This is about giving the individual the space to consider their position. It gives them time.
Lord Burnett: Will my noble friend assure the House that no advice should be given to an employee by the law firm or firms acting for the company itself or any other law firm connected with the company?
Viscount Younger of Leckie: My noble friend makes an excellent point. That is absolutely true. I can confirm that if any legal firms are connected at all with the employer seeking to employ the employee shareholder, they will not be permitted to give legal advice.
Returning to the individuals, as I was saying, it gives them time not to be pressurised into accepting a contract and an opportunity to think about what the contract will mean to them. An individual cannot become an employee shareholder unless this and all the other criteria set out in the clause are met. This package of amendments means that an individual who has chosen to apply for and been offered an employee shareholder job has the information, advice and time that they need to consider whether the job is right for them.
I now turn to the amendment tabled today by the noble Lord, Lord Lea of Crondall. We do not believe that such provision within the clause is necessary. We believe that it should be up to employers to recruit as they see fit, and if companies want to recruit an employee shareholder, as they already do for employees or workers, they should be able to do so.
I take a moment to clarify points that have been raised repeatedly in both Houses. In the debates about this clause, it has been stated that the shares issued to the individual could be worthless. I should like to make it absolutely clear that shares issued as part of the employee shareholder status must be worth at least £2,000. The shares must be fully paid up by the employer and the clause also prevents the individual paying for them.
I understand the concerns raised by my noble friend Lord Forsyth in relation to valuing shares. As I have made clear previously, established practices are in place that cover this. Let me repeat, we recognise that for private companies there is no traded market which enables easy valuation of shares. Private company shares are valued for many different reasons—for example, when someone leaves the company and wants to sell shares, or following the death of a shareholder or if the company is to be sold. Practitioners such as actuaries and accountants undertake this work using standard methods to reach a valuation. They will consider such things as examining the company’s performance and financial status as shown in its accounts for a period up to the date of valuation. They may also consider future plans of the company, by looking at order books and analysing future commitments.
If a private company is considering issuing new shares as part of an employee shareholder scheme, it will probably be taking advice from its accountant, who will be able to advise on how best to value the shares to be issued. In this case, the company will be able to demonstrate how the valuation has been made to the individual. In addition, I reassure the House that we will not allow individuals to use this employment status for tax avoidance.
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My first point is that some of the mischiefs that may be causing concern are already prevented by existing tax rules. There are rules that prevent, for example, the manipulation of share value so that it is inflated. They help safeguard against abuse by those who are seeking to obtain disproportionate capital gains.
My second point that I would like to reiterate is that the Finance Bill, published on 28 March and currently progressing through the House, includes a number of stringent anti-avoidance rules. These will
prevent those who have a substantial interest in a company from benefiting from any tax advantages, as they may otherwise use the status to secure tax advantages for themselves or family members. There are also rules to safeguard against a person exploiting the tax advantages available through multiple use of the arrangement involving connected companies.
There have been concerns that highly paid employees in companies that are already well established may look to take on the maximum share ownership available in order to reduce their capital gains tax liabilities. However, a highly paid employee would face income tax and national insurance contributions on any share value above the first £2,000. The employer would also face employer national insurance contributions when providing employee shareholders with substantial share value.
I also point out that employee shareholder legislation prevents an employee sacrificing taxable remuneration or employment benefits to take up this status for the purposes of obtaining a tax advantage. That is because an employee shareholder is not permitted to give any consideration—which means forgoing anything—for the shares that they receive. That will prevent the type of salary sacrifice behaviours that my noble friend Lord Forsyth and others have rightly described. If necessary, further provisions to that effect could be considered as part of the Finance Bill.
I reassure the House that the Treasury, HMRC and my department, BIS, are already monitoring and will continue to monitor potential scope for abuses of the employee shareholder status for excessive and unacceptable tax purposes.
When we debated the new employee shareholder status on Monday, I recognised the strength of feeling in the House. I hope that the House recognises that we have now brought forward a package of amendments to the clause that will provide significant further protections to individuals. I therefore hope the House will now feel able to support the inclusion of an amended Clause 27 in the Bill and the greater choice for companies and individuals that it will provide. I beg to move.
The Deputy Chairman of Committees (Baroness Gibson of Market Rasen): I should inform the House that if Amendment A1 is agreed to, I shall not be able to call Amendment A2 by reason of pre-emption.
As an amendment to Motion A, leave out from “House” to end and insert “do insist on their Amendment 25 to which the Commons have disagreed and do disagree with the Commons in their Amendments 25C to 25G in lieu thereof”.
Lord Pannick: My Lords, I am very pleased that the Government have proposed the amendment in lieu in order to impose a requirement for independent advice. I thank the Minister warmly for his efforts in securing this substantial amendment.
For many noble Lords, the absence of a requirement for independent advice was a fundamental defect in Clause 27. Indeed, the absence of such a provision until the 11th hour—in fact, way past the 11th hour—was quite incomprehensible to many noble Lords. As was painfully clear from our debate on Monday night, the Government had no answer, and never have had an answer, to the question of why they are refusing to require independent advice before an employee signs away employment rights when Parliament has required independent advice before a compromise agreement is reached in tribunal proceedings in an individual case concerning the exercise of employment rights. Because this amendment is designed to protect the individual who is being invited to sign away basic employment rights, it is appropriate that the provision should be comprehensive in the protection it confers. For my part, I am satisfied that this amendment is comprehensive.
I should like to draw attention to four aspects of the amendment. First, I note that a Clause 27 agreement will be of no effect unless the employee or prospective employee has received independent advice before the agreement is made. It will not be sufficient that independent advice is available or is offered; it must be received. Unless independent advice is received, the Clause 27 agreement has no effect in removing employment rights.
Secondly, the individual must receive advice as to,
“the terms and effect of the proposed agreement”.
The amendment plainly requires advice on the nature and effect of the employment rights that are lost. It also plainly requires advice on the content of the employment rights that are retained, such as discrimination law rights. However, advice will also be required on the terms and the effect of the shareholding aspect of the agreement. Indeed, the amendment is expressly linked to the statement that the employee must receive by reason of subsection (1)(ca), as set out in Amendments 25C and 25D. That means that the statement must—that is the word used in the subsection—address matters that include,
“whether any voting rights attach to the employee shares … whether the employee shares carry any rights to dividends … whether the employee shares would, if the company were wound up, confer any rights to participate in the distribution of any surplus assets … whether the employee shares are redeemable and, if they are, at whose option … whether there are any restrictions on the transferability of the employee shares and, if there are, what those restrictions are … whether any of the requirements … of the Companies Act 2006 are excluded in the case of employee shares”—
that is, the right of pre-emption—and,
“whether the employee shares are subject”—
the Minister may know what this means; I certainly do not—
“to drag-along rights or tag-along rights and, if they are, explain the effect of the shares being so subject”.
All these matters must be included in the statement and the advice is linked to the statement. It therefore appears very clear indeed that any employee entering into one of these agreements must receive legal advice on each and every one of these technical matters, otherwise the agreement is simply not going to have
legal effect. The employer will need to ensure that advice is given on these matters, otherwise the agreement will not be valid.
Lord Burnett: I am most grateful to the noble Lord, Lord Pannick, particularly for all his efforts in relation to this matter. Regarding the matters that he listed, I wonder whether he has considered one further condition that should be added. The valuation of close company or private company shares is an art, not a science, and the valuer acting for the shareholder—the outgoing shareholder perhaps—and the valuer acting for the company may not reach an agreement on price. Presumably, underlying all this must be a provision for arbitration in case of disagreement on price, through either an independent expert or an arbitrator.
Lord Pannick: I would anticipate that when the employee is given advice, one of the terms and effects of the agreement in relation to which he will need to be given advice is as to what happens if and when the shares are to be sold or the company goes into liquidation. No doubt some advice will have to be given—I doubt in very great detail—as to what the mechanisms are. In any event, this is, as I say, a very extensive requirement for legal advice. These are very complex matters.
The third point I want to emphasise is that the amendment also specifies the identity and characteristics of the person giving the advice. It does so by incorporating the requirements in Section 203(3A) and (3B) of the Employment Rights Act 1996, which states who is an “independent adviser” for the purposes of Section 203(3). The categories are: “a qualified lawyer”; a person certified by,
“an independent trade union … as competent to give advice”,
in this context; an advice centre worker,
“certified … by the centre as competent to give advice”,
in this context; and a category of,
“a person of a description specified in an order made by the Secretary of State”.
The statutory requirements also state that the adviser must be independent of the employer. Again, I am grateful to the Minister for the assurance that he gave earlier in this debate in relation to the criterion of independence.
I am very doubtful indeed that any trade union or advice centre would wish to certify someone as competent to give advice on all the aspects of the terms and effects of the agreement which I have mentioned. My understanding—I should be grateful if the Minister could confirm this in due course—is that it is entirely a matter for the employee as regards from whom he or she seeks the legal advice. Given the complexity of the matters on which advice must be given, I cannot imagine that any sensible employee would choose to see other than a lawyer and I would be astonished if any trade union or advice centre gave advice to any employee not to go and see a lawyer on these matters.
The fourth point I want to emphasise in relation to this extensive amendment, which I welcome, is that the reasonable costs of the advice otherwise incurred by the individual must be met by the company. What costs are reasonable must of course be determined in
the context of the breadth and complexity of the advice which needs to be given. The employer must pay the costs, so the amendment says, even if the employee or prospective employee decides not to take up the job offer on Clause 27 terms. I should also be grateful if the Minister would confirm my understanding that if necessary—it may not be necessary—the Treasury will bring forward legislation to ensure that the benefit of the legal advice is not treated as a taxable benefit in the hands of the employee.
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I welcome this amendment, which is undoubtedly broad in its scope and which will confer very substantial protection to individuals. I should add that the addition of this amendment does not alter my opinion of Clause 27 or, I suspect, the opinion of the majority of your Lordships. It remains a deeply unsatisfactory provision, for all the reasons identified by noble Lords across the House at every stage of the Bill. The best that can be said for it—the best—is that it is so half-baked that it will have little, if any, practical effect. I hope that the noble Lords who have expressed that view are correct.
Finally, I suspect that Clause 27 will be remembered by future historians of this coalition Government for one striking feature of it. Many policies which have been pursued by this Government have troubled one or other of the coalition partners but, as the debate on Monday demonstrated and as the Division lists confirmed, the Government have achieved by Clause 27 the quite remarkable feat of persisting with a proposal which is widely opposed in both coalition parties, as well as on all other sides of the House. I therefore regret that the Government wish to persist with Clause 27 but I very much welcome the positive move of this amendment. I will listen with particular care to the debate but, for the moment, I beg to move.
Lord Forsyth of Drumlean: My Lords, I pay tribute to my noble friend Lord Younger and to the Chancellor of the Exchequer. We have had some pretty robust debates around this. We started with the proposition that it was wrong that someone who was sent from a jobcentre to take a job but who declined to accept an employee shareholder contract could be found to be intentionally not taking work and therefore be subject to sanctions on their benefits. That was dealt with. On the fundamental point, I do not wish to repeat the arguments which the noble Lord, Lord Pannick, has made, although I will observe that it is a relief to me to discover that there is something that he does not know about and which I do: the drag-along rights. It strikes me that drag-along rights are quite a good way of describing the process of this Bill in respect of the Government.
However, we have eventually got there, and the most important thing, as the speech of the noble Lord, Lord Pannick, indicated, is that this can be an extremely complex and difficult area and that we are making a fundamental change of principle here in that people can negotiate away certain employment rights. The need for independent advice is therefore crucial, and I am delighted by the amendment which my noble friend has brought before us. I pay tribute to the
long-suffering officials in the Treasury and BIS for the way in which they have produced an amendment that covers the ground completely. My first instinct when I heard that the Chancellor had decided to accept our arguments was to rush to the Public Bill Office to get the draft of it, thinking that it would be full of holes or weasel words. Actually, it is comprehensive and the Government have been as good as their word. They deserve credit for that.
The last remaining area of concern was that this would be used by my friends in the British Venture Capital Association and others as a way of limiting their capital gains tax on shares which they would otherwise have got, and on which they would have to pay capital gains tax, by changing their employment status to that of shareholder employee. The loss of statutory redundancy pay would not be a major factor in their minds. I very much welcome what my noble friend said about the determination to look at this.
The noble Lord, Lord Pannick, made the key point that the advice provided to someone who is considering an employee shareholder contract should be paid for by the employer but that the tax liability that would normally arise from that would not apply. I guess that the Finance Bill currently before the other place will need to be amended. It already makes provision for the £2,000 of shares not to be subject to tax and national insurance. I assume that it will be amended to provide for the money that is paid for advice by the employer for the employee not to be a taxable benefit. I hope in the time that remains that in considering the various wheezes that might be used to avoid tax the Finance Bill will be amended to close off any possible loopholes.
I entirely support what my right honourable friend the Chancellor of the Exchequer was trying to do with this clause. He was trying to encourage more people to take stakes in their business and therefore to have an interest in the success of the business and an understanding of the risks being taken by it. He was also trying to encourage new emerging businesses, which may or may not have a future and may or may not have very much cash, to take on employees who share in the risks of that business. That is a noble and good intention. Equally, on the other side, there is a desire to limit the costs that fall on employers because of employment protection legislation, and there is a fair balance to be had there.
The combination of the two in this particular recipe produced a dish that was hard to digest, which is why we have sent the legislation back to the Commons on two occasions. On that latter point, although we may have reservations about the applicability of the clause and whether it is the best way forward, we should recognise that this House has done its job in asking the Commons, the Government, to reconsider. At the end of the day it is for the elected House, the other place, to decide on the general drift of policy that is being pursued by the Government.
