of the use of benchmarks in the context of this document? That would be extremely helpful for everybody, and there would be something in the official record that we could turn to.

Unintended consequences are a feature of legislation, and in this area I think that we have had too many unintended consequences of various people’s actions. So it is important that it does not happen in the context of this piece of legislation.

I am very glad that we have language in here that gives the FCA the power to deal with, in effect, the freeloaders—those who benefit from the setting of the LIBOR rate but who, because they wish to keep their own particular credit standing secret, do not participate in the rate-setting process. I wonder whether there is any further guidance or if the Minister can help us understand what he would see as the scope for the FCA to identify those potential freeloaders. Are we continuing to look only at major institutions? Perhaps there might be some reassurance to minor institutions that would be a little nervous of being caught within this net.

Another issue that has been raised is how we cope with European legislation or directives coming down the track. We are all aware that Monsieur Barnier is looking at these matters, but I did not quite understand—and perhaps the Minister could clarify—whether or not secondary legislation will be delayed until there is some clarity on the issues that Barnier is raising, or whether we will proceed with secondary legislation with the idea that it can then be amended if there turns out to be a significant gulf between the secondary legislation that we put forward and the rules emerging from the European Union. In this context, LIBOR is a significant international benchmark which needs international respect. It should not become a football or subject of a battle between the UK and the EU that is driven by other issues. It is important that it serves the broad purposes of the financial services industry, and I therefore see no shame in encompassing the concerns and thoughts of those outside the UK in shaping LIBOR as we go forward.

All of us in this House will be absolutely delighted that there is finally an offence for which people can be investigated, prosecuted and serve time, as well as be fined. There was shock throughout the House that the manipulation of LIBOR was not subject to prosecution under existing statutes on fraud and the consequent penalties. I congratulate the Government on making sure that that part of the Wheatley review has been well incorporated into this process.

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I wish to make a couple of comments to the noble Lord, Lord Eatwell. I, too, am interested in the tender process that will lead to an administrator for the LIBOR-setting process, but he asked why it should not be a public body. I remind him that Barclays noticeably prayed in aid its conversations with the Bank of England in the attempt to justify the LIBOR manipulation. It is important that whichever body is involved in rate setting should be very clearly at a distance from the regulator and from any political body in order that we avoid a repetition of that attempted contamination. I have therefore been supportive of the idea that this will be a tender to a private entity. The noble Lord is quite right to say that we have to understand whether or not there are conflicts of interest because there is the thought that the most likely parties to tender for such a process might also be very involved in producing financial instruments on the other side, but not necessarily so. I also understand the need for flexibility in this issue. The complexity of making sure that the use of LIBOR in many existing documents is not disrupted by the changes we make is absolutely crucial. That is surely a level of granularity that cannot possibly be dealt with in primary legislation and has to be left to the flexibility of both the rule-maker and secondary legislation.

I very much welcome the legislation in front of us. Let us hope that this is the beginning of the end of a very unfortunate experience in the history of financial services in the UK.

Lord Barnett: My Lords, this debate began with the clear statement that we should abide by Committee-stage rules. I am sure that noble Lords will be as surprised as I am at the definition of Committee-stage rules in this debate. I thought we were debating a Second Reading, but forgive me if I misunderstood. I, like my noble friend Lord Eatwell, very much agree with the Government on wanting to introduce Wheatley. That review was excellent and well deserved our support. What I am worried about is the way that the Government have decided to implement it.

4.45 pm

It seems a shambolic way of introducing a new Bill from a wrong Bill by way of a huge number of amendments. Today we have started with this large group of amendments. When I started to consider this debate, I looked at Amendment 70 on the definition of benchmark. I thought I would simply look up the definition of benchmark. So I got Chambers Dictionary and was told that it is a surveyor’s mark cut on a rock, indicating a point of reference. That was not an adequate definition so I looked at Google, which I know the noble Lord, Lord Sassoon, constantly looks at. Google gave me a huge list of definitions. I then read the amendment further, like my noble friend Lord Eatwell, and found that the number of definitions of benchmark is huge and that the Government have now added many more.

So, to put it mildly, whereas I started off thinking that Amendment 70 was a simple new amendment, I soon found that it was central to the whole question of the LIBOR scandal—how you define a benchmark and how you define it in this Bill. I was pleased to hear

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the noble Lord, Lord Sassoon, congratulate my noble friend Lady Hayter on her assiduity. She has done a tremendous job and I think the House should congratulate her. But I am still unclear how this new Bill, by way of a huge number of amendments, will have got it right.

