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Grand Committee

Wednesday, 29 October 2014.

Consumer Rights Bill

Committee (6th Day)

3.45 pm

Relevant documents: 3rd and 8th Reports from the Delegated Powers Committee

Amendment 55

Moved by Lord Taverne

55: After Clause 60, insert the following new Clause—

“Product description and advertisement

(1) Subject to subsection (2), where any specification, description or advertisement of goods, services or land or property offered for sale, hire or lease, or any instructions or maintenance manual relating to such goods or services includes one or more units of measurement, those units shall be—

(a) those set out in Schedule 1 to the Units of Measurement Regulations 1986 (as amended); or

(b) any multiples or submultiples of those units as set out in Schedule 2 of those Regulations.

(2) Subsection (1) shall not apply to products listed in Schedule (Product description and advertisement).

(3) Subject to subsection (4), supplementary indications may be used in addition to the units authorised in subsection (1).

(4) Where supplementary indications are used—

(a) in the case of a conflict between an indication of quantity expressed in an authorised unit and a supplementary indication, the authorised unit shall prevail; and

(b) the authorised unit shall appear first, and any characters employed in the marking of quantity in relation to a supplementary indication shall be no larger and no more prominent than those employed in the marking of quantity expressed in the authorised unit.

(5) In this section—

(a) an “authorised unit” means a unit of measurement specified in Schedule 1 to the Units of Measurement Regulations 1986 (as amended) or any multiples or submultiples of those units as set out in Schedule 2 to those Regulations,

(b) a “supplementary indication” means one or more indications of quantity expressed in a unit of measurement, other than an authorised unit, which is used in conjunction with an indication of quantity expressed in an authorised unit,

(c) “unit of measurement” does not include arbitrary sizes such as sizes of shoes or clothing, paper and stationery or eggs,

(d) a “year” is not to be treated as a unit of measurement.”

Lord Taverne (LD): My Lords, I apologise for not having taken part in the discussions on this very welcome Bill but my special concern is with the particular and rather unfashionable subject of metrication. The Bill offers an opportunity to clear up some anomalies in the law as it stands that can only confuse consumers and also to promote some modest steps towards a simpler and more rational system of measurements that has been promised for many centuries.

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The first commitment was made in Magna Carta. It required one measure for wine, corn and cloth throughout the realm, and similarly for weights. This was to stop consumers being ripped off. Since then, progress has been rather slow. Four and half centuries later, in 1668, Bishop John Wilkins proposed a universal decimal system of measurement in England. Similar proposals were made from time to time but mostly came to nothing. I will refer to only a few of them. Skipping two centuries, in 1895, the Commons Select Committee recommended that the metric system should become compulsory after two years and be taught in elementary schools. In 1904, the House of Lords voted for a compulsory change to a metric system but the Bill failed in the Commons.

Yet 1971 was a star year when we changed to a decimal currency—a major operation that I remember well because I was Financial Secretary in 1970, when Roy Jenkins was Chancellor. I was involved in preparations for the change, which many prophesised would cause chaos. It went through very smoothly. The following year, a Conservative Government produced a White Paper that recommended a gradual but not compulsory change to metrication. A Metrication Board was set up then, but a few years later it was abolished—perhaps because, more recently, metrication has become associated with Brussels. Most Commonwealth countries have adopted metrication. That is nothing to do with a Brussels agenda but because it is much simpler and more commercially convenient. That is also why British schoolchildren are taught the metric system.

However, we still allow two separate systems to exist side by side in a number of commercial transactions. My amendments seek to dispel the confusion that this can cause. They bring product description and advertising in line with the rules for package labelling and for the sale of loose goods from bulk. At present, package labels must give the metric quantity with the option of a supplementary indication in imperial measurements—for example, “568 millilitres, equal to 1 pint”. Pricing of goods must be by metric quantity—for example, “tomatoes at £2.50 per kilogram”, with the option of a supplementary indication of “£1.14 per pound”.

However, these rules do not apply to product descriptions and advertising, which can prove thoroughly confusing for purchasers. A carpet can be described as measuring “eight feet six inches by 16 feet three inches”, with no indication of metric measurements. We also have the absurd situation that manufacturers and retailers often use incompatible units even for products displayed side by side. For example, a consumer may have to compare a fridge of six cubic feet with a fridge of 200 litres. In property advertisements, some estate agents describe room sizes in feet, inches and square feet, while others use metres and square metres. Therefore, we need a minimum common standard that all manufacturers, traders, advertisers and estate agents must follow. Since the law already requires that goods and services must be priced per metric unit, with the option of an imperial equivalent, it is sensible that the minimum standard for product description and advertisement should also be in metric units.

Subsection (1) of my proposed new clause indicates the scope of the clause to achieve this aim, but allows for certain exemptions. It requires the same units as

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are already required for the pricing of goods and services—namely those listed in the United Kingdom’s Units of Measurement Regulations 1986. However, in order to help older people who are still uncomfortable with metric units, and to avoid cases of so-called “metric martyrs”, the new clause permits the use of supplementary indications using the exact wording from the Units of Measurement Regulations and the price marking order. Also included are a number of minor exemptions, such as car tyres, where it would not be practical to require them to be relabelled. There may need to be other exemptions, so the new clause gives discretion to the Secretary of State to amend the list.

Subsection (2) exempts the cases listed in the proposed new schedule. I will explain the reasons for the exemptions when I come to the new schedule. Subsections (3) and (4) permit the use of supplementary indications—that is, imperial equivalents—while making it clear that the metric unit is primary and must not be less prominent than the imperial unit. Proposed subsections (5)(a) and (b) define the terms “authorised unit” and “supplementary indication”, using the same wording as in the Units of Measurement Regulations. Subsection (5)(c) makes it clear that clothes and shoe sizes, et cetera, are not to be regarded as units of measurement. In subsection (5)(d), “year” is excluded because, unlike other units of time, it does not appear in the Units of Measurement Regulations; if it were not excluded, it might not be possible for traders to offer, for example, a two-year guarantee.

I now turn to the new schedule. Paragraph 1(1) explains that the reason why tyres need to be exempted is that the labelling conforms to an international standard which, for historical reasons, is expressed partly in imperial inches. Since the labelling is part of the moulding of the tyre, and since tyres are manufactured and traded internationally, it would not be practical to require them to be relabelled in metric units.

The reason for sub-paragraphs 1(2) and (3) is that the Units of Measurement Regulations specifically permit draught beer and cider, and milk in returnable containers, to be dispensed and labelled in imperial measures—that is, pints. It is therefore necessary to exempt the glassware from the requirements to display metric units; otherwise, all pub glasses would have to be dumped. As for paragraph 2, there may be other cases where an exemption is justified. This paragraph gives the Secretary of State the power to amend this schedule, subject to the consent of both Houses.

In summary, the amendments enable consumers to compare products on a like-for-like basis, using the same units as in the Units of Measurement Regulations and the price marking order. They would not prevent anybody from using imperial units in addition if they wished. I suggest that these amendments are eminently sensible: they are sensible improvements for the benefit of consumers, especially the younger ones who have only been taught the metric system at school. I also hope that this Committee will feel that moving a little closer to the requirement of Magna Carta for a common standard of measurement, and doing so after a mere 800 years have passed, is not displaying an excessive sense of urgency. I beg to move.

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Lord Harris of Haringey (Lab): My Lords, the noble Lord, Lord Taverne, raised some interesting issues. However, I am slightly disappointed that he did not attempt to sort out some other problems at the same time, as a number of issues such as product descriptions and advertisements of the size or quantity of goods, particularly food products, could usefully be addressed in this amendment. If he gets the traditional rebuff that Members of the Committee expect from the Minister, he might want to consider including those issues as additional items when he brings the amendment back on Report.

I have noticed a tendency for supermarkets to surreptitiously change the size of products, usually food products but also others, as a means of covertly increasing the price, so things which were previously sold at 140 grams weight are now sold at 120 grams weight. Conveniently, the label moves from the front of the packaging to somewhere at the back, often to a place where it is difficult to read. These are all issues that could usefully be addressed if we are trying to simplify and improve the quality of product descriptions and amendments. It is pertinent that we should look at it.

The noble Lord also highlights in his proposed new schedule the anomaly that exists in the markings on beer glasses. However, for those of us who drink rather more wine than beer, there is even more of an anomaly as places that sell wine by the glass may claim that the glass contains 150 millilitres, or whatever it is, but when you look at it, to the untutored eye, it does not look as though it is anything like that amount. I have on occasion challenged this in restaurants and been told, “Sorry, it’s a big mistake. We have given you the small measure rather than the large”, and a smidgen more appears. However, if one is trying to rationalise this—and the motivation of the noble Lord, Lord Taverne, is entirely helpful in addressing this issue—you might as well try to get a number of other things right. Between now and Report perhaps he and the ministerial team will see what else can be got right and included in the Bill.

Baroness King of Bow (Lab): My Lords, the noble Lord, Lord Taverne, makes a persuasive argument, to which I listened with great interest. It is interesting to note that we use metres and kilometres for our athletics, miles per gallon for our cars, pints for our milk and beer, miles for our speed limits, feet for our height measurements, and our distances are often measured in yards. As the noble Lord pointed out, we have been hemming and hawing on this issue for 800 years, so I doubt that we will sort it out in the next eight minutes. Suffice it to say that Amendment 81 would safeguard a critical element of British heritage, not to mention a key aspect of British identity—the right to buy beer and milk in pints. For some reason, the self-esteem of the British people depends on it. I thank the noble Lord for bringing this issue before us. As my noble friend Lord Harris said, the motivation behind these amendments is entirely helpful. I hope that we will get a thoughtful response from the Minister and I look forward to returning to this on Report.

Baroness Jolly (LD): My Lords, I start by reassuring noble Lords that a statutory framework for the use of units of measurement is already in place. The Weights

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and Measures Act 1985 requires the use of metric units for any regulated transaction, with the following exceptions—draught beer and cider, bottled milk and precious metals, where we still use the troy ounce. These are required to be sold in imperial units. In addition, the Units of Measurement Regulations 1986 list all the legal units available for any other purpose. The Weights and Measures Act applies to any unit or measurement in use for trade. This is intended to apply not just in the transaction itself but to any use in connection with, or with a view to, trade. That would already cover most advertisements or product descriptions for goods. I hope that noble Lords will be reassured by this. I am certainly very keen to avoid any possible confusion for consumers, businesses or enforcers. I am concerned that businesses might be confused by duplication of existing requirements, particularly if that were to result in reduced levels of compliance as businesses were uncertain about which set of rules they must comply with. Having a single set of requirements on units of measurement, as we currently do, all under the weights and measures framework, makes it easier for businesses to know where to look for the rules and how to comply with them.