I thank my noble friend and will have no difficulty whatever in supporting the passage of this Bill with the clause as amended. I look forward to seeing the measures that will be brought forward to avoid a measure that has good intentions being used for another purpose that might very well damage the credibility
not just of this clause but of the Government, who deserve credit for what they have been trying to do even if this House had some difficulties with the practical execution of the proposed policy.
Baroness Turner of Camden: My Lords, I also agree that substantial concessions have been made, which have been spelt out by the noble Lord. On the other hand, the basic problem still exists in my mind. There are already co-partnership schemes through which employees can have shares and can participate in their companies. However, they can do so in many instances without surrendering important employment rights. That is the important thing. Why do you have to surrender employment rights, which have been in existence for many years and have been struggled for by previous generations, to participate in a shareholding scheme? I do not understand that unless this really is, as I originally believed, one of the moves that the Government are making, as they do not like employment rights all that much, to ensure that employment rights are surrendered without appearing to remove them. Employees can be persuaded, under these arrangements, to give up employment rights voluntarily in return for a shareholding scheme.
I still feel very unhappy about this. Unions will not be happy about it either. The basic point here is the surrender of rights in return for shareholding. I still do not think it is appropriate. Shareholding schemes can exist without that and do exist in many places. For those reasons, I express great concern, although I understand that quite substantial concessions have been made. The core problem, as far as I can see, is the surrender of employment rights for something that may be quite worthless when it really comes to it.
Lord Bilimoria: I appreciate that the Government have made several concessions in trying their best, as has been explained, to make sure that this is not compulsory and has not been forced on people. It is another option to add to the several share option schemes that already exist. The huge issue, as the noble Baroness has just said, is why it has to be linked to giving up any employment rights. That is the part that is fundamentally unnecessary.
The last time we debated this, before it went to the other place, I asked the Minister two questions, which he did not answer. The first was whether the Government consulted business properly before going ahead with this. The noble Lord, Lord Adonis, said in his closing speech last time, if I remember correctly, that 160 responses were received when the Government consulted and only three of them were in favour of this scheme. I am sorry, but unless I have got something fundamentally wrong, if you get three out of 160 you do not go ahead with something. You either consult further or you bin the idea because it is no good.
We have heard unanimously all round the House that, from a businessman’s point of view, this does not sense. It is absolutely unnecessary to do this, and it is fundamentally wrong for me to ask any of my employees to give up any rights at all. I would want to give them share options because they believe in my business and its future and they will earn the increase in value of their share options.
The next question I asked the Minister was whose idea it was. Why are the Government pursuing this? This House is greatly respected. We defeated this. It went to the other place. It came back, and the last time we voted on it it was defeated by an even bigger majority. To go back and come back again is disrespectful to this House and to what we have done. I appreciate that concessions have been made, but I think that the Government defending it so much is linked to whose idea it is. The press say that it is the Chancellor’s idea. If it is, I really question his priorities in trying to push forward something like this when tomorrow it is quite possible that we will hear that we may be in a triple-dip recession, and if not we might certainly bump along the bottom for ever.
We have huge problems and we are trying to push something like this on to business. I can guarantee that it will not work, that it will not be taken up by business, that it has wasted a lot of parliamentary time and that it will waste a lot of legislation. The Government say that they will reduce red tape. This is going to create huge amounts of red tape. Lawyers will have to be consulted; employers will have to compensate for lawyers being consulted. This is not just a dog’s breakfast; it is a mad dog’s breakfast.
Lord Myners: My Lords, I disagree with one of the comments made by the noble Lord, Lord Bilimoria. I think this will be a very popular scheme for employees and employers, but in only one small sector of the economy. This is not about creating employment, business and economic growth. SMEs and new innovative companies are not going to offer these schemes, and employers are not going to be attracted by them. When we last discussed this issue, the noble Lord, Lord Forsyth of Drumlean, said that he was not sure whether this was being looked at by people who plan tax avoidance. I assure him that it is being looked at by those people with alacrity.
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When we pass legislation, we should always be alert to the possibilities of unintended consequences, and I nominate this proposal as the single piece of legislation proposed by this Government that is most likely to have unintended consequences. This provision will be implemented broadly across the investment banking sector. In fact, we will find employees in the investment banking sector with multiple contracts, and subsidiaries in new companies formed beneath teams and groups within an investment bank where they contract themselves to a specific desk or function. The tax leakage from this proposal will exceed by enormous multiples any possible benefit to the economy, but presumably at least the Minister feels a little more comfortable today than he did two days ago when he was called on to defend the indefensible. I appreciate that the Government have moved, but I will not be supporting this proposal.
Lord Forsyth of Drumlean: I defer to the noble Lord’s expertise in tax avoidance and the ways of investment bankers and investment management people in the City, but will he not give some credit to my noble friend who said that the Treasury will look at
this and consider whether further measures are needed to avoid this? Some of the obvious possibilities, such as multiple contracts or changing contracts for the purposes of gaining the capital gains tax exemption, are matters that could be looked at. Surely the noble Lord should give some credit to my noble friend for taking that on board.
Lord Myners: The question is whether we give credit to the noble Lord’s noble friend or to your Lordships’ House. I think it is the latter that deserves credit for the improvement in this provision. We will see the statute book and regulations getting thicker and thicker as the Government try to head off all the strategies that will be developed to seek to take advantage of this provision. We have come up with something that is of infinitesimal consequence to the economy but that will nevertheless lead to huge red tape. I am afraid that the experience of previous Governments, including the Government of which I was a member, and of this Government is that tax avoidance continues to be sharper and more effective than HMRC and others will ever be in stopping it.
I am happy acknowledge that the Government have said that they will seek to address this issue—they need to—but it will be a nigh-on impossible task.
Lord Burnett: I wonder why, when he was in government, his Government did not introduce a general anti-avoidance rule of the sort now being introduced by the coalition Government. That should aid and assist the very matters to which the Minister has referred.
Lord Myners: I welcome the general avoidance rule, which of course is not the matter that we are discussing. Even there, though, while I was not directly responsible for HMRC or Inland Revenue matters when I was a Minister, we all knew that the agility of tax planners should never be underestimated. We need to be slightly careful that a general tax avoidance rule is not going to create a new nirvana and will not suddenly change things. It is a good thing and I welcome the Government’s proposal; indeed, I think that the Opposition have supported it, so I do not think there is a political point here. However, on this subject we need to be realistic about what will be achieved. We are up against mighty forces in tax planning. One has only to look at structured finance unit at Barclays Bank, which appeared to help people avoid billions of pounds of tax. It really is quite a challenge.
This small proposal will create a huge loophole that tax avoiders will, quite correctly in their view, seek to exploit.
Baroness Brinton: My Lords, I was going to leave the issue of tax loopholes until the end of my contribution, but given the preceding debate I remind the House that at an earlier stage I reminded the House of the business expansion schemes that were set up by the then Government in the late 1980s and early 1990s and targeted at new small high-tech companies that were looking for investors and considerable tax benefits to investors and shareholders in those companies. They progressed reasonably well over the subsequent
two or three years, but then the accountants and lawyers found the loophole that enabled at the very least the university sector to entirely rebuild its student accommodation using those schemes. I confess, as bursar of a Cambridge college, that my college and all the other colleges used them in exactly the same way.
An interesting point to note, which the Chancellor might want to consider himself, is that the Treasury immediately closed the schemes down. I suspect that if the noble Lord, Lord Myners, is right, the Treasury would have no option but to close this down immediately, and I think that would signal the death knell of this entire clause. I apologise; that was going to be my peroration at the end but, given the debate that we have just had, I have started with it. Given the debate that we have had, the experience of the business expansion schemes is one that I hope this House and indeed the other place will take note of.
To go back to the beginning, I thank the Minister for negotiating the concessions, which have been vital. At all stages of the Bill on all sides of this House we have insisted that employees and prospective employees must have truly independent legal advice. To repeat the comments of the noble Lord, Lord Forsyth of Drumlean, I, too, went through this with a fine-toothed comb to see where the lacunae were but could not find any. It is extremely helpful that the clause echoes the compromise agreement legislation with regard to the necessary independence of the legal advice that the payment for reasonable advice must come from the employer. By the way, I think that will completely put off the Gradgrinds, who we talked about at some length on Monday, who want to use this as a quick and easy route.
There has been some discussion today about the value of shares. I am less concerned about the value of shares when the shares are first purchased, because we keep being told that this is for brand new companies when their shares are virtually at par value. There is a much bigger issue when an employee leaves if they have to sell the shares back, or at a point at which the company might be sold on and an employee may want to disagree with an arrangement that the company directors have come to with a prospective buyer. Unfortunately, I absolutely cannot think of a way of legislating against that. Let us hope that, should that happen, the increasing value of the shares would be such that the employees found it beneficial. However, my experience of working with high-tech companies throughout the 1980s and early 1990s was that the vast majority of small high-tech companies, which we are told this would be useful for, never make the sort of glorious gains where capital gains tax is a real benefit. There may be a very minor benefit, and that is wonderful, but not for most. The Cambridge silicon technology companies are the stellar ones; they account for less than 5% of such companies.
I wonder whether the Minister could assist the House by sending around the revised draft guidance notes for employers, companies, employees and Jobcentre Plus staff, given the concessions that we have seen during the past two or three days. Having reread them before today’s debate, I realise that they are substantially out of date. It would be extremely helpful to those of us who have been following this in detail.
I am in the same position as the noble Lord, Lord Pannick, in that I do not like this clause. I do not think it is workable. Even fewer companies are now likely to take it up because of the safety net of the independent legal advice, for which I am grateful. I have yet to meet an employer who thinks that it is appropriate to reduce employment rights in return for sharing in growth in the future. That remains my fundamental position. Perhaps unwittingly, though, the Government have made it so unpalatable that most employers will just ditch that and go for the traditional route of offering employees a future share through a straightforward shareholding where everyone shares the gain and there is no disbenefit.
Lord Christopher: I support the noble Lord, Lord Pannick. Although they have moved, with this Bill the Government have solved one problem only to create others. I begin by confirming what my noble friend Lord Myners said. I was campaigning for an anti-avoidance, broad-brush approach for 30 years as an official of the Inland Revenue Staff Federation. I agree with my noble friend Lord Myners that this will not work. Over those 30 years, Chancellor after Chancellor said precisely that in relation to the arguments from the union that there should be such a thing. We will await events to see whether it happens.
The only point on which I disagree a little with the noble Lord, Lord Pannick, is the question of independent advice. The press picked it up and said that people will be entitled to go to a lawyer but if you go back to the Employment Rights Act 1996, which is from where this proposal came, you find a weird list of people who are legitimate to give advice in the context of the Bill that we are discussing. An independent adviser can be a qualified lawyer, which is defined in the terms that you would expect, or an officer or official of a trade union who is qualified to value companies. The trade union movement has swarms of people qualified to do that at the moment.
Then we come to the issue of reasonable costs. If this is to happen, we must define “reasonable costs” as probably something that employers are expecting. If we were talking about going to a lawyer and this were a different forum, I would say that if lawyers were present, those who felt they were qualified to do it should put their hands up. Very few would be qualified. I do not know what it has now but the Inland Revenue used to have a specialist section in Hinchley Wood to deal with the valuation of companies. This morning I asked two company chairmen whether they could tell me what the value of their company was and the answer was no. They would have to pay qualified people to value those companies. While it may be initially a case of shares at par, Lord knows what it would be in two, three, four or five years’ time.
As for the advice that is being given, he or she who gives advice has to confirm that they are adequately insured to ensure that there is compensation payable if the advice turns out to be wrong. Why on earth are we debating this? This is a proposition that, prima facie, employers do not want to lessen on the terms that my noble friend Lord Myners has expressed. It will be a considerable disservice not just to working people, because the potential of this is dreadful. I would not
need any arguments at all to vote against it on that basis. It is also a disservice to employers. They will read this as saying that they have to pay only a few hundred pounds for the reasonable costs of advice. It will not be that sort of figure. If I had to do this today, I am not certain where I would go if I went to the City of London. Fees there are not cheap.
This is a little explosion that is set to go off the first time that anybody gets serious advice. My advice to the TUC would be to say to every union that has asked: seek and provide them with a list of people who may be capable of giving advice. We are talking about thousands of pounds an hour.
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Lord King of Bridgwater: My Lords, the Minister ended our previous discussions on this matter by saying that, depending on the outcome of the vote and if it went against what he was advising the House at that time, he would make sure that the strength of feeling here was conveyed to his colleagues in the Government. I should like to express my appreciation for his having very precisely discharged that undertaking. As we know in this House, it is unusual for us to have had two occasions on which we have declined to agree with the other place. This has been a difficult exercise for the Minister and at this stage I congratulate him on the extra safeguards that he has managed to introduce. I do not disagree with many Members of this House but my view on this clause is summed up by a phrase that Sir Winston Churchill once used. He said that he could on this matter confine his enthusiasm within the bounds of decorum without any difficulty. I certainly feel that I have made clear my views on this.