I am not a lawyer but one thing that comes out loud and clear is that, whatever the lawyers advising the Government have said is the correct way to put it in this Bill, the lawyers will not have finished with it when we have finished with this Bill. The definition of benchmark will go on for a long time, I fear, and lawyers on both sides will be earning a lot of money on the definition of benchmark and other words in this new Bill.

I will not repeat all the questions that my noble friend Lord Eatwell asked but they need proper answers. I have worried from the beginning about how we ever got into this position. As has been said, we are discussing a scandal that did not just start with Barclays Bank; it ran across banks around the world. It is an international matter, not a little matter here. With this new Bill, done by way of amendments, I wonder how, given the interest in the setting of interest rates as that applies to the Bank of England, to the Treasury, to the Financial Services Authority and to the authority that was supposed to be regulating it, the BBA, none of them knew anything whatever about this manipulation. I find that astonishing.

With the amendments in this Bill, we now have criminal sanctions that will be imposed. I ask the noble Lord whether those criminal sanctions can be made retrospective because somebody surely is guilty here of knowing about it and turning a blind eye. We have recently been discussing all sorts of serious questions about the BBC, but somebody here must have known. The bankers’ association, the BBA, was supposed to be regulating this. Somebody in the BBA either knew, or did not know and was totally incompetent. On top of that, there is the incompetence in the Bank of England. It is about to given a huge responsibility in this Bill under the new initials of FCA and all the other new bodies that it is going to be responsible for. This is the Bank of England that did not know a thing about the manipulation of interest rates. No wonder it is having trouble finding a new Governor of the Bank of England. It seems to me that the only person who will know a lot about this will be the noble Lord, Lord Sassoon. I hate to suggest it because I like him too much, but I hope he is not thinking of applying. Clearly he is about the only person who knows anything about it.

Noble Lords: Oh!

Lord Barnett: That is apart from my noble friend Lady Hayter. I am not a lawyer, but even if I were what would worry me about the whole thing is that, at the end of the day, I still could not be sure that this new Bill, created by way of amendments, has got it right. We will know whether it is right only when the lawyers finish dealing with the law in the courts. For the moment, I have grave doubts about whether this way of doing things is right. I apologise to the House for this Committee stage speech, but this is a very unsatisfactory situation.

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Lord Peston: My Lords, my contribution is also entirely interrogative. I have a lot of questions. I shall put the matter in context. Before we started today's proceedings, I thought that this was all very straightforward and simple but I now realise that I did not understand any of it at all. I am not certain that I am alone in not understanding it. I shall go through my questions and give some examples to elucidate them. First, I may have missed the noble Lord, Lord Sassoon, making the relevant statement, but can noble Lords assume that everything in these amendments has been agreed by Mr Wheatley and that he also agrees that they do every single thing that he wanted done? That was not said, but I assume that perhaps we are to take that for granted. My second question, which was not in my original notes, but I listened to what was said, is: do these amendments go well beyond what is in the Wheatley report? I would like an answer to that. My third question is: why are we talking about benchmarks? That was the first thing I scribbled when I saw the amendment. Why are we using this expression? It is so broad that it seems to me to cover all sorts of things that have nothing to do with LIBOR. My main puzzle is that I thought that this was all about LIBOR, exactly LIBOR, no more than LIBOR and no less than LIBOR, but it seems to me that it is about 101 other things.

In order to elucidate that, perhaps I may give some examples. I am sticking to the investment paragraphs, whereas my noble friend Lord Eatwell rightly says that benchmarks are used for all sorts of contracts, not just investment contracts. Let us stick with investment contracts. Suppose a firm issues a long-term bond which is specified in the following way: “This firm agrees to pay the holders of this bond 5% interest over its life”, say 25 years, “plus the rate of rise of the GDP deflator”. That seems to me to be a good way of issuing a bond and raising money. Does the GDP deflator, and do all those who set the GDP deflator, come into the scope of this Bill? I can see nothing that stops them coming into the scope of the Bill, but those people are the Office for National Statistics and if the Government manipulate the GDP deflator by subsidising certain key elements of it, the Government may face criminal charges. I have seen nothing in this Bill to stop that happening. I mention that because the GDP deflator happens to be my favourite price index as compared with the CPI and the RPI, but it would apply just as well to them.