4 pm

I am entirely with noble Lords in the spirit of this framework. We live, and therefore must operate, in a world in which people use modern and internationally recognised units of measurement. That is why the Government support a single system of units. It allows consumers to compare quantities and make informed purchasing decisions and it reduces costs for businesses. The UK is already a metric nation, with the vast majority of trade taking place using metric units. Some £212 billion of household expenditure per year is protected by weights and measures legislation, with the vast majority of that sold in metric units.

However, the Government also recognise that some people are more familiar with, or prefer, imperial units. That is why we are committed to retaining imperial units where they are currently the legal unit or where they are used alongside metric as supplementary indications, for as long as people find them useful.

As the noble Lord has mentioned, the existing framework for units of measurement has been in place for almost two decades and metric has been taught in schools since the 1970s. I think it might be earlier than that; I took A-level physics at the end of the 1960s and we did it in metric. However, metric units are now the norm. The existing regulations have helped the UK to make the transition to metric units for the vast majority of transactions and they remain in place to ensure consistency in the use of units. I therefore ask the noble Lord to withdraw his amendment.

Lord Taverne: My Lords, I welcome the suggestion by the noble Lord, Lord Harris, that one might look at broader issues than the ones I have raised. My proposals were very much modest ones. As far as the Minister’s reply is concerned, I will have to look very carefully at what she says. I understand that in the examples I gave, retailers and manufacturers are doing something that is perfectly legal and it is certainly very confusing. I will consider very carefully the suggestions we made.

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This is an issue to which we can return on Report to see either whether we can examine the issues more widely or whether in fact there is no reason to worry about the examples I gave. I beg leave to withdraw the amendment.

Amendment 55 withdrawn.

Schedule 1 agreed.

Clause 61 agreed.

Clause 62: Requirement for contract terms and notices to be fair

Amendment 55A

Moved by Baroness Hayter of Kentish Town

55A: Clause 62, page 36, line 24, at end insert—

“( ) For the purposes of this Act, consumer notices are considered to be any information or requirements about the contract conveyed to the consumer before or during the commissioning of the contract by the trader which may reasonably be considered designed to influence the behaviour of the consumer.”

Baroness Hayter of Kentish Town (Lab): My Lords, in moving Amendment 55A, which is in the name of my noble friend Lord Stevenson and myself, I shall also speak to Amendments 56FA and 56FB in this group.

Clause 62(2) states:

“An unfair consumer notice is not binding on the consumer”.

We concur with that, but we are concerned that the consumer notice should clearly include any promotions that are designed specifically to catch the shopper’s eye. We are also clear that in assessing whether something is unfair, the CMA should be able to include some elements of price where those have been hidden from plain sight—that is, if the consumers do not appreciate their significance at the point of purchase.

To some extent this amendment and those in the next group are part of our attempt to ensure that consumers should not fall victim to hidden traps in the traded standard terms and conditions, and that while some core terms and some charges are immune from any fairness assessment, that should not be the case where such terms or charges may influence behaviour or where they are not fully understood at the point of sale. The Unfair Terms in Consumer Contracts Regulations put the terms into two categories: those that a consumer will or can be expected to properly take into account when deciding to enter the contract; and those that he or she will not or cannot. It is the latter that can be assessed for fairness.

The Consumer Rights Bill narrows the scope of the price exemption following the somewhat unwelcome 2010 Supreme Court decision on bank charges, but still assumes that the consumer will behave like a rational economic person and take account of all prominent information. However, behavioural studies tell us that people are often far more influenced by presentation than by the information itself, or put more emphasis on salient rather than actually useful information. As such, even when a price or term is

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disclosed, consumers do not always factor that into their purchasing decision. They also tend to overvalue a benefit received now and underestimate the impact of deferred costs, which leads to an excessive willingness to pay at the point of purchase while underestimating the future use of the product, which may lead to future costs. Earlier in Committee we talked about a future fee, which a shopper may not consider relevant to them as they do not appreciate the likelihood of it affecting them.

Similarly, we know that consumers are influenced in their buying choices by a wide range of factors, which is what Amendment 55A seeks to cover. Indeed, it is interesting to note that one of the leading university departments specialising in behavioural economics—how consumers actually make decisions—the University of Warwick Business School, wrote to the Minister in the Commons on 7 October, saying that,

“simply providing consumers with information about a charge does not absolve the seller from the responsibility for ensuring the charge is fair and reasonable”.

The business school therefore asked that terms that are effectively “hidden in plain sight” should be assessable for fairness, but its wise words pertain also to other issues that might have been included in information put to shoppers with exactly the aim of tempting them into the purchase.

One example of this, which we know influences behaviour, is the choice of price times; in other words, when you find out about them. Research done in 2010 by the OFT shows that consumers make more mistakes and poorer purchasing decisions under what is known as “drip-pricing”, a form of partitioned pricing, where consumers see only part of the full price upfront and price increments then drip through the buying process. This can cause the most consumer detriment.

We all tell stories in this Committee. I was on the point of buying a walking jacket the other day because it was reduced to only £15. But as you get into it, you choose the colour, the size and whether or not you want a hood, and then you get insurance added on. The jacket was only £15 but the postage and packing was 1p short of £4. That is a very large amount to add on to the price but by that stage you have chosen the size, you have chosen the colour—it is a very clever way of selling. However, drip-pricing has a very negative effect on behaviour because we start our purchasing process before we see the whole price. Other offers, such as “take home today”, “easy to assemble”—I have fallen for that one—and “money-back guarantee”, are the ones that influence the buying process. We are not saying that they should be outlawed but they should be looked at for fairness.

Amendments 56FA and 56FB would amend the terms that cannot be assessed for fairness and replace them with,

“only where the price payable does not relate to future variable fees”.

Normally, price is absolutely not assessable for fairness, because it is assumed to be clear to the purchaser. It is up to them to decide whether to accept it and then it is part of the contract. However, future and unknown

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prices within a contract need to be assessable for fairness, as the consumer is not in a position to judge them and evaluate their worth at the point of purchase. I beg to move.

Baroness Drake (Lab): My Lords, I support Amendments 56FA and 56FB. These amendments are not about extending consumer rights, so that more contract terms can be deemed unfair; they are about enabling more matters to be assessed for fairness. The problem arises because of the interplay of two provisions. The court may assess a contract term for unfairness unless it falls into a certain exempt category; and core terms in a contract are exempt from assessment for fairness by the courts if they are prominent and transparent.

Through this Bill the Government are clearly seeking to address the problem thrown up by the 2009 Supreme Court decision in the case of the OFT v Abbey National that held, as my noble friend has said, that charges for unauthorised overdrafts were exempt for assessment for fairness. This gave rise to uncertainty about whether ancillary charges could be assessed for unfairness. To use the Government’s own words, this created a situation whereby:

“Some protection in law is necessary because consumers often cannot, or do not wish to, investigate the detail of every contract term before they sign up to an agreement”.

This Bill provides for the “prominence” test for core terms in a contract to be exempt from assessment for fairness by the courts, but this raises other concerns. Prominence is very important and welcome, but its efficiency in providing a remedy both for unfairness and for a weak and ineffective market depends on how the consumer’s attention is drawn to a term and their understanding of its significance. As the OFT commented:

“Transparency alone cannot turn a substantially unfair term into a fair one”.

As the BIS Select Committee commented, bringing something to the consumer’s attention is not the same as a consumer appreciating its significance.

Prominence should not be operationalised in a way that gives too great a protection to traders in exempting contract terms for assessment for unfairness and too weak a defence to the behavioural bias that consumers demonstrate, so unfairly restricting their access to the courts for assessing the fairness of the term of a contract.

These amendments are clearly seeking to mitigate that risk by limiting the wide range of price terms that are immune from a fairness assessment. Consumer markets and products are becoming more complex, increasing the risk that consumers do not understand the significance of certain information. We have behavioural bias. We have asymmetries of knowledge and understanding between the trader and consumer that can actually create incentives for the trader to frame information in certain ways—a problem which the noble Lord, Lord Taverne, illustrated has not been remedied in 400 years.

The Bill may narrow the scope of the price exemption following the Supreme Court’s decision, but it does so on the assumption that consumers will take into account

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all information that is provided prominently. However, we know that that is so very often not the case. Consumer behavioural bias is very powerful. If the most important goal is buying a house or a holiday, people will focus less on the detail of the associated insurance policies. The closer that the consumer gets to signing something, the less likely they are to walk away or assimilate the detail. As my noble friend Lady Hayter has spelled out, the behavioural biases that consumers exhibit are very significant. At risk of repetition, I shall restate some of them. People are more influenced by presentation than the information. They overvalue a benefit that is received now. They underestimate the impact of any deferred cost. They underestimate future use. They are prone to optimism bias. Volume information means that they reach saturation point. Excessive or complex product information can freeze their decision-making. That is probably one-fifth of the list that one could enunciate if one was going through a study of the literature.

The one thing that behavioural science shows us is that if consumers are not factoring certain prices into their decision, those prices will not be subject to competitive forces, so the markets cannot work effectively. In effect, the Government will not secure the functioning markets they are quite rightly so keen to secure unless there is some limit on the wide range of price terms which are now immune or could be immune to fairness assessment.

By way of illustration, perhaps I may refer to the letter dated 27 October from the noble Baroness, Lady Neville-Rolfe, to my noble friend Lady Hayter on mortgage contracts. To me, the contents raise more concerns than they settle. On the issue of “mortgage prisoners”, the letter makes a reference to the FCA’s concerns that some firms do not seem to be applying its transitional arrangements in the spirit in which they were intended. That is very politely and gently stated, but it is quite clearly yet another example of the failure of rule compliance and is hardly an expression of confidence that Clause 64 of the Bill will work effectively. In her letter the noble Baroness also refers to a number of things that the FCA is doing to address the concerns raised by my noble friend, but of course these apply to regulated products. They cannot deal with unregulated products, which include the Bank of Ireland example cited by my noble friend. For these unregulated products we must rely on the unfair contract terms, the problems with which my noble friend and I have, I hope, gone through in some detail.

Other non-financial sectors will exhibit similar problems with unregulated products, especially where switching is difficult because of the length of the contract wrapped around the product. Examples of these would be products bought in the ICT and telecoms sectors or longer term courses in higher education. When one takes into account the extent of the behavioural bias which consumers bring to the market and how that creates incentives for traders to frame information, the fact is that if consumers are not factoring these prices into their decisions, it means that competition and functioning markets cannot be operating. There really is a compelling case for amendments that would constrain terms that are not assessable for unfairness.