The situation is now that we have introduced important safeguards. Additional safeguards do not make it easier for employers and they limit the range of businesses to which they might apply. I think that the clause will have limited application. There is now much protection against the real danger of this being mishandled by irresponsible employers. My noble friend Lady Brinton referred to not having met an employer who is in favour of them. I am not in the least surprised. I do not think that an existing employer could use this provision. If he has existing employees with full employment rights, the idea that he starts introducing a small additional recruitment of people who have fewer rights seems to me an unreal situation. I see this being applied now by genuine start-up businesses where the originator trying to start some new IT company. He might say to his friends and bright colleagues who are going to join him that he just cannot take on the liabilities that he might have to face in difficult unfair dismissal cases and cases of redundancy, and that they should all be in this together. Those are the only applications where I see that this might work.
With this additional safeguard we have reached a stage when we must recognise the primacy of the other place. It is very unusual for us to reject twice in a row. I think that I can remember one occasion earlier in my time here but I cannot remember our going any further than this. I would have had to think very hard about that if we had not had such a comprehensive amendment, which, as my noble friend will recall, is precisely what
I asked that we should introduce. It involved a lot of hard work and I pay tribute to the officials. The noble Lord, Lord Pannick, ably spelt out that this is a most comprehensive amendment. It covers a wider range than I expected could be covered. The list of the types of shareholdings is warning enough of the problem that this issue contains. In recognising the way in which the Government have respected the view of this House and responded to the points that we have made, I say genuinely to your Lordships that we have done our job. We have introduced additional safeguards. We have challenged the other place twice. Having limited significantly the damage and introduced very dubious questions as to whether this clause will amount to much, we should now ease its passage.
Lord Flight: My Lords, my noble friend Lord King has summed up the position extremely well. It is of interest that this largely appointed House has effectively achieved the democratic changes to Clause 27, for which there was clearly significant support.
The last time that we debated this, my noble friends Lord King and Lord Deben were saying similar things to me about this proposed piece of legislation but from the other side of the fence. As I said from the outset, it is clear that it is applicable only to the sort of situations that my noble friend Lord King described—to entrepreneurial situations, start-ups and groups of bright, young, ambitious people getting together and wanting to keep down the potential costs of their new enterprise. It would not be suitable, nor be taken up by large organisations. It would be strange to have some employees with one sort of equity and others with another sort, and some with one sort of employment contract and some with another. De facto, to the extent that it used, it will be in the territory described.
I may be naive, but I think the noble Lord, Lord Myners, exaggerates the scope for tax avoidance. It seems to me that it will be much smaller-scale, more analogous to the EIS scheme, which has been extremely successful in generating some £10 billion of risk capital for small companies and has more than paid for itself tax-wise. It may be that the noble Lord is a cleverer tax avoider than me—sorry, he is more knowledgeable than I am—but I do not think that the sort of structure to which he referred would work. I would have thought that HMRC would outlaw such things fairly quickly. I do not quite see how it would work to make individuals huge amounts of money that they would not make otherwise. I think the tax avoidance point is overstated.
Lord Myners: Will the noble Lord, Lord Flight, at least acknowledge that the OBR has also expressed serious doubts about how this provision, which is not affected in any way by the laudable proposals now made by the Government, will be exploited for tax advantage? I believe that the OBR projected a cost of £1 billion.
Lord Flight: I thought that what the OBR was effectively saying was that if capital gains tax on these arrangements were payable, that is the sort of revenue it would generate and the extent of the capital gains tax revenue that will be lost is because capital gains tax
will not be payable. I am not clear that the OBR was citing fancy and wrong tax avoidance schemes for which it picked up intentions that they would be used. I stand to be corrected.
Lord Forsyth of Drumlean: With all due respect to my noble friend, the tax provisions within the Bill provide for the taxable gains on up to £50,000 shares not to apply, so if it were possible for people who would in the normal course of their employment receive shares to change their employment status, then £50,000-worth of shares that they received would no longer be subject to capital gains tax, which would apply if they had normal employed status. That is the kind of loophole that I hope my noble friend and the Treasury will deal with and which would cause a loss of revenue. While my noble friend and I may think that capital gains tax is too high, it would clearly discredit the scheme if the only people using it were people who would otherwise have had to pay tax in the normal way and who benefited by changing their employment status. That is the argument that we raised at an earlier stage, and I am content to take my noble friend’s assurances that this will be looked at and will not happen.
Lord Flight: I had indeed understood that that was the point, but if an individual chooses to invest in a fairly high-risk new venture via an EIS scheme, he does not pay capital gains tax. If he invests and it does not qualify for that scheme, he does. Self-evidently, new companies will as far as possible qualify for the EIS scheme because it gives that incentive to investors. The position here is not so dramatically different. People may well have equity in new start-ups that does not qualify for this scheme, but in terms of the overall package, as we are well aware, they will have to pay income tax up front, there is a limit to the amount of equity they can have and it is of cash-flow benefit to the company in terms of the potential costs that it removes. I do not see it as a vehicle of fancy tax avoidance. There is a perfectly fair debate about whether it is a good idea, but I do not believe it is useable as a vehicle for the sort of tax avoidance that we are trying to get rid of.
Nearly everything that there is to be said about this has been said in this House.
Lord Flight: I shall close by repeating the point made by my noble friend Lord King. It is a great credit to the Minister that he has gone back and got the key concession that this House clearly wished for when we last discussed this Bill. It would be somewhat churlish of this House at this stage to push things to the wire. This scheme is not going to be a huge issue, and its usage will be limited to appropriate circumstances. There is merit in having a new class of employment between self-employed and fully employed, and if this becomes law there may be some interesting lessons in what it generates.
Lord Bates: My Lords, I sense the mood of the House, and I will be very brief. One thing needs to be reiterated. My noble friend Lord Forsyth of Drumlean
paid tribute to the House for securing these concessions and changes, but I should like to pay tribute to him. I came into the debate at Third Reading on 20 March with a speech in my pocket fully in favour of Clause 27. After it had been effectively demolished by my noble friends Lord Forsyth and Lord King and the noble Lord, Lord Pannick, I followed them into the Lobby and voted against this measure. They have done an immense service because I believed at the time that this should be an opportunity for the strong, not a fait accompli for the weak. The concessions that they have brought about and the way that the Minister has responded in bringing forward these comprehensive announcements reflects very well on those individuals and on the processes in this House. I will have no hesitation in supporting the Government when the vote is called.
Lord Stewartby: My Lords, I shall be very brief, but there is one point on which I should like confirmation from the Minister when he sums up. The provisions that have been introduced into this statute refer to all sorts of guidance and recommendations. They do not include the valuation of shares, yet quite a lot of the discussion has taken place as though they do. An opportunity to correct that would be helpful.
Lord Adonis:My Lords, I said at the outset of our debates on this shares-for-rights scheme that it makes the back of the envelope look like Magna Carta. As a result of our deliberations, the envelope is somewhat more neatly addressed, and for that at least we should be grateful. I join other noble Lords in paying tribute in particular to the noble Lord, Lord Pannick, who has pursued the Government tirelessly on this scheme and, if I may say so, has become something of the constitutional conscience of the House, with large numbers of Members being dragged along or tagging along with him but none the less getting to the right place in the end.
I also acknowledge the important role played by Conservative and Lib Dem Peers on this issue, notably the noble Lords, Lord Forsyth and Lord King, and the noble Baroness, Lady Brinton, who have been indefatigable in raising the issues that we have had to address and in ensuring that we have secured at least some safeguards in the Bill and made the proposal at least somewhat less objectionable than it was when it was introduced.
There have been some safeguards and the Bill is somewhat less objectionable, but the reality is that this shares-for-rights proposal is still fundamentally flawed and fundamentally wrong. It is not the details that are wrong; like the poll tax, the basic idea is wrong. The idea that fundamental employment rights granted by Parliament to ensure that employees are treated fairly can or should be traded for shares, let alone shares worth as little as £2,000, is fundamentally objectionable. We are talking about basic employment rights which, as the noble Lord, Lord Forsyth, pointed out in our deliberations, have been granted by Governments, including Conservative Governments, over recent decades: the right to redundancy pay; the right not to be dismissed unfairly; the right to request flexible working in order to look after dependants; and the right to
request training. These are basic rights and, as the noble Lord, Lord Bilimoria, said, there is a fundamental confusion at the heart of this proposal between employment rights on the one hand and enhancing wider share ownership on the other. We are all in favour of wider share ownership. Indeed, the Government commissioned the Nuttall review, which reported only six months before this proposal came out of the Chancellor’s bath in favour of a whole set of measures to widen share ownership. Not one of them was the proposal before your Lordships this evening and indeed it was not even considered by Nuttall, so absurd would it have been to the Nuttall advisers.
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Therefore, we are in a situation now where we have some safeguards, particularly respecting the most vulnerable members of the community who might be faced with signing shares-for-rights contracts without the knowledge of what is in them, and for that we should be grateful. However, we still have fundamental objections to this proposal, and it comes to us as a revising Chamber with the weakest possible mandate: it was in no one’s manifesto; it was not in the coalition agreement; it was not recommended by any independent review of any kind; the majority which came to us from the Commons was below the Government’s normal majority; and it has been opposed by business, and so on. Therefore, as I said, it comes to us with an extremely weak mandate.
Even with the safeguards in the Bill, this proposal is still unacceptable, and not just in principle, as I said a moment ago, but in practice too—in particular, in respect of the tax status of these shares and the huge opportunities which this proposal gives for tax avoidance, as my noble friend Lord Myners stressed. Of course, I understand that discussions have taken place between those who were opposed at an earlier stage and the Government, and that a way forward has now been reached, but the noble Lord, Lord Forsyth, can never contain his real views. He is always commendably frank. His exchange with the noble Lord, Lord Flight, could not have been more telling. We are now just hoping that the Government, after we have enacted this legislation, will deal with the huge potential for tax avoidance which is not just theoretical but which the independent Office for Budget Responsibility stated, as my noble friend Lord Myners noted, is a potentially massive vehicle for efficient tax planning in a way that will lose the Treasury money. The OBR said that,
“the cost is expected to rise towards £1 billion”—
“beyond the end of the forecast horizon … it is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant”.
We are expected to pass this legislation this evening in the hope that this will be resolved when I had always thought that it was the job of Parliament not to enact legislation until we were clear that the possibly unacceptable effects of that legislation had been addressed. Paul Johnson, the director of the Institute for Fiscal Studies, said:
“Just as government ministers are falling over themselves to condemn”,
“that same government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry”.
And in my discussions with tax lawyers this afternoon, which I assure your Lordships made the last debate that we had in the House look like a bundle of laughs, they pointed out to me a whole string of potential loopholes raised by this provision that will not be easily dealt with at all. Matthew Findley, a partner of the lawyers Pinsent Masons and a member of the Share Plan Lawyers group and the Share Schemes Expert Group, says:
“The Government has … sought to limit the scope for major shareholders to become ‘employee shareholders’ ... It has barred those who own 25% or more of a company from becoming employee shareholders”.
“there remains considerable scope within SMEs and unlisted companies for senior management to be provided with very tax-efficient equity in return for giving up employment rights which they probably don’t value or need”.
Richard Murphy, a chartered accountant and tax expert who is a member of the General Anti-Abuse Rule interim advisory panel that drafted the guidance on anti-abuse for the Treasury, says that the rules in respect of employee shareholders to prevent tax abuse are weak and likely to be open to considerable abuse. For example, while it is suggested that an employee shareholder may not hold more than 25% of the shares in a company and qualify for this scheme, this would be all too easy to manipulate, especially in the case of a new company where any share ownership might be extremely flexible. In addition, given the ingenuity shown by many lawyers in their structuring of share capital, it would be all too easy to attribute value of much more than 25% to shares issued to any employee shareholder if that was desired. Furthermore, when there are no clear rules laid down on how valuations are to be agreed, and when these are exceptionally difficult to determine objectively in the case of small start-up companies whose owners might be tempted to make use of this arrangement, then the scope for tax avoidance exempting large swathes of future profits from the sale of SMEs is all too easy to envisage.
That is just the beginning. I have pages more like that which I am not going to detain the House with, all of which will need to be resolved if we are not to face, as the OBR said, a potential tax leakage of £1 billion or more in respect of a scheme which was entirely designed to promote growth and more entrepreneurial activity and not to give a big handout in terms of capital gains tax to those who are able to organise their tax affairs accordingly. In short, this shares-for-rights scheme is like the Hydra: every time you cut off one head, another two appear. As the noble Lord, Lord Forsyth, put it when we first debated this:
“The scheme is ill thought through, confused and muddled”.—[Official Report, 20/3/2013; col. 597.]
We agree; this scheme is ill thought through, confused and muddled. It will do nothing to promote growth and we will not be supporting it this evening.
Viscount Younger of Leckie: Once again, I thank all noble Lords who have spoken. I can only reiterate that the Government would like to give individuals and companies more choice in how they structure their workforce. That is the aim of the employee shareholder employment status—to provide this additional choice. It remains correct that the employee shareholder status will be likely to be taken up largely by new small companies, which my noble friends Lord Flight and Lord King acknowledged. A large number of points were raised during the debate and I would like to address as many as possible.
The first was a very important point raised by the noble Lord, Lord Pannick, and my noble friend Lord Forsyth and concerns the question of the cost of legal advice to the employee shareholder. I just make it clear that the issue is whether they are charged in terms of having a benefit in kind. I can confirm that the Government will introduce an exemption within the benefits-in-kind legislation to ensure that the requirement to provide legal advice will not lead to a tax cost on individuals looking to take up the employee shareholder status, regardless of whether they choose to take up the status. This should be addressed in the Finance Bill.