Let us go further. In order to produce stability in its enterprise, suppose a firm says, “I will pay you 3% per annum over the lifetime of this contract, which we wish to last for five years, plus the rate of rise of the GDP deflator. Will you agree to that?”. That relates to a question that occurred in your Lordships' House yesterday. It is the kind of wage contract many of us would like to see used in order to stabilise the economy but I can see nothing that prevents such a contract coming under the scope of this Bill. To my noble friend Lord Eatwell, I say that it is not just a matter of commodities trading, but it seems to me there is nothing in the Bill that prevents almost anything that is index linked coming under its scope. Am I right that this goes well beyond LIBOR? I would take the view that it should not; that is not what we are here for.

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Those are my contributions, they are all interrogative and I am perfectly happy to be told that I have misunderstood everything that is going on here. I do however agree with my noble friend Lord Barnett that I may misunderstand it, but the lawyers involved in this kind of activity will not and they are going to look for trouble. Has the Minister asked his officials to guarantee that no trouble can arise in that way within this part of the Bill?

Baroness Noakes: My Lords, I ask my noble friend a simple question, for which I apologise for not having given him notice. It is a question I had intended to raise in respect of an earlier amendment but for various reasons I was not here when that amendment was dealt with. It relates to the definition of financial crime. The FCA has, as one of its integrity objectives, the financial system not being used for a purpose connected with financial crime, and financial crime is defined in new Section 1H. An amendment moved by my noble friend earlier was to include terrorism financing in the definition of financial crime. It seems to me that the definition as it stands does not automatically include the new offences that are created in this rather large group of amendments, which we can shorthand as the LIBOR offences, because it would not otherwise have been within the remit of the FCA. I would be grateful if my noble friend would answer that point.

Lord Sassoon: My Lords, I was rather getting into the swing of this. I have never had so many questions in such a short time and I was waiting for more to come. Noble Lords know that I usually try to group my answers together in some coherent way, but the questions have come so thick and fast that I fear that in answering as many as I can the answers may not be grouped together quite as efficiently as I would like.

Let me start with the definitional issues around what we are trying to cover here. First, to the noble Lord, Lord Barnett, benchmark may be defined by Chambers Dictionary, on Google and in many other places, but it has never before been defined in FSMA and I think it is necessary to have a FSMA definition. I am sorry the noble Lord went to all these other sources and did not look at the very particular definition in the Bill, but that is where these amendments start. The noble Lord, Lord Eatwell, asked if the definition was wide enough and the noble Lord, Lord Peston, takes the view we should only be talking about LIBOR so the definition may be too wide.

Lord Peston: All I was saying was I thought that the Bill team, when we met them, told us that these amendments dealt with LIBOR, end of story. I am asking whether they deal with lots of other things. I am not saying it is wrong to do so, I am simply asking.

5 pm

Lord Sassoon: I tried to make that clear in my opening remarks, but let me have another go. We have a serious LIBOR problem which needs dealing with. These clauses put in place a framework within which the Wheatley recommendations for dealing with the LIBOR problem can be dealt with. Many of the issues

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I have set out and will come back to will be dealt with in secondary legislation, which I can confirm will be by draft affirmative order. The consultation on the secondary legislation will start very shortly, as I said, with a view to that secondary legislation being laid as early in the new year as the parliamentary timetable permits. So, on LIBOR, we will have a framework and secondary legislation to bolt down much of the detail in the normal way.

There are a considerable number of other benchmarks out there. It is entirely possible that, because of the way in which the framework within these amendments has been constructed, other benchmarks, through affirmative orders and secondary legislation, could at some point in the future be included. My noble friend Lady Kramer asked for clarification in this area but I crave her indulgence for a couple of weeks or so until the consultation document comes out so that, rather than receiving a half-hearted letter from me, the consultation document will deal with the issue. The LIBOR problem needs to be addressed immediately. There are other benchmarks that people may, now or in the future, wish to be covered and the framework is sufficiently flexible and future-proof in this respect. If and when a case is made for other benchmarks to be treated in the same way as LIBOR, this framework will allow for that. However, it will have to come through the appropriate secondary legislation.

Lord Eatwell: My Lords, I was waiting to deal with the scope of Amendment 71. I entirely understand that the particular benchmarks to be included will be determined by subsequent order—and that is fine—but Amendment 71 confines the category of benchmarks to an index, rate or price that has something to do with investments. Can the Minister explain?