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4.15 pm

Baroness Jolly: My Lords, this is the first amendment to Part 2 of the Bill covering unfair terms, so allow me to set the scene. Part 2 responds to the Law Commission’s recommendations to the Government on how to improve the rules around contracts between a business and a consumer. The aim of this part is to provide clarity for business and consumers, resolve uncertainties and avoid lengthy court disputes in the future. The basic framework remains the same: terms in a consumer contract must be fair and they must be plain and intelligible. A court can decide whether a term is fair or not, but the “core bargain”, what you pay for and how much it costs, is exempt from that assessment in certain circumstances. The legislation also lists certain terms as examples which the court may look at, known as the “grey list”.

What are we changing in this Bill? I would draw the attention of noble Lords to two particular changes. First, we are making the “small print bigger”: price and subject-matter terms must be transparent and prominent to avoid a court being able to consider whether they are fair. That requirement for prominence to avoid assessment is new. Secondly, we are adding three new types of term to the grey list. These are the types of term which are always assessable for fairness. We are adding terms which permit the trader to claim disproportionately high sums in compensation or for services which have not been supplied where the consumer has attempted to cancel the contract. These are also known as early-termination clauses. We are adding terms which give the trader discretion to decide the subject matter or price after the consumer has become bound by the contract. These additions were recommended by the Law Commission and based on evidence of consumer detriment and case law.

I turn to the amendments specifically and, first, Amendment 55A. As I am sure the Committee is aware, one of the other ways in which this part of the Bill increases consumer protection is by bringing consumer notices into the scope of the fairness test and transparency requirement which currently apply only to consumer contracts. We based our explanation of what constitutes a “notice” on the current regime, specifically the Unfair Contract Terms Act 1977. We make clear in Clause 61(8) that a consumer notice,

“includes an announcement, whether or not in writing, and any other communication or purported communication”.

I can therefore reassure the Committee that “notice” has this broad definition, meaning more protection for consumers.

We have been asked whether the provisions in Part 2 include general statements such as adverts which are not made to a particular consumer but to all consumers. Such notices are covered by the unfair terms part of this Bill where they relate,

“to rights or obligations as between a trader and a consumer, or … purports to exclude or restrict a trader’s liability to a consumer”—

as stated in Clause 61(4).

I also remind the Committee that Part 2 complements other protections. First, this Bill makes clear that certain information the trader gives the consumer forms part of a contract for the supply of goods, service or digital content. For example, in relation to a contract for a service, Clause 50 provides that where a

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trader gives a consumer information about a service they are offering, and the consumer relies on that information in deciding to enter the contract, the trader must comply with that information. Secondly, the Consumer Protection from Unfair Trading Regulations 2008 are already in place to protect consumers from being misled by a trader. I can therefore reassure noble Lords that the definition of “notice” has a very broad scope and that a wide range of notices are covered by Part 2 of the Bill. Both Part 2 and the other provisions and regulations will protect consumers from being misled.

On Amendment 56FA, concerns have been raised today that our drafting of the exemption will allow traders to surprise a consumer with additional charges after a contract has been agreed, without those charges being assessable for fairness. I do not like these surprises any more than noble Lords do. I would rather know about them upfront so I can shop around to avoid them. That is what the new requirement for “prominence” will allow. Traders should make such charges prominent when they enter into a contract. There should be no surprises. If there are, the consumer or a regulator can challenge them in court. Through that new requirement, consumers will for the first time have significant protection from unfair terms in the small print.

The noble Baroness, Lady Hayter, mentioned drip-pricing. The Bill will help protect consumers from drip-pricing, alongside the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which say that these extra charges must be clear and comprehensible before the consumer buys. In contrast, were we to allow only the main price to be exempt from assessment for fairness, traders might just bundle all their charges under the headline price. That is not beneficial for consumers or creating a competitive marketplace. The Law Commission recommended to us in 2013 what you see in the Bill now. It considered this a careful balance between protecting consumers and allowing the market to operate. The Government agree with that view; we need an unfair terms regime that works in practice.

On Amendment 56FB, which would change the requirement for prominence under Clause 64, concerns have been raised that our current definition allows terms to be “hidden in plain sight”, where a consumer could see and read a term because of its prominence but still not appreciate its significance. We recognise that consumers rarely read terms and conditions and that those who do may not fully appreciate how they will impact them. After thorough consultation we agreed with the Law Commission’s recommendations that the way to tackle this was through transparency, prominence and the maintenance of the grey list—that is, the list of terms which are always assessable for fairness. In answer to the concern of the noble Baroness, Lady Hayter, about customers being irrational, I understand that the Minister has responded by letter to the University of Warwick academics on this particular point. I am not sure whether the noble Baroness has seen a copy of that letter.

The grey list is key to protecting consumers from terms which they may not fully appreciate when agreeing to a contract because it covers such a very wide range

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of such terms. We are therefore making clear in the Bill that terms on this list are always assessable for fairness. We are also adding three terms to the list, again on the recommendation of the Law Commission, thereby protecting consumers from three additional types of term that they may not fully appreciate when they agree to a contract. Finally, we are taking a power in the Bill to allow us, after parliamentary scrutiny, to update the grey list. That means that were consumer or trader behaviour to change, we could add terms to the grey list to accommodate that.

I agree with noble Lords that consumers might not appreciate all the terms when agreeing a contract, but I think that we have already addressed this in the Bill as drafted. I hope that I have explained our reasoning for accepting the Law Commission’s recommendations for the construction of Clause 64 and I therefore ask that this amendment be withdrawn.

Baroness Hayter of Kentish Town: My Lords, I thank the Minister for that response. As she says, this is the first time that we have discussed this provision. I also thank my noble friend Lady Drake for her professional and expert intervention; this is her area. Among the details which she so rightly raised, she used the phrase “transparency alone is not enough”. I think that that is the problem that we still have—that transparency and prominence are highly welcome but, by themselves, are not enough.

I very much welcome the expansion of the grey list. I think that there was a half-offer there that we could see the letter that was sent in reply to the Warwick University Business School, so I thank the Minister. I particularly welcome something that I am not sure I had noticed—it is confession time—which is the ability to update the grey list. We might return to this on Report after we have read those words carefully to see whether we would still like to tweak it at that stage, although it may be that we will want to do it later. I think that some points are still not sufficiently well covered. For the moment, I beg leave to withdraw the amendment.

Amendment 55A withdrawn.

Clause 62 agreed.

Clause 63 agreed.

Schedule 2: Consumer contract terms which may be regarded as unfair

Amendment 56 not moved.

4.30 pm

Amendment 56ZA

Moved by Baroness Hayter of Kentish Town

56ZA: Schedule 2, page 56, line 21, at end insert—

“ A term (including those within the scope of paragraph 22 of this Schedule) which has the object or effect of permitting a trader to increase the price of, or alter unilaterally any characteristics

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of, goods, digital content or services during any minimum contract period or before the end of a contract of a specified duration without a valid reason or where it is reasonably foreseeable that the consumer would not be free to dissolve the contract without being disadvantaged.”

Baroness Hayter of Kentish Town: My Lords, Amendment 56ZA, which stands in my name and that of my noble friend Lord Stevenson, deals with a similar area. It would add a type of contractual term to the list of what may be regarded as unfair. The purpose is to ensure that consumers do not have terms imposed on them which could leave them disadvantaged, specifically in a minimum or fixed-term contract where a price was increased and where they would then be disadvantaged if they were to switch products or providers. I refer to the discussion that we had on “mortgage prisoners” earlier in Committee.

Which? has pointed out that the Unfair Terms in Consumer Contracts Regulations 1999 recognise that such variation in contracts can lead to consumer detriment. However, the grey list, as currently drafted, would appear to absolve the person varying the terms of the contract from responsibility should the consumer be unable to end the contract. We discussed examples of where consumers could not leave contracts, for whatever reason. There are clear examples of where ending the contract would lead to significant consumer detriment—for example, if another mortgage is not available or one’s circumstances no longer qualify one for a mortgage. Merely being able in theory to terminate a contract does not alleviate the difficulty of a change being made to the contract for no good reason because the person concerned still needs to find another mortgage but cannot do so at that stage.

A mortgage is not the only kind of contract where growing older during its term could make it disadvantageous suddenly to have to find a new one. Life insurance is another such example, or home insurance where a neighbour might have experienced flooding or subsidence since the consumer first bought their own coverage. In the case of a university degree, where suddenly a subject is withdrawn, merely being able to move to another university does not mean that the student is not disadvantaged, especially if they have worked hard for two years at the first university.

This amendment is limited to fixed-term contracts and minimum-term contracts, where the expectation of the deal advertised is at its clearest. The fairness test allows consumers to challenge a term of a contract to make it non-enforceable. Any compensation would have to be decided separately, whether by the financial ombudsman or elsewhere. The Minister will be aware that the approach we are taking here was supported by the BIS Select Committee and the CMA, so I hope that the Government will find themselves in a position to support it, too.

Amendment 56D returns us to the issue of “mortgage prisoners”, although it takes a slightly different approach. It would add to the grey list a term in a contract which would give a mortgage provider the ability to increase the price of a mortgage in cases where the consumer cannot get a new contract for the reasons we have been through. It

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would have the effect of giving a consumer recourse to argue that the change in the terms of the contract is not legal and should not take place. This consumer detriment, where people cannot get another contract, will be familiar to the Committee.

The Minister’s letter, received on 27 October, to which my noble friend referred, relates to Amendment 56ZA and contracts that vary in their supposedly fixed lifetime, such as a mortgage. However, it applies only to what the FCA is doing on mortgages. But the bottom line is that there is little concrete provision in the rules to stop a lender changing the terms of a mortgage deal that they have come to regret offering in the first place—perhaps when hidden terms and conditions allow them to do so—leaving consumers high and dry where there is no alternative product. Does the Minister agree that if the banks cannot honour the terms and spirit of a fixed mortgage deal, they should never have offered it in the first place? After all, consumers cannot exit the contract without penalty if this happens the other way round, when there may well be exit fees. Therefore, it is hard to see why the provider should be able to do so.

Furthermore, while the Bank of England example allowed BIS to deflect the issue back to the FCA, this issue can occur in other markets that are regulated by different regulators, such as Ofcom with telecoms fixed contracts and Ofgem with fixed energy contracts. Even more importantly, what happens where there is no regulator at all? Who would take action then? Would it be trading standards or the CMA? Again, it is worth noting that the CMA supports our approach to this.

I turn now to the other issue in the example of the Bank of Ireland. The Government said that it would be for the court to decide if the Bank of Ireland case was unfair, although the FCA has already said that it does not think it was. Furthermore, while the Minister says that consumers can go to the Financial Ombudsman Service, in fact that service adjudicated against the complainant because the unfair contract term regulations are not adequate in this case. The financial ombudsman actually cannot help unless the grey list is complete; that is, if it allows these terms to be open to assessment for fairness. Our amendment would add terms that vary by unknown amounts within a fixed lifetime to the grey list and would thus be able to be assessed for fairness. That is what we are trying to achieve.