The second point is a point of clarification and concerns the definition or description of drag-along and tag-along rights. Perhaps at this stage I should defer to the superior knowledge of my noble friend Lord Forsyth. The answer, for the education of the House, is that these rights are sometimes found in a company’s articles of association or shareholder agreements. Drag-along rights refer to the rights of a majority shareholder to require minority shareholders to sell their shares if the majority shareholder sells theirs on the same terms, and tag-along rights, which are more active, are the rights of minority shareholders to procure an offer for their shares on the same terms as the majority shareholders are selling theirs.
The noble Lord, Lord Bilimoria, in a passionate speech, raised the issue of consultation. I should like to clarify that we consulted on how to implement the option, not on whether we should proceed in principle. Therefore, it is not true to say that no one supported the measure, although he did not say exactly that. The consultation responses included some positive responses. As organisations said, businesses of all sizes might be able to benefit because the changes suit the dynamic way that their business operates. Therefore, the Government believe that it is a good additional option for companies and individuals. It adds to the existing status of employee and worker, which has been much covered in previous debates, and it provides those taking it up with the flexibility as well as the opportunity to share the reward and the risk that comes with having an interest in a growing company. As I have said in the past, we recognise that not all companies will wish to take up this new status, and that is fine. What is important is giving those companies that wish to take on people in this different way the opportunity to award share equity.
The noble Baroness, Lady Turner of Camden, raised the issue of withdrawal of employment rights, which I believe she raised in previous debates and which
I understand. The argument is that we believe it is wrong to focus on just one aspect. Forgive me if I am repeating myself, but the employee shareholder status must be seen as a package. It is a package of employment rights, mandatory shares and tax incentives. It is the interaction of all three aspects that will motivate staff.
This new status confers a number of benefits for both the employer and the employee shareholder. From an employer’s perspective, the employee shareholder is more likely to generate ideas, as I remember mentioning in the past, for bettering the company, and to have a greater incentive to contribute to the organisation. Indeed, the hope is that they will stay longer than they otherwise might in their particular organisation.
Changing tack, the noble Lord, Lord Myners, raised the issue of multiple use of connected companies. Employee shareholder status is intended to be part of a flexible and efficient labour market in which people can move from job to job if opportunities arise—a point which may not surprise the noble Lord. However, where a person takes up an employee shareholder status in a number of companies which are associated with one another, such as banks and subsidiaries, income tax will be payable on any shares received from whatever company beyond the first £2,000 in value. Likewise, any shares beyond the first £50,000 in value will not enjoy the exemption from capital gains tax. This will prevent multiple use of the scheme for tax advantages, because the relevant limits for the tax exemption will apply to all employee shareholder contracts with connected companies.
I finish on this note. I outlined extensively in my opening remarks the points that have been raised in past debates about the share status. I reiterate that the Finance Bill will be used to sweep up any issues. We will be looking at this extremely carefully.
My noble friend Lady Brinton asked a relevant question as to whether I will be sending around revised guidance to the House. Of course, we will be sending guidance around once we have incorporated all the changes which have come from the various concessions which we have outlined today, made by Parliament and stakeholders. However, consultation continues, and I would not at this stage wish to commit myself to any particular date for passing that on.
The noble Lord, Lord Myners, raised a point about a general anti-avoidance rule. Forgive me if I am repeating myself, but the Finance Bill also introduces a general anti-avoidance rule which will tackle abusive avoidance schemes or contrived arrangements designed to avoid tax. This rather neatly rounds up a quite interesting debate that we have had this afternoon, including from my noble friend Lord Flight and the noble Lord, Lord Myners, on this issue.
The key point about tax abuse which has not been made is that the Finance Bill is an annual process. This issue can therefore be tackled at least on an annual basis if necessary. I confirm, too, that HM Treasury and HMRC will be keeping the scope for tax abuse under constant review.
The noble Lord, Lord Christopher, asked what happens if the legal advice given to putative employee shareholders is erroneous or negligent. Legal advisers
are likely, of course, to have professional indemnity insurance which covers negligent advice and its consequences, so there will be safeguards there.
Lord Christopher: The noble Viscount has been very coy about what “reasonable” means. I sought to demonstrate that it could be much more expensive than it might appear at first sight. I do not know of any trade union lawyer, for example, who would do other than say, “Go to the City for advice”. Equally, it may well be more difficult to be satisfied by a valuation on the sale or disposal of those shares. Will there still be available to workers the opportunity to get advice on that?
Viscount Younger of Leckie: I believe that I have spelt out the comprehensive and extensive advice that will be on offer to employees. The noble Lord, Lord Christopher, has brought up the issue of what can be defined as “reasonable costs”. We recognise that the cost of legal advice will depend on individual circumstances. I remind the House that employee shareholder status and its ramifications will entirely depend on the type of company, type of employee and the wishes of the employee shareholder. Those discussions will go on outside any control from government. The costs involved will vary depending on the type of contract or job offered and the level of knowledge of the individual seeking that advice. What is reasonable in one particular instance may not be reasonable in another. Very deliberately, we are not stipulating a minimum or maximum price which would come under the definition of “reasonable costs”. It relates to other areas and sectors in entirely different circumstances. The concept of “reasonable costs”, as I am sure the noble Lord will be aware, is not an unusual matter.
7.15 pm
Lord Christopher: Who is to determine the result if there is a dispute about the costs involved?
Viscount Younger of Leckie: There is deliberately no determining factor. This is a matter which has to be part of a discussion between the employer and the employee shareholder. The issue remains that the employer has to decide whether the costs are reasonable. If, for example, the costs are not reasonable, the employee shareholder has the right to complain and raise an issue. The ultimate sanction, of course, is that he may decide not to take up the job at all. That of course remains a matter for him.
The noble Lord, Lord Christopher, raised the question of valuation, which I earlier covered to some extent. He also raised the expense for companies in terms of valuing the shares. We acknowledge that it is not easy for private companies to value shares, a matter which I covered in some depth earlier. As I said, if the company is issuing new shares as part of an employee shareholder scheme, it is likely to take advice from their accountant, who will use standard methods to value the company. Again, I covered that earlier.
The House will be aware that the other place has now voted to retain this clause three times, a point made by my noble friend Lord King. I acknowledge
the important role of this House, too. I believe that we have more than fulfilled that role. This House has carefully considered and improved the clause, which is evident from the package of amendments that we have discussed today. With your Lordships’ assistance, we have ensured that this clause now contains important protections for individuals. It is now for companies and individuals to use it if it is right for them.
Lord Pannick: My Lords, I thank the Minister for all his considerable efforts in securing the comprehensive amendment on independent advice. I also thank the noble Baroness, Lady Brinton, and the noble Lords, Lord Forsyth of Drumlean and Lord King of Bridgwater, without whose considerable efforts, the House would not have secured this important protection.
The noble Lord, Lord Adonis, exposed the defects in Clause 27 at Second Reading. He has since then, at every stage of the Bill, used his considerable forensic skills to expose each and every defect in this lamentable provision. I entirely agree with the substance of his powerful criticisms of Clause 27. However, the Government are determined to introduce Clause 27. It is impossible to see what further protections this House could usefully add. Therefore, the question, as it seems to me, is whether this House should continue to stand in the way of the Government’s determination to include Clause 27 in the light of the considerable safeguards that this House has introduced.
This House has had its say. It is now time to give way on this issue to the elected House. I therefore do not intend to divide the House further on this matter. I beg leave to withdraw the amendment.
Some Lords objected to the request for leave to withdraw the amendment, so it was not granted.
7.18 pm
Contents 168; Not-Contents 275.
CONTENTS
Adams of Craigielea, B.
Adebowale, L.
Adonis, L.
Andrews, B.
Bach, L.
Bakewell, B.
Bassam of Brighton, L. [Teller]
Beecham, L.
Berkeley of Knighton, L.
Bilimoria, L.
Bilston, L.
Blackstone, B.
Boateng, L.
Borrie, L.
Bradley, L.
Bragg, L.
Brinton, B.
Bristol, Bp.
Brooke of Alverthorpe, L.
Brookman, L.
Brown of Eaton-under-Heywood, L.
Browne of Ladyton, L.
Campbell-Savours, L.
Chandos, V.
Christopher, L.
Clancarty, E.
Clarke of Hampstead, L.
Clinton-Davis, L.
Collins of Highbury, L.
Corston, B.
Crawley, B.
Crisp, L.
Davies of Coity, L.
Davies of Oldham, L.
Davies of Stamford, L.
Desai, L.
Donaghy, B.
Donoughue, L.
Drake, B.
Dubs, L.
Eatwell, L.
Elder, L.
Elystan-Morgan, L.
Evans of Parkside, L.
Evans of Watford, L.
Exeter, Bp.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Foster of Bishop Auckland, L.
Foulkes of Cumnock, L.
Gale, B.
Gibson of Market Rasen, B.
Golding, B.
Gordon of Strathblane, L.
Gould of Potternewton, B.
Grantchester, L.
Grenfell, L.
Grocott, L.
Hanworth, V.
Hardie, L.
Harries of Pentregarth, L.
Harris of Haringey, L.
Hart of Chilton, L.
Haworth, L.
Hayman, B.
Hayter of Kentish Town, B.
Healy of Primrose Hill, B.
Hennessy of Nympsfield, L.
Hilton of Eggardon, B.
Hollick, L.
Hollins, B.
Hollis of Heigham, B.
Howarth of Newport, L.
Howells of St Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L.
Jay of Paddington, B.
Jones of Whitchurch, B.
Jones, L.
Judd, L.
Kennedy of Southwark, L.
Kennedy of The Shaws, B.
Kerr of Kinlochard, L.
Kidron, B.
King of Bow, B.
Kinnock of Holyhead, B.
Kinnock, L.
Kirkhill, L.
Knight of Weymouth, L.
Layard, L.
Lea of Crondall, L.
Liddell of Coatdyke, B.
Liddle, L.
Lister of Burtersett, B.
McAvoy, L.
McConnell of Glenscorrodale, L.
McDonagh, B.
Macdonald of Tradeston, L.
McFall of Alcluith, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
McKenzie of Luton, L.
Mallalieu, B.
Massey of Darwen, B.
Maxton, L.
Mitchell, L.
Monks, L.
Moonie, L.
Morgan of Drefelin, B.
Morris of Handsworth, L.
Myners, L.
Nye, B.
O'Neill of Clackmannan, L.
Ouseley, L.
Palmer, L.
Parekh, L.
Patel of Bradford, L.
Pendry, L.
Pitkeathley, B.
Prescott, L.
Prosser, B.
Quin, B.
Radice, L.
Ramsay of Cartvale, B.
Rea, L.
Reid of Cardowan, L.
Richard, L.
Richardson of Calow, B.
Rosser, L.
Rowlands, L.
Royall of Blaisdon, B.
Sawyer, L.
Sherlock, B.
Simon, V.
Smith of Basildon, B.
Snape, L.
Soley, L.
Stevenson of Balmacara, L.
Stoddart of Swindon, L.
Stone of Blackheath, L.
Symons of Vernham Dean, B.
Taylor of Bolton, B.
Temple-Morris, L.
Touhig, L.
Triesman, L.
Tunnicliffe, L. [Teller]
Turnberg, L.
Turner of Camden, B.
Uddin, B.
Wall of New Barnet, B.
Warner, L.
Warwick of Undercliffe, B.
Watson of Invergowrie, L.
West of Spithead, L.
Wheeler, B.
Whitaker, B.
Whitty, L.
Wigley, L.
Wilkins, B.
Wills, L.
Winston, L.
Wood of Anfield, L.
Worthington, B.
Young of Old Scone, B.
NOT CONTENTS
Aberdare, L.
Addington, L.
Ahmad of Wimbledon, L.
Alderdice, L.
Anelay of St Johns, B. [Teller]
Armstrong of Ilminster, L.
Arran, E.
Ashdown of Norton-sub-Hamdon, L.
Ashton of Hyde, L.
Astor of Hever, L.
Attlee, E.
Avebury, L.
Baker of Dorking, L.
Ballyedmond, L.
Barker, B.
Bates, L.
Benjamin, B.
Berridge, B.
Best, L.
Bichard, L.
Birt, L.
Black of Brentwood, L.
Blackwell, L.
Blencathra, L.
Bonham-Carter of Yarnbury, B.
Bottomley of Nettlestone, B.
Bowness, L.
Brabazon of Tara, L.
Bradshaw, L.
Bridgeman, V.
Brittan of Spennithorne, L.
Brougham and Vaux, L.
Browne of Belmont, L.
Browning, B.
Burnett, L.
Buscombe, B.
Butler of Brockwell, L.
Byford, B.
Caithness, E.
Campbell of Surbiton, B.
Cathcart, E.
Cavendish of Furness, L.
Chalker of Wallasey, B.
Chidgey, L.
Clement-Jones, L.
Coe, L.
Colwyn, L.
Cope of Berkeley, L.
Cormack, L.
Cotter, L.
Courtown, E.
Craig of Radley, L.
Craigavon, V.
Crathorne, L.
Crawford and Balcarres, E.
Crickhowell, L.
Cumberlege, B.
De Mauley, L.
Deben, L.
Deighton, L.
Dholakia, L.
Dixon-Smith, L.
Dobbs, L.
Doocey, B.
Dundee, E.
Dykes, L.
Eaton, B.
Eccles of Moulton, B.
Eccles, V.
Eden of Winton, L.
Elton, L.
Empey, L.
Falkner of Margravine, B.
Faulks, L.
Fellowes of West Stafford, L.
Fink, L.
Finlay of Llandaff, B.
Flight, L.
Fookes, B.
Forsyth of Drumlean, L.
Fowler, L.
Framlingham, L.
Fraser of Carmyllie, L.