Lord Sassoon: The noble Lord, Lord Eatwell, asked the question very clearly earlier. If he would give me another minute or two I will get to his important point. He asked a lot of questions, as did other noble Lords, but it is the next point that I shall come to.

The noble Lord identified something that is consciously in the drafting: it sets a line between purely physical commodity markets where there are other provisions in place which cover price setting. In energy markets, if we are talking about a purely physical commodity price setting, Ofgem is the regulator and has the investigative and enforcement powers for the manipulation of physical markets under the so-called remit legislation. I appreciate that the line drawn raises the questions that the noble Lord has quite rightly asked. With pure commodities that are consciously dealt with in other legislation, Ofgem would be the principal regulator. However, gas, oil and other commodity benchmarks may well be referenced by derivatives or other financial instruments, in which case they are included in this definition. So, pure commodities are not included, but if they are referenced by derivatives or other financial instruments, that is covered in this definition of investment.

Lord Eatwell: That is very helpful. But I still think that the language is not clear. A derivative instrument may essentially be a traded instrument and there is no

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reason to define it as an investment. An investment is something on which one expects to receive a return either in terms of capital gain or a coupon. But you could easily conceive of a derivative instrument that is simply used as a hedge in a trading operation, which is not then an investment. This is a misuse of the word. I think that it is entirely appropriate that such instruments should be included under the broad definition that could be incorporated into subsequent law by order, but the Government should achieve clarity on this matter by specifying with greater precision exactly what they are doing.

I understand that precision can be a trap—you risk leaving so many things out when you are trying to be too precise. I understand that. But there is a bit of special pleading here, particularly because the Financial Secretary to the Treasury said that financial and other commodities markets were going to be referred to other international bodies and were not in the Government’s acceptance of the Wheatley report. So what did the Financial Secretary mean about referring this on to discussions with international organisations?

I want to press the Minister for clarity here. Take the manipulation of the gas market revealed last week. Would that benchmark be included in consideration under Amendment 71? Would it be accessible to an order made under Amendment 71 or not? Would the benchmark of the manipulation of the California electricity market also be susceptible to being included under an order expressed under Amendment 71?

Lord Sassoon: Again, to an extent the noble Lord, Lord Eatwell, pre-empts what I was going to say. First, let me deal with this question about the international situation, which I believe I addressed in my opening remarks. We have identified a clear problem with a critical benchmark, LIBOR. We intend to fix it. Work is going on in the international arena to look at questions of benchmarks more generally. As and when there is a conclusion, that will then be factored in as to whether within this framework there is more to be done to regulate other benchmarks. Of course, if through applicable international rules there were some change to the framework required, which we do not anticipate, we could also change the framework through primary legislation.

In the mean time, having identified LIBOR, we will have a consultation. That will be an opportunity to people to give their views about what other benchmarks, if any, should be regulated. I do not see any contradiction in my remarks with my right honourable friend the Financial Secretary’s remarks at all. We will see what the international community comes up with as IOSCO and the FSB look at these matters.

The noble Lord, Lord Eatwell, is of course right that the definition here is one of the more difficult ones. I will have a look again to see whether anything of the sort that he suggests might be missed out is not covered. Although clear understanding is that the word “investment” as taken sometimes in a common- sense way does not necessarily fit with some of the examples that he gave, I will take it away and have a look at it again to make sure that it does cover everything.

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On the series of petroleum-related examples that the noble Lord gave, I am not going to say whether the manipulation of the Californian electricity market would fit within the regulations because that is beyond the scope of what we are talking about, but let me talk about the gas market. I do not want to pre-empt the specifics of the gas market review, but I am quite clear that, between the provisions that we are putting in place in this Bill, and those to which I have already drawn attention and the powers of Ofgem, we will be covered.

Also in this definitional area, one or two questions were asked about GDP and RPI. In particular, the noble Lord, Lord Peston, asked about references to the GDP deflator. Since the GDP deflator is not set by reference to the state of a market but is wholly different, I do not see that coming within the scope of what we are looking at here. GDP is clearly a matter for the ONS; it is not derived from the markets in the sense that we are talking about here.

Lord Peston: The answer is that it is. It is a price index, and all price indexes are derived from markets because markets set prices. There is no question that it is not an index. I think that this is a matter of language and we hope that the Minister will clarify it for us. Will he also point to where in any amendment that he has put down the acronym LIBOR appears?