I would add once again that although the Government have tried to use the particular case of mortgages to show what the FCA considers to be acceptable, we are worried about wider markets where it does not operate. The amendment would provide a clear route for someone to take their complaint in such a situation, and I hope that the Minister will either be able to accept it or will lay out plans to provide an equivalent level of protection within this legislation. I beg to move.

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con): My Lords, these amendments also relate to Schedule 2 covering the grey list, containing terms which are always assessable for fairness under Clause 62. These are terms that are likely to trip up even an astute consumer or that someone would not fully appreciate

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when agreeing a contract. As the noble Baroness, Lady Drake, set out, consumers do not always appreciate the terms they have agreed, and I agree with the sense of the debate that this is not the easiest area in the Bill in terms of understanding exactly what is happening. I note the points she made not only about regulated areas but other areas as well, and I am grateful to her for making them.

I shall try to address the generalities and then perhaps I may move on to financial services, which are the subject of Amendment 56D. Let me reassure the Committee that there are protections in place to protect consumers from unfair variation clauses. Where traders include a term to allow them unilaterally to change the characteristics of the goods, service, or digital content being provided without a valid reason, that is included on the grey list as set out in paragraph 13 of Schedule 2. Those terms can be challenged in court even if they allow the consumer to exit the contract. For example, if a painter decorating your bathroom includes a term stating, “All materials may vary in style, colour and finish”, that term can rightly be challenged for fairness.

Where traders include a term to allow them unilaterally to change the price of the goods, service, or digital content being provided, that is also included on the grey list as set out in paragraph 15 of Schedule 2. In that case, a term can be challenged for fairness if the increase is too high and it does not allow the consumer to exit a contract. I should remind the Committee that just because an item is not on the grey list, it does not mean that it is fair or exempt from the fairness test. In order for a price term to be exempt, it must be prominent and transparent, and I believe that the requirement for prominence that we are introducing in this Bill marks a significant increase in consumer protection. I hope that the noble Baroness, Lady Hayter, will bear that in mind in her further consideration of this issue.

The noble Baroness, Lady Drake, mentioned that I had written round—thank you for that. It may be worth reiterating a couple of the points that I made in that letter. The Government are determined that lenders should treat mortgage borrowers fairly. That is why, during the course of this Parliament, we have strengthened protections in a number of ways. Most significantly, in April of this year, the new independent consumer regulator, the Financial Conduct Authority, introduced a revised set of rules as part of its mortgage market review. These provide stronger protections than ever before for borrowers taking out a mortgage to buy a home and, indeed, have changed the marketplace a bit. Among the key changes were improvements to sales standards and to affordability assessments. The FCA’s rules are designed to protect consumers who find it difficult to switch once market or regulatory conditions change. Therefore there is a general requirement on firms to treat customers fairly, but there is a specific provision within the FCA rules that forbids lenders from taking advantage of a borrower who is stuck with their current mortgage—a circumstance that the noble Baroness, Lady Hayter, referred to. FCA rules say that lenders should not treat these customers less favourably than other, similar customers. In addition to that specific provision, the FCA has provided for transitional arrangements that allow lenders to waive

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the new affordability requirements for existing borrowers seeking to remortgage as long as they are not increasing the size of the loan. Finally, and most importantly, the FCA is also undertaking a review of its new mortgage rules which will consider how the rules are working in practice and whether any adjustment or clarifications are required. If need be there is scope for action and the FCA has the powers.

We believe that this amendment would significantly reduce valuable flexibility that lenders currently have in making commercial pricing decisions across the market. If we make it much more difficult for lenders to increase rates in response to changing market conditions, then lenders’ ability and readiness to offer the most competitive deals will be constrained. Ultimately, it will be mortgage borrowers who lose out.

In conclusion, we believe that introducing new legislative requirements would undermine the robust but flexible system of regulation that has been put in place in recent years. It would constitute a backward step in terms of delivering the Government’s aim to deliver a regulatory environment that offers consumers protection as well as choice and good value. I therefore ask that this amendment be withdrawn.

Baroness Hayter of Kentish Town: I am not certain about the flexibility point, because both amendments use the words “without a valid reason”. That is the point—there are valid reasons for things having to change. We are very focused on changes that are made without a valid reason and which therefore of course cannot be within the expectation of the purchaser. Valid changes in interest rates they know; we are worried about changes made without a valid reason. I want to look carefully at the words used in this amendment and the one before, which to some extent try to address the same problem, to see how we might come back to this. I beg leave to withdraw the amendment.

Amendment 56ZA withdrawn.

Amendment 56A not moved.

Amendment 56B

Moved by Baroness Thornton

56B: Schedule 2, page 57, line 2, at end insert—

“20A (1) A term which has the object or effect of permitting a trader engaged in the provision of fixed broadband internet access or mobile internet services to block, restrict or otherwise hinder the access of a consumer to any lawful electronic communications network or electronic communications service on the basis of an unreasonable or unusual definition of “internet access”, “data”, “webaccess” or similar word or phrase.

(2) Nothing in this prohibition shall affect filters for the purpose of child protection.

(3) “Electronic communications network” or “electronic communications service” shall have the same meaning as in the Communications Act 2003.”

Baroness Thornton (Lab): My Lords, this is an amendment to Part 1 of Schedule 2 which seeks to add three sub-paragraphs. They concern net neutrality and seek to clarify the issue. As the Minister will know,

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they are made necessary, in some ways, because of the flurry of confusion that was caused by unfortunate wording in a measure debated recently in the European Parliament. It would be absurd, would it not, if in the name of net neutrality—or anything else, for that matter—ISPs or we found that we were unable to take reasonable steps to protect children from age-inappropriate materials on the internet.

No right-thinking person can ever have intended that, so I hope that the Government will take this opportunity to put the matter beyond any doubt. Noble Lords will know that net neutrality is the principle that internet service providers and Governments should treat all data on the internet equally. They should not discriminate or charge by user, content, site, platform or application. In layman’s terms that means that whether we are looking at iPlayer, Sky Go or Netflix, there will be equal access to services and there should be no speed differentiation in accessing them. The amendment seeks to address that issue.

I know that noble Lords have comments to make so I will limit myself to putting some questions to the Minister. What consideration has she made of any possible changes to the principle of net neutrality? Will she rule out any changes to data priority for UK consumers of online content? Has she had meetings with ministerial colleagues to discuss what response the Government might make if the authorities in America, for example, make changes to their rules on net neutrality? Does she feel that existing protocols are strong enough to protect the interests of consumers and avoid competition issues among content providers? What assessment has she made of any competition implications of the possible creation of a two-tier internet? I do not expect the Minister to answer those questions in detail right now but it might be necessary for the discussion to take place between now and the next stage of the Bill. I beg to move.

4.45 pm

Lord Deben (Con): My Lords, I hope that the Minister will listen to this very carefully. I will repeat for her interest an experience I had as a Minister when I sought to insist that the providers of telephonic communications should be able to withdraw the service to telephone numbers used by people advertising illegally in telephone boxes. This had become an increasing problem and it seemed not unreasonable that we should say that if you advertise a telephone number illegally in those circumstances, the telephone company might withdraw it.

One of the telephone companies took me to Ofcom, or the equivalent then, to say that this was contrary to competition and would create a cartel. With very great regret, the regulator said that it thought that the law did mean that. So this very simple way of removing very objectionable content in telephone boxes in the centre of London, which were very often used by young people, was stymied. I use the example so that my noble friend will recognise that this is an area in which very great care must be taken not to allow the very necessary protection for competition to interfere with the very necessary protection for other reasons.

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The noble Baroness who introduced the amendment did so in a very broad-minded and sensible way, saying, “We just want to do this in order that the Minister will take it very seriously”. I just want the Minister to understand that this is much trickier than sometimes Ministers are advised. Having been through this, it is a very dangerous area to be in and the Committee will probably agree that we want both—protection of competition and protection of people so that they can make the choices that they want to make. There are many unscrupulous people around who will use the one to play against the other.

Therefore, will the Minister take it from me that it is much more difficult than is sometimes suggested, and that she needs to be on her guard in a particular way? I hope she will be able to answer the very pertinent questions that were raised by the noble Baroness.

Lord Best (CB):My Lords, I have added my name to Amendment 56B. I was approached by the Internet Telephony Services Providers’ Association—ITSPA—because I chair your Lordships’ Select Committee on Communications. However, my committee has not had a chance to consider this particular issue so, having discussed it at length with ITSPA, which represents some 80 providers of telephony services via the internet, I speak in a personal capacity.

The amendment addresses a consumer rights issue relating to the penalties facing unwary customers of some of the companies that supply our mobile phone and internet connections. Unbeknown to those who sign up to get the internet from their iPhones and other mobile phones—unless they have studied all the small print and those terms and conditions that we all accept but have never read—some of the big players have built-in penalties for using the internet to make telephone calls—for example, through Skype. While providers such as BT, O2 and Sky, for example, have not adopted such practices and do not penalise their customers in this way, Vodaphone and EE have done so in recent years.

Presumably, the restrictive practices of these companies are a consequence of them providing mobile telephone services, which could be less popular and profitable if people use the internet to make telephone calls at a much lower cost. However, this practice is bad not just for the innocent consumer who can have their calls blocked or degraded, and/or could find some hefty charges on their mobile phone bills, it is also bad for this industry that finds it harder to attract investment to extend a really useful communication tool which, increasingly, could benefit more and more of us but has this cloud hanging over it. The practice is detrimental to consumer interests as well as anti-competitive and will gradually affect other services as we increasingly access the internet via mobile connections.

I note that amendments to this effect were tabled in the other place by both Conservative and Labour Members. We learnt there that the Government and Ofcom are keen to see an end to the current bad practice. We hear that in recent days Vodafone and EE have bowed to pressure from all sides and agreed to sign up to the industry’s code of practice which outlaws the technical blocking or restricting of telephone services

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through the internet. This is a step in the right direction. Nevertheless, as ITSPA points out, there are ways of interpreting this code of practice that could circumvent its intentions, for example simply by avoiding the term “internet access” and using a synonym such as “mobile data” or “mobile broadband”. There are also no sanctions for breaking the code, and those who voluntarily sign it one day can withdraw from it another. Only through legislation is the matter fully resolved.

As I know from the work of the Communications Committee, ensuring the law keeps pace with technological change—particularly in respect of the internet—is an important challenge for today’s legislators. This Bill takes steps in that direction and this amendment is very much a case in point. It seems that in the somewhat arcane world of telephony services, the consumer needs the protection of the law, not just of a voluntary code, to ensure fair play.