Freeman, L.
Freud, L.
Garden of Frognal, B.
Gardiner of Kimble, L.
Gardner of Parkes, B.
Garel-Jones, L.
Geddes, L.
German, L.
Glenarthur, L.
Glendonbrook, L.
Goodlad, L.
Goschen, V.
Grade of Yarmouth, L.
Green of Hurstpierpoint, L.
Greengross, B.
Griffiths of Fforestfach, L.
Hamilton of Epsom, L.
Hamwee, B.
Hanham, B.
Harris of Peckham, L.
Harris of Richmond, B.
Henley, L.
Heyhoe Flint, B.
Higgins, L.
Hill of Oareford, L.
Hodgson of Astley Abbotts, L.
Home, E.
Hooper, B.
Howard of Lympne, L.
Howard of Rising, L.
Howarth of Breckland, B.
Howe of Aberavon, L.
Howe of Idlicote, B.
Howe, E.
Howell of Guildford, L.
Hunt of Wirral, L.
Hurd of Westwell, L.
Hussain, L.
Inglewood, L.
James of Blackheath, L.
James of Holland Park, B.
Jay of Ewelme, L.
Jenkin of Kennington, B.
Jenkin of Roding, L.
Jolly, B.
Jopling, L.
Kakkar, L.
King of Bridgwater, L.
Kirkham, L.
Kirkwood of Kirkhope, L.
Knight of Collingtree, B.
Kramer, B.
Laming, L.
Lamont of Lerwick, L.
Lang of Monkton, L.
Lawson of Blaby, L.
Leach of Fairford, L.
Lee of Trafford, L.
Lexden, L.
Lindsay, E.
Lingfield, L.
Linklater of Butterstone, B.
Liverpool, E.
Lloyd-Webber, L.
Loomba, L.
Lothian, M.
Low of Dalston, L.
Lucas, L.
Luke, L.
Lyell, L.
McColl of Dulwich, L.
Macfarlane of Bearsden, L.
MacGregor of Pulham Market, L.
Mackay of Clashfern, L.
Maclennan of Rogart, L.
McNally, L.
Maddock, B.
Magan of Castletown, L.
Maginnis of Drumglass, L.
Mancroft, L.
Mar and Kellie, E.
Mar, C.
Marks of Henley-on-Thames, L.
Marland, L.
Marlesford, L.
Masham of Ilton, B.
Mawhinney, L.
Mawson, L.
Mayhew of Twysden, L.
Miller of Chilthorne Domer, B.
Montgomery of Alamein, V.
Montrose, D.
Morris of Bolton, B.
Moynihan, L.
Naseby, L.
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Neville-Jones, B.
Newby, L. [Teller]
Newlove, B.
Noakes, B.
Northbrook, L.
Northover, B.
Norton of Louth, L.
O'Cathain, B.
Oppenheim-Barnes, B.
Parkinson, L.
Parminter, B.
Patel, L.
Patten, L.
Perry of Southwark, B.
Phillips of Sudbury, L.
Plumb, L.
Popat, L.
Randerson, B.
Rawlings, B.
Razzall, L.
Renfrew of Kaimsthorn, L.
Renton of Mount Harry, L.
Ribeiro, L.
Ridley, V.
Risby, L.
Roberts of Llandudno, L.
Rogan, L.
Roper, L.
Rotherwick, L.
Rowe-Beddoe, L.
Ryder of Wensum, L.
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Sassoon, L.
Scott of Needham Market, B.
Seccombe, B.
Selborne, E.
Selkirk of Douglas, L.
Selsdon, L.
Shackleton of Belgravia, B.
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Sharp of Guildford, B.
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7.33 pm
As an amendment to Motion A, at end insert—
25K: Page 35, line 28, at end insert—
“( ) For the avoidance of doubt, nothing in this section shall create a category of job vacancy which is solely an “employee shareholder job vacancy”.”
Lord Lea of Crondall: My Lords, the reason for this Motion is because there is one point which has been made repeatedly the last four or five times in which this matter has been discussed in the Lords and the Commons. It relates to the category of job vacancy which is solely for employee shareholders.
Those of us who are versed in industrial relations have been very puzzled by this from the word go. What is this category of job vacancy which is offered by employers solely to employee shareholders? The Minister cannot possibly stick to what he has expressed once or twice that there is always an option. There is no option in this Bill unless the guidance is radically rewritten.
On 22 April, the Minister said that the guidance possibly did need rewriting but that that was not too difficult. I would invite him to do so but, given the time, perhaps all he needs to do is to acknowledge that, at the moment, the guidance is not perfect and needs to be rationalised in the light of much of what has been said in both Houses of Parliament.
Of course, it is true that employers may want some of these jobs to be for employee shareholders. However, if they then say that the only jobs available for that warehouse, or that factory, are employee shareholder jobs, that is saying that those prospective employees can either have a job and give up their rights against unfair dismissal or redundancy, or not have a job at all. That is not offering options.
The Minister needs to respond to this Motion in some way tonight but, more importantly, how is Parliament going to scrutinise all the various introductory procedures before this can become operational in Loughborough, for example, and elsewhere?
In conclusion, would the Minister now concede for the first time that there is in the Government’s mind—as is stated in the guidance—a category of job vacancy called an employee shareholder job vacancy? I beg to move.
Lord Morris of Handsworth: My Lords, I support the Motion in the name of my noble friend Lord Lea of Crondall. My support is based on two principles which I want to clarify. First, it is important that the intention of Parliament is clear and my noble friend’s Motion does that. Secondly, there is the issue of equality of opportunity in the recruitment process.
Given the extent of the Government’s effort to secure the passage of this Bill, employers at every stage of the recruitment process will assume that having shareholder employees is the preferred option. For the avoidance of doubt, it is therefore imperative that the legislation is clear and that what Parliament means is recorded on the face of the Bill. The Motion does that: it removes any inadvertent preference for shareholder employees.
My second point concerns the avoidance of discrimination at the point of recruitment. Here is a very simple example. A job is advertised by an employer who is currently operating an employee shareholder scheme. It is my view that, without this Motion, there is no duty, no guidance to the employer not to discriminate in favour of a shareholder preferred option. For those reasons, the legislation can be enhanced by clarity of purpose in order to protect the employee and also the employer, who might have to answer questions about the choice that was made at the point of recruitment. There is no protection in respect of recruiting a shareholder employee rather than someone else who is equally or better qualified. I support the Motion.
Viscount Younger of Leckie: I thank the noble Lords, Lord Morris and Lord Lea, for their interventions. As I made clear in my opening remarks, we do not believe that the provision in the Motion of the noble Lord, Lord Lea, is necessary. It should be up to employers to recruit as they see fit. If a company wants to recruit an employee shareholder, as companies already do with employees and workers, it should be able to do so in its own way. Taking the argument further, if an employer wishes to post a notice for, or advertise, an employee shareholder position, they should be free to place this as one role, just as they would be able to do in an advertisement for any other role. While the House has raised concerns on behalf of the individual, and particularly given the concessions we have made, we must ensure that we do not tie the hands of employers. The noble Lord’s Motion would do just that. Therefore, I hope that it will not be supported by the House.
Lord Lea of Crondall: I thank the Minister for his reply. Perhaps I should first mention my thanks to my noble friend Lord Morris of Handsworth, who some 15 years ago was the chairman of the TUC working party on rights at work. I recall that this was part of a hugely successful programme of improving the quality of the contract of employment in many ways. This is the first time I have seen legislation that explicitly states that you can have a contract of employment of less satisfactory quality. That should be a source of concern. It would have been a source of concern in Whitehall in the days of the Ministry of Labour. At the moment we have legislation that is like a dog with three legs. There is input from the Treasury, Customs and Excise and BIS, but because there is no ministry of labour, the collective experience of people who know about recruiting and agreements seems to have been totally lost.
I think that our predictions will come true and that the Government—or the Government in power at the time, because we are only two years from a general election—will see this programme staggering on its feet. All the difficulties, from those raised by my noble friend Lord Myners to those raised in our last debate by other noble Lords on all sides of the House, will come to pass. However, in light of the hour and having had a full debate on this question over many days, I beg leave to withdraw the amendment.
The Lord Speaker (Baroness D’Souza): My Lords, after completion of proceedings on the growth Bill, in the Division on the Procedure Committee report regarding a Back-Bench debates committee, there voted not content 245 rather than 243 as announced.
Enterprise and Regulatory Reform Bill
Commons Amendments
7.44 pm
The Commons disagree to Lords Amendment No. 35 for the following Reason—
35A: Because it is appropriate for section 3 of the Equality Act 2006 to be repealed.
The Lords insist on their Amendment No. 35 for the following Reason—
35B: Because repealing section 3 would undermine the EHRC’s duty to promote social change through its human rights and equality duties; compromise its independence as an accredited national human rights body; and prevent it from complying with its monitoring requirements in that capacity and as Britain’s national equality body.
Lords Amendment36: Page 55, line 8, leave out subsection (6)
Commons disagreement and reason
The Commons disagree to Lords Amendment No. 36 for the following Reason—
36A: Because it is more appropriate for the Commission for Equality and Human Rights to monitor progress by reference to its duties under sections 8 and 9 of the Equality Act 2006.
The Lords insist on their Amendment No. 36 for the following Reason—
36B: Because monitoring progress by reference to the EHRC’s duties under sections 8 and 9, rather than section 3, would prevent the Commission from complying with the monitoring requirements relating to equality and human rights bodies, and would jeopardise the EHRC’s accredited status.
Commons insistence, non-insistence and consequential amendments
The Commons insist on their disagreement to Lords Amendment No. 36, do not insist on their disagreement to Lords Amendment No. 35 and propose the following consequential Amendments to the Bill—
36D: Page 55, line 4, leave out from “subsections” to end of line 5 and insert “make further amendments to the Equality Act 2006.”
That this House do not insist on its insistence on Lords Amendment 36 and do agree with the Commons in their Amendments 36C to 36E.
Baroness Stowell of Beeston: My Lords, I will also speak to Motion B. We return to discussion of the equality provisions of the Enterprise and Regulatory Reform Bill. The House debated these issues on Monday and strong views were expressed, on which the Government have reflected very carefully. On Monday, as on other occasions, the noble Baroness, Lady Campbell, spoke eloquently and with passion about the importance of the commission’s general duty. I very much respect the knowledge that she and others contributed during the passage of the Bill.
The Government want the commission to be a strong equality and human rights body: our national expert whose opinion is respected and valued. This is what our legislative proposals, alongside our non-legislative work, are intended to achieve. We recognise that the general duty is important to many people as a symbolic statement of the Equality and Human Rights Commission’s overarching purpose. After the debate
and Division in the House on Monday, the Government reflected further and decided to no longer press for its removal from the Equality Act 2006. However, as I argued on Monday, the general duty has a practical effect, as Section 12 of the Equality Act 2006 requires the commission to monitor and report on society’s progress against the aims set out in the general duty. We continue to believe that the commission will be more effective if the monitoring and reporting that it is required to do focuses clearly on its core equality, diversity and human rights duties.
The Motion we are considering today enables the commission’s general duty at Section 3 to remain in the Equality Act 2006. It also proposes that the commission should monitor progress against the duties specified in Sections 8 and 9 of the Equality Act 2006 —equality, diversity and human rights—the very areas where the commission can make a difference in society as our national equality body and national human rights institution. I should make clear that the commission will continue to be required to monitor and report every five years on changes in society in areas that it is uniquely placed to influence and change: in other words, those specified in Sections 8 and 9.
I come now to some technical amendments and beg the patience of noble Lords. Retaining the general duty at Section 3 also requires a consequential amendment to ensure that the word “groups” in the general duty is defined effectively. Amendment 36C, agreed by the other place, reinserts the parts of Section 10 that define “groups” for the purposes of the Act. Amendments 36D and 36E are technical and consequential amendments.
These proposals, which were fully supported yesterday in the other place, address the concerns raised during debates in this House. They build on the good progress already made. The Equality and Human Rights Commission is now well placed to go from strength to strength. I beg to move.
Baroness Campbell of Surbiton: My Lords, I am greatly relieved and so appreciative that the Government have listened and conceded to the opinions of this House on the importance of the general duty. I and countless others who fought for and benefited from the Equality and Human Rights Commission slept a lot more happily last night in the knowledge that the body will continue to give overarching direction on equality and human rights in Britain in all its manifestations.
I am also reassured that the EHRC will continue independently to monitor and report on equality and human rights nationally, as required by EU law and the Paris principles. Such monitoring will not deflect its focus but will enhance its ability to protect and promote equality and human rights in an ever-changing world. The journey of this amendment has been a tough one, but I for one have learnt once again how collegiately and intelligently this House can shine. My thanks go to all those who took part, and of course to the Government for their generous concession.
Lord Cormack: I briefly follow the noble Baroness, first in thanking my noble friend the Minister for responding as she did to that very powerful vote on
Monday, which was not the first powerful vote on this subject. Most of all, I hope and believe that I speak for everyone in this House in congratulating the noble Baroness, Lady Campbell, on her tenacity, her courage and her articulate presentation of a case that has been both powerful and moving. She has not only proved herself to be an invaluable Member of your Lordships’ House, but she has enabled us to demonstrate how important this House can be on issues that are not necessarily enormous in the general scheme of things but that are terribly important.
The Bill will be all the better for the acceptance of the amendment introduced by the noble Baroness, and for the response given by my noble friend the Minister. This is a happy note on which to end these particular deliberations, and we really are all very much in the debt of the two noble Baronesses, particularly the noble Baroness, Lady Campbell.