Lord Sassoon: The definition of “benchmark”, as we have already been through, has a number of legs to it, the first of which is that it is set by reference to the state of the market. Even if for the moment we park that one, we then come to the investment-related test, for which the GDP deflator would not apply. I know that in the example which the noble Lord gave it was part of something else, but the mere fact that it is part of something else does not mean that the GDP deflator is covered by the definition here.

On why LIBOR is not mentioned anywhere, which it is not, it is precisely because we are putting in place a framework. The secondary legislation, which will be preceded by a consultation coming very shortly, will be around what the first regulated benchmark should be. The Government will propose that it should be LIBOR and at this stage only LIBOR, but we will ask whether anything else should be covered. That is why LIBOR is not mentioned in the Bill; it will come in the secondary legislation.

Lord Peston: Am I right, therefore, that anybody looking at the Bill would not know that it had anything to do with LIBOR? I am pretty sure that I must be. They will know now, because the Minister has told us, but why does he not then put it in his amendments? What we are discussing is a badly drafted Bill that could be improved if it merely contained the sentence, “The object of all of this is to deal with the LIBOR problem”, and he could then deal with it via secondary legislation. No one would have known about any of that until we had this debate in your Lordships’ House—which is why we are here, I suppose.

Lord Sassoon: My Lords, the problem that we are trying to deal with is that it has been revealed this summer that benchmarks are open to the sorts of

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abuse that need to be dealt with. We are putting in place a framework that enables abuse or potential abuse of benchmarks to be dealt with. There was never any intention to put in LIBOR. I expended about 1,900 words explaining why we were doing this and I probably mentioned LIBOR a dozen times. I hope that the noble Lord is now clearer. I see that he is; I am grateful. That probably deals with the main definitional and scope questions.

5.15 pm

Baroness Noakes: I am sorry to interrupt my noble friend. I know he wants to get on to the rest of the interesting questions that he has been asked but I want to come back to this definition of investment. “Investment” is defined in Amendment 112 for the purposes of the offences but it does not appear to be defined for the purposes of defining “Benchmark” at the beginning of this group. I have spent some of the past 30 minutes or so using my iPad to see whether FiSMA already had an equivalent definition in it and I cannot find it. That does not mean it is not there but I cannot find it.

Lord Sassoon: As I said in response to the noble Lord, Lord Eatwell, I will look again. I believe that, as I have set it out, everything that is intended to be covered is covered. I am grateful to my noble friend for pointing out that,

“‘Investment’ includes any asset, right or interest”,

for this purpose. That points to the wide scope of the definition. I will take away these points and make sure that it all knits together in the way intended. If it does not, I will write and seek to put matters right at Third Reading.

Let me move on to some other questions that have been asked. I can assure the noble Lord, Lord Peston, that this group of amendments does what Mr Wheatley intended and that he and, on his behalf, his FSA team have rightly crawled all over it. I just want to be clear that it does not go beyond Wheatley except in the sense that we are future-proofing it for other possible benchmarks, which is entirely consistent with what Mr Wheatley wanted. While I am dealing with one or two of these questions, I can also confirm to my noble friend Lady Noakes that the definition of financial crime catches the new offences. The definition in proposed new Section 1H(3) provides that,

“‘Financial crime’ includes any offence”,

and the list of offences is not exhaustive, so the answer to my noble friend is yes.

I see the noble Baroness, Lady Hogg, in her place. It is good to see her here. There were various questions about the process for appointing the administrator. I can assure noble Lords that the noble Baroness, to whom I am very grateful for taking on this responsibility, will be taking this forward in a measured way, as your Lordships would expect. That process will take place over the next few months. My understanding is that considerable interest has already been shown in the opportunity to be the administrator. It would have been inappropriate to have an independent body setting LIBOR. As we know, it has been set by the BBA. That

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has presented all sorts of difficulties and conflicts of interest. Independence was weak. The BBA is handing over to the new administrator but, critically, the oversight of that new administrator will be the responsibility of the FCA. The behaviour of the new administrator will be regulated, not just the behaviour of the banks supplying the information.

Lord Eatwell: As we are in Committee, it might be helpful to take questions as we go along. It would be enormously helpful to the House to understand how the specified person who will be the administrator will act and what sort of person they might be. Given that there has been considerable interest in the position, perhaps the noble Lord could give us a flavour of the sort of organisations that might be interested—not by naming any names, which I am not suggesting at all. That would help us understand how the system might work.