Finally, I gather that there is a school of thought that suggests we should await an EU directive on so-called internet neutrality—to which the noble Baroness, Lady Thornton, referred. That would cover this point, among other measures. However, I fear that we could wait a very long time for agreement on the content of this Europe-wide measure. Surely it is much better for UK citizens if the Government act now with a small, well-focused amendment to the Bill already before us. I am delighted to support this amendment.

Lord Stoneham of Droxford (LD): Briefly, I lend my support to this amendment. Most of the points have already been made but wherever uncompetitive activity is trying to distort a market and deprive market entry to competitors it should be exposed and eliminated. Internet access should be open and consumers buying that service expect it to be so. Can the Government really achieve their objective of an open market without considering this amendment? Selective blocking is abhorrent to innovation and generally has uncompetitive motives. Consumers are not fully aware of the practices when ISPs and mobile providers undertake inhibiting their services. Ofcom has already indicated that it would welcome more clout against the blocking of or economic deterrents for internet services. It recognises that these practices should be unacceptable. The voluntary code of practice should be given statutory support.

Baroness Jolly: The noble Lord, Lord Deben, says that this is a tricky issue and he is clearly right. One of the tricky bits of this amendment is that many aspects of internet behaviour can be fitted under these amendments. The ones in my comments relate to those of the noble Lord, Lord Best, in which people using voice over internet protocol have been wrongly charged for it. Nobody wants to see that situation but I question whether there is a need to change the law to tackle such behaviour as we have good and robust protections in place for consumers.

I also understand that companies which block services such as Skype no longer offer packages that do so, except on legacy tariffs, so these terms and conditions should not apply. I also understand that the regulator

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Ofcom has been in dialogue with the providers, and that there is a commitment to review the wording in their terms and conditions to ensure that these are not misinterpreted in this way.

The noble Baroness, Lady Thornton, asked about the assessment of the two-tier internet. The Government’s intention is to ensure an open, secure and safe internet. Where some services are blocked, we want to see transparency. However, our experience is that competition is working. The proposals in the US are informed by the US market. The UK’s market is very different, so we watch with interest to see what the FCC will do.

More broadly, the Government and industry through the Broadband Stakeholder Group have done a great deal of work together to ensure that there is greater transparency. For example, two industry codes of practice have now been developed. This, coupled with the UK’s highly competitive telecoms market, has been very successful in ensuring that there is no consumer detriment caused by traffic management problems.

I hope that this gives some reassurance to noble Lords proposing the amendments. However, given their wide applicability, it makes an awful lot of sense to convene a meeting on this issue with interested parties before Report. Therefore, I ask the noble Baroness to withdraw the amendment.

Baroness Thornton: I thank the Minister and the noble Lords, Lord Deben and Lord Best, for their remarks.

I was getting quite cross until I heard the Minister read out her last paragraph, as I thought that her remarks showed a level of complacency which I do not think is justified. As the noble Lord, Lord Deben, said, this is a complex area. I would certainly like to take the Minister up on her offer of discussions before the next stage of the Bill. I beg leave to withdraw the amendment.

Amendment 56B withdrawn.

Amendment 56C

Moved by Baroness Hayter of Kentish Town

56C: Schedule 2, page 57, line 2, at end insert—

“ A term which either—

(a) requires or encourages a consumer to contract third party services without informing them of their right to seek independent advice; or

(b) seeks to limit a consumer’s access to independent advice regarding third party contracts where there is a potential conflict of interest for the third party involved.”

Baroness Hayter of Kentish Town: My Lords, in moving Amendment 56C, I shall speak also to Amendment 56FD, both of which also stand in the name of my noble friend Lord Stevenson.

These amendments are about protecting consumers who take out legal protection through their insurance policies against being allocated a lawyer who has some tie with the insurance company. Instead, they should clearly be offered independent advice and have greater certainty that any lawyer arranged through such a deal will act independently of the interests of the insurance company. This is about ensuring that, following

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an accident, the lawyer, who has after all been paid for by their premiums, is working for the driver and not in any way for the insurance company. Unfortunately, experience shows that it is necessary to look at this. At the moment, if you look at your car or house insurance, you may well find a paragraph about legal protection.

The problem is that, should you need to call on this, you would probably have to use the law firm that the insurers appoint, not a lawyer of your own choice. And one has to ask, in order to stay on the panel recommended by the insurance company, what incentive would there be for a law firm to do extensive and therefore expensive work, which would be paid for by the insurance company, rather than a quick job which perhaps looks very satisfactory to the driver, if it results in a very fast settlement? Would such a law firm on the panel which relies for its work on referrals from the insurance company, really fight the driver’s corner with any vigour in a personal injury claim, or would there be a temptation to settle for the first offer from the other side? These legal expenses clauses are often difficult to remove from an insurance policy, which does not sound like a healthy market for consumer choice.

5 pm

Evidence given to the Transport Select Committee described the risk in these circumstances of what was termed “third party capture”. The evidence described a tactic used by insurers to try to “capture” and settle an injury claim direct with the claimant before independent legal advice, and sometimes even a medical report, has been obtained. We have been told that there sometimes are cases where the insurer will cold-call or write to a policyholder after a vehicle damage-only accident has been reported to it. It will even suggest that they discuss any claims for injury, perhaps mentioning a sum of money in final settlement of the claim, if the claimant does not involve solicitors.

It is true that under the industry’s voluntary code, insurance companies are meant to advise the policyholder that they have a right to independent legal advice, but somehow this is sometimes forgotten. The risk is not only that the legal expenses part of the insurance cover is not activated—which saves the insurance company money—but that the policyholder, who normally will have zero idea of the likely compensation for an injury that was fairly awarded and argued in court, gets a rather low pay-out from the insurer.

The insurer will sometimes call in a lawyer, of course, but it might automatically refer the policyholder to one of its panel solicitors. We have been told of examples suggesting that claimants have been encouraged by insurers to under-settle. Lawyers representing one trade union member recounted to us how he was allocated solicitors by his insurer following an accident. The insurer advised him to accept an offer of £2,250. However, as soon as independent lawyers got involved, the claimant was awarded more than £5,000. In another case, when a woman’s car was hit by another vehicle and the other driver’s insurer admitted liability, she was repeatedly called over a weekend by her only insurer to try to get her to accept £1,000, whereas her lawyers settled for £5,000.

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All of that should be covered by the Solicitors Regulation Authority and the FCA. From the consumers’ point of view, however, there are two big players that they are dealing with—insurance companies and large legal firms—whose business models they do not understand. These big players have far more knowledge of the accident and insurance world and the likely compensation than the policyholder has, and it appears that they do not always put the consumers’ interests first.

These amendments are not about replacing the SRA or FCA’s roles as regulators over these two areas but simply call for transparency, something which we know the Minister is very keen on in other clauses. They call for transparency, together with absolute clarity, as regards the right of clients to choose their lawyers so as to ensure that they are completely independent. I beg to move.

Baroness Jolly: Perhaps I may reassure noble Lords that where conflict of interest is an issue in particular sectors, the Government have taken action. As I am sure noble Lords are aware, in November 2008 the then Master of the Rolls, Sir Anthony Clarke, appointed Lord Justice Jackson to lead a fundamental review of the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost. Lord Justice Jackson published his final report in January 2010 and the recommendations are being taken forward in a variety of ways. A number of measures required primary legislation, and some of the major reforms are in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Other reforms will be implemented through rule or policy changes.

Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act implements recommendations made in Lord Justice Jackson’s review. No-win no-fee conditional fee arrangements have been reformed, but remain available. They provide a means of funding legal cases for those who could not otherwise afford them. That part also provides that for personal injury cases, referral fees are prohibited. This ban covers both the payment and receipt of such fees, which means that a firm cannot benefit through referring a customer to a particular third party. In effect, this removes the incentive on the trader to refer a consumer to a particular third party, just as this amendment would do. The ban captures all of the main businesses involved: solicitors, claims management companies and insurers. Any breaches of the ban will be subject to appropriate regulatory action by the relevant regulators, which are the Solicitors Regulation Authority, the FCA and the Claims Management Regulator. This regime has been in force since April last year.

Provision is also made in the Act for a power to extend the prohibition to other types of claim and legal services beyond personal injury claims. However, the Government do not intend to use this. There is no evidence that such a ban is needed in other sectors. I hope that that reassures the noble Baroness and I would ask her to withdraw the amendment.

Baroness Hayter of Kentish Town: I thank the Minister for her reply. I have worked on referral fees a lot and of course this is not quite the same. It is not about the

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payment of referral fees, but about a law firm which is dependent for the volume of its work on being referred by an insurance company. I made no allegation whatever that a referral fee was being paid. The problem is that if the insurer is putting all its cases to one or more lawyers on its panel, that sets up a potential conflict of interest for the law firm which wants to remain on the panel.

I know that the Minister will not be able to answer my next point now, but she has talked about claims management companies. She will not be aware, because she was not the Minister at the time, that another amendment I did get through was that complaints against claims management firms should be able to be made to the Legal Services Ombudsman. I think that that happened around 18 months ago, but the SI has still not come before your Lordships’ House. Despite this House having taken the decision—a very wise decision, I have to say—that complaints against claims management firms can be made to the Legal Ombudsman, the MoJ has been so tardy that we still do not have the SI. I am sorry to get that in as a dig, but we are still waiting for it. It is really important in these sorts of issues.

As I say, it is not referral fees that we were touching on in this. It is about being absolutely certain that when you pay for insurance to cover legal representation if anything happens, that legal representation should be absolutely non-conflicted and should act for the driver concerned. For the moment, I beg leave to withdraw the amendment, but if the Minister could talk to her colleagues in other departments, and if they could move on the complaints against claims management firms going to the Legal Services Ombudsman, many people would be very grateful.

Amendment 56C withdrawn.

Amendment 56D not moved.

Amendments 56E and 56F had been withdrawn from the Marshalled List.

Schedule 2 agreed.

Clause 64: Exclusion from assessment of fairness

Amendments 56FA and 56FB not moved.

Amendment 56FC

Moved by Baroness King of Bow

56FC: Clause 64, page 38, line 20, at end insert “, taking into account social, cultural and linguistic factors”

Baroness King of Bow: My Lords, Amendments 56FC and 56G are in my name and those of my noble friends Lady Hayter and Lord Stevenson.

Amendment 56FC aligns the definition of “average consumer” with case law from the European Court of Justice. This basically means using a phrase already well established in EU law to identify an average consumer. The phrase in question is,

“taking into account social, cultural and linguistic factors”,

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when identifying what is average. The essential point of Amendment 56FC is to give courts flexibility when determining what constitutes average. The amendment supports the view of the Financial Services Consumer Panel, which has judged the Bill to be inadequately flexible.