Lord Stevenson of Balmacara: My Lords, this is a good day for equality. I think we have heard enough from all around the House to explain where this has come from. We are all in considerable debt to the exemplary work done by the noble Baroness, Lady Campbell. We think tremendously of her for doing it, particularly when we reflect that in taking on that task she had no greater foe than the noble Lord, Lord Lester, who has somewhat iconic status in your Lordships’ House as the guardian of all things to do with equality. He was against her. She saw no enemy, and saw him off. As a result, we are where we are today. As the noble Lord, Lord Cormack, has said, this is a good day for the House of Lords. Your Lordships’ House has done well to ensure that its will has prevailed, and we are all the better for that.
Baroness Stowell of Beeston: My Lords, I am grateful to the noble Baroness, Lady Campbell of Surbiton, for her support and her generous remarks. I echo my noble friend Lord Cormack’s tribute to her, and I am grateful to the noble Lord, Lord Stevenson, for his support this evening for the Government’s Motion. I am glad we are able to conclude the debate on the Equality and Human Rights Commission united in our aims for a fair and equal society.
Lords Amendment 37: After Clause 56, insert the following new Clause—
“Equality Act 2010: caste discrimination
(1) The Equality Act 2010 is amended as follows.
(2) After section 9(1)(c) (race) insert—
Commons disagreement and reason
The Commons disagree to Lords Amendment No. 37 for the following Reason—
37A: Because it is inappropriate to provide for caste to be an aspect of race for the purposes of the Equality Act 2010 without further consultation.
The Lords insist on their Amendment No. 37 for the following Reason—
37B: Because it is appropriate to provide for caste to be an aspect of race for the purposes of the Equality Act 2010.
Commons insistence and amendments in lieu
The Commons insist on their disagreement to Lords Amendment No. 37 but propose the following Amendments to the Bill in lieu of the Lords Amendment—
37C: Page 73, line 2, at end insert—
“Equality Act 2010: caste as an aspect of race
(1) Section 9(5) of the Equality Act 2010 is amended in accordance with subsections (2) to (4).
(3) In paragraph (a) (power to provide for caste to be an aspect of race) at the beginning insert “must by order”.
(4) In paragraph (b) (power to provide for exceptions to apply or not to apply to caste) at the beginning insert “may by order”.
(a) may carry out a review of the effect of section 9(5) of the Equality Act 2010 (and orders made under it) and whether it remains appropriate, and
(b) must publish a report on the outcome of any such review.
(6) The power under subsection (5)(a) may not be exercised before the end of the period of 5 years beginning with the day on which this Act is passed (but may be exercised on more than one occasion after that).
(7) If a Minister of the Crown considers it appropriate in the light of the outcome of a review under subsection (5), the Minister may by order repeal or otherwise amend section 9(5) of the Equality Act 2010.
(8) The power to make an order under subsection (7) includes power to make incidental, supplementary, consequential, transitional or saving provision, including doing so by amending an Act or subordinate legislation (within the meaning of the Interpretation Act 1978).
(9) An order under subsection (7) must be made by statutory instrument.
(10) A statutory instrument containing an order under subsection (7) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
37D: Page 76, line 2, at end insert—
“( ) section (Equality Act 2010: caste as an aspect of race) extends only to England and Wales and Scotland;”
That this House do not insist on its insistence on Lords Amendment 37 and do agree with the Commons in their Amendments 37C to 37F in lieu.
Baroness Stowell of Beeston: My Lords, this House has debated caste and caste discrimination at each stage of this Bill since Grand Committee. I pay particular tribute to the noble and right reverend Lord, Lord Harries, and my noble friends Lord Avebury and Lord Deben, for their important, impassioned and at times moving contributions to these debates. I also acknowledge many other noble Lords who spoke in heartfelt and well informed ways, many for but some against the different amendments relating to caste discrimination being incorporated into the Equality Act 2010.
Earlier this week we considered this issue again in some detail, and this House repeated its view that caste should be directly included in the Equality Act 2010
as an aspect of race. The Government have always said that we are against any form of caste prejudice or discrimination. What has been at issue is how best to tackle any such prejudice and discrimination that may occur.
We have listened carefully to what this House has said, and we acknowledge the strength of opinion that has been expressed. While I need to record that we remain unconvinced that the evidence shows that legislation is the right way to resolve problems associated with caste prejudice or discrimination, we none the less accept the need to resolve this matter. We have therefore made the commitment, after full and extensive consultation, to legislate. Noble Lords will recognise that this is the essential difference compared with our earlier proposals.
The amendment that was last debated in this House would have seen caste directly become an aspect of race for the purposes of the Equality Act 2010. Instead, we propose an alternative form, which was originally proposed as an amendment in this House in Grand Committee. Under this amendment in lieu, what is currently a discretionary power in the Equality Act to add caste to the list of race characteristics will become a duty on the Secretary of State. This amendment still gives effect to the need to legislate, while giving us greater flexibility to pick up the key issue of public consultation, which I believe the House recognises to be necessary and useful.
There are important issues on which we need to consult widely. The first concerns the definition of caste in the Act and any associated exceptions. Second is the issue of non-legislative concerns, some of which were highlighted by the Opposition in the other place and raised in this House, for example the guidance needed by business or by courts and tribunals, or the vexed question of caste identification and monitoring. Finally, there are wider issues to do with caste, such as gathering the right evidence that may be needed for the eventual statutory reviews, to which I shall come in more detail in a moment.
The secondary legislative approach, which the Government are proposing today and which I think was supported by a number of speakers, gives us better assurance that we get the legislation right, as well as greater flexibility on its timing. I should add that we intend to continue with our Talk for a Change education programme in relevant communities, which we continue to see as having an important role in effecting cultural change over time. We also wish to involve and work closely with the Equality and Human Rights Commission on broader issues of caste and caste-related discrimination.
Noble Lords will also see that there is a further element in the Motion. We have provided for the possibility of a review of the exercise of the caste power and any order made under it. This safeguard is in response to the various concerns raised by parliamentarians of all parties, here and in the other place. It looks beyond any immediate need for caste legislation, and concerns the importance of ensuring that legislation does not inadvertently embed in British society the concept of caste, together with those aspects of it that are inappropriate to the modern world.
We see no place for caste in today’s Britain, and we want caste distinctions to disappear over time. This power gives us the opportunity to review the ongoing need for such legislation to remain, together with a means for its removal should it no longer be considered appropriate. As I have already said this evening, the Government have listened carefully. We are committing to legislate after we have carried out the consultation which this House has recognised to be necessary, before we exercise the power to make caste an aspect of race in the Equality Act 2010. We are also putting in place the option to review that legislation after it has been enacted. I trust that noble Lords will accept these proposals, one of which mirrors an earlier proposal put forward in this House. The other picks up on a suggestion put forward by the Opposition, among others. I beg to move.
Lord Harries of Pentregarth: My Lords, I would like to express our deep appreciation to the Government for listening to the concerns of communities that are most affected by caste discrimination, and thank the Minister in particular for the seriousness with which she has taken this issue and the commitment that she has given it. As she said, the vital change has taken place. The word “may” has been changed to the word “must”. This will be part of primary legislation. There is agreement all around the House and in the other place that a period of consultation is necessary, both with those who are firmly in favour of the legislation and those who are against. There is absolutely no disagreement on that, and it is inevitable that there should be a period of time before the Act comes into force. Together with the noble Lord, Lord Avebury, I will seek a meeting with the Minister in the other place to talk with her about this consultation, in particular to get some sort of feel of the timescale before the Bill is enacted. I reiterate the thanks of the communities most affected by caste discrimination for the way in which the Government have listened seriously and responded to their concerns.
8 pm
Lord Avebury: I shall add a 15-second contribution to what the noble and right reverend Lord, Lord Harries of Pentregarth, has already said about our gratitude to the Minister, who, as he said, has listened carefully to the representations that have been made. I only wish that she could have seen the joy that the announcement caused among the communities, which was displayed in a demonstration in Parliament Square yesterday afternoon. Hundreds of people were there, welcoming the change of attitude by the Government and saying that this was a moment of tremendous excitement and joy among all the Dalit communities.
I am not so sure about Talk for a Change, because I think that it is probably a waste of money. However, this is not the moment to cavil about the detail but only to welcome the principle that this matter will be dealt with by legislation. I am most grateful to my noble friend and to the Government as a whole for their change of mind, declared at this last moment.
Lord Stevenson of Balmacara: My Lords, we are extremely pleased that the Government have now accepted the need to legislate for legal protection against
discrimination on the grounds of caste. Everyone agrees that caste has absolutely no place in our society and that, if there is even one case of such discrimination, proper action must be taken and there must be proper access to redress.
I also join the thanks for the exemplary work done by the noble and right reverend Lord, Lord Harries, and the noble Lord, Lord Avebury, who have taken the main burden of negotiations and discussions about the right way forward. We have arrived at a very elegant solution by changing the legislation to require the duty on the Government to make progress, therefore bridging the not very large but seemingly unbridgeable points that seemed to divide us on this issue. Eventually, with good sense on all sides, they have been removed, and we are very grateful to the Government for that. This is now again a good day for equality, and we will all celebrate this as we go forward.
I thank my noble friend Lady Thornton, who cannot be here this evening, for the considerable work that she took on when she came into this area. She used me as a bit of a listening board from time to time, and I felt that sometimes I had been at some of the meetings, where some rather inelegant things were said that do not bear repeating in your Lordships’ House, because noble Lords would be shocked. We got through it, we are here today and we should celebrate where we are and wish the Government well in their onward work, which will all be very useful.
Baroness Stowell of Beeston: My Lords, I am grateful to the noble Lord, Lord Stevenson, for welcoming the Government’s Motion this evening. I share with him his tribute to his noble friend Lady Thornton. As much as I am always pleased to see the noble Lord, I am none the less disappointed that the noble Baroness could not be here this evening. I shall make sure that I convey that to her directly outside the Chamber.
I am very grateful to the noble and right reverend Lord, Lord Harries, for his generous remarks and for those of my noble friend Lord Avebury. I note the noble and right reverent Lord’s request for a meeting with my right honourable friend in the other place. I am sure she would want me to agree to that meeting without hesitation, because it would clearly be welcome to hear further from noble Lords before we start on the consultation process.
I am grateful to all noble Lords for the remarks that they have made this evening. Like the noble Lord, Lord Stevenson, I am pleased that we have been able to find a way through that addresses all the concerns that have been made and that will ensure that we find a way through that satisfies those who have been suffering and that does not perpetuate something that we do not want to see as part of our society.
Public Service Pensions Bill
Commons Amendments
8.05 pm
Commons disagreement and reason
The Commons disagree to Lords Amendment No. 78 for the following Reason—
78A:Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.
Lords non-insistence and amendment in lieu
The Lords do not insist on their Amendment 78, but do propose Amendment 78B in lieu.
78B: After Clause 9, insert the following new Clause—
“Defence Fire and Rescue Service and Ministry of Defence Police Capability Review
(1) The Secretary of State, in conjunction with the Secretary of State for Defence, will, within six months of this Act coming into force, prepare and lay before both Houses of Parliament a report setting out the Government’s assessment of the impacts of this Act on current and future members of the Defence Fire and Rescue Service and current and future members of the Ministry of Defence Police nominated under section 1 of the Ministry of Defence Police Act 1987.
(2) A report under subsection (1) will include, but not be limited to, consideration of the following —
the impacts on the health and wellbeing of members of the Defence Fire and Rescue Service and members of the Ministry of Defence Police nominated under section 1 of the Ministry of Defence Police Act 1987;
the ability of the Defence Fire and Rescue Service and members of the Ministry of Defence Police nominated under section 1 of the Ministry of Defence Police Act 1987 to meet the Ministry of Defence’s statements of requirement of these personnel;
the number of members of the Defence Fire and Rescue Service and members of the Ministry of Defence Police nominated under section 1 of the Ministry of Defence Police Act 1987 taking early retirement, the consequences of early retirement for those members and the costs to the taxpayer of such members taking early retirement.”
Commons disagreement and amendment in lieu
The Commons disagree to Lords Amendment No. 78B, but do propose Amendment 78C in lieu.
78C: Page 17, line 39, at end insert—
“Defence Fire and Rescue Service and Ministry of Defence Police: review
(1) The Secretary of State must, before the end of the period of six months beginning with the day on which section 9 (pension age) comes into force, prepare and lay before Parliament a report on the likely effect of that section on members or future members of
the Defence Fire and Rescue Service, and
the Ministry of Defence Police.
(2) The report under this section must include a report on —
the likely effect of section 9 on the health and well-being of members of the Defence Fire and Rescue Service and the Ministry of Defence Police,
the likely effect of section 9 on the ability of the Defence Fire and Rescue Service and Ministry of Defence Police to continue to meet operational requirements, and
the extent to which members of the Defence Fire and Rescue Service and Ministry of Defence Police are likely to take early retirement in consequence of section 9 (and on the consequences of taking early retirement for the persons taking it and for the taxpayer).
(3) In this section “Defence Fire and Rescue Service” means the fire service maintained by the Secretary of State for Defence.”
That this House do not insist on its Amendment 78B and do agree to Amendment 78C proposed by the Commons in lieu of that amendment.
Lord Newby: My Lords, as the House is aware, the Government accepted on Monday the substance of the amendment of the noble Lord, Lord Eatwell. I said we would make some small, technical changes to ensure that it works as intended. The government Motion before us makes all those necessary tweaks, while upholding the principles of the policy in full.