The Minister said that an independent body is not appropriate. Why not? I referred to the previous advisory committee on the retail prices index, which was entirely independent. It included a number of users of the index, a number of professional statisticians and academics, and representatives of the CBI and the TUC. It was an independent committee which looked at the whole structure of the index. That was a crucial benchmark in British public life. After all, it affects uprating of benefits and all sorts of things, although it is now being superseded by CPI. There was an independent body which did the job and was highly respected. Why, in the Minister’s words, would such a body be inappropriate?

Lord Sassoon: My Lords, we risk comparing two totally different sorts of animal here. The measurement of prices, which of course now comes under the Office for National Statistics and is clearly wholly independent of government or anybody else, is an index that is currently under significant review. It relates wholly to UK activity, whereas, as we have seen, the LIBOR index does not. The LIBOR index relates to daily movements in markets, whereas RPI is a different sort of exercise that measures the monthly movement in prices. In comparing a market index such as LIBOR, however important, with the key measurement of retail prices which, under the framework that all countries buy into, should be independently set by a national statistics agency, we are talking about two different animals.

The draft criteria for the administrator of LIBOR were outlined in the Wheatley review. When the committee moves to the next stage of tendering for the role of administrator, it will be for it to set out the detailed criteria. If the noble Lord wants to see the outline criteria, they are set out in the Wheatley review. He can draw his own conclusions as to whether it would be accountants or others who might be interested in doing it. I am not privy to the specific names, nor do I need to be aware of who the people are. However, I have made inquiries, because it is relevant to one of the amendments that I will come to that there has been considerable interest, even at this early stage, before the full rules of the competition have been set out. There will be details of all that to follow.

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Lord Barnett: I am sorry to interrupt, but I am trying very hard to understand where we are getting to. I understand that we will finish up with regulations on top of all this, which will finally decide the matter. However, I am still unclear about it. We had the note earlier from the Minister’s officials, which set it out very clearly. We are talking about not trivial sums here but global sums of $300 trillion. These are mind-boggling figures. It is not $300 million or $300 billion but $300 trillion. What we are deciding in considering this Bill clearly has major global interest. Have there been serious discussions on a global scale?

Earlier, my noble friend asked the Minister—wrongly, I think—whether his legal officials had given him a guarantee that they had got the wording right. Nobody is going to give him a guarantee; I assure my noble friend of that. It is a question which cannot be answered, because they will not give it; how can they? How can anyone? The noble Lord, Lord Sassoon, cannot give us a guarantee that the Bill has got it right now. My noble friend Lady Hayter found one lot that was wrong. It would not surprise me if she found something else wrong, if she were to look further, because it is a very complex matter. We will now have complex secondary legislation on top of all this shambles. I very much hope that this will be successful, but I am sorry to say that the way it has all worked out, I certainly could not guarantee it.

Lord Sassoon: My Lords, there has been consultation on these clauses already. These clauses, which were published last month, have not been put forward in some huge rush; they have been put forward with due speed to reflect the seriousness of the situation that the LIBOR scandal revealed. Yes, there are hundreds of billions of dollars-worth of contracts relying on LIBOR, but many other very important equity market and other indices, in the UK and around the world, have functioned successfully for many decades. I have no doubt that as well as accounting firms and others, people who provide indices in other contexts—those who provide market data and who support market infrastructure—would be the sorts of entities that would be well suited to be the administrator of this important benchmark. There are many other critical functions of price discovery out there which are wholly run by private sector entities, albeit regulated under FiSMA in the UK, so we should not make a great drama out of this. The FCA will be regulating this activity, including the performance of the specified person.

The noble Lord, Lord Eatwell, asked perfectly reasonably about what happens if somebody is not performing and does not want to give it up. Because the administration is proposed, subject to the secondary legislation passing, the administration of LIBOR will come within regulation. If the administrator is not performing, therefore, the regulator—namely, the FCA—can take regulatory action in appropriate cases, which could include removing permission to act, if appropriate.

5.30 pm

Lord Eatwell: That is very helpful and I am grateful to the Minister. What would happen then when the administrator is not performing adequately and the FCA

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decides that it will take it away? Let me give another example so that I do not have to ask two questions; we can roll these in together. The second example is that the administrator goes bankrupt and is therefore unable to continue the activity. What happens then?