I realise that the Minister is likely to respond to Amendment 56FC by saying that it is too subjective. It would seem, for example, to protect consumers who might currently be unprotected—those who are not average. An example might be consumers with learning difficulties, mental health problems or medical conditions. The European Court of Justice has not found this approach too difficult and has used the phrase in a succession of cases. Although the ECJ expects traders to consider an average consumer as reasonably well informed and reasonably observant, at the same time it expects traders to take social, cultural and linguistic factors into account. This does not seem to have caused it undue problems.

Amendment 56G requires the Competition and Markets Authority to,

“publish an annual assessment of the extent of consumer detriment caused by the use of unfair terms”.

Throughout this debate, we have heard that consumer protection is meaningful only if consumers understand what their rights actually are and those rights are enforced. Amendment 56G would provide insight into those two critical factors. Many stakeholders involved with this legislation are concerned about the enforcement landscape, which is looking very patchy, to say the least. One of the obvious reasons for that is that funding for trading standards has in some places been cut off at the knees. The majority of trading standards enforcement comes via local authorities and we all know what has happened to local authority funding. The amendment requires the CMA to publish an annual assessment of the extent of consumer detriment in relation to what we have just been discussing around unfair terms.

It is helpful to have an idea of what we are talking about in terms of scale. The most recent comprehensive research on this that I am aware of was conducted by the National Audit Office in June 2011, although I would welcome any more recent figures that the Minister no doubt has to hand and can bring to the debate. In June 2011 the NAO estimated that the total cost of detriment to the consumer was £6.6 billion. Of that sum, £4.8 billion could not be tackled locally. Therefore, £4.8 billion of consumer detriment requires a national response and a national enforcement strategy. That national response is funded to the tune of £34 million—or at least that was what was forecast for this year.

Those figures set out a national problem that costs the consumer almost £5 billion, depending which of those figures you are using, and yet our response at a national level amounts to £34 million. That is an example of asymmetry that is clearly detrimental to consumer interests. Of course, you are never going to spend as much on trying to tackle the problem as the scale of the problem itself because clearly that would not make sense but I am sure we can all understand that there is a very big gap there when you look at the scale of the problem.

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I am sure that, none the less, the Minister will resist the amendment by saying that the NAO is reviewing the landscape. She may well also point to research commissioned by the University of Birmingham which the Government are supporting and which will look at the structure of trading standards and the extent to which funding cuts may have impacted the service, among other issues. However, the key point here is that the CMA has overall responsibility for unfair terms legislation and therefore the CMA should determine detriment in this area. After all, it holds the knowledge about what is happening in the market. Yes, the NAO has looked at the landscape and said that it is a dog’s breakfast because it is just so complicated. The feeling out there is that the Government have replaced one complicated landscape with another one.

We know that the scale of the problem is huge and that the resources allocated to tackle it are few and far between. It is for precisely that reason that we need all the insight and information we can get from the right source. The debate that we recently had on unfair terms sets out why we need to assess and then tackle the vast scale of consumer detriment caused by unfair terms. I beg to move.

5.15 pm

Baroness Jolly: My Lords, let me take each of these amendments in turn. First, on Amendment 56FC, the Government of course agree wholeheartedly that vulnerable consumers should be protected. The existing consumer protection regulations protect vulnerable consumers from misleading and aggressive practices. They take into account whether a practice is directed at a particular group and whether that group is particularly vulnerable when considering whether a practice is misleading. On 1 October this year the Government amended those regulations to make it much easier for consumers who have been the victim of such practices to get redress. The Government have also ensured that there is support available for those who need help understanding their finances or their financial options, for example through the Money Advice Service and citizens advice bureaux.

However, one of our aims in Part 2 of the Bill is to create a regime that protects consumers but which traders can work in practice. I am not sure whether the noble Lady would agree, but I do not think that a trader can be expected to know the social, cultural and linguistic characteristics of their customer; and, in many cases, the customer would not want to share the detail. Many contracts are now agreed remotely online or over the telephone, a practice that greatly benefits the consumer through speed, ease and efficiency. However, in such cases the trader cannot know the specific details of who it is contracting with, and I am not sure that we should be encouraging it to ask that information of the consumer either. Even in a face-to-face transaction, a business might need to spend considerable time assessing the social, cultural and linguistic status of a consumer, and even after that there will be uncertainties about how accurate that assessment was. This is a process that consumers themselves may not appreciate, as the Association of British Insurers pointed out in its evidence to the Bill Committee in the other place.

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Some consumers already begrudge the time spent purchasing insurance and the length of the documentation they receive.

I am aware that the language proposed is used in other legislation, such as the Consumer Protection from Unfair Trading Regulations. However, it would not be practical to use the same definition of “average customer” here. That is because those regulations are for unfair trading practices. A trader who, for example, uses advertisements to mislead consumers will know at whom it is targeting those advertisements. Indeed, it can choose who to target and what type of consumer to engage with. The Law Commission examined that issue in its 2013 report and recommended the definition we see in the Bill. Like noble Lords, it strongly supported a definition that works in practice.

I am pleased that Amendment 56G gives me an opportunity to talk about Schedule 3 to the Bill. This schedule is vital to ensure that the consumer protection regime is enforced effectively. As the noble Baroness said, rights need to be not only understood but enforced. It provides for a tailored, specific enforcement regime for the law on unfair terms. We have taken the current enforcement regime under the Unfair Terms in Consumer Contract Regulations 1999 and worked with the Law Commission and our stakeholders to improve and update it. For example, we are making it clear for the first time that enforcement action can be taken against consumer notices, such as those seen in retailers’ car parks, that seek to deny all responsibility for theft from or damage to cars parked in them. We have also taken a national approach to unfair terms enforcement in Schedule 3. This Bill will reduce consumer detriment by £2 billion a year.

Schedule 3 includes a key role for the Competition and Markets Authority, as the noble Baroness mentioned. It sits at the heart of enforcement work on unfair terms across the regulatory landscape and has the power to issue guidance on what traders need to do to comply with the law in this part of the Bill.

I can reassure noble Lords that the CMA will publish on its website details of specific enforcement action taken. It is also required by the Enterprise and Regulatory Reform Act 2013 to publish and lay before Parliament an annual report that covers among other things its enforcement activity in the previous financial year. Traders, consumers and other enforcers can also ask the CMA for this information during the year. Of course, for noble Lords, and for Members in the other place, the benefit of having the annual report laid in front of Parliament means that noble Lords can challenge the CMA on its work.

The department also regularly monitors consumer detriment in order to inform policy. I am pleased to say that a report on consumer detriment, drawing on survey responses from real consumers across a whole range of sectors, was published earlier this year and is available on the GOV.UK website. I have given noble Lords several examples of the CMA’s work that we think would not call for either of the two amendments that the noble Lords are suggesting, and I therefore ask that the amendment be withdrawn.

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Baroness King of Bow: The Minister points out as a concern with Amendment 56FC that it might cause the trader problems in relation to knowing the background of the consumer. I trust that she understands that the point behind the amendment is, as I set out, not to increase any undue burden on the trader; rather, it is to increase flexibility in the courts when determining what constitutes the average. As I hope I have pointed out, this seems to have been done in a way which will not lead to the problems that the Minister raised.

On Amendment 56G, I am delighted that the Government estimate that the Bill will reduce consumer detriment by £2 billion. However, the point remains that the agency that would appear to be best suited to being able to measure this is not the one tasked with that, as far as I am aware. The concerns still remain, but naturally at this point I will withdraw the amendment.

Amendment 56FC withdrawn.

Clause 64 agreed.

Clauses 65 to 67 agreed.

Clause 68: Requirement for transparency

Amendment 56FD not moved.

Clause 68 agreed.

Clauses 69 and 70 agreed.

Schedule 3: Enforcement of the law on unfair contract terms and notices

Amendment 56G not moved.

Amendment 57

Moved by Baroness Neville-Rolfe

57: Schedule 3, page 61, line 9, leave out sub-paragraph (7) and insert—

“(7) No order may be made under sub-paragraph (2) unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.”

Baroness Neville-Rolfe: My Lords, this amendment was recommended by the Delegated Powers and Regulatory Reform Committee in its report on the Bill. On the committee’s recommendation, we propose to change the parliamentary procedure used to update and amend the list of enforcers of the unfair terms regime by moving from the negative to the affirmative procedure. We agree with the committee that now that the list of enforcers is in primary rather than secondary legislation, this is a significant power because it can be used to add to or amend the list of enforcers who can take action against unfair terms, as set out in Part 2. As such, the higher level of parliamentary scrutiny and the opportunity for debate that the affirmative procedure provides is more appropriate. I beg to move.

Amendment 57 agreed.

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Schedule 3, as amended, agreed.

Clauses 71 to 75 agreed.

Schedule 4 agreed.

Clause 76 agreed.

Amendment 57A

Moved by Lord Stoneham of Droxford

57A: After Clause 76, insert the following new Clause—


In cases where there is a consumer contract under Part 1 or 2 of this Act, paragraph 1(c) of Schedule 1 to the Unfair Contract Terms Act 1977 (scope of sections 2 to 4 and 7) applies with the omissions of “copyright,”.”

Lord Stoneham of Droxford: My Lords, I speak on behalf of my noble friend Lord Clement-Jones, who has commitments in China this week. I reassure the Committee that this is not an option that has been proposed in order to make speedier progress on the Bill.

The purpose of Amendment 57A is to amend the Unfair Contract Terms Act 1977 so that it would apply to intellectual property rights contracts. Although this has been sought by the Society of Authors, we would argue that there is a wider significance that needs to be examined in the context of the Bill. There is no justifiable reason why creators should be denied the legal protections afforded to other businesses, and we would therefore press for the amendment to be accepted.

The Consumer Rights Bill should be extended to protect creators and others in an unfair negotiating environment where they often have little choice but to sign the contracts that are put in front of them. For example, writers always have to sign clauses indemnifying publishers against any claims brought by other parties even when they arise through no fault of the author, and even though the publisher is covered by insurance. Nor can writers easily enforce performance which turns out to be substantially different from what they could have reasonably expected under the contract.

The proposed new clause would impose a basic obligation of fairness. It is unclear why contracts involving intellectual property are currently excluded from the Unfair Contract Terms Act, but it is probably because they were not so significant in 1977. It will protect consumers and businesses from being bound by contractual terms that they may not have read as they would have simply clicked their agreement to them, as we all do, on the assumption that they contain nothing astonishing or that the law will offer protection. For intellectual property rights, which could include something as basic as buying an e-book, there is currently no legal protection against unfair terms. This is remarkable, given the growth of contracts involving intellectual property rights.

