26 Nov 2012 : Column 1

House of Lords

Monday, 26 November 2012.

2.30 pm

Prayers—read by the Lord Bishop of Liverpool.

Health: Atos


2.36 pm

Asked by Lord McAvoy

To ask Her Majesty’s Government what instructions they have given to Atos regarding its employment of outside personnel to carry out medical assessments.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, the department has clear contractual requirements for contractors in relation to the recruitment and training of health professionals involved in carrying out assessments related to benefit entitlement. Any professional not meeting these requirements will not be given approval to carry out assessments.

Lord McAvoy: My Lords, I thank the Minister for his Answer. He will recall, as many of us on both sides of the House do, the passage of the Welfare Reform Bill, when, quite frankly, the Minister promised that everything would be all right on the night. However, at one point Atos had 900 doctors performing the work capability assessments and now it has only 231. Does this mean a reduction in the standard of how the tests are conducted? In addition, these tests are being conducted with computer-based systems using descriptors in the assessment and they are failing a large number of people, leading to an even larger increase in the number of appeals. Does the Minister not realise the devastation caused when people get word of these things? When will the Government undertake a fundamental reform of the work capability assessment to make sure that the poorest and most vulnerable people in this country are not reduced to even lower levels of poverty?

Lord Freud: My Lords, over the past month Atos has been running at about 200,000 assessments; its average is about 100,000. There are 962 full-time-equivalent healthcare professionals working on them. We inherited this review and have now had four subsequent reviews: one internal and three from Professor Harrington. We have basically accepted and largely implemented 40 of the recommendations from Professor Harrington, who said in his latest review, last week, that significant and lasting improvements are coming.

Lord German: My Lords, is it not terrible that one in four of the premises that Atos uses for its assessments does not have flat-level disabled access and that wheelchair users cannot access these assessments? Can my noble friend tell the House whether the original specification for the Atos assessment centres contains any references to disability access? In view of the terrible circumstances in which many people in wheelchairs now find themselves, when will the Government be able to complete ensuring that all people needing wheelchair access have access to these assessment centres?

Lord Freud: I am not aware of the fine print of that particular contract, as it was done under a previous Government. A proportion of the assessment centres—currently 31, I believe—are not on the ground floor and lifts must be used. If there is then an emergency, such as a fire, those people will have to go down the stairs, which is obviously not satisfactory. To the extent that people are concerned about that, we make other arrangements: they are visited on the ground floor, somewhere else or at home.

Lord Cormack: My Lords, did anyone prior to seeing the Order Paper know what Atos was?

Lord Freud: My Lords, Atos is not an acronym in this case; it is the name of the company that does these assessments.

Lord Haskel: Following on from the question from the Liberal Democrat Benches, the Minister—

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Lord Low of Dalston: My Lords, the Minister will be aware of all the concerns that have been raised concerning Atos Healthcare’s conduct of the work capability assessment, some of which have already been mentioned in the exchanges that have preceded my question. Given that, can he explain why it has been appointed to carry out the new assessments for the personal independence payment? Have any lessons been learnt that might enable these new assessments to be carried out in a way which better commands the confidence of the disability sector?

Lord Freud: My Lords, one matter that concerns me a lot is the way in which Atos has been attacked. It is something that has also concerned Professor Harrington, who writes in his latest report:

“The WCA continues to be portrayed in an extremely negative light, often fuelled by adverse media coverage, representative groups and political points scoring. … Some recognition of the considerable work to date would give a more balanced picture”.

Atos’s quality target, which is to be below 5% on the quality side, has been achieved in 10 of the past 12 months and is now running at around 4%. Indeed, we are looking at whether we should now move the target figure for quality down from 5% to 4%.

Baroness Uddin: My Lords, given what the Minister says about the 200,000 assessments being undertaken, and to a high professional standard, how does he explain some of the figures that are coming from the disabled community about the lack of standard? What do the Government have in place to monitor the quality standard to which he aspires? Will he explain that to the House, and will he also explain why disabled people and their carers would complain about a perfectly professional, high-quality system?

Lord Freud: My Lords, the number of complaints against Atos is running at 0.57%, which compares, for example, with a figure of 3.5% for complaints about doctors to the General Medical Council. That is the level of complaint.

Baroness Wilkins: My Lords, 40% of those who go to appeal about an Atos assessment win their appeal. Will the Minister say what the cost of those tribunals has been and why the taxpayer should pay for the inadequacy of Atos’s assessments?

Lord Freud: My Lords, while the figure of 40% for those who go to appeal is roughly accurate, the total number of those found fit to work by the tribunal changes only 15% of that total. The reasons are usually to do with fresh evidence, which is either written or oral. The cost of that runs at about £11.3 million from the DWP’s perspective and £14.9 million from the point of view of the courts. That figure is for the first half of the current year.

Education: Vocational Education


2.45 pm

Asked by Baroness Jones of Whitchurch

To ask Her Majesty’s Government what steps they are taking to raise the status and quality of vocational education.

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The Parliamentary Under-Secretary of State for Schools (Lord Hill of Oareford): My Lords, we commissioned the Wolf review and have reformed vocational qualifications in order to restore rigour to them. We have announced reforms to post-16 funding for vocational education and work experience. We have increased the number of apprenticeships by nearly two-thirds. We have significantly expanded the UTC and studio schools programme. We will continue to open new UTCs, technical academies and studio schools, and will work to raise the quality of vocational education and the esteem in which it is held.

Baroness Jones of Whitchurch: I thank the Minister for that reply. Does he agree that it is vital that vocational education has the same status and funding as the purely academic education provided for those working towards a university place? Does he further agree with the recent report of the CBI that the raising of the school leaving age to 18 provides an ideal opportunity for a rethink on the curriculum and examination systems, which could then include a gold standard vocational qualification for those less suited to academia? What lessons will the department take from other successful countries, such as Germany, which offer all young people a mix of academic and vocational education according to their individual talents and abilities?

Lord Hill of Oareford: I strongly agree with the noble Baroness about the importance of making sure that vocational and academic qualifications have equal esteem, are held in equal regard and have equal funding. That is one of the reasons why the reforms to post-16 funding, which we brought forward in the summer, will make sure that young people at colleges and schools after the age of 16 will be funded on the same basis for both vocational and academic qualifications. That will also leave more money for work experience, which is important too. We can always learn from other countries but the underlying point is that there is broad agreement that we need to treat vocational and academic qualifications with equal weight. The Government are trying to do that.

Baroness Brinton: My Lords, given that employers, parents and students find the proliferating and bemusing qualifications a complete maze, does the Minister agree that the status of vocational education would be helped by a simplification of the qualifications framework, such as in Holland?

Lord Hill of Oareford: It is not just parents and employers who find them a maze, it is Ministers as well. They are extremely bewildering. My noble friend is right that simplification is called for. She will know that the Wolf review called for a great deal of simplification and a thinning out of qualifications. In terms of the value of those qualifications, it is important that we have effective and clear destination measures so that people can make judgments fairly and openly about the quality of the education being offered in different institutions.

Baroness McIntosh of Hudnall: My Lords, will the noble Lord consider expanding the notion of vocational education just a little bit to include those people

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whose vocation is in the arts, particularly those who wish to take up careers in the performing arts, for which they have to undertake very long and always very demanding training? Does he think that their needs are being served by the fact that the EBacc does not contain any reference to their subjects?

Lord Hill of Oareford: I agree very much with the noble Baroness about the importance of those subjects and disciplines and the rigour that they entail. In terms of the EBacc, I think she knows my view that the concentration on the small number of subjects leaves plenty of space for other important subjects that are not those six core subjects. I certainly agree that art, drama and music are important subjects which one would want to see children learning and thriving at.

Lord Roberts of Llandudno: My Lords, how alarmed is the Minister by the announcement that there has been a reduction in quality careers guidance in schools and colleges? What are the Government doing to rectify this essential provision, which we need if we are to have good vocational instruction?

Lord Hill of Oareford: I agree with my noble friend about the importance of good careers guidance. He will know that the Government have made a change by placing a duty on schools and colleges to make sure that young people have good-quality careers advice. Our funding reforms will also help to drive the take-up of good-quality work experience, particularly after the age of 16. The more that we can bring employers into the classroom and into colleges, and get them to help to shape the curriculum and qualifications, the better it will be in terms of helping those young people get good jobs.

Lord Reid of Cardowan: My Lords, given that we live in an increasingly cyberdominated world where digital and electronic communications will determine the future of this country and employment for many people, what particular efforts are being made to underpin the subjects of science, mathematics, electronics and engineering in the generation who will equip this future for the challenges of our economy in the next generation?

Lord Hill of Oareford: The noble Lord is absolutely right about the importance of those subjects in underpinning those disciplines and the increasing role that they will play in the economy. In order to encourage the skills to which the noble Lord referred: we are driving the take-up of maths and science in schools; recruiting excellent teachers of those subjects and paying them bigger bursaries to get them into teaching; taking forward the programme of university technical colleges, led by my noble friend Lord Baker, which have an emphasis on engineering skills; and my right honourable friend the Secretary of State has brought forward proposals to change the IT curriculum to make it much more open and led by people who know what they are talking about.

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Baroness Falkner of Margravine: My Lords, given that the German system was mentioned, is my noble friend aware that German schools are highly selective academically and that it is also possible to move between the vocational and academic sectors within the German framework? The system is very different and the selective part is not, I believe, a route that this country wants to go down.

Lord Hill of Oareford: What we are increasingly seeing in some of our own institutions—for instance, the UTCs to which I referred—is that it is possible in those where non-selective entrance is open for young people to study both academic and rigorous technical qualifications.



2.52 pm

Asked by Baroness Healy of Primrose Hill

To ask Her Majesty’s Government what funding they will make available to help young people with special educational needs to enter apprenticeships.

Baroness Garden of Frognal: My Lords, government funding is available for training apprentices of all ages, with full funding for those under 19 and partial funding for adults. We recognise that it may take longer for some learners with special educational needs and learning difficulties or disabilities to be ready to commence their apprenticeship, and enhanced funding is therefore available for some apprentices up to the age of 24. Additional learning support and access-to-work payments can also help with practical support. The Government have recently published an action plan to increase participation in apprenticeships by those with special educational needs.

Baroness Healy of Primrose Hill: Can I seek an assurance that the Government will amend their draft Children and Families Bill, which currently states that local authorities should no longer maintain an education, health and care plan for a young person if they are receiving training as part of an apprenticeship? Given the welcome proposal to replace the statement of special educational needs with the new EHC plan to cover young people up to 25 to help enable them to achieve their full potential, it would be wrong if the Government at the same time created a significant disincentive for young disabled people to enter an apprenticeship, if by doing so they lost essential support to live independently.

Baroness Garden of Frognal: The noble Baroness raises important points and she will be aware that we recently commissioned Peter Little to carry out a review of the accessibility of apprenticeships for disabled people and that we will be introducing the education, health and care plans in 2015 to help monitor the progress of young people on apprenticeships. We will also monitor the situation as we go on to make sure that those young people do not fall between the cracks.

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Lord Addington: My Lords, does the Minister agree that there has been a great deal of confusion around apprenticeships? I refer in particular to the status of dyslexics and whether they are allowed to take the final qualification. I draw attention to my interests here. Will my noble friend give an assurance that any examining body that fails to make reasonable adjustments will ultimately lose its ability to become an awarding body?

Baroness Garden of Frognal: I pay tribute to my noble friend, who for many years has been a doughty champion particularly of those with dyslexia, and who has raised awareness of the difficulties that they face. If there is a problem with access to assessment, as he described, it should be taken up first with the centre but also with the awarding body. There is a duty on all awarding bodies to make sure that access to assessment is appropriate to whatever the learning disability is. Certainly the final penalty that the body would pay would be to lose awarding-body status. However, one would hope that the duty it had to its students would kick in long before that happened.

Lord Young of Norwood Green: My Lords, will the Minister confirm whether her action plan includes government departments? Have the Government monitored the number of apprenticeships in government departments that are held by people with disabilities? If this is in the action plan, will the requirement be extended to public procurement contracts?

Baroness Garden of Frognal: My Lords, there is certainly an action plan to increase the number of apprentices with a disability throughout the workforce through all sorts of employers. Certainly, government employers will be included in that plan.