Lord Sassoon: If I ever get to the amendments in the name of the noble Lord, Lord Eatwell, we will get to that point because it is raised by one of them. It is completely clear that the FCA will have the power to act as the administrator of the benchmark in question, if necessary. That is in the FCA’s general powers. It does not need to be written into these amendments, but I will address that when I talk about the noble Lord’s amendments. Within the FCA’s general powers it is absolutely clear that it has the vires to step in and act as the administrator, if that is necessary in a market context.

I should address the scope of the offences. The first question was whether LIBOR should be limited to the UK. What is proposed in these amendments reflects the current approach in Section 397 of FiSMA. It surely must be right that UK authorities can act only where misconduct has some connection with the UK. We have a very clear approach to extraterritoriality in our legislative framework. The amendments take a broad approach within the UK’s normal approach to these matters. There has to be a connection, which may be any of a statement made in or from the UK, a person at whom the statement was targeted being in the UK or a relevant agreement being entered into in the UK. Within the normal constraints about extraterritoriality, in which we would expect certain offences of the sort that the noble Lord postulates to be prosecuted by the US authorities, we have nevertheless drawn the connection with the UK widely as it is currently drawn in Section 397.

The noble Lord, Lord Barnett, is perhaps suggesting that he does not want the offences to be retrospective. I think that raises slightly wider questions, even in the case of LIBOR. We do not need to go into the human rights basics. I am glad if, on reflection, the noble Lord, Lord Barnett, accepts that.

Baroness Kramer: On a point of clarification about the offences, I fully understand that with LIBOR, which is a London-set rate—that is its whole point—it is a UK-originating offence. If, for example, one of the contributors providing a misleading statement was the subsidiary—or who knows what the structure is?—in the structure of a holding company incorporated in another country, I assume that what the Minister has described would enable the UK investigation and prosecution to follow that trail through to the originating parent, if that were the relevant party involved in the misleading statement or impression. Is there an argument that says that because this can be applied to many more benchmarks than just LIBOR, it would be appropriate to give the UK the opportunity, where investors in the UK were disadvantaged by a manipulation happening somewhere else—perhaps relating to oil prices, for example—to be able to follow and fine in the way that the US can follow and fine for offences that originate in the UK and are limited to US residents?

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I am getting extremely muddled about this entire process, but I think the Minister gets the sense of what I am trying to say.

Lord Sassoon:I would never accuse any noble Lord, least of all my noble friend, of ever getting muddled, other than accusing myself. The basic construct is that we do not as a general principle take the same approach to extraterritoriality as the US does. The US takes a unique approach to extraterritoriality and that has raised a number of extremely difficult cases in recent years where Members of Parliament in both Houses have raised questions about whether the UK should acquiesce to the US approach. I certainly do not think that we should be using this discussion as a way of opening up the question of whether the UK should take a different approach to extraterritoriality. The fact is that the US takes a different approach, and that is how it is.

What we are doing for this benchmark issue is to draw the offence and the connection to the UK in precisely the way in which it is done for the generality of offences under FiSMA, which by UK standards is a pretty broad definition. I shall not read them out again, but I read out the three different conditions that could apply and that is on the record. I suggest that the House would not want to put some special definition of territoriality and extraterritoriality into this offence as opposed to all the other criminal offences within the financial services arena. I hope my noble friend will accept that general principle. For the moment, I think she does.

Lord Eatwell: Before the Minister leaves the issue of offences, I asked a question about the exemptions around price stabilisation rules.

Lord Sassoon: I have some understanding, but I am a non-lawyer and it was a long time ago so it is only slight. Price stabilisation rules go back to pre-1991. They are very specific rules that allow things to be done in markets in very prescribed circumstances that would run against what might be perceived to be the free flow of markets. As the noble Lord knows, they were introduced in the context of ensuring a safe and stable aftermarket following a large share issue. I think they were first used in this country by the Government in the second sale of British Telecom shares, and they relate to that regime. If there is something else going on there, I will write to the noble Lord, but they are not intended to be some carve-out that could be used to get people off a charge of manipulating LIBOR.

Lord Barnett: I asked the Minister whether the criminal sanctions could be used retrospectively against those who may well be criminally responsible for the LIBOR scandal.

Lord Sassoon: Forgive me; I thought I did answer. It is an absolute principle that we do not put in place retrospective criminal offences because that would be, among other things, against human rights legislation. We will certainly not be doing that.