I briefly explain the reasons why the tweaks were necessary. The Government’s redrafted Motion seeks to address some inadvertent consequences that could arise from accepting the amendment that the House approved as it stood on Monday. First, the names of the workforces were not quite right. We have corrected this to ensure they are consistent with other statutory references to these groups of public servants. Secondly, there was the potential for confusion about the role of the Secretary of State for Defence, who is included in the general term Secretary of State. The noble Lord’s amendment implied that he would carry out any review of the terms and conditions of these workforces in conjunction with himself. That has now been corrected. I suspect that the original wording sought to ensure that the Treasury and the MoD worked together on the review; I can confirm that that is the intention.
Finally, there is the issue of commencement—the timeframe for when the Motion would come into force. The amendment of the noble Lord, Lord Eatwell, would have started the clock only after the entire Bill came into force, which would delay the review considerably. Instead, the Government’s Motion creates a specific deadline linked to the relevant clause of the Bill, a timescale which has been further clarified by the Economic Secretary in another place. I am also happy to confirm to noble Lords that the Government will commence the relevant sections promptly to ensure that the review takes place without further delay with a view to concluding and reporting within eight months.
My colleague the Economic Secretary has already committed in the other place that the Government will not be blind to the context in which the review will take place. The review of pension arrangements will take account of the wider pay and remuneration package of the forces involved.
The Government will now work closely with the relevant interested parties to pursue the appropriate way forward. Workforce representatives are some of the most important and interested parties, and so will
be fully involved. I hope that noble Lords will agree that the Government have been very clear in their support for this review. We are now keen to get on with it and to establish the best way forward. On that basis and in this spirit, I urge noble Lords to support the Motion. I beg to move.
Lord Eatwell: My Lords, I am grateful for the corrections which the noble Lord has made to the amendment which I put down yesterday, and for the commitment that the review will be done within eight months. There was another change that he did not cover. The term of art, “statements of requirement”, which refers to the level of physical ability that the fire service and police must attain, was changed to “operational requirements”. What is the significance of that change?
Lord Newby: My Lords, I do not think that there is any significance in the change. As I said earlier, there has been no change of substance in the content of the Motion as it appears before your Lordships’ House from the amendment that the noble Lord moved on Monday, which was accepted by the House. I am 99% certain that that was the case. If I have misled him or the House, I will write immediately to correct it. I can assure the noble Lord that the aim and the intention is simply to have language that is clear, unambiguous and enables us to get on with it. I beg to move.
Arrangement of Business
Announcement
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Baroness Anelay of St Johns: My Lords, I am now in a position to make the formal announcement with regard to the arrangements for Prorogation. Now that the progress of business is certain, it may be for the convenience of the House if I indicate that I expect Royal Commissioners to attend this House late tomorrow afternoon to signify Royal Assent to several Bills and to prorogue Parliament until 8 May. The exact time of the ceremony will be settled tomorrow, once the flow of business in both Houses is clear.
National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013
Motion to Annul
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Moved by Lord Hunt of Kings Heath
That a humble address be presented to Her Majesty praying that the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013, laid before the House on 11 March, be annulled on the grounds that they do not implement the assurances given by Ministers to
Parliament during the passage of the Health and Social Care Act 2012 that NHS commissioners would be free to commission services in the way they consider in the best interests of NHS patients (SI 2013/500).
Relevant document: 33rd Report from the Secondary Legislation Scrutiny Committee.
Lord Hunt of Kings Heath: My Lords, one of the main concerns in our debates on the Health and Social Care Bill was the fear that clinical commissioning groups would be compelled to put clinical services out to tender, forcing doctors and nurses to compete with each other at huge expense and at risk of fragmentation of clinical services to patients. In response, the noble Earl, Lord Howe, told this House that commissioners would not have to create markets against the best interests of patients. He said that they would be free to commission services in the way they consider best. The regulations we are debating tonight are concerned with the circumstances in which contracts for the provision of services to patients within the NHS must be put out to tender.
When an NHS commissioner goes to tender for a service, the commissioner is already required to operate within a framework of EU and domestic law. These regulations are different from the existing regime in which NHS commissioners operate. They impose for the first time legal obligations on NHS commissioners to tender services with NHS trusts. They remove the discretion that commissioners have to decide when it is in the best interests of patients to expose the service to a compulsory competitive tendering process. We are deciding which organisation is best placed to deliver service. At the moment, commissioners can look at the needs of the NHS as a whole and make a holistic judgment about who is best placed to deliver a service. These regulations, in my contention, make it far more difficult for commissioners to take such a whole-picture approach.
Many NHS organisations, including the BMA, the Royal College of General Practitioners, and many more, have sounded the alarm about the effect these regulations will have on the NHS. Your Lordships’ Scrutiny Committee reported them with substantive criticisms for the special attention of the House on the grounds that they may imperfectly achieve their policy objective. Not least of the committee’s concerns were that because of the withdrawal of the original regulations and their hasty substitution of these ones, the Government have allowed insufficient time to enable thorough scrutiny. The committee says that it cannot be good or effective policy-making to seek their immediate implementation when they are so widely misunderstood.
The Health Minister, Mr Burns, told the other place that it was not the Government’s intention that the regulations would impose compulsory competitive tendering requirements on commissioners. But surely that is what Regulation 5 does. The only circumstance in which a CCG can avoid a tendering process is if that CCG is satisfied that the services under the contract are capable of being provided only by a single provider. The single provider test will never be satisfied apart perhaps from the case of a single rural hospital which
is the only provider for acute services in a large geographical area. I fail to see how it could operate in cities such as Birmingham or London because there will always be multiple providers. Having mentioned Birmingham, I ought to remind the House of my health interests. Hence, in those circumstances it will not be for commissioners to decide, as the Minister has assured us. It will surely be for commissioners to undertake a competitive process in all cases, unless there is no remote possibility of another capable provider coming forward. This will be bureaucratic and very expensive. One question that I want to put to the Minister is why the Government have not set a contract value below which the single provider test will not apply. Why is that not in line with all other procurement regimes?
When we met the noble Earl for a briefing a few weeks ago on the regulations he gave examples of the circumstances in which services are capable of being provided only by a single provider. He particularly mentioned the possibility of bundling services together in a single contract. But, even in those circumstances, there will often be more than one provider. I remind the noble Earl that the recently published review of the economic regulator for the NHS, Monitor, entitled A Fair Playing Field, makes a number of criticisms of bundling. Monitor said that it restricted the ability of providers to enter the market and that bundling services together was likely to exclude some providers from offering services. Monitor is being asked to police the regulations. The noble Earl will have seen the letter that noble Lords have received from a number of leading charities which say that the bundling of services could put them out of reach of the voluntary sector. If that is the view of the voluntary sector, what of private companies that may feel similarly aggrieved?
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I have heard Ministers and have read the responses made to people who have written to them that the regulations simply continue the 2010 guidance issued by the previous Government. If that is so, and as the Scrutiny Committee said, if there is no difference in substance to the existing procurement regime, why are the regulations needed at all? As for the difference between regulations and guidance, there is all the difference in the world. The official guidance in 2010 made it clear that it was ultimately for commissioners to decide when and how to use the guidance. Quite. Of course, a public body can depart from guidance, but there is no discretion to depart from these enforceable rules, however much a clinical commissioning group, or indeed the National Commissioning Board, might think it would be a good thing in the interests of patients so to do.
Under the guidelines there was no legal right for a disappointed commercial contractor to sue a clinical commissioning group for damages for failure to follow guidance, but Section 76 gives a specific right to seek damages if the rules are broken. There is a genuine fear in the system among advisers, the clinical commissioning groups and in a lot of other organisations, that the regulations will create a culture of defensive contracting, where commissioners will go out to tender if there is any doubt, because a failure to do so will expose them to a possible damages claim. I refer the
noble Earl to the Scrutiny Committee’s comments that respondents to that committee believed that commissioners would feel compelled to advertise a contract simply to satisfy Monitor in the event of that decision being audited by it. The Scrutiny Committee concluded that,
“the wide range of interpretations of the substitute Regulations is, we believe, likely to translate into uncertainty about how they will operate and will, in turn, result in commissioners conducting unnecessary tendering processes simply to ensure that their decision will be ‘safe’ under the law”.
That is your Lordships’ Scrutiny Committee’s comments on these regulations.
I believe that the regulations are part of the Government’s drive to shift the culture of the NHS from a public service into a public marketplace. They are at a piece with a number of other developments that are sending the NHS along the same path. Already we have seen the creation of clinical commissioning groups where a third of GPs on the boards of those CCGs have a conflict of interest as a result of directorships or shares held in private health companies.
I referred yesterday at Oral Questions to the other two examples that I want to give on the quite extraordinary intervention of the Competition Commission into the entirely sensible proposal to merge Poole Hospital Trust and the Royal Bournemouth and Christchurch Hospital Trust on the grounds that it will reduce competition in Dorset. Is the noble Earl aware that leading clinicians in those trusts have had to sign an agreement to restrict their communications with senior clinicians in the other trusts? What other evidence do noble Lords want that there is a determination to introduce a competitive market in the health service?
Finally, there is the incredible intervention by the Competition Panel in Bristol, which ruled that the centralisation of the provision and management of head and neck services at the University Hospitals Bristol Foundation Trust and of breast care and neurology at North Bristol Trust could reduce competitive pressure. Have noble Lords ever heard such nonsense talked about the health service? Yet NHS England—and I absolutely endorse its approach—talks about the need to centralise and reconfigure services, because it knows that this will lead to better outcomes for patients.
So the panoply of arrangements that we now have means that despite clinical evidence, a competitive market is being forced upon the NHS. I am oblivious of any assurances given by Ministers to Parliament. People in the system believe that a market is required. That is why CCGs will operate defensively, because of a fear of being brought before the courts if they do not put out services to competitive tendering. I believe that we face the prospect of NHS services being placed in the middle of a costly bidding war with private companies, with discrete services cherry picked for profit, while the NHS is left to run the more complex and expensive services with less money. How can that possibly be in the best interest of patients? It cannot, and we should reject these regulations. I beg to move.
Lord Clement-Jones: My Lords, I was prepared to disagree with a substantial proportion of the speech by the noble Lord, Lord Hunt of Kings Heath, but I was certainly not prepared to find myself disagreeing with 100% of it, which is the position I find myself in.
It is of course regrettable that the original regulations were published late and have had to be revised. As the Secondary Legislation Scrutiny Committee has pointed out, the draft guidance is not yet available and I am sure that this would have allayed many of the fears expressed about the impact of the new regulations. However, it is clearly important that it is subject to extensive consultation and, in the circumstances, it is entirely understandable that it is not yet available.
Especially as I was heavily involved in seeking assurances from my noble friend Lord Howe on the competition aspects of the Health and Social Care Act this time last year, I want to explain some of the background to the revised regulations and why we on these Benches firmly support them. Some weeks ago, I read the original form of these regulations, and we took the clear view that they would need to be changed. In perfectly good faith, they had been too restrictively drafted and did not appear to fulfil the commitment given to noble Lords during the passage of the Health and Social Care Act last March that local GP commissioners would not be forced to put services out to tender.
As a result of our concerns, my noble friends Lady Jolly, Lady Williams of Crosby and I met Health Ministers on the first day that the House returned after the February half-term Recess to discuss the issue. It became clear that some of the problems with the regulations were due to the difficulties of ensuring that the UK abides by European law on competition and tendering; but that the language used in the regulations was, in some cases, inaccurate and in others did not properly reflect the provisions of Section 75 of the Act. Health Ministers agreed with our view that the regulations’ wording at the time could lead CCGs and others to the incorrect belief that they were required to tender for all services. They therefore agreed to work with some of us to redraft the regulations. The new regulations that have been published are a result of those discussions.
The most important change to the regulations clarifies the role of Monitor in regulating and policing contracts entered into by CCGs. The new Regulation 15(2) states very clearly that:
“Monitor may not direct a relevant body”—
that is, a CCG of the NHS commissioning body—
“to hold a competitive tender for the provision of health care services for the purposes of the NHS”.
That makes it absolutely clear that CCGs cannot be forced by Monitor to go out to competitive tender. A number of other changes have been made to clarify how CCGs should decide whether to go out to tender. In particular, there are changes to Regulation 2. This sets the overriding objectives of the CCGs when commissioning. The first and foremost objective states:
“securing the needs of the people who use the services”.
As a result of the changes agreed, Regulation 2 now makes it absolutely clear that CCGs should consider the benefits that providing services in an integrated way can have on their quality and efficiency. Bundling of services is clearly envisaged, indeed encouraged, and the BMA should be entirely reassured on this point. These objectives in Regulation 2 determine how
CCGs exercise their powers, including those under the much disputed Regulation 5, which sets out the circumstances in which a contract can be awarded without a competition. Under Regulation 5, it is expressly provided that there may be only one provider capable of delivering the kind of integrated service that the CCG wants to secure for its patients, in which case commissioners would not be forced to put services out to tender.
Many people have expressed their concern that this part of the regulations would make commissioners tender more services than they do now, and this is due to the reference to commissioners having to tender services unless they feel they can be provided by only “one capable provider”. However, there are many proper and valid reasons why commissioners might feel services can be provided by only “one capable provider”. They are, for example, if the commissioner is satisfied that the local hospital needs to maintain a certain number and mix of patients to provide a safe and effective service; if only one provider is able to meet the clinical quality and safety standards required; where only one provider is capable of giving access 24 hours a day, seven days a week; where highly specialised care is involved; and, crucially, where a range of integrated services needs to be delivered. Similarly, nothing under the regulations could force commissioners to fragment services against the interests of their patients.