The Government may argue that this new clause would represent a major change that requires consultation, but we do not agree. It is not being suggested because

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creators have little bargaining power—although that is true—but because if as a society we agree that people should be protected from hidden and patently unfair terms in contracts, the protection should be apply to everyone. It is completely illogical to exclude contracts that relate to intellectual property. Without a government response, this unfairness will grow with the increase in contracts involving intellectual property, and it will deter innovation. I urge the Minister to accept the amendment, or at the very least tell the Committee how the Government intend to deal with this growing inequity.

I now turn to Amendment 63A, which is somewhat unrelated. I have spent my life in the publishing business, where passing off brands was a problem. Although we invested heavily in brands over a long period, it required us to be ever vigilant to protect them. Parasitic copying—the practice of packaging consumer products to mimic familiar brands—misleads consumers and distorts competition. Indeed, this has been recognised by the Government, who launched a consultation in February on enforcing consumer protection regulations in relation to misleading, similar packaging. It is therefore a legitimate subject to be covered by the Bill. Copying the packaging of branded goods hijacks the reputation of a brand built up over many years of consumer experience. The current legislation appears inadequate to deal with the problem.

5.30 pm

I urge Members of the Committee to look particularly at the British Brands Group website, which shows some of the extent of the problem. I will not mention brands from Tesco in the interests of not embarrassing my noble friend the Minister but other goods from supermarkets besides that particular chain are identified on that site as clearly infringing fair and competitive practice. I urge other Members of the Committee to look at some of those goods. They are not just big brands, which have the defence of the resources of big companies; there are smaller brands as well. I will mention just two: Dorset Cereals, copied by Sainsbury’s, and Tunnock’s Caramel Wafer Biscuits. These are products we all know and some of us may love but others are trying to imitate. This problem is not helped in the grocery trade by the concentrated power of the supermarkets, which makes it very difficult for branded products to complain. A major study by the Intellectual Property Office last year showed that consumers are misled by packaging to buy the wrong product. Similar packaging increases the perception that two products can be from the same source, enhances perceptions of quality and increases the propensity to buy—that is precisely why it is done.

Why does existing legislation not work? Designers who produce parasitic copies design around registered trademarks and to avoid infringement while still creating a similar overall impression to the original. Parasitic copies tend to fall short of the substantial reproduction tests required for copyright infringement. The evidence for proving passing-off in the courts to show confusion is extremely difficult to obtain. Consumers tend not to complain about low-priced items. Evidence cannot be gathered in store and courts often dismiss survey results as unreliable.

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Parasitic copies are potentially unlawful under the consumer protection regulations as they mislead consumers. However, civil enforcement action can be brought only by those designated under the Enterprise Act; namely, the Competition and Markets Authority and trading standards, both of which lack the resources to do so. The ineffectiveness of existing legislation calls into question the UK’s compliance with the trade-related aspects of intellectual property rights, the Paris convention and the unfair commercial practices directive requirement for member states to provide adequate, effective remedies to unfair practice.

On remedies and solutions, we propose a new clause to give brand owners the right to take a private civil action under the consumer protection regulations as provided for in the European directive where they reasonably believe that similar packaging is likely to cause confusion or association with their packaging and/or products. That right is focused solely on similar packaging of consumer products and extends only to those adversely affected. It is a tightly focused, limited right. Such a right would ensure compliance with the European directive and other treaty obligations. The consumer would be presented with a clear, fair choice when making purchase decisions. Consumer protection would be enhanced at no cost to the public purse. Business investment in strong, compelling reputational quality and innovation would be protected. I hope the Minister will accept this amendment and at least update us when action will follow on the current consultation. I beg to move.

Lord Stevenson of Balmacara (Lab): My Lords, I was aware that the noble Lord, Lord Clement-Jones, was abroad because I have been in correspondence with him on other issues in relation to this Bill, but I had not realised that he had set up such a brilliant “counterfeit parasitic package” in his place. The noble Lord, Lord Stoneham, has done a wonderful job of presenting the case and I congratulate him sincerely on that.

I do that because I have been exposed to the original version on a number of occasions. Those of us who have sat through the various pieces of legislation emerging from BIS this year have been astonished by the persistence that the noble Lord has displayed in finding ways to introduce both these items out of a hat. Even in respect of the most unlikely of clauses, he has been able to persuade those who should know better that they were not only in their scope but were central to the whole understanding of consumer law in this area. There are a lot of prizes around Parliament, such as those for the best newcomer or the best law. We ought to have one for persistence, and the noble Lord, Lord Clement-Jones, would win that hands-down.

Having listened to the noble Lord, Lord Clement-Jones, over the years, I am aware of the arguments he uses in these matters; indeed, my speech was prepared in response to what I thought he would say. It is rather irritating, but also very gratifying, that the noble Lord, Lord Stoneham, was able to find new words for these issues. It shows that this is not just a one-man band, which is an unhelpful way of describing it, but there is

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a broader sense of engagement with this issue, something that the Minister should reflect on when she comes to respond.

The case on the question of copyright is a strong one. It is perplexing that until recently the Government have maintained the view that it was okay for copyrights to be excluded from any negotiations, particularly where negotiations were between a relatively unresourced creative person and a large corporation. Individual creators can be at a disadvantage when negotiating such contracts, and it is time to look seriously at the Unfair Contract Terms Act and amend it if necessary in order to ensure that the terms of engagement are more equal. I know there have been discussions on this issue, and the last time this came up the then Minister confirmed that he would meet with representatives from the various creative industries. I would be grateful if the Minister would confirm whether that meeting has taken place and, if so, tell us what the outcome was and whether there were any proposals discussed that might have ameliorated the issue. It is an interesting one, which has been bubbling away quietly, but it has now reached a point where we need to make some movement on it—doing whatever is possible through this or other measures.

On the relationship to parasitic packaging—which is a new name since we went though this last time—the case was certainly well made by both the noble Lord, Lord Clement-Jones, and the noble Lord, Lord Jenkin, who is not in his place today but has followed this subject with interest. I think it is correct to say that lookalikes are already unlawful in the United Kingdom because they are contrary to a variety of measures introduced by previous Governments, particularly the Consumer Protection from Unfair Trading Regulations 2008. The point made by the noble Lord, Lord Stoneham, was right: these regulations would have little effect if the responsible authorities—in this case it must be the trading standards people—do not have the resources to take action against those who might breach the regulations. His point, which I support, is that we need more detail from the Minister on whether trading standards are sufficiently resourced to be able to deliver on this point. For instance, will the Minister identify precisely what resources are currently being deployed in this area? Where is the responsibility for these issues physically located? There is an understanding among the trading standards authorities to locate particular responsibilities in particular areas; I would be grateful if we knew a bit more about how that will have been done in this case.

The most interesting issue is one that was touched on—but perhaps not explored as much—in the speech today: the line between confusing packaging on the one hand and the use of generic cues to signal to customers on the other. The point is that if similar packaging prompts mistaken purchases and creates false assumptions in the minds of consumers, there must be an effect on sales. If there is an effect on sales, then it is surely right for the Government either to strengthen existing powers so that they are effective or to introduce new legislation. I would be grateful if the Minister could respond to that point.

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Baroness Jolly: I am grateful to my noble friend Lord Clement-Jones for tabling these amendments and to my other noble friend for speaking to them on his behalf.

I realise that these amendments are closely related but I will take each in turn, starting with Amendment 57A. Noble Lords asked why we are not changing the scope of the Unfair Contract Terms Act in the Bill to apply to business-to-business intellectual property contracts. This is because this Bill is about consumers. We want to have a one-stop shop where consumers can go to find their rights. Adding business-to-business contracts would dilute this for consumers, making the law more complex and reducing its accessibility. Having rights for businesses in the Unfair Terms part of the Consumer Rights Bill may also be confusing for businesses.

We sympathise with the situation in which some small businesses find themselves. However, we have not yet seen evidence that amending the Unfair Contract Terms Act in this way would address the issue. We would need substantial, quantitative evidence of a problem to make this change. We would also need to be sure that amending the Unfair Contract Terms Act in this way would solve the problem my noble friend raises without unintended negative consequences.

My noble friend Lord Stoneham raised the issue of consultation, effectively saying that we do not need consultation, we need action. We need to be sure that we get this right, so we need to consider all interests. The creative industries are too important to rush this. They are really critical to the UK economy. The department is aware that this is a live issue, but the Bill is not the place to solve it.

Lord Stoneham of Droxford: Is my noble friend saying that in recognising the issue, the department is prepared to initiate some form of consultation to put this inequity right?

Baroness Jolly: Yes, there was a meeting and the outcome was agreement from the creative industries to provide evidence of the problem and to propose a solution. My noble friend has just said that she is seeing the British Brands Group tomorrow at an IP round table to discuss these issues.

Lord Stoneham of Droxford: I am sorry, that is a separate issue. That is on parasitic brands. I am sorry to confuse my noble friend. Perhaps she could write to me.

Baroness Jolly: I will drop my noble friend a line. I am sorry, that has thrown me. I was given this and told exactly where to slot it in.

Lord Stevenson of Balmacara: Just to pick that up and endorse it, in my researches for today I just happened to check back in Hansard and I felt it was important to reflect on this point. When this was discussed previously, the noble Viscount, Lord Younger of Leckie, said that the noble Lord, Lord Clement-Jones, had sent him a paper,

“on how the issue of unfair contracts could be addressed. I confirm at the beginning that I have received this paper and that we will consider his suggestions very carefully. It is a little early to

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talk about this as a formal review, but I reassure him that we will certainly discuss this and take it forward”.—[

Official Report

, 11/3/2013; col. 55.]

I am very heartened to hear from the noble Baroness that there has been a meeting. That is a good thing. If evidence was required from the creative industries, I am sure that it would have been supplied, so what is the hold-up?

Baroness Jolly: We can clarify this. The noble Viscount, Lord Younger, had a meeting to discuss this and we have asked for more detail. I hope to be able to come back with more detail on this for noble Lords, certainly before Report.

Moving to Amendment 63A, I would like to add my compliments to those of the noble Lord, Lord Stevenson, to my noble friend for speaking to this well-crafted amendment so clearly and for raising the important issue of copycat packaging. This was debated at the Committee stage of the Intellectual Property Bill in June last year and the noble Viscount, Lord Younger of Leckie, said that the Government would undertake a review into this issue.

5.45 pm

A call for evidence was launched in April this year. We received over 30 detailed responses. I was talking to the Bill team about this yesterday. The responses were incredibly detailed with a wide and often polarised range of views on the issues identified. The call for evidence was followed by a round-table discussion with stakeholders in July, which provided us with more information. Officials are continuing to review the information received. We had hoped to publish our final report with analysis by September, but this has not proved possible. It is important that the views of interested parties are properly considered and that we take the necessary time to do this. Furthermore, it had originally been envisaged that the review would be published before Ministers had taken any view on the matter. It has now been decided that it will be published alongside Ministers’ decisions on the issues. We anticipate that the outcome of the review will be published in early 2015, so while I recognise my noble friend’s desire to make progress on the issue, I am sure he would agree that it would not be appropriate to legislate before we have concluded the review and have determined whether, and precisely what, action is needed.

I am sure that his amendment has been prompted in part by the opportunity provided by the Bill. However, I hope I can offer some reassurance that, were we to go down this route, we believe that we could do so via secondary legislation under Section 2(2) of the European Communities Act 1972. My noble friend should be reassured that I have passed his amendment to the officials conducting the review and that Ministers have met today once again with representatives from the British Brands Group to discuss these matters, as the noble Viscount, Lord Younger of Leckie, did in the past. I would ask my noble friend, on behalf of the noble Lord, Lord Clement-Jones, to withdraw the amendment.

Lord Stoneham of Droxford: I thank my noble friend for her comments. I apologise for interrupting, but I am grateful for the assurance that she will come back to us on Amendment 57A and its implications.

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Although I am disappointed that the review on parasitic products is not going to be published until early 2015 and I have certain doubts as to how this Government could deal with the European Act, we have had some assurances that the Government are on a path towards progress on this matter. I will have to leave it to my noble friend Lord Clement-Jones to decide how he pursues this matter. I beg leave to withdraw the amendment.

Amendment 57A withdrawn.

Clause 77 agreed.

Schedule 5 : Investigatory powers etc.

Amendment 58

Moved by Baroness Jolly

58: Schedule 5, page 72, line 8, at end insert—

“section (Enforcement of the duty)(1) of this Act.”

Baroness Jolly: My Lords, I want the requirement for letting agents to publicise their fees to come into effect in both England and Wales as soon as possible to ensure that tenants have some certainty over the payments they have to make. This is why I have laid an amendment putting the enforcement details into the Bill rather than subsequently using secondary legislation. This amendment simply uses the process described in the existing clause but makes it clear that the duty in England and Wales will be enforced by county councils, county borough councils, unitary authorities and London boroughs.

These authorities will be able to fine agents who fail to publicise their fees up to £5,000 for each office and website. Agents will be able to appeal to a tribunal. I recognise that enforcing the requirements for agents to publicise their fees will entail a new burden for English local authorities, so we will make additional funding available for this. Furthermore, authorities will be able to retain the fine, potentially enabling the proceeds from agents who are opaque on their fees to be used to tackle rogue agents where they exist, thus continually driving up standards in the industry. I beg to move.

Baroness Hayter of Kentish Town: I rise to say “well done”. I should warn the Minister that we will have other amendments on letting agents next week. However, we are very pleased that this will be in the legislation and that it will happen early, by the extra resources, and by the incentive for local authorities to take action, given that they will be able to retain any fines levied. I realise that that is the end of her political career, having had praise from me, but so be it.

Baroness Neville-Rolfe: Before the noble Lady sits down, perhaps I can say thank you to her.

Amendment 58 agreed.

Amendment 59 agreed.

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Amendment 60

Moved by Baroness Bakewell of Hardington Mandeville

60: Schedule 5, page 80, line 11, after “may” insert “on production, if required, of his credentials,”

Baroness Bakewell of Hardington Mandeville (LD): My Lords, I will speak to Amendments 60, 61, 62, 63 and 63ZA. As noble Lords know, my noble friend Lord Clement-Jones is elsewhere so I am standing in for him.

The first group of amendments deals with powers of entry for enforcement officers. While there is some logic to giving advance notice of inspections by trading standards officers, I do not believe that will work in favour of consumers and businesses in all cases. There are a number of situations in which the exemptions for giving notice cannot be sustained and are likely to cause confusion and uncertainty about whether an officer has to serve notice before an inspection of a business they believe is in breach of legislation.

The horsemeat scandal has caused the European Commission and the consumer to voice support for more unannounced inspections. Reviews of food safety powers have left powers of entry for trading standards officers untouched after concluding that the use of unannounced inspections is proportionate to the risks involved. The assumption is that consumer protection against unsafe products, including dangerous electrical goods, involves less risk. I question that assumption.

Evidence from members of the consumer association Which? suggests that many authorities are already following an intelligence-only approach. They use powers of entry only where there is good evidence to suggest that a breach has occurred. Many businesses suggested that they value unannounced inspections, both for their own businesses and their competitors. The need to give notice is questionable if it will do little to change existing practices and add little to the system. Although Which? welcomes the new provisions to give consumers redress, help them make better choices or prevent businesses from creating further harm, it has concern about how many authorities will actually take up such provisions, due to the complex nature of the processes, costs and risk to the enforcer.

In the criminal courts, enforcers can be liable for the defendant’s costs only in limited circumstances; for example, in the event of the enforcer acting improperly, negligently or unreasonably. We all know that in the civil courts the loser generally pays the winner’s costs. That could act as a disincentive to enforcers who are acting in the public interest. Perhaps now is the time to have the same protections for enforcers in the civil courts as in the criminal courts. If the legislation puts the onus on the enforcer to prove that the cost of redress does not exceed the cost of the harm, it will add to an area of possible challenge and could encourage enforcers to use the criminal route instead. A more balanced approach is needed whereby the business proposes a package of measures to the enforcer or the court and that is negotiated as necessary.

Amendment 63ZA is a probing amendment. I was contacted by environmental health officers who are concerned that the need to give advance notice would

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not help protect the consumer when grading food preparation and catering premises for food hygiene certificates. During the summer, I spent a day out with an environmental health officer. We visited a care home for the elderly which was anxious to increase its score from four to five, which is the highest rating. The visit was unannounced, but the home had requested a rescore. The reason for the score of four was mainly to do with the preparation of paperwork and flow charts, not the cleanliness of the kitchen or the temperature at which the food was stored. I am sure that noble Lords will agree that food hygiene in a care home for the frail elderly is extremely important. I was able to see the food being prepared, stored and served to the residents. All of them had a choice of food and the menus ran for a month before being repeated. It was very reassuring that despite having to be in an institution, the residents were consulted about what they would like to eat and their special diets were catered for. Our unannounced visit was successful and the home was told when we left that it would now get its treasured five rating.

We then went on to visit premises where the officer had provided advice and support to two new small businesses starting out in the food industry. One comprised a man in his 20s entering the specialist beer brewing market and the other was made up of two ladies starting a lunch and sandwich business close to a railway station and an industrial site where previously there had been no catering outlet. Once the businesses were up and running, they would get unannounced inspections in order to be given a food hygiene grade. Both were aware of this and both welcomed it.

We also visited a public house which the council, together with the police, had prosecuted, having previously served several improvement notices without success. The photographs of this establishment were truly horrific and proved that what the consumer sees in the bar or dining room of a restaurant is not what goes on behind the scenes in the kitchen. Mercifully, such instances are rare.

A catering establishment which has been awarded a grade four or five will have the certificate displayed on the door as you enter. Those which have received a three or below will not have it displayed anywhere since there is no requirement for them to do so. The officer who took me out also had on his patch Yeo Valley yoghurts and a massive Dairy Crest processing plant on a farm. He said that of course he gave notice when he went to visit them because he wanted to meet the managers and those who could give him the answers he required. He accepted that they were very busy people and did not wish to waste either his or their time. However, if when he went on his planned visit he found something that he felt was unsatisfactory, he would then make an unannounced inspection at a later date. Noble Lords will be pleased to know that this did not happen in either of the two cases I have mentioned.

I am seeking an assurance from my noble friend the Minister that the businesses I have described are not included in the requirement to give advance notice of inspection. To do so would mean that the unscrupulous would have a clean-up prior to the inspection but a

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week later would revert to their normal practices. I do not believe that this would be in the best interests of or protect the consumer. I beg to move.

6 pm

Baroness Crawley (Lab): My Lords, I thank the noble Baroness for her interesting description of going out with local authority officers. I would recommend that experience, as I am sure she would, to all Members of the Committee. Environmental health officers do an extraordinary job, given the scale of the work they are involved in and the scarcity of the resources they have to work with.

The amendments in the names of the noble Lords, Lord Clement-Jones and Lord Stoneham, and the noble Baroness, Lady Bakewell of Hardington Mandeville, are to be welcomed—I think. I am sure they are a sincere attempt to bridge the gap between the Government’s stance on enforcement and the rather more clear-cut and preferable amendment of the noble Lord, Lord Best, which we will discuss in a few moments. However, I am not yet persuaded that these amendments best the amendment of the noble Lord, Lord Best, on the same subject of trading standards officers conducting inspections on business premises. I am sure it was not at all the intention but these amendments might unfortunately bring about increased barriers to enforcement for officers conducting inspections. For me, the jury is still out on these amendments.

Baroness Hayter of Kentish Town: I am slightly confused by this. If I am completely honest, among friends and just within these four walls, I think our Lib Dem colleagues would very much like to support the amendment of the noble Lord, Lord Best, but are not allowed to. They do not want to confront the Government, so they are trying to find a weasel way of not quite confronting them while almost writing down exactly the same words but making it very complicated. They are not going the whole way but saying, “Well, in certain circumstances other than those already allowed for in the Bill, the 48 hours would not have to be given; that is, when a trading standards officer shows his or her credentials and they are going to see whether an offence has taken place”.

I am sure that the noble Baroness, Lady Bakewell, knows that trading standards do not go around in policemen’s big boots unless they think some offence is being committed. They do not have the time or inclination—why on earth would they? They always show their bona fides anyway. This basically seems to be saying, “We don’t like what the Government are suggesting but can we find a way of saying that round the back?”. I could be quite wrong—and look forward to being corrected—but I have my suspicions.

Of course, the problem with these amendments is that they have all the disadvantages of the Government’s own clause; that is, the uncertainty. The same people do food as do electricity safety, counterfeit booze or whatever else one is looking for. The amendments would still introduce two systems for when somebody could go in to do an inspection. It leaves all that complication and uncertainty of having to checklist

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things first but with no added advantage. That seems a convoluted way of saying that they do not like the present clause.

There seem to be two things going on here. First, in moving the amendment, the noble Baroness, Lady Bakewell, said very strongly that she supports unannounced inspections—which is exactly what is said in the amendment of the noble Lord, Lord Best. Secondly, she raised the interesting point about costs in civil courts, which we will come on to. I look forward to her support for that amendment when we get there. My concern about these amendments is not that they would not move a little way towards making life easier but that they are actually a rather weak way of telling the Government, “We don’t like your clause”.

Baroness Neville-Rolfe: My Lords, I thank my noble friend Lady Bakewell for her very interesting comments and good examples. They help us to understand so much more clearly the issues that we are debating.

In this part of the Bill we are