Lord Touhig: My Lords, further to the Answer that the Minister gave to my noble friend Lady Healy, on 6 November Mr Edward Thompson, the children’s Minister, speaking at the Education Select Committee about allowing health and education care plan funding to be used to help youngsters with special educational needs into apprenticeships, said:

“I think a strong case has been made for inclusion of apprenticeships. I am minded to include them in the scope of the Bill”.

Will the Minister say whether this is now government policy?

Baroness Garden of Frognal: I am not sure whether we have got to the point of making it government policy in the Bill, but the noble Lord will know that the Government have committed to take on board the action plan and the recommendations that have come from the Little report. We are looking at them at the moment and hope to implement them, which should make a great difference to the way in which employers are able to give apprenticeships to those with different forms of disability and also to the young people seeking to go down those pathways.

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EU: United Kingdom


2.57 pm

Asked by Lord Dykes

To ask Her Majesty’s Government what discussions they will hold with the Government of Germany regarding the future role of the United Kingdom in the European Union.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi): My Lords, Ministers will meet their German counterparts for the third time in January as part of the process of building bilateral co-operation between the cross-departmental European Affairs sub-committee and its German equivalent. We maintain regular bilateral contacts and discuss a wide range of EU-related issues. Noble Lords may be aware of the Foreign Secretary’s speech on the future of the European Union, which he made in Berlin alongside the German Foreign Minister and in which he underlined that the UK has played a leading role in forging EU policy and will continue to do so.

Lord Dykes: My Lords, I thank the Minister for that very positive Answer. She will have noticed in recent days that Germany—a very successful country that does not have our old-fashioned hang-ups about pretend sovereignty—seems to want us to be full-hearted members of the European Union. Does she not agree that there is a marvellous opportunity now for us to reach a sensible accord with Germany and with other leading member states—indeed, with all the member states of the Union—on the future of the extensive budget negotiations, allowing for a blend of financial discipline and important investment in infrastructure, without the Government worrying too much about a small number of Conservative MPs who have old-fashioned views on these matters, and about some UKIP candidates as well?

Baroness Warsi: My Lords, I know that there is a wide variety of opinions in this House, including on my Back Benches. All opinions in the House are valid in their own right. In relation to the budget negotiations, the Prime Minister will soon make a Statement about last week’s meeting. The Leader of the House of Lords will repeat the Statement later today, so it would be inappropriate for me to deal with that. On our relationship with Germany, I agree with my noble friend; we have a strong relationship. Germany is the UK’s second largest export market worldwide. The UK is Germany’s sixth largest trade partner. Great Britain is the first investment destination for German companies. Almost one in six of all foreign companies in Germany are British. There is a strong relationship that continues to grow.

Lord Clinton-Davis: Does the Government’s strategy of aligning Britain with the far right members of the EU alienate or befriend Germany?

Baroness Warsi: I am afraid I did not catch the question completely.

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Lord Clinton-Davis: What I asked is whether the Government’s strategy of aligning Britain with the far right members of the EU alienates or befriends Germany.

Baroness Warsi: I thank the noble Lord for the question but I disagree with the statement he makes; the Government are not aligning themselves with the far right in Europe.

Lord Dobbs: When my noble friend next has the opportunity, will she take one of her German colleagues to Athens, or indeed to any large city in Greece, to one of its hospitals where patients are not getting medical treatment? Or will she take them to one of its schools, where young children are fainting because of lack of nourishment? Or, even better, will she take them to the ports and airports of Greece where a huge queue of young, ambitious, successful people are desperate to get out of that poor country? Does she accept they are not getting the peace and prosperity they were promised but are instead seeing the death of democracy? There are some people on this side of the House who still take democracy as being a very important asset.

Baroness Warsi: I agree with the noble Lord, democratic legitimacy within the EU is absolutely crucial. A number of polls have shown a fall in contentment about being close to the decision-making within Europe. The noble Lord raises important points and this is why we must continue to play our role within Europe, continue to reform Europe and continue to make it relevant for today’s economies.

Lord Liddle: My Lords—

Lord Pearson of Rannoch: My Lords—

The Chancellor of the Duchy of Lancaster (Lord Strathclyde): My Lords, we have time. Perhaps we should hear the noble Lord, Lord Liddle, and then the noble Lord, Lord Pearson?

Lord Liddle: My Lords, all sides of this House want to see a very strong relationship with Germany and regard it as one of our leading partners in a European Union in which we want to play a leading role. However, does the Minister seriously believe that our ability to be taken seriously by Germany is enhanced by all the talk of renegotiation, looser relationships and referenda—maybe now two referenda, one before and one after the general election? When will the Government put a stop to this nonsense on their own Back Benches?

Baroness Warsi: My Lords, I do not believe the Government should ever step away from acting in what is Britain’s national interest. It is important that the UK sets out very clearly, with its German counterparts or any other member state within the EU, those areas on which we agree. With Germany we agree on the need for further competitiveness, the need to further the single market and the need for more free trade agreements. However, the coalition Government must also be bold and brave enough clearly and loudly to set out Britain’s national interest within the EU.

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Lord Pearson of Rannoch: My Lords, has the noble Baroness read yet another respectable analysis, this time from Professor Tim Congdon, which finds that our EU membership is costing us about 10% of GDP or £150 billion per annum? Is it not now obvious, even to Her Majesty’s Government, that our prosperous future lies outside the EU and free of control from the bloated octopus in Brussels?

Baroness Warsi: The noble Lord makes an important point but I do not intend to trade academic reports from the Dispatch Box. However, if he has the time, I shall be happy to give him a briefing on the economic importance of our continued membership of the EU.

Lord Phillips of Sudbury: My Lords, does my noble friend the Minister accept that the EU is hugely complicated and that by and large the citizens of this country have only a very partial understanding both of its status quo and of the arguments that now go on in this place? Can the Government do anything about reducing that gap in understanding?

Baroness Warsi: It is important that there is further and better understanding of Britain’s role in the European Union as well as the role of the European Union in the interests of Britain. However, there are certain matters that the public are entirely clear about. They were raised by all the political parties during the last general election, and they were that no further powers should pass to the European Union without the say-so of the British people. The coalition Government took that on board and it is why we introduced a referendum lock as part of the European Union Act passed last year.

Lord Tomlinson: Does the noble Baroness agree that far from making an important point, the noble Lord, Lord Pearson, made a point that would amount to the economic destruction of this country? Does she further agree that there is no future for Great Britain as a trading nation in the isolationism which she seems to support on her own Back Benches?

Baroness Warsi: My Lords, the coalition Government are clear that we believe that the best interests of Britain’s economic future will be served by being a member and part of the European Union, but I would also say that even though I may not agree with some of the points made by noble Lords, it should be said that they are important points which further the debate. That is why I have said that I am more than happy to put the contrary view to the noble Lord, which I hope he will take up.

Lord Stoddart of Swindon: Is it not odd that we should have a Question in this House asking whether the Government will hold discussions with the Government of Germany regarding the role of the United Kingdom in the European Union? I would have thought it would be very much better if the Government had a discussion with the voters of this country and let them say what they would prefer the future of Britain to be, either in or out of the European Union.

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Baroness Warsi: Various discussions are taking place at different levels. It is important that we should have a discussion with the people of this country and they made that clear before the last election in relation to what they expected this Government to do. That is why we introduced a referendum lock and why we are doing an audit of which powers should stay within the European Union and which competences we should fight to bring back. It is also why they wanted us to enter into tough budget negotiations, which the Prime Minister continues to do. However, I think that it is also important for us to have honest, frank and open conversations with other members of the European Union to ensure that we get the best reform possible so that the European Union acts in the best interests of all the member states, including Britain.

European Union (Approvals) Bill [HL]

First Reading

3.07 pm

A Bill to make provision approving for the purposes of section 8 of the European Union Act 2011 certain draft decisions under Article 352 of the Treaty on the functioning of the European Union; and to make provision approving for the purposes of section 7(3) of that Act a draft decision under Article 17(5) of the Treaty on European Union about the number of members of the European Commission.

The Bill was introduced by Baroness Warsi, read a first time and ordered to be printed.

Child Support Management of Payments and Arrears (Amendment) Regulations 2012

Motion to Approve

3.08 pm

Moved by Baroness Stowell of Beeston

That the draft regulations laid before the House on 15 October be approved.

Relevant document: 8th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 20 November.

Motion agreed.

Prisons (Interference with Wireless Telegraphy) Bill

Order of Commitment Discharged

3.08 pm

Moved by Lord Laming

That the order of commitment be discharged.

Lord Laming: My Lords, I understand that no amendments have been set down to 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.

26 Nov 2012 : Column 12

Financial Services Bill

Report (4th Day)

3.09 pm

Clause 23: Rules and guidance

Amendment 79B not moved.

Amendment 80

Moved by Lord Sassoon

80: Clause 23, page 87, line 28, at end insert—

“137DA Rules requiring participation in benchmark

(1) The power of the FCA to make general rules includes power to make rules requiring authorised persons to take specified steps in connection with the setting by a specified person of a specified benchmark.

(2) The rules may in particular—

(a) require authorised persons to whom the rules apply to provide information of a specified kind, or expressions of opinion as to specified matters, to persons determined in accordance with the rules;

(b) make provision about the form in which and the time by which any information or expression of opinion is to be provided;

(c) make provision by reference to any code or other document published by the person responsible for the setting of the benchmark or by any other person determined in accordance with the rules, as the code or other document has effect from time to time.

(3) Rules making provision of the kind mentioned in subsection (2)(c) may provide that the code of practice or other document is to be capable of affecting obligations imposed by the rules only if specified requirements are met in relation to it.

(4) In this section—

“benchmark” has the meaning given in section 22(6);

“specified” means specified in or determined in accordance with the rules.”

Amendment 80A (to Amendment 80) not moved.

Amendment 80B (to Amendment 80)

Moved by Lord Eatwell

80B: Clause 23, line 21, leave out “of practice”

Amendment 80B (to Amendment 80) agreed.

Amendments 80C and 80CA (to Amendment 80) not moved.

Amendment 80, as amended, agreed.

Amendment 80D not moved.

Amendments 81 to 83

Moved by Lord Sassoon

81: Clause 23, page 92, line 10, after “in” insert “or specified under”

82: Clause 23, page 93, line 12, leave out “section 397(5)(b)” and insert “the relevant exemption provisions”

83: Clause 23, page 93, line 19, at end insert—

“(4) “The relevant exemption provisions” are the following provisions of the Financial Services Act 2012—

(a) section (Misleading impressions)(9)(b);

(b) section (Misleading statements etc in relation to benchmarks)(4)(a).”

Amendments 81 to 83 agreed.

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Amendment 83ZA

Moved by Lord Sassoon

83ZA: Clause 23, page 95, line 29, leave out “must” and insert “may”

The Commercial Secretary to the Treasury (Lord Sassoon): There was a lot of approval for those amendments but not so many people are staying to listen to the fascinating start of today’s discussion on the important issue of financial promotions. The regulation of financial promotions may seem relatively minor in importance and impact when compared with some of the other major and systemic issues covered by the Bill but, in fact, the appropriate regulation of financial promotions to ensure that they are clear, fair and not misleading is absolutely vital. It is a first and essential step on the road to preventing consumer detriment happening in the first place.

The fundamental shortcoming of the current financial promotions regime is that in most cases the FSA is not able to publish the fact that it has asked a firm to withdraw a misleading promotion. The Government are committed to ensuring both that the regulator can and does take action in relation to inappropriate promotions and that the regulator is seen to be taking such action. However, as I said when we last discussed this power on 8 October, there may be circumstances when it is not necessary or appropriate to publish the information about a direction. For example, where the firm is able to explain to the FCA why the promotion is not in fact misleading, there is little purpose in the FCA being required to say, “We thought there was a problem with this promotion and required the firm to withdraw it in the short term, but we discussed it with the firm and were persuaded that the promotion was in fact acceptable”. This does not necessarily help the FCA, the firm in question or consumers.

In our discussions on 8 October, the noble Baroness, Lady Hayter of Kentish Town, expressed her support for the new financial promotions power but cautioned:

“We would not want to see it diminished in any way”.—[Official Report, 8 October 2012; col. 880.]

I share her view, and would like to reassure her that changing “must” to “may” here does not in any way undermine, diminish or weaken the power for the FCA to step in and require promotions which the FCA considers may be inappropriate to be withdrawn. It simply gives the regulator some helpful discretion as to how it approaches disclosure. I can confirm that we do not expect this amendment to result in any change of policy in how the regulator exercises the power to direct firms to withdraw inappropriate promotions. I hope that my explanation of the Government’s thinking in this area has been helpful to the House. I beg to move.

3.15 pm

Baroness Hayter of Kentish Town: My Lords, I thank the Minister for what I think he thought was reassurance on this amendment. Nevertheless, he will not be surprised to know that I still find it regrettable that it makes permissive, rather than obligatory, the

26 Nov 2012 : Column 14

publication of names and details where a firm has been obliged to withdraw a misleading advertisement rather than withdrawing it voluntarily.

At the very least we seek an assurance from the Minister that the default is publication, with non-publication being the exception, rather than each finding of misleading ads having then to consider whether publication of the fact should proceed. Otherwise, it is a complete reversal of what I think the Government seek to do. Had the Government accepted my amendment earlier, which would have introduced a code of conduct for financial services, we may have had to rely much less on this, because there would have been fewer ads to withdraw.

I will take only two seconds here. I was very interested to read on Thursday that the Chancellor of the Exchequer accepted the need for professional standards to keep banks’ behaviour in check. It is a shame that he did not tell his noble friends beforehand, otherwise perhaps the Minister could have accepted our amendments. Perhaps, in compensation, the Minister will take a moment when replying to indicate what sort of organisation the Chancellor envisaged should be set up to ensure professional standards in the banking industry.

This is of course relevant to the Bill because it is about preventing bad behaviour, whereas the amendment that the noble Lord has just moved is about dealing with something after the event. For the moment, will the Minister assure the House that the default position will be to publish the findings on misleading promotions, with details being withheld only in exceptional circumstances?

Lord Peston: Partly because of the noise I did not quite get all the argument that the noble Lord was putting forward. Is his argument that the FCA thought there was a problem, got involved, then heard some cogent reasoning from the firm concerned and therefore felt that there was no need for this to become public knowledge? That, I think, is the noble Lord’s argument, but there is one bit that troubles me. Would firms—and consumers, for that matter—not benefit if they knew about the problem and discovered that there was a good case for not proceeding with it? In other words, one of the things that we lose from not making what happened public is that, outside of this, no one gets to learn anything from what happens. Can I persuade the Minister just to respond to that?

I agree with my noble friend on the Front Bench, of course, that if we had had a code of conduct in the first place, along the lines that she suggested, we would not have a problem anyway.

Lord Hodgson of Astley Abbotts: I understand that my noble friend on the Front Bench is saying that you would not need to publicise it because there was no problem. All you would be doing is raising concerns in the minds of the consumer about a problem that in fact did not exist, because the regulator was satisfied by the explanation it had received from the firm in question. It would be entirely inappropriate to raise questions about a firm’s probity and behaviour when there was no problem in any case and the regulator was convinced of that fact.

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Lord Peston: That is totally—going back into the history of economic thought—to misunderstand the most fundamental contribution that Adam Smith made to economics, which is that it is the consumer who matters and not the firm. The noble Lord and several other noble Lords on that side have spent a large part of the debate on this Bill deciding that the firm was what mattered. The fact is that the consumer is what matters, and the consumer needs to know that there was a problem in principle even though it turns out that there was not a problem in fact. I think the noble Lord is also arguing that one is not allowed to speak twice because we are on Report—I thought he was shaking his head when I got to my feet again—but I had not yet finished. However, I am finished now.

Lord Sassoon: It did go through my mind to ask my noble friend Lord Newby to assure me that we were back on Report—because we went back into Committee mode for a bit last week—so I am grateful to the noble Lord, Lord Peston, for confirming that we are indeed on Report.

As I said in our previous discussion on professional standards, and as the noble Baroness knows full well, the Joint Committee of the two Houses is working away on this—indeed, I think it is sitting again this afternoon; I am looking around to see who is here and who is not in their place—and it will come forward with its suggestion as to what would be the appropriate body for professional standards.

Sadly, although professional standards are enormously important and they absolutely need to be raised in the industry, that does not mean that we do not need the construct that we are talking about in this clause. However, I can confirm to the noble Baroness that I expect that the default will be to publish and that there will be only limited circumstances, of which I have described one—although I cannot think of many others—in which it would wish not to publish. Indeed, other provisions in the Bill require the FSA to have regard to the desirability in more general terms of publishing as a back-stop.

Lord Barnett: Initially, I understood the Minister to say that the policy is the same after this amendment as before. I find that difficult to understand—if that is what he said. We are back to this “must” and “may” again. Saying that the FCA may publish such information is very different from saying that it must publish it. How does the Minister explain the fact that it is now only “may” and it is no different in policy?

Lord Sassoon: My Lords, as we have discussed before—and perhaps we will come back to it in other amendments over the next couple of sessions—the mere fact of putting in the Bill a statement with a “may” in it actually carries much more than the common-sense connotation of “may”; it holds up a presumption that something is going to happen in this area. Here, we are merely allowing a small amount of room for what my noble friend explained as circumstances in which we would all agree it was patently absurd to give the full decision, if in fact it was based on a misunderstanding and the problem has gone away

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and we are just seeking to do a bit of tidying-up based on reflection on a discussion of this very point in October.

Amendment 83ZA agreed.

Amendment 83A

Moved by Lord Flight

83A: Clause 23, page 95, line 45, at end insert—

“137S Limitation

Neither regulator may make rules that require any person to review, take action with regard to, pay compensation for or otherwise effect redress in relation to any transaction, sale, provision of advice, exercise of discretion or other act or omission where an action based on that event would fall outside the time limits prescribed under the Limitation Act 1980.”

Lord Flight: My Lords, I raised the issue of the 15-year longstop in Committee. The Minister gave me some comfort that the Treasury was looking at this.

I have always thought it unreasonable in principle that financial advisers should be picked on as a group not subject to the statute of limitations. A second-hand car dealer is subject to the statute of limitations, as are all sorts of other people who might sell people other products. It is particularly important right now because with RDR, there will be a large number of smaller financial advisers going out of business and wanting to close down their businesses. As long as the statute of limitations does not apply, those businesses have an open-ended possible liability.

A survey was done a while back by the Association of Professional Financial Advisers, which found that 75% of consumers thought there should be a limit applying to financial advisers. Interestingly, as many as 23% felt that all liabilities should cease once someone ceased to be a client of an adviser.

I am hopeful that the Minister may have something a little more explicit to tell the House today but my strong request is that this matter should be addressed now. If it is, it will make what is going to happen next year in terms of the impact of RDR a great deal more manageable. I beg to move.

Lord Phillips of Sudbury: Can I now intervene, as I intended to, before the noble Lord, Lord Flight, sits down?

Baroness Garden of Frognal: It has nothing to do with sitting down.

Lord Phillips of Sudbury: I thank my noble friend. I withdraw the sedentary remark. The noble Lord is experienced in these affairs, so can he assure the House that the situation will not arise where somebody with no financial sophistication whatever enters into arrangements with one of the agents about whom he is talking—for example, in respect of a pension—only to find 15 years later that there has been a gross failure of propriety?

Lord Flight: I do not entirely understand the circumstances that the noble Lord envisages. Someone may have been advised to take out a pension with one of the life companies through their financial adviser. It is possible that the individual’s circumstances, the law or the economic circumstances will change and

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that, with hindsight, the individual might have taken out a different sort of pension. At the end of the day, the life company is the provider of the pension and it is that company with which the individual will be dealing in their retirement. I think that a 15-year period is fair for a financial adviser, as it is for any other occupation in which an individual is engaged.

Lord Phillips of Sudbury: Very often a person taking out a pension, in particular, is wholly dependent upon the advice of the financial adviser.

Baroness Garden of Frognal: I remind my noble friend that on Report one may speak only once to any amendment.

Lord Flight: My Lords, the biggest contributors to messing up pensions over the past 15 years or so—making them so complicated—have been Governments. I was looking into my own pension arrangements and found that I could not understand them.

Baroness Garden of Frognal: I think that the rule applies also to the mover of the amendment.

Lord Peston: I am sorry; I am a bit lost on the procedure here. I was under the impression that if someone was moving an amendment he could be asked any number of questions and reply to them. When did we invent a rule that said that we could not ask questions and ask the person moving the amendment to answer them? I am not convinced that we are not making a new rule here. By the way, that is not my speech, which I am about to make.

Baroness Garden of Frognal: My Lords, on Report the mover may reply to any questions at the end but does not reply individually in the course of the debate.

Lord Peston: I hate to prolong this but I am not certain that that is right. How are we to conduct the clarification of the amendment if we do not get an answer to an early question in order to ask a later one? I am totally lost as to how we are handling this. We should not forget that this is an immensely complicated Bill and many of us have had great difficulties dealing with it. I have a question for the noble Lord, Lord Flight, just to clarify matters and it may be that someone else will build on that, but we are being told that we cannot do that. That does not seem to be a very helpful way of dealing with this Bill.

Baroness Garden of Frognal: I am sorry to intervene again on the noble Lord, Lord Peston, who has many more years of experience of this House than I do, but this is not the form that Report stage takes. The mover may reply to questions at the end of the debate, but the debate does not go backwards and forwards in the way that it does at other stages of the Bill.

3.30 pm

Lord Stewartby: My Lords, I must be very brief and I shall speak only once. I want to say something in support of my noble friend Lord Flight, who made a

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very strong case. I have never been able to understand why financial advisers alone have no longstop for their potential liability in future years. I hope that this opportunity of having legislation which is relevant can be taken to set that right.

Lord Peston: Perhaps I could just ask my question now, please. When the noble Lord, Lord Flight, talked about financial advisers, was he talking only about people who advise and receive a payment for their advice, or does his amendment cover those who give advice without payment?

Lord Flight: My Lords, if I am permitted—

A noble Lord: You are not.

Lord Flight: I think that I was interrupted right the way through, as a matter of fact.

Lord Eatwell: My Lords, the government Front Bench should calm down and allow us to conduct this discussion broadly under Report mechanisms but in a way which takes us forward on what, as my noble friend has said, is an enormously complicated Bill.

I am afraid that I think the proposal of the noble Lord, Lord Flight, is unfortunate and I cannot support it. It is unreasonable to provide this sort of protection to financial advisers, who should take full and appropriate care in the advice that they give. If they have taken full and appropriate care, they will be able to defend themselves at a later stage against the problem that the noble Lord, Lord Phillips, raised a few minutes ago, but I think it inappropriate that they should not be sensitive to potential comeback for advice which is inappropriate and misconceived.

Lord Newby: My Lords, when we debated this issue in Committee, my noble friend Lord Sassoon made it clear that this was an important issue for the regulator to review. The FSA has now committed to consider whether to investigate the case for a longstop as part of its business planning for 2014-15.

The amendment deals with the Limitation Act. It is important to be clear about both the nature of the issue and why I do not think that requiring the regulators to apply the Limitation Act when making rules provides the solution.

First, it is important to be clear that time limits apply for consumers bringing complaints to the FOS. These are: six years from the event that the consumer is complaining about, or, if later, three years after the consumer became aware, or ought to have become reasonably aware, that they had cause for complaint. The question which we are now debating is whether there should be a further absolute or overriding limit, possibly of 15 years. This is an extremely important question for the regulator to review and it is clear that it needs to take into account the particular features of financial services and financial service products in doing so.

When the FSA considered the issue previously, it noted that the long-term nature of some financial services products means that it can take many years for consumers to be made aware that they may have

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suffered detriment. An example from recent years includes inappropriate pension advice to switch from one investment or one type of pension to another. Consumers did not necessarily realise that this advice was inappropriate until many years later and as they approached retirement. This kind of advice was the subject of the FSA’s pensions review covering the period 1988 to 1994, and concerns about advice given in this period came to light only some years later. Advice from this period is still the subject of consumer complaints now.

It is important to realise that many of the matters that the FCA or PRA, or indeed the FOS, which is also relevant here, will be dealing with will not be subject to the Limitation Act at all. The Act applies to certain causes of action in private law, such as actions for breach of contract or negligence, but the FOS is required to determine cases by reference to what is,

“fair and reasonable in all the circumstances of the case”.

In some cases, there will be no private law course of action and so nothing for the Limitation Act to apply to.

It is also worth remembering that the Limitation Act is very context-specific legislation. Time limits vary considerably according to the nature of the claim; for example, the time limit for libel is one year whereas for negligence it is six years. The time limit also varies on the facts of the case. For example, it is extended in certain cases involving fraud or where the claimant has a disability. Even the 15-year, longstop period that applies in cases of negligence has exceptions—for example, for claims involving personal injury. Therefore, it would be particularly inappropriate as a guide for the FCA in its rule-making powers. It would be next to impossible for the FCA to know how the Limitation Act would apply to all the cases that could be subject to any proposed rule. Far from bringing the financial services into line with other sectors, we would, in our view, be failing to acknowledge that in financial services, as in other sectors, there are many claims to which the Limitation Act does not apply.

Having said that, the regulator will look again at the case for a longstop. In view of my arguments and this commitment by the regulator, I hope that my noble friend will feel able to withdraw his amendment.

Lord Flight: My Lords, the key point here is that, in setting the rules for the Financial Ombudsman Service, the FSA decided that no reasonable limit would be provided and that complaints should be brought for an unlimited period of time. This is effectively where the financial adviser industry does not, therefore, have the protection of the statute of limitations.

This area needs to be looked at urgently. I repeat that looking at it in Section 204 is not urgent enough because, assuming that the RDR reforms are not changed, a large number of financial advisers will be going out of business in 2013. For their clients, the best hope is that it will be possible to sell those businesses on to somebody else, but obviously none of them can be sold if there is an unknown exposure to complaints down the line. For better or worse, it is well known that the industry feels extremely upset about the fact that it is picked on in this particular way.

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I can see that I will not be able to persuade the Government to do anything immediately and that what we have is at least better than nothing. However, I repeat my exhortation that the Government should consider working with the FSA for a greater urgency in this matter so as it might be addressed coincidently with the RDR. I beg leave to withdraw the amendment.

Amendment 83A withdrawn.

Amendment 84

Moved by Lord Newby

84: Clause 23, page 98, leave out line 14

Amendment 84 agreed.

Amendment 84A

Moved by Lord Hodgson of Astley Abbotts

84A: Clause 23, page 99, line 40, at end insert “or under section 138KA(2)”

Lord Hodgson of Astley Abbotts: My Lords, I shall speak also to Amendments 84B and 116A. This issue has arisen since we went through this part of the Bill in Committee. I seek some ministerial reassurance. It concerns common investment funds and common deposit funds. These provide means by which charities—particularly smaller charities—can access financial expertise that they could not do on their own, in essence by entering into some form of pooling arrangement. The advantage, therefore, is that they can hire a more sophisticated and expert manager than they might be able to do on their own because they are small and, by pooling, they can also possibly obtain reduced fees.

I declare an interest as chairman of the Armed Forces Charities Advisory Committee, which is a common investment fund with some £200 million under management and acts for several hundred small, individual service charities from the Army, the Navy and the Air Force. In part, I am the author of my own misfortune because the investment activities of these groups are undertaken by FSA-regulated firms but the actual vehicles are regulated by the Charity Commission. In my review of the Charities Act, I recommended that they should be transferred to the Financial Services Authority, because they are clearly investment vehicles and, although the Charity Commission is a splendid body of men and women, it is not equipped to undertake financial regulation. I have concerns about the future of those groups in our brave new world.

Briefly, common deposit funds are often seen as money market funds, but they are not, because they are not unitised. Each depositor has an aligned deposit for the individual charity. They do not pay out all the interest; they can therefore accumulate modest reserves over time. The amendment enables them to lend at longer maturities; they do not have to lend it all at very short maturities. In consequence, because they always have a leaner operating structure, they can offer better rates of interest to their participating charities. For example, at the end of September 2012, the average common deposit fund interest rate was 1.075%, compared to general availability of 0.627%. That is an improvement

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of about 0.5%, which is obviously valuable to charities in these days of very low interest rates. They are widely used; there are 160,000 registered charities, but there were 44,000 depositors in those funds at the end of September, and 93% of them have less than £100,000 as the deposit.

What is the problem? The problem is that it is a very small group indeed. There are only four deposit funds and no more will be created. The reassurance I seek from my noble friend is that the FCA will be sympathetic to that group amid all the other pressures that it will face after it becomes empowered. Will it be prepared to consider innovation even-handedly, or will one size fits all be the default option? If it were to impose one size fits all, which would probably be to treat them as money market funds, the funds would have to unitise. They would have to pay out all their reserves and therefore not be able to offer the improved interest rates that they can now.

These three amendments are an attempt to fly some air cover over common investment funds and common deposit funds. The amendments apply to both CIFs and CDFs. They would require the FCA or the PRA to consult on any rule which applies to CIFs and CDFs, to have regard to any representations made and to carry out an impact assessment considering the differences between CIFs, CDFs and CISs. Amendment 116A gives the Treasury the power to exempt CIFs and CDFs from any relevant provisions made under FiSMA 2000. The effect of inserting a consultation clause at the bottom of page 102 is to oblige the FCA to consider the particular features of those two instruments and to empower the Treasury to exempt them from rules that the FCA and the PRA may wish to make under the alternative investment fund managers directive, where it is willing to do so.

As I said, they are modest amendments for a small group of funds, but they are designed to protect them because they are performing a very useful service. I regard how they are in fact treated in the brave new world as a true test of all the FCA’s fine words about facilitating innovation. I look for my noble friend’s reassurance on that, and I beg to move.

Lord Phillips of Sudbury: My Lords, I support, dot and comma, everything that the noble Lord, Lord Hodgson, said. The three amendments in this group are couched in prudent terms that give discretion to the FCA to recognise the fact that, to use the adage, one size does not fit all. If there is in this world one great gulf, it is between some of the more sophisticated, City-type deposit funds and, at the other side of the sea, those of charities. The discretion is confined expressly to charities, or funds, I should say, established under the Charities Act 1960, the Charities Act 1993 or the Charities Act 2011, which, in my view, provides the necessary reassurance that this cannot be a horse that runs wild. I hope, therefore, that the Government will feel free to accept this group of amendments.

Lord Newby: My Lords, I have just discovered that I need to declare an interest in relation to these amendments. I have been looking at the small number of existing CDFs, and I see that one of them is the

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Church of England Deposit Fund, which I suspect is a significant part of the Church of England’s investment. This almost certainly means that my wife’s pension depends on this fund doing well. So, speaking personally, I have every incentive to ensure that these funds are appropriately regulated. In any event, I was minded to declare an interest.

I shall take the amendments in turn. In his report on the review of the Charities Act 2006, my noble friend recommended that:

“Regulation of Common Investment and Common Deposit Funds should pass from the Charity Commission to the FSA, as the Commission does not have the expertise to regulate what are primarily financial products (albeit only available to charities)”.

He has set out today why he has concerns that the regulatory approach by the PRA or FCA may not be appropriate for these very specific structures. The amendments would require the regulators to set out, as part of their consultation, where they see rules or requirements having a particular impact on CIFs or CDFs, and gives the Treasury the power to disapply requirements that apply to collective investment schemes. I will briefly set out why I think that these amendments are not appropriate or necessary, while agreeing absolutely with the thrust of my noble friend’s sentiments about them.

First, we do not believe that they are appropriate because they pre-empt the decision on whether the regulation of CIFs and CDFs should be transferred to the FSA, and later the new regulators. The Government have not yet responded to my noble friend’s report, and I do not want to use this debate on one of his proposals to pre-empt the full and proper response to the report as a whole which the Government will publish soon. In addition, in his report my noble friend notes that the Treasury,

“is already considering how best to reform the regulation of CIFs and CDFs as part of their work to implement the Alternative Investment Fund Managers Directive (AIFMD), and as part of this are considering possible legislative opportunities”.

That is, of course, correct and the Government will therefore set out their position on this matter when they consult on their approach on implementing the AIFMD early in the new year and respond to my noble friend’s report at that point.

I do not think that these amendments are necessary or appropriate even if the regulation of these funds moves across to the FCA. They are not necessary because the regulator already has to take a proportionate approach, sensitive to the needs and goals of different types of financial institutions and the needs and objectives of different consumers. Earlier on Report we debated and approved two government amendments requiring the FCA to have regard to the differing expectations of different consumers and to the desirability of exercising its functions in a way that recognises the differences in the nature and objectives of different businesses. While we were talking at that point principally about various social investment vehicles, the thoughts and principles which underlay our tabling of those amendments apply equally to these amendments; namely, that this is a specific small sector that needs to be dealt with differently from the rest of regulation and that the FCA needs to know from the start that it is expected to show sensitivity and proportionality in dealing with these different and

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rather unusual categories. That is what our amendments seek to achieve and we are confident that they will have that effect.

The regulators will have other tools to consider the needs of individual institutions, such as the ones that we are talking about under these amendments. For example, they can issue a waiver from a rule, meaning that a particular firm does not have to comply with a requirement, or issue a modification to a rule that enables the applicant to comply with an amended rule that better fits its own circumstances. All applications for waivers or modifications are considered on their individual merits, and there is no reason why rules that apply appropriately to other, larger and different sorts of funds should necessarily apply to the funds that we are discussing now, because the waiver can be brought into effect. There is therefore no need to give the Treasury the kind of power envisaged by Amendment 116A, which would cut across the independence of the regulator. I hope that I have been able to persuade my noble friend that we are sympathetic to what he is seeking to achieve and that we believe that the amendments we have put into the Bill will achieve the objectives that he is seeking. I hope that, in the light of that, he will feel able to withdraw his amendments.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful for that extensive and full reply, and I appreciate its sympathetic tone. I also recognise that we have had two amendments from the Government in Committee and on Report, broadening, and better addressing, the issue of social investment. My concern remains that, in the heavy-hitting consultation on things like the alternative investment fund managers directive, small battalions will get lost. However, the Minister has said that the Treasury and the FCA will be sensitive and proportionate, and I suppose that is as far as we are going to get today. I am grateful for that small step, and we shall be watching to see how sensitive and proportionate they are. In the mean time, I beg leave to withdraw the amendment.

Amendment 84A withdrawn.

Amendment 84B not moved.

Amendments 85 and 86

Moved by Lord Sassoon

85: Clause 23, page 103, leave out lines 13 and 14

86: Clause 23, page 105, leave out lines 20 and 21 and insert “to its functions under the short selling regulation.”

Amendments 85 and 86 agreed.

Amendment 86A

Moved by Baroness Hayter of Kentish Town

86A: Clause 23, page 107, line 38, at end insert—

“140CA Co-ordination with FCA on exercise of functions to promote competition

(1) The FCA and the competition authority must coordinate the exercise of their functions to promote competition in financial services.

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(2) The FCA and the competition authority must prepare and maintain a memorandum of understanding which describes the role of each regulator in relation to promoting competition in financial services markets.

(3) The memorandum of understanding should make clear the OFT will only conduct a market study into a financial services market within the regulatory remit of the FCA in exceptional circumstances.

(4) The regulator must publish in such manner as it thinks fit the memorandum of understanding.”

Baroness Hayter of Kentish Town: My Lords, in moving this amendment standing in my name and that of my noble friend Lord Eatwell, I can hardly do better than quote directly from the Association of British Insurers. The association supports the new rule for the financial services regulator to promote competition in financial services because it believes that properly functioning, competitive markets can deliver good outcomes for consumers. However, the ABI urges further consideration of the practical implications of the FCA’s enhanced role in ensuring such competition. Given that the OFT, and later the CMA, will retain general competition law powers and the right to conduct market studies in financial services, there is, says the ABI, a risk of duplication and/or a lack of co-ordination between the two bodies. Uncertainty about the expected role of the two organisations is unlikely to lead to good regulation either for the industry or consumers. The ABI therefore thinks that the FCA and the OFT should be subject to a statutory duty to co-operate and to produce a memorandum of understanding. While the FSA and the OFT have voluntarily published an MoU, this will become a “must have” when the FCA receives its enhanced competition remit. The MoU should be a statutory requirement and should make clear that the FCA would normally take the lead on competition matters in financial services, with the OFT undertaking market studies only in exceptional circumstances. While the OFT and the Competition Commission and, later, the CMA would lead on enforcing the Competition Act—for example, over cartels—it would be the FCA, as the specialist regulator, that would be best placed to conduct analysis of financial services markets and pursue any necessary regulatory changes. It is for these reasons that the ABI has supported Amendment 86A.

Those in this House who are also following the Enterprise and Regulatory Reform Bill, which will bring about the merger of the OFT and the Competition Commission into the CMA, will have been struck by the comments in government briefings on financial services. The BIS papers on the ERR Bill stress the FCA’s stronger role in promoting competition compared to the FSA at the moment. It notes that both the CMA—the Competition Markets Authority—and the FCA will regulate financial services, with the FCA being the lead regulator and the roles of the two bodies therefore complementary. BIS goes on to state that the FCA will have a mechanism to make sure that the CMA’s powers and expertise are brought to bear in financial services. The CMA will have a mechanism to review competition in financial services and to recommend that the FCA takes action. Indeed, the FCA will have a power of referral to the OFT which will not prevent the FCA taking the lead in addressing competition issues where it is better placed to do so. I hope that noble Lords are all following this.

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The FCA will also be required to respond to any recommendation given by the competition authorities. Furthermore, under the Enterprise and Regulatory Reform Bill, the CMA will be able to appoint a third party to monitor the implementation and compliance of remedies. Within financial services, we assume that the FCA could be one such third party where this is deemed appropriate by it and the CMA.

As must be clear from the briefings from BIS, which I assume noble Lords from HMT have also read, there are major competition issues within the financial sector, yet the ERR Bill regrettably makes no mention of the uncompetitive nature of the banking sector, which is highly damaging to our economy. We are all aware of the denial of access to finance being experienced by SMEs. We need a more diverse and competitive banking system, and the PRA, FCA and CMA simply must address this if the financial sector is to serve the wider economy. Neither the Bill before us today nor the ERR Bill indicates how this issue will be tackled, but tackled it must be. It must be crystal clear, as BIS says in its note, that the FCA and CMA will need a memorandum of understanding.

It is not enough for such a vital document to exist on a voluntary basis. It should be a requirement. Equally important, it should be visible to all with an interest and should therefore be published by both parties. In due course, I will seek to lay this responsibility on the CMA under the ERR Bill. Today, we seek to lay it on the FCA in this amendment. Similarly, I will in due course propose that the CMA has an obligation to co-ordinate its work with the FCA. Today, we ask the equivalent of the FCA. I beg to move.

Viscount Trenchard: My Lords, I support the amendment because I believe that there is too little in the Bill about the maintenance of competition. It is too confused. I personally regret that the PRA has no need to have regard to the maintenance of the competitiveness of the market place. The co-ordination between the FCA and the CMA, as the amendment would require, would help to concentrate minds on exactly how important competitiveness is and to increase awareness among consumers as well as firms and participants. That competition is extremely important and must be maintained and, where possible, enhanced. The amendment would help in that regard and I am inclined to support it.

4 pm

Lord Peston: My Lords, Report is a very late stage of a Bill. I must confess that one of the benefits of my noble friend’s amendment is that I realise yet again that I do not understand a vital section of the Bill. Before elaborating on that, I will say that I entirely agree with the noble Viscount, Lord Trenchard, that competitiveness in this area, as in virtually every other area, is of the essence. If we are interested in protecting the consumer, the best way of doing that is with competition between the suppliers of whatever is being supplied.

My noble friend’s amendment is about co-ordination of the FCA and the competition authorities. My difficulty—and I am sure that I am at fault, and not the drafters of the Bill—is that this whole section of

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the Bill does not seem to be specifically about the relationship between, in this case, the regulator and the competition authorities, or about the provision of financial services. I am puzzled, and so the Minister replying from the Front Bench could help me a great deal if he explains why subsection (5), lines 33-35, refers to,

“the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom”.

In other words, it looks as if this is a directive to I do not know who, to do with competition throughout the economy. It does not say “through the acquisition of financial services”, let alone my noble friend’s additionally vital point: financial services and banking services. I therefore make a plea for clarification of what this is about.

The central question is that although we favour competition, the one area we do not favour is competition between the regulators and the competition authorities. If there is one area where competition would not be appropriate, it is that one. They need to get their act together and decide who does what. What bothers me is that, even within the context of my noble friend’s amendment, it is not clear what the memorandum of understanding would have as its basic principle. Wearing my economics hat, I am inclined to say that when it comes to competition the dominant authority should be the competition authority. I am not sure whether my noble friend took that view, or whether he left it as an open question, but it is certainly something on which we need to take a view.

I can find no other way of interpreting the Bill, because it is all about advice to the regulator. My reading of the Bill is that the role of the competition authority is to warn the regulator that what you are doing may distort, limit and damage competition generally. In other words, the lead body in this is the competition authority. I put these as statements, but they are meant to be put interrogatively. In order to understand this section of the Bill, I would like to know the answers to my questions. Who is to take the lead on this? Who has most responsibility to promote competition, and who must therefore take heed of the other if what they are doing will damage competition?

I am sorry that this is all a bit convoluted, but I am not to blame for that. What is to blame is that this Bill is a mess, as my noble friend Lord Barnett and I keep pointing out. It was drafted too quickly, it has not been thought through, and there is no better example of that than this section.

Lord Phillips of Sudbury: My Lords, I understand why this amendment has been brought forward. My concern is that the FCA has three operational objectives under new Section 1B(3) to be inserted into FiSMA; namely, consumer protection, integrity and competition. I am not entirely satisfied that Amendment 86A necessarily protects the integrity objective. I have been concerned throughout the Bill that, as between these three objectives, integrity is the absolute necessity of any financial market and has been woefully lacking in recent years. If the Minister has a view on whether Amendment 86A respects the integrity objective, I am sure that the House will be grateful to know the Government’s view. Otherwise, I am concerned on that basis.

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Lord Borrie: Perhaps I may intervene for a moment to indicate that I feel that the basic principle—the opening words—of this amendment is extremely sensible and well worth while because it is concerned with the co-ordination of functions of two separate bodies which might otherwise conflict. Therefore, the notion that they should devise a memorandum of understanding seems very sensible.

I have to say to my respected and noble friend Lady Hayter that I am not sure that she has explained why, under new Section 140CA(3) to be inserted into FiSMA under Amendment 86A, it should be only in “exceptional circumstances” that the OFT should conduct a market study into financial services. On the face of it, that seems a sensible matter. It must be based on the notion that the Financial Conduct Authority has the greater experience, the greater expertise and the greater knowledge of matters affecting its remit.

However, in some cases where there is a need for an inquiry, known as a market study, into an anti-competitive practice of some sort, the greater experience may rest with the competition authority rather than with the FCA. It may not have come across, let us say, predatory pricing, cartels or some other aspect of anti-competitive activity, whereas the OFT might have a lot of experience on the matter.

In summary, co-ordination of the two authorities seems a sensible way of working and a memorandum of understanding is a sensible way to deal with it. But I am not sure why only in “exceptional circumstances” should the lead be taken by the FCA.

Lord Barnett: My Lords, this whole section implies that the regulator is not necessarily the OFT. I thought that the regulator of the Competition Commission was the OFT. I am now totally bemused as to whether the OFT or the FCA is the main regulator.

Lord Peston: The FCA is the regulator.

Lord Barnett: The FCA is the regulator but the OFT is referred to throughout this section of the Bill. Now, under new Section 140A, we have the FCA as well. This new section is headed, “Interpretation”, which should be interpreting for us—although I am blessed if I am interpreted in that sense. Consultation between the bodies must be sensible. I assumed that that would happen and I assume that the Minister will tell us that this amendment again is unnecessary and therefore should not be in the Bill. The officials should reply to this debate because only they understand what is being talked about because they drafted it. I assume that the Minister was not responsible for the drafting: he has enough to do without drafting a Bill of this size.

Who is the regulator here? If it is the FCA, what is the OFT doing? Perhaps the Minister will tell us. Who is the lead regulator? Is it the FCA, as is implied here, or the OFT? I am totally confused but, no doubt, he will be able to explain everything because it is written there in front of him.

Lord Newby: My Lords, perhaps I may deal first with the amendments and then come on to some of the specific points that noble Lords have made about them.

26 Nov 2012 : Column 28

The amendment and Amendment 106ZB would require the FCA to put in place a statutory MoU with the competition authority. Amendment 86A would additionally restrict the competition authority to carrying out market studies in financial services markets only in exceptional circumstances.

Amendment 106ZA seeks to provide for market investigation reference powers for the FCA. There are differing views on whether the FCA should have market investigation powers. The Government accepted the recommendation of the Treasury Select Committee that the case for MIR powers had not yet been made and that the issue should be reviewed when the FCA had bedded into that new role. The Bill instead gives the FCA a power to make a reference to the OFT or, in future, the Competition and Markets Authority, which would be very similar to a market investigation reference power but would leave the decision over whether to launch a second phase of investigation with the OFT or the Competition and Markets Authority. The OFT may choose to make an MIR without carrying out a further market study of its own, thereby avoiding duplication and delay.

However, before the FCA has fully bedded into its new role, it is important that the OFT, which has established competition experience and a track record of making MIRs, does not step back from competition scrutiny of financial services markets. It will of course be important that the FCA and OFT co-ordinate closely. We obviously agree with Amendment 106ZB in that respect. The FSA and OFT already have an MoU in place and are working to put in place a new MoU for the FCA. There is therefore no need for statutory provision to make this happen. There will be an MoU that deals with the issue of co-ordination on all these matters. We think that that amendment is unnecessary, because it is happening already.

Amendment 86A goes further than merely requiring an MoU and seeks to restrict the competition authority to carrying out market studies only in exceptional circumstances. However that is too rigid an approach. The underlying focus should be on the promotion of effective competition in the interests of consumers, and tying the competition authority’s hands is not the way to achieve that.

In terms of who takes the lead and is best qualified to do so, the comments of the noble Lord, Lord Borrie, answer that question. There will be some areas where the competition authority is simply best placed to take the lead, when compared to the financial regulators, because the competition authority has had decades of experience of that. We do not want to throw away all that experience by being too prescriptive about who takes the lead.

As to the specific comments that noble Lords have made, I was extremely grateful to the noble Baroness, Lady Hayter, for referring to the clear BIS advice, which not all noble Lords will have heard before. I am sure that she will agree with me, and they will agree with her, that it was very helpful.

In terms of competition and making sure that there are more new entrants into the financial services market, not least in banking, we have had this debate at every stage of the Bill. The Government have made it clear

26 Nov 2012 : Column 29

that they are extremely keen to see greater competition, not least in banking, but that is not done by putting detailed rules into the Bill, other than a general rule to promote competition; it is something for the regulators to reflect in changed rule-making powers of their own.

The noble Viscount, Lord Trenchard, reinforced the view that we need to promote competition. This is an example of how we are trying to make sure that the legislation goes far enough in this area. The noble Lord will be aware that under a government amendment debated last week, the PRA will be required to have regard to competition as one of its objectives. This has been a long-discussed point: will the PRA be so risk averse that it chokes off competition or will it not? We hope that by agreeing the amendment a few days ago, we made it clear that competition is absolutely central, and that everybody in the regulatory environment, including the PRA, will have to take it seriously.

The noble Lord, Lord Peston, asked about the reference in new Section 140B(5) on page 107 to the,

“acquisition of any goods or services”.

It does not say “financial services”, but the subsection relates to new Section 140B(4) above it. These matters all relate to the actions of the regulators, who have powers only in relation to financial services. The whole context of the subsection relates to financial services.

4.15 pm

Lord Peston: I am having great difficulty remembering what the rules are. If the Government meant that, why did they not say it? The subsection refers to “any goods or services”, not “any financial services” or “only financial services”. I assumed that it had a meaning, but the Minister is now telling me that it does not. Is he sure that he wants to give the answer that he is giving?

Lord Newby: My Lords, I am sure that the phrase has a meaning, and I like to think that it is the meaning that I just ascribed to it. I will look at it again, and if I find that I have misled the noble Lord and the House, I will write to him. As with so much of the Bill, this is an extremely technical section. However, I am assured and believe that it relates only to the financial services sector.

I referred to the comments of the noble Lord, Lord Borrie, about the importance of allowing the competition bodies to take the lead in certain cases. That in part answered the question of the noble Lord, Lord Barnett, about who was the main regulator. The main regulator is the body that is best capable of dealing with each issue. In some cases that will be the FCA, and in others, it will be the OFT or its successor. For the time being, the OFT and its successor and the FCA will have powers in this area. The logical thing is to let them exercise those powers in the way that will use their experience most effectively.

Lord Peston: The Minister does not seem to have answered my other main question. The title of the new section is,

“Advice about effect of regulating provision or practice”.

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It refers to advice that the competition authority gives to the regulator; that is what the section is about. Am I right in my interpretation that the section is about the activities of the regulator in damaging competition, rather than about the activities of financial services providers? I sought clarification from the Minister on whether the words in the new section mean what clearly they say about advice from the competition authorities to the regulator. That is what it says.

Lord Newby: And, my Lords, that is what it means.

Baroness Hayter of Kentish Town: My Lords, I thank the noble Lord, Lord Newby, for making my case. He said that who the lead regulator is will depend on the issue. The bodies will have to work closely together. The one thing that he did not explain was why on earth we should not write into the Bill that the two regulators should co-ordinate and have a memorandum of understanding. It seems a simple point.

I thank the noble Lords, Lord Trenchard and Lord Phillips, and my noble friends Lord Peston and Lord Barnett, for their support. I also thank my noble friend Lord Borrie, whose advice, given that he was director general of the OFT, I take seriously. The last of the three amendments does not touch on the difficult issue he raised, that is, laying down who does what. It basically says there should be a MoU between these two very important issues. The Minister says not to worry, that there is one and they are working on it, but in the interests of transparency, I would have preferred to see it statutory and therefore published. However he is clearly not going to give way on that, so I fear I must. I beg leave to withdraw the amendment.

Amendment 86A withdrawn.

Bank of England


4.21 pm

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

“Mr Speaker, I would like the House of Commons to be the first to know about the future leadership of the Bank of England and the identity of its new governor. Sir Mervyn King has served as the current governor with great distinction and unquestioned integrity for almost a decade, five years of which have been during the most difficult period of economic policy-making of the modern age. He will continue to do his vital work until 30 June next year and there will be opportunities then to thank him for his service to our country.

Today’s task is to appoint his successor in good time, and in good order. We have, for the first time in the history of the Bank, advertised the post, invited applications and put together an experienced panel to interview potential candidates. I would like to thank my permanent secretary, Sir Nicholas Macpherson, and the chairman of the Court of the Bank of England, Sir David Lees, for conducting this new, open process

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in a very professional way. I also want to thank the many individuals who put themselves forward for the job. I have myself interviewed in London all the very distinguished candidates shortlisted by the panel for the job, any one of whom would have made a good governor. I have made my recommendation to the Prime Minister, who in turn, has made the same recommendation to the Queen. She has today approved the appointment.

I can tell Parliament and the public that the next Governor of the Bank of England is to be Mark Carney. He is currently governor of the central Bank of Canada and chair of the world’s Financial Stability Board. He is quite simply the best, most experienced and most qualified person in the world to be the next Governor of the Bank of England and to help steer Britain’s families and businesses through these difficult economic times. Britain needs the very best at a time like this and in Mark Carney we have him. Mr Carney is unique among the potential candidates in combining long experience of central banking, huge international credibility in economics, deep expertise in financial regulation and a first-hand experience of private sector financial institutions. He is acknowledged as the outstanding central banker of his generation, and I believe he will bring the strong leadership and external experience that the Bank itself needs as it takes on its heavy new responsibilities for regulating our banking system.

In that respect, Mr Carney will bring a fresh new perspective. During his five years as the Canadian bank governor, Canada is acknowledged to have weathered the economic storm better than any other major western economy. Bank bailouts have been avoided. Sustained growth has returned. It says something of Mark Carney’s abilities and the regard he is held in that he was chosen by his fellow central bank governors and regulators around the world to be the chair of the Financial Stability Board, the body that is tasked with strengthening and co-ordinating global financial regulation. This gives him the experience to bring better regulation to the world’s largest global financial centre here in London, and other financial centres across the UK.

Subject to the views of other members of the board, he could expect to remain chair of the FSB until 2018. While the appointment as governor will be for eight years, Mark Carney has indicated that he intends to serve for five years and to stand down at the end of 2018. This will align with the timing of his role at the FSB, and reflects the fact that by then he would have served for 10 years as a central bank governor.

I have spoken to my opposite number in Canada, Finance Minister Jim Flaherty, and the Prime Minister has spoken to the Canadian Prime Minister. As you would expect from one of our closest friends and allies, I am grateful for the constructive way they have handled this transition. Mark Carney will continue as central bank governor of Canada until the end of May next year, and my Statement today is matched by a simultaneous announcement in Ottawa at a press conference held by Mr Carney and the Canadian Finance Minister. He will be answering questions about his decision to take this new job, but he has made clear

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that he will not be commenting at length on British economic policy until he takes up his new post on 1 July 2013.

There is one exception to that. Mr Carney has said to me that he would like to come to appear before the Treasury Select Committee at a mutually convenient time for a pre-commencement hearing, where he will of course expect rigorous questioning about British monetary and financial policy. This will be the first time ever that a new governor has appeared before a committee of this House before their term of office begins.

His pay and benefits are a matter for the non-executive members of the Court of the Bank of England. The chair of the Court, Sir David Lees, has today confirmed that Mr Carney will be paid a total pay and pension that is broadly equivalent to the current governor’s salary and membership of the now closed pension scheme available to the current governor and deputy governors. This package is lower than other senior regulators like the recent chief executive of the Financial Services Authority, even though the Bank now takes on many of that organisation’s responsibilities, and it is less than the current chief executive of the Financial Conduct Authority. As Mr Carney is moving from Canada with his wife and four children, the non-executive members of the Court of the Bank of England have said that they will consider in addition a relocation and accommodation package which you would expect with such moves.

Mark Carney is not a British citizen, but he is a subject of the Queen. His wife is British and his four children have dual British citizenship, and he has lived, worked and studied in Britain for a decade. While not required of the role, he will apply for British citizenship in the normal way, with no special favours.

Let me also say something about the Deputy Governor for Monetary Stability, Dr Charlie Bean, whose term in office expires at the same time as that of Mervyn King. Charlie Bean is a world class macroeconomist and a powerful voice on the Monetary Policy Committee. To ensure a smooth transition next year, he has agreed to my request that he serve for one more year as deputy governor. I am most grateful to Charlie Bean for his continuing service.

The role that the Bank of England plays in our economy cannot be underestimated. It is tasked with keeping prices under control. It sets interest rates which affect what homeowners pay for their mortgages and businesses for their loans. And following this Government’s reforms, it plays a lead role in keeping our banking system safe. My job brings with it many responsibilities, but few are greater than ensuring that the next Governor of the Bank of England is a person of real quality. Mark Carney is a quality governor. He is the outstanding central banker of his generation with unparalleled expertise in financial regulation. He will bring a fresh perspective. He has got what it takes to help British families and businesses through these incredibly challenging economic times. My responsibility was to get the best for Britain, and with Mark Carney we have that. I commend his appointment to the House and to the country”.

My Lords, that concludes the Statement.

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4.28 pm

Lord Eatwell: My Lords, I thank the noble Lord, Lord Sassoon, for repeating the Chancellor of the Exchequer’s Statement, and I commend the Chancellor and the Government on their choice of the new Governor of the Bank of England, Mr Carney. Perhaps the noble Lord could let us know why the Government have brought forward the announcement of this post, which we were told on several occasions by the Treasury would be included in the Autumn Statement. What motivated the decision to bring the announcement forward?

We have been discussing the role of the Governor of the Bank of England extensively during the passage of the Financial Services Bill, which is before your Lordships’ House right at this moment. One of the issues that have dominated our discussion of the role of the governor is the extraordinary number of responsibilities which are going to be heaped upon him by this Bill. The Chancellor has said that Mr Carney will maintain his position as chair of the Financial Stability Board, which is also a very onerous job at the very centre of international financial regulation, especially innovation in financial regulation. Are the Government really content that it is appropriate for all these tasks to be heaped upon one individual or have they received assurances from Mr Carney of plans to spread the load somewhat among his deputy governors when he actually assumes these very heavy responsibilities?

In this respect, I wonder what commitments the Governor-elect may have given with respect to the future organisation of the Bank to ensure that it is properly accountable in a way that the Financial Services Bill, which is before us, does not ensure? For example, have the Government examined the structure of accountability of the Bank of Canada? They would find that there are much more rigorous procedures in place than those that we are currently putting in place for the Bank of England.

We on this side are delighted that Mr Carney has requested that he have a pre-commencement hearing before the Treasury Select Committee. Do the Government now recognise that this should be a standard form for senior appointments of this type at the Bank and, indeed, at the major regulators being put in place by the Financial Services Bill?

The Government will be aware that in August Mr Carney was asked whether he was a candidate for the governorship of the Bank of England. He replied, “No, never”. Can the noble Lord, Lord Sassoon, enlighten us as to what led Mr Carney to this fortunate change of mind?

Finally, I am delighted that the Chancellor took the opportunity to pay suitable credit to the current Governor, my former colleague and friend, Mervyn King. I, too, look forward to the opportunity of thanking him in an appropriate way when he retires from his position. However, in the mean time, I return to my first comment and congratulate the Government on the appointment they have made.

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Lord Sassoon: I am very grateful to the noble Lord, Lord Eatwell, for commending the appointment. I am pleased that he recognises what a great catch Mark Carney is for the Bank and the country. To answer the noble Lord’s last question first, he ought to ask Mr Carney directly about his change of mind. However, as the noble Lord says, we are very fortunate that he did change his mind.

On the other questions, there was no question of bringing the announcement forward. My right honourable friend the Chancellor has always said that he sought to complete the appointment process by the end of the year. I do not believe that there was any statement to say that the announcement would be made in the Autumn Statement or at any time; people may have been speculating on that, but it was pure speculation.

The noble Lord, Lord Eatwell, asked about Mr Carney’s role as chair of the Financial Stability Board. At the moment, Mr Carney combines being chair of the Financial Stability Board with being a central bank governor, so he is quite used to doing the two things. The main thing is that, subject to his term on the FSB being renewed—as I would expect it to be—it is very good news for the United Kingdom that we will have a Governor of the Bank of England who is also taking this lead central role through the Financial Stability Board in the G20’s leadership of the future shape of financial regulation globally.

The first time I had the pleasure of working with Mr Carney was when, in earlier lives, he and I sat on the predecessor body, the Financial Stability Forum, so I know from my own direct experience going back over 10 years what a contribution he has made over a long period. He will, of course, be very well supported by three deputy governors in the Bank of England on the important and wide-ranging responsibilities that he will have. One of the things that the interview panel will have looked at is Mr Carney’s management experience, which is unquestioned in his present job. I believe he will be able to combine his responsibilities.

As for accountability, the key thing is not so much how other countries do it but whether we have got the right accountability for the Governor and the Bank in the new structure. We have spent many hours, quite rightly, in the heart of the Financial Services Bill, that we are considering again this afternoon, to get that right. Most importantly, partly as a consequence of the debates in your Lordships’ House, we have introduced the oversight committee of non-executive directors, which introduces an important new strand of accountability that has not been present hitherto in the Bank.

Lastly, the important thing is that for the first time a Governor of the Bank of England will go through—has volunteered to go through—a pre-commencement hearing with the Treasury Select Committee. That is a major step. I am not going to offer thoughts on what other cases it may be appropriate for, but in this case, it is breaking new ground and totally appropriate. However, the main thing here is that I am very grateful to the noble Lord, Lord Eatwell, for confirming, as I am sure the whole House will agree, that this is an extraordinarily good appointment of the best available person.

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4.37 pm

Lord Sharkey: I thank the Minister for repeating the Statement and congratulate the Government on the appointment of Mr Carney. I send congratulations from these Benches, and perhaps commiserations too, to Mr Carney.

I note that two weeks ago, in a speech to the Canadian Club of Montreal, Mr Carney addressed the question of whether we have ended “too big to fail”. He concluded by saying that it is not yet clear that it has been ended. He said, quite explicitly, that each “global systemically important” financial institution,

“ must have mandatory recovery and resolution plans”

in place. I look forward to discussing Mr Carney’s views on this subject with the Minister when Report stage of the Financial Services Bill resumes later this afternoon.

Lord Sassoon: I am grateful to my noble friend and look forward to our further discussions on that important topic later this afternoon.

Lord Cormack: My Lords, does this prove that “never” is a short time in politics?

Lord Sassoon: And, it seems, in central banking as well.

Financial Services Bill

Report (4th Day) (Continued)

4.38 pm

Clause 24 : Short selling rules

Amendments 87 and 88

Moved by Lord Sassoon

87: Clause 24, page 110, line 2, leave out from “Authority”” to end of line 3 and insert “or “Authority’s” in each place substitute “FCA” or “FCA’s”.”

88: Clause 24, page 110, line 4, leave out subsection (2) and insert—

“(2) Subsection (1) does not affect references to “the competent authority”.”

Amendments 87 and 88 agreed.

Clause 25 : Control over authorised persons

Amendment 89

Moved by Lord Sassoon

89: Clause 25, page 111, line 20, at end insert “or 3IA”

Amendment 89 agreed.

Lord Tunnicliffe: Will the Government please consider the timetabling? It is unreasonable to call the next amendment when Members are expecting the House to be in the middle of the second Statement, which should have started immediately after the first one. The only sensible option is to adjourn during pleasure.

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Baroness Garden of Frognal: I beg to move that further consideration on Report be adjourned during pleasure for 10 minutes.

4.39 pm

Sitting suspended.

European Council


4.49 pm

The Chancellor of the Duchy of Lancaster (Lord Strathclyde): My Lords, this might be a convenient moment to repeat a Statement on the European Council made a few minutes ago in the House of Commons by the Prime Minister. The Statement is as follows:

“Last week’s Council was unable to reach agreement on a seven-year budget framework. This Government rejected a proposal that would have risked UK taxpayers paying for unaffordable increases in the EU’s annual budgets. We did so together with like-minded allies from a number of different countries. As net contributors to the EU, these countries—like Britain—write the cheques. Together, we had a very clear message: we are not going to be tough on budgets at home and then sign up to big increases in European spending in Brussels.

Let me explain to the House the proposal we rejected, why a deal is still doable, why it is still in our interests to work to achieve that deal, and why throughout these negotiations I will continue to protect the UK’s rebate.

Our objective for EU spending in the seven years to 2020 is clear: we want to see spending reduced and will insist on at least a real-terms freeze. As the House knows, the actual EU budget is negotiated annually. What we were negotiating in Brussels last week—and will return to again next year—is the overall framework for the next seven years, which includes the overall ceilings on what can be spent.

During the previous negotiation, which covered the period 2007-13, the previous Government increased the payments ceiling by 8%. The commitments ceiling was effectively set at €994 billion—well above the level of actual spending. It was a bit like having a credit card limit far above what you can afford. It was an open invitation to the EU’s big spenders to push for higher and higher spending every year, and we are still paying the price for that decision.

This year, 2013, the Commission and European Parliament are attempting to grow the annual budget by another 6.8%. I am determined to get these ceilings down in line with what we can afford. Prior to the Council, the Commission produced a ludicrous proposal for increasing the commitments ceiling still further to over €1 trillion. We said no. The Cypriot presidency produced a slightly lower proposal. Going in to the Council, the President of the Council, Herman Van Rompuy, produced a new proposal: this time, a ceiling of €973 billion.

As you can see, we were making progress in getting the ceilings down. But as I and other leaders made clear, it was not enough. We set out a number of very

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reasonable ways in which the seven-year ceiling could be reduced even further, by tens of billions more. What was disappointing at the Council was that, having heard these proposals, the President offered a new proposal that failed to reduce significantly the previous total, and simply redistributed money to buy off different countries.

In a seven-year budget of almost €1 trillion, the idea that there are no real savings to be found is simply not credible. For example, when it came to the bureaucratic costs of the European Commission, not a single euro in administrative savings was offered—not one euro. We need to cut unaffordable spending. The deal on the table was not good enough and that is why we—and others—rejected it.

However, we believe that a deal is still doable. There is absolutely no reason why we should not be able to reduce the seven-year ceiling down to the level needed. There is plenty of scope for significant savings in the common agricultural policy and the structural and cohesion funds, but there are savings to be had in the rest of the budget as well. For example, freezing the ceilings for security, justice and external spending would allow €7.5 billion of additional savings. There are some programmes, like Connecting Europe, which have enormous proposed increases in their budget that can be radically scaled back.

As I have said before, there is simply no excuse for not taking a much tougher approach towards the EU’s administrative costs. The EU institutions have simply got to adjust to the real world. A 10% cut in the overall pay bill would save almost €3 billion. Relaxing the rules on automatic promotion at the European Commission would save €1.5 billion. Reducing the extraordinary generosity of the special tax rules for Brussels staff—the levy—could save around another €1 billion. Changes to pension rights could save another €1.5 billion. These are all perfectly reasonable proposals. That is why a deal is still doable, and we will push hard for these reductions when negotiations resume next year.

Briefly, let me be clear about why we want a deal. If no deal is reached, the existing ceilings are simply rolled over and annual budgets are negotiated on a year-by-year basis, taking account of those ceilings. Crucially, we would not get the reduction that we need in the seven-year budget ceilings negotiated by the previous Government. The credit-card limit would stay beyond what is affordable, tens of billions of euros higher than the deal that we actually rejected at this council. It is in our interest to get a deal. That deal must not come at any cost. We must not lock in unaffordable ceilings for the next seven years. If necessary, we may have to galvanise a coalition of like-minded countries to deliver budgetary restraint through annual budget negotiations each year.

Finally, let me say a word about the UK’s rebate. As well as ensuring fairness in terms of the overall size of the EU budget, it is also essential to ensure fairness in the net contributions to that budget that each country makes. At this council we faced, as ever, determined pressure from many sides for our rebate to be slashed. The changes on the table in the proposal in front of us

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would have cost the UK more than a billion euros every year, but I was clear that all of this was completely unacceptable.

Britain more than pays its way in Europe. On a per capita basis Britain is the 11th richest nation and yet as a share of our national income we are the third largest contributor and that is with the rebate, or what remains of it after so much was given away by the previous Government. Without it we would have the largest contribution in the European Union, double that of France and almost one-and-a-half times as large as Italy’s or Germany’s. That would be completely unfair. It is why Margaret Thatcher was right to fight so hard to win the British rebate. It is why the previous Labour Government did this country such a disservice in agreeing to give part of it away. It is why no Government that I lead will ever put that British rebate back up for negotiation.

We have put a marker down at this council. We stood up for the taxpayer. Together with like-minded allies we rejected unacceptable increases in European spending and we protected the UK’s rebate. We are fighting hard for the best deal for Britain and that is what we will continue to do. I commend this Statement to the House”.

My Lords, that concludes the Statement.

4.57 pm

Baroness Royall of Blaisdon: My Lords, I am grateful to the noble Lord the Leader of the House for repeating the Statement give to the other place by the Prime Minister. Clearly this is not the first EU budget negotiation to go into a second round and it will not be the last. However, the most important question is the deal that is eventually delivered. I would like to ask the noble Lord three main questions about the budget level, what the budget is spent on and the Government’s negotiating position.

On the budget level, we on these Benches were surprised by one omission in the Statement? Somehow the Prime Minister seemed to forget to thank the Members of the other place for sending him into the talks with the strongest negotiating mandate. The Government now say that there is a widespread support in Europe for a tough settlement. Can the Leader of the House say what proposals there are for meeting the call in the other place for a real-terms cut? Does the noble Lord the Leader of the House agree that the truth is that the Government should have been starting to build the alliances for a real-terms cut in spending a long time ago? The Government should have spent the last two and a half years building alliances rather than alienating our partners.

In relation to the deal that still needs to be done, can the Leader of the House confirm in precise terms what the Government mean by a real-terms freeze? We have the Government’s definition, set out by the then Economic Secretary in her memo of 16 July 2011, that is to say a European budget of €885 billion in actual payments over the seven-year commitment period. Will the Leader of the House confirm that that remains the Government’s position?

Then we have the composition of the budget, which is as important as the budget level itself. We need to reshape the budget so that it supports jobs and growth

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with investment in infrastructure, energy, and research and development, which would be of real benefit to the people of this country and of Europe as a whole.

The Prime Minister has in the past called for major reform of the Common Agricultural Policy and as he arrived in Brussels for this Council meeting, he said that this is not “a time for tinkering”. Indeed. The Prime Minister said at his press conference on Friday:

“Already being contemplated is a big cut in agricultural spending … Our point has been you don’t have to go beyond that”.

Will the Leader of the House explain what the “big cut” is that the Government are talking about? Will he confirm that the proposal on the table sees agricultural spending remaining on average at 38.3% of the European budget over a seven-year period—almost exactly the same level as it is now? Do the Government really believe that this is the major reform required? Does the Leader of the House agree that, what is even worse, in order to keep agricultural subsidies high, money is being taken from much needed investment in energy and other infrastructure? Will he say whether the Prime Minister objected to this part of the proposal?

As we anticipate the further negotiations in the months ahead, the wider stance of the Government towards the EU will clearly have an impact. The Prime Minister says that he is in favour of us remaining a member of the EU, which I of course welcome, but, last month, the Education Secretary briefed that he was open to leaving the EU. The Work and Pensions Secretary is said to be of the same view, while only on Saturday the chairman of the Conservative Party said that we should threaten to leave. Today, we have the new vice-chair of the Conservative Party touring the studios not about a budget deal but about doing a deal with UKIP. Do the Government believe that these divisions help or hinder our national interest in delivering a budget deal? Why at this time of continuing negotiations is the Prime Minister allowing members of his Cabinet openly to undermine his own position on membership of the European Union?

It is no wonder that everyone, from British business to our European allies, believes that we are drifting towards exit. As we look ahead to the next round of the budget negotiations, the reality of the position seems to be that the Prime Minister has a divided party on Europe and that, instead of confronting the issue, he is just letting the problem get worse.

A good part of the Statement was spent talking about the deal that the Prime Minister did not do, but it is what the Government deliver for Britain which really matters. I believe that, as long as the Prime Minister allows his party to drag him towards the exit door, the Government will find it harder to build lasting alliances and far harder, therefore, to deliver for the national interest.

5.01 pm

Lord Strathclyde: My Lords, I am increasingly at a loss to understand the noble Baroness’s party’s position on our great European home, particularly given her background in the European Commission. What did it do when it was in government? The Government in whose Cabinet she sat waved through above-inflation

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hikes to the previous EU budget; they gave away £7 billion of our rebate; they failed utterly and completely to get CAP reform in return; and they would not even use the veto to protect Britain’s interests. All that goes on top of the promise in 2005, let us not forget, of a referendum on the Lisbon treaty. As soon as they got in, they forgot all about that.

The noble Baroness, speaking on behalf of the Labour Party, said that we do not have an alliance. The only reason that we are having this kind of Statement today is that we have a strong alliance. We have the Dutch, the Swedes, the Danes, the Finns and the Germans all backing our position. I would rather be with them on this issue than with the Labour Party. One might well ask where Labour’s alliance is on all this. It seems to be muddled, with its leader in the European Parliament asking for more money in stark contrast to the leadership demonstrated by—

Baroness Royall of Blaisdon: My Lords, I should point out that Labour MEPs in the European Parliament, led very ably, voted together with the Conservative Members of the European Parliament against an increase and in favour of a freeze.

Lord Strathclyde: My Lords, it is amazing how quickly policy changes in the Labour Party when it is in opposition, but its leader in Europe called for us to contribute £1 billion more to the EU. Its MEPs voted against freezing last year’s budget at 2010 levels and its group in the Parliament has called for a 5% budget hike and new EU taxes. And then to our rebate—

Baroness Royall of Blaisdon: My Lords, that is not true. The leader of the group of European Socialists may well have voted in that way, but the leader of the British Socialists in the European Parliament, Glenis Willmott MEP, voted against, together with all British Labour MEPs.

Lord Strathclyde: My Lords, I now wholly understand why I was confused. It just depends what kind of European Parliament socialist you are talking about. The noble Baroness also asked me about the real-terms freeze. We are of course in the middle of what will clearly be protracted and complicated negotiations. It is not possible for me to follow the noble Baroness into the detail of the numbers but we have said that we believe there is scope to reach agreement on a real-terms freeze, which would be a commendable objective to achieve. Furthermore, on the composition of the budget, if you look at the figures on agricultural policy, we were happy to go along with a cut from €336 billion to around €270 billion, which, with an added contribution from the Commission’s administration savings, would have been sufficient. However, for some other European colleagues, that was a cut too far on the CAP and it was not accepted.

I finish by dealing with the conclusions of the noble Baroness. She accused us of trying to do backdoor deals with UKIP. I can confirm that there are no backdoor deals with UKIP or indeed with anybody else. As for the Prime Minister being undermined by members of the Cabinet, I absolutely assure the noble

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Baroness that he does not feel in the least bit undermined by anything that anybody has said because we have a completely united view that we should operate with British interests and in the best interests of the British taxpayer. That is what happened at the end of last week in the European Council budget negotiations and it is what we will continue doing in the future.

5.06 pm

Lord Dholakia: My Lords, I thank my noble friend for repeating the Statement in your Lordships’ House. Does he accept that under no circumstances should we deviate from a real-terms freeze and that we cannot support a real increase in EU spend at a time when there is deep fiscal tightening in the United Kingdom and indeed across Europe, with British taxpayers seriously feeling the pinch? Does he also agree that this is not the time for political opportunism? Government figures show that the UK household is, on average, up to £3,300 a year better off as a result of increased UK trading with the EU through the single market. There are 3.5 million more UK jobs and the cost of living is some £480 a year cheaper per person as a result of EU-wide competition driving down the cost of goods and services.

Lord Strathclyde: My Lords, it is always good to hear my noble friend and his reiteration of the case for us being a member of the European Union, with the benefits that being part of the single market gives the British economy and indeed European consumers right across the Union. I also agree with what he said about our negotiating position. It is extremely important to get a message over to the European Commission that the days of continual increases in the budget have to come to an end. It is no longer possible for Governments to argue for reductions in their own national budgets while agreeing to extend those budgets in the European Union.

Lord Williamson of Horton: My Lords, I declare an interest in that I spent a good part of my career on European affairs in the British Government and some part of it in the European Commission. It is difficult to comment decisively on a negotiation that is not finished but will apparently be resumed in January in order to seek to agree on a multiannual budget framework for the EU. I know of course that, if agreement is not reached, we shall have annual budgets, so there will not be a deadlock. There will, however, be high costs, so we have to be attentive to that. There has also been talk about the British rebate—and there always is whenever there are EU financial negotiations. Can the Minister once again confirm that the UK rebate is subject to unanimity, that it cannot be changed without our agreement and that it is indeed an intrinsic part of the financial arrangements of the European Union?

The two key points of the negotiation of the noble Baroness, Lady Thatcher, in which I participated, was that the UK would receive a substantial amount of money—by the end of 2010, the British taxpayer had received £68 billion, which is well worth having—and that the rebate could not be taken away by qualified majority. My view is that we can sleep easy on that point.

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Lord Strathclyde: My Lords, it is always good to hear from the noble Lord, Lord Williamson, who brings to this House a good deal of experience and knowledge from having held such a senior position within the Commission. I agree that it is very difficult to comment decisively at this stage, as we do not have the normal conclusions that we would have at this time, and the negotiations are to continue. The noble Lord is also right to point out what happens if we end up with an annual budget, annual negotiations and annual rerating. I can confirm his understanding—I expect that that is his understanding because he was there when it was originally negotiated—that the UK rebate can be changed only if everyone agrees. In other words, I can confirm that it is subject to unanimity.

Lord Grenfell: My Lords, one question that has not been answered needs answering. Where are the Government’s red lines in the next negotiations? We do not know; perhaps the Government do not know. If at the next round in January, or whenever it is to be, no compromise can be found, or it is a compromise that does not match what the Government feel they can accept, what are the Government going to do? Will they veto the whole thing or what? We do not know—perhaps the noble Lord does not know—but let us at least get an idea of where those red lines might be.

Lord Strathclyde: My Lords, I do not think it is sensible to go into every negotiation with a public view of what your ultimate red line might be. We have been clear that what is needed is, at best, a cut—

Lord Grenfell: I am sorry, but on the Lisbon treaty we went into negotiations with red lines; they were very firmly laid out.

Lord Strathclyde: My Lords, if I may revert to a sad period in our history, that negotiation was subject to the agreement of the British people. As soon as the Labour Party won the election, it reneged on that arrangement. The noble Lord himself voted against giving the British people a choice. If they had had a choice, we may have ended up with something rather different.

Going back to the noble Lord’s original question, we feel that what is needed is, at best, a cut and, at worst, a real freeze to actual payment levels. Of course, we are still in negotiation. We will continue to have those negotiations until we start discussing it again. Noble Lords would not expect us to get into specific figures.

Lord Howell of Guildford: Does my noble friend agree that this firm line from the Prime Minister has opened up an extremely healthy and much-needed debate on the future structure of the European Union—the so-called overall framework, which, as presently deployed, creates constant upward pressure on spending, which all parties deplore? It appears that we have many allies in taking the view that European reform is needed. Does my noble friend therefore agree that, if we can develop a view about how the European Union’s overcentralised and outdated structure can be reformed, not only will we begin to have many allies throughout

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Europe but we ought to have the support of all sensible people in this House and elsewhere who want us to play a leading part in a modernised Europe that is fit for purpose in the 21st century?

Lord Strathclyde: My noble friend reiterates a position that he has held for some time. Indeed, he has been very much in the vanguard of this thinking. I agree that there is a lot wrong with the centralised, bureaucratised and expensive European Commission and how it operates that needs to be sorted out. The EU itself faces its own internal crises, not least within the countries of the eurozone, but all that is an opportunity for those who think like my noble friend to come forward with proper modernisation, as he called it—proper reforms that I believe would command a great deal of support within both Houses of Parliament and throughout the rest of Europe. He is right in saying that my right honourable friend the Prime Minister is dealing with these negotiations in entirely the correct manner.

Lord Davies of Stamford: My Lords, has the noble Lord ever considered that our national influence in Brussels on this and other subjects would be enhanced—and therefore the national interest would be advanced—if the Government occasionally displayed some real, positive commitment towards our membership of the European Union, or even actual enthusiasm for it, rather than constantly carping, complaining and often threatening to leave? Would not such a more positive attitude better reflect the interests of the British people? Almost every subject on which the people of this country feel most strongly—whether it is prosperity within the single market, the future of world trade negotiations, our ability to respond to the challenge of climate change, our ability to cope with the threats of organised crime and terrorism, or the future peace and stability of our own region and regions around us on this planet—depends for its resolution on a cohesive and successful European Union. That must be part of the solution, not part of the problem, as the Government keep trying falsely to represent.

Lord Strathclyde: My Lords, I think that the noble Lord is unduly pessimistic and that he exaggerates. There is no threat to leave; not from the Prime Minister, not from the Foreign Secretary, not from me—

Lord Davies of Stamford: Mr Gove.

Lord Strathclyde: Nor from anybody else. There are those who suggest that at some stage there might need to be a referendum, and there may, but we will need to see what that will be about. On the contrary, I think that the noble Lord has completely misunderstood: we are very positive about the European Union, but a Europe which is cohesive and successful does not need to be bureaucratic, centralising and expensive. One needs only to hear my noble friend Lord Howell of Guildford talking with such enthusiasm about what a reformed Europe could look like to know the truth of that. I think that the noble Lord, Lord Davies, has exaggerated the position of the Government.

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Lord Stoddart of Swindon: My Lords, I have read the Statement and it seems to me to be an interim Statement. The Prime Minister is saying, “Not a penny more and, if possible, a lot less”. I raise two points. The first concerns the position of the European Parliament, which seems to have a lot to say about expenditure but of course has no power to raise the money. I believe that the Prime Minister should be pointing out that those who raise the money—in other words, the nation states—should have the most say. My other point concerns the rebate and the report that sets out very clearly what a reduction in the rebate would mean for British taxpayers. I hope that the Leader of the House can promise that the Prime Minister will not do what his predecessor did and give away some £1 billion of our rebate for nothing tangible in return.

Lord Strathclyde: My Lords, I totally agree with the noble Lord’s concluding remarks. The Prime Minister has made it absolutely plain—if the noble Lord, Lord Grenfell, wanted a red-line issue, here is a red-line issue—that he will not surrender any part of the rebate. The rebate is absolutely crucial. There is a good reason for doing so: the last time a proportion of the rebate was surrendered by Mr Blair, he got absolutely nothing in return. It was a very positive act by the then Prime Minister, but it did not help the relationship or the further negotiations with the EU; quite the contrary.

I also agree with what the noble Lord said about the nation states. There is increasingly a division between the net contributors and the net benefactors within the EU, and it must be right that those who pay the most are listened to very carefully during these negotiations, which is why the UK finds itself not isolated over the course of the weekend but with some good friends who agree that these issues need to be debated and discussed in full and that reform needs to come.

Lord Lea of Crondall: My Lords, many of us have savoured the vision of Mrs Merkel swooning at Mr Cameron’s feet—as they say in Manchester, “A likely story”. I have two questions. The first is whether there is still some debate about what a freeze actually means. Where is the wriggle room in this debate? Is it to do with the price indices or the distance between the median amount in the present seven years and in the next seven, presumably with some prediction about price increases, or is it a freeze on where expenditure has now got to in 2012?

The second question is this: on the contrast in the Prime Minister’s Statement between the freeze that he is looking for in Brussels and the “big cuts” in Britain, is it not the case that in Britain there is a balance and, while the cuts are certainly very damaging, part of the result of the zero or very slow growth is that with rising unemployment and expenditure on social security, disappointing returns to the Treasury from corporation tax and so on, the OBR and the Red Book both state that in real terms we are now on a plateau, absolutely level, and will be for three or four years, and in money terms we are creeping up? If I am wrong on that, could the noble Lord write to me and put a copy in the Library, or does he accept that in real terms a freeze is actually roughly where we are in Britain as well?

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Lord Strathclyde: My Lords, I am not entirely certain where the noble Lord is coming from. I am very happy to write to him, but we are fully supportive of the EU growth agenda. We want the single market to work; we want to extend it to make it deeper with better enforcement and better implementation. We want to increase the scope for the digital single market and e-commerce, and we want a far more ambitious programme of deregulation, which we believe will help growth. We are fully in favour of the EU’s stance on free trade and trade with countries in the world, particularly with South Korea, Canada and Singapore. All this is in large part due to the influence and pressure that we in this country have exerted

We can get ourselves in a terrible pickle over what we mean by a real-terms freeze and which figures we are looking at, but we have been clear that we would like a cut and, at worst, a real freeze to actual payment levels—it is those levels that count; we want to protect the rebate; and we want no new taxes to finance the MFF. These are the key issues, but if I can clarify any of that in a letter to the noble Lord, I will certainly do so.

Lord Elton: My Lords, the Statement came across as though the Government regarded a real-terms freeze as the best possible option. Given that, across Europe, Governments are actually having to reduce expenditure, could one not expect something rather better than that: a real-terms reduction?

Lord Strathclyde: My Lords, that would be very attractive and definitely worth going for. However, I expect that while we might go for, at best, a cut, we may need to settle for, at worst, a real freeze to actual payment levels.

Lord Pearson of Rannoch: My Lords, I press the noble Lord on two agreeable exchanges he had with his noble friends, the noble Lords, Lord Howell and Lord Dholakia. The noble Lord, Lord Howell, agreed that reform of the EU would be a wonderful thing. Does the Leader of the House agree that to get any reform of the European Union, to retrieve a comma from the treaties of Rome, requires unanimity among all 27 members? Secondly, on the claim of the noble Lord, Lord Dholakia, that 3 million jobs depend on our membership of the European Union, I thought that we had killed this old chestnut some years ago. Does the Leader of the House agree that we do indeed have 3 million jobs, making and exporting things to clients within the European Union, but they have 4.5 million jobs making and exporting things to us and we are in fact their largest client? Were we to leave the European Union, there is no prospect of any of our jobs being lost. On the contrary, millions of jobs would be created because we would be set free from the clutches of this corrupt octopus.

Lord Strathclyde: My Lords, I do not think that the noble Lord has slain this particular chestnut, if that is not mixing my metaphors too much. The fact is that an enormous amount of jobs in this country are linked to our membership of the EU through exports

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to the EU. However, the noble Lord may wish to take heart that, despite tough conditions, British exports of goods have increased in the past two years to China by 72%, to India by 94% and to Russia by 109%. So we can get the best of all worlds: we can have rising exports, better trade within the single market and better trade with the rest of the world.

I think that my noble friend—I am sorry, the noble Lord, Lord Pearson—

Noble Lords: Oh!

Lord Strathclyde: I will get to my noble friends in a moment. The noble Lord was trying to create an artificial difference between my noble friends Lord Dholakia and Lord Howell of Guildford, of which I think there is none. In the coming months, we will find that the British Government are forceful in looking at ways in which some of the competences that are currently held in the EU could be returned to the United Kingdom.