Moreover, the rules in the regulations simply and accurately reflect the rules that are already imposed by EU law on the NHS. These rules were put in place long before the coalition came to power in May 2010. Procurement guidance for PCTs issued in March 2010 under the previous Labour Government—here is the cover of that PCT procurement guidance—had to conform with it and as result stated, inter alia, in paragraph 2.24 that:
“PCT boards must act transparently and without discrimination and be able to demonstrate rationale for decisions on whether or not to competitively tender. In particular”—
and these are the salient words—
“where the commissioner decides to procure through single tender the rationale must demonstrate that there is only one capable provider to deliver the services and, therefore, that could provide better value for money”.
Incidentally that wording was repeated word for word in subsequent guidance in July 2010. I urge your Lordships to compare that wording with the current Regulation 5. The fact is that the criticism and concern directed at Regulation 5 could equally well have been directed towards the Labour Government's guidance, which, I must emphasise, was the guidance on the procedure and law applicable to PCTs when tendering. In fact the changes to the original regulations ensure that the new rules allow as much discretion as possible within existing EU law. Indeed, CCGs are now in a stronger position than PCTs were under the 2010 Labour Government guidance. The chief executive of the Association of Chief Executives of Voluntary Organisations, Sir Stephen Bubb, has said:
“These regulations will enable charities to do more in partnership with the NHS, not less, and the result will be better services for NHS patients. The regulations should be passed, without falling
victim to another political slanging match, so that NHS commissioners and charities can get on with the job of improving the health services made available to the public”.
I also urge your Lordships to read Department of Health legal opinion, which makes the position absolutely clear.
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In contrast, the QC who had been relied on by 38 Degrees to give objective legal advice is quoted as saying:
“These Regulations play fast and loose with the NHS by turning it into a giant experiment for those committed to a certain right wing ideology”.
By no stretch of the imagination is that true, and it casts significant doubt on the quality of his opinion. Is it not highly significant that that same QC in all his legal advice, chose not to compare these regulations with Labour’s guidance? That casts doubt on the whole of the 38 Degrees campaign.
The noble Lord, Lord Hunt, claims that the regulations do not honour my noble friend Lord Howe’s assurance that CCGs would not be obliged to create new markets in the health service. Subject to the continuing realities of EU procurement law, it is clear that they do, for the reasons I have explained. They place a strong emphasis on integration across a range of paragraphs—entirely as discussed during the passage of the Bill and as recommended by Future Forum—which mean that CCGs will have considerable flexibility. Does the noble Lord claim that somehow EU procurement law no longer needs to apply to these regulations or can simply not be implemented?
It was not possible legally for PCTs to have total commissioning freedom, as the noble Lord knows only too well, and it is not for CCGs either. Or does he resile from the guidance to PCTs issued by his own Government in March 2010? The noble Lord is quoted as saying of the new regulations:
“They will promote and permit privatisation and extend competition into every quarter of the NHS regardless of patients, interests”.
So he has clearly joined in promoting conspiracy theories about NHS privatisation and the motivation of Ministers and the coalition Government.
We pride ourselves on rational argument in this House, and I hope that that will prevail today. A great many misconceptions are around indeed. The fact is that it was the Labour Government under the 2006 Act who introduced price competition and intensified the purchaser/provider split. The NHS is no more subject to competition than it was prior to the passing of the 2012 Act. It is the coalition’s legislation and regulation, informed very much by the concerns raised on these Benches, which has ensured that safeguards against unrestricted competition will apply.
I recommend that the noble Lord reads the words of the noble Lord, Lord Warner, in the Health Service Journal this week. I very much hope that the noble Lord, Lord Warner, will be contributing tonight. The article is entitled:
“Why I will be voting for NHS competition regulations”.
“This week the House of Lords will debate again new regulations to be made under the 2012 Health and Social Care Act. These draft regulations have attracted another wave of criticism that
they will force commissioners to put a swathe of NHS services out to competitive tender, thereby benefiting the private sector. My reading of them is that they do little more than put on a statutory footing the competition and procurement rules produced under the previous government, with the addition of some sensible provisions on the integration of health and social care”.
The noble Lord, Lord Warner, continues:
“The new regulations will help the commissioning groups tackle some of their problems with clearer rules. They should be passed by Parliament forthwith”.
The fact is that these revised regulations are as good as it gets within the constraints of EU procurement law. Commissioners will not be forced to tender and will not be forced to create a market where none exists. Within the confines of EU law, which we have to follow, they are entirely consistent with the assurances given by my noble friend Lord Howe last year. I commend the regulations to the House and urge noble Lords to vote against the Motion.
Lord Warner: My Lords, I would like to reassure the noble Lord, Lord Clement-Jones, that I will be speaking in this debate. I oppose the Motion in my noble friend’s name. He will not be surprised by that, although I know that he hoped that I would have more pressing engagements elsewhere. I should declare my registered interest as an adviser to two companies.
I begin, briefly, with some context in which these draft regulations sit. Much of the comment and briefing that I and, I suspect, some other noble Lords have received has an underlying assumption that, somehow, competition is bad for NHS patients. It would let in what are usually described as slightly distasteful people called private providers and should be prevented at almost any cost. Much of that seems to overlook the legal procurement framework that the NHS operates within now and within which it operated when I was a Minister some years ago.
The NHS has to operate within the terms of EU competition law, with certain constraints related to clinical services. NHS bodies operate under a set of process rules in how they conduct procurements. There are regulators that patrol the territory of competition with jurisdiction in relation to the NHS, namely the Office of Fair Trading and Monitor. That is not new. It is not a nasty invention by the coalition. We can get all fanciful about it but it has been around for some time. We may not like it, we may prefer it to be different, but that is the legal context in which the NHS has had to operate for some time.
I would argue—this may be rather uncomfortable for some of my colleagues on these Benches—that this contextual framework makes any persistent attempt to make NHS providers preferred providers, irrespective of these legal constraints, profoundly anti-competitive. I believe that it is vulnerable to successful legal challenge. We got quite close to that before the 2010 election. This set of contexts in which the NHS has to operate means that we have rather a complex area for NHS commissioners to operate in. They need a clear set of rules to guide their conduct on procurement and competition, and that is provided for in Section 75 of the legislation, which we passed after a great deal of discussion and debate. That is the context in which these draft regulations are being prepared.
They are also operating in another important context, one in which the NHS itself faces enormous financial and clinical challenges over the rest of this decade. It was the Public Accounts Committee under a Labour chairman that made it very clear that virtually every NHS trust was financially and often clinically unsustainable in its present form. Change is absolutely inevitable within the NHS, whether we have these regulations or not. A massive programme of service reconfiguration awaits the NHS to meet the unavoidable fiscal, demographic and morbidity challenges it faces. In the past two months, two acute hospital trusts have gone bust, and in my view another 20 may be well on the road to the same fate. The idea that we can somehow solve these problems without an injection of new providers with some new ideas and some better management techniques is fantasy.
Lord Hunt of Kings Heath: I am most grateful to my noble friend for his enormously helpful speech tonight.
Lord Warner: There is plenty more to come.
Lord Hunt of Kings Heath: I am delighted and I look forward to making further interventions. My noble friend and I very much agree on the need for a massive reconfiguration of services. We have argued that this needs to be done from the centre with authority and vigour, but what does the noble Lord say to the interventions of the OFT and the competition panel into perfectly sensible reconfiguration proposals? Does he not see that that is entirely consistent with the general direction in which the Government wish to take us, whereby in essence they are saying that the integrity of the marketplace is more important than reconfiguring these services?
Lord Warner: I am not prepared to second-guess the OFT before it has done its inquiry into this set of arrangements. I cannot see the point of having regulatory jurisdictions such as the Office of Fair Trading and Monitor if, every time they do something some of us disapprove of, we jump in and tell them they are out of line in undertaking that kind of investigation under the legislation on competition as it stands today. I am not prepared to engage with my noble friend in a discussion about whether the OFT has behaved reasonably. I would sooner wait and see what action it takes to investigate these arrangements, and that is the position that most of us had to take when these things happened while we were Ministers sitting in the same place as the noble Earl, Lord Howe, is today. We have to be a bit more statesmanlike about some of these things.
In the UK, we seem to prefer a situation in which we bail out what are in many cases public monopolies. We seem to forget that in our sister organisation of adult social care we have had a mixed economy for nearly 30 years, and that local government has quite amiably—
A noble Lord: That is a separate issue.
Lord Warner: It is not a separate issue because there is considerable overlap between those who are providing adult social care from outside the public sector and
those who operate in the NHS market. They are very often the same providers. It is that market in social care that in this country has built and run a whole nursing home sector because the NHS turned its back on nursing home provision more than 30 years ago. It turned its back on providing a pattern of services that might have been relevant to today’s needs. Alongside the NHS we have a market-driven service—and very soon we shall probably be discussing something called the care and support Bill, which I and a number of noble Lords have been considering on the Joint Committee. The bad news for some is that within that legislation are some provisions for market-making, and that is the term that was being used in adult social care. Even as we speak, the Local Government Association and the Department of Health are enhancing the skills of local government in market-making in this area. However, the NHS does not seem to want to play in that game. It does not seem to want to pursue—
Baroness Young of Old Scone: I am afraid I cannot resist interrupting. Does the noble Lord’s pride in the social care market extend to the number of fairly large companies that have either almost gone bust or indeed have gone bust in the social care market in the past 12 months, or indeed to the failure of a considerable proportion of the social care market to deliver standards that are acceptable to the Care Quality Commission? I wonder if the social care competitive market is actually delivering what he wants it to deliver.
Lord Warner: I do not think anybody in the private nursing home and residential care market has achieved the dizzy heights of Mid Staffordshire trust in the way they looked after patients.
Lord Warner: If we are to have a debate about whether one sector is better than another, we ought to see the other side of the coin in terms of public sector failure as well as private sector failure. Too much of the debate about this is taking place somehow with no acceptance that the public sector ever fails, and it is only all those nasty people outside the public sector who do a bad job. Even where some of these homes have failed, they are failing in a context—this is a criticism of the Government—where local authority budgets have been trimmed to a much greater extent than NHS budgets. It is not a fair comparison blithely to assume that people can go on funding care in the adult social care sector when they have not been given the resources to do so. We have a difference, but the point I am trying to make is that in an area that is analogous to the healthcare sector there has been a private, independent sector market for about 30 years and it has widened the range of services available to service users. They are much wider than what was there before.
I am always happy to have a few more interruptions, if people want, but I am going to finish what I have to say. I came here to say some things and it is important, if I may put it this way, that one or two people take their medicine on this issue.
Lord Warner: Before we all get too excited, let us look at some of these issues. In my view, these regulations only put on a statutory footing the competition and procurement rules produced under the previous Labour Government but with the addition of—
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Baroness Meacher: I would simply like to ask the noble Lord, Lord Warner, whether he has any interests in private sector provision and, if he does, whether he would like to declare them to this House.
Lord Warner: If the noble Baroness was listening, I think I declared my registered interests at the beginning of my utterances. She is very welcome to look at the register, which will show those particular interests, but they do not shape my view. I would like to finish the argument. If noble Lords want to go on interrupting me that is fine, but I would like to finish the arguments which substantially substantiate the case for accepting these regulations.
As I was saying before I was interrupted, these rules are very similar to the rules produced under the previous Labour Government but with the addition of some sensible provisions on integration. Let me remind colleagues that these regulations are totally compatible with the policy of using the independent sector in the NHS set out in the 2005 election manifesto of the Labour Party. Some may recall that Labour won a third election on the trot with that manifesto. I also remember, as a Minister, implementing the NHS parts of that manifesto with a policy of “any willing provider”. Many of the interests opposing these regulations look remarkably familiar to me from those days.
Even in the swashbuckling new Labour days of modest NHS competition, most PCTs’ contracts were rolled forward each year under that regime without any tendering process, competitive or otherwise. My guess would be that there were probably somewhere of the order of 50,000 of those contracts each year. It would have been totally impracticable and unnecessary to put many of those out to competitive tender each year, or even every three years. It will be the same with the 211 clinical commissioning groups. They will not be able to put out to tender on any great scale a large number of contracts, and they will be operating with a smaller number of staff than the PCTs.
The clinical commissioning groups will have to concentrate their change efforts on those services where there is continuing failure or underperformance, or where it is clear that there is a bigger prize of patient benefits from a major overhaul and out-tendering of services. I suggest that it is almost a paranoid fantasy to suggest that David Bennett and Co. at Monitor, with about 40 staff working on competition issues, will be able to act as a kind of Stasi outfit, rounding up clinical commissioning groups which have not recorded enough competitive tendering processes.
I am afraid that I have to disagree fundamentally with many of my colleagues. My sympathies are with the Minister over these regulations. He has done his best, in his customary patient way, to clarify them. In my view, they are perfectly acceptable in their present
form and can always be amended in the light of experience. To my colleagues on these Benches, I would say that we ought to remember what was satisfying to the British public when we were winning elections. This approach of injecting, on an agreed basis, some measure of competition and change where NHS public providers are consistently failing is in the best interests of patients.
Lord Owen: My Lords, the noble Lord and I served together in the Department of Health many years ago, and he will remember that his then boss, Barbara Castle, warned in the 1975 referendum about the impact of the European Economic Community, as it was then called. I thought she was greatly exaggerating the challenge, but it was interesting in that campaign that the allegation that the European Economic Community contained within it the capacity to interfere in the National Health Service was specifically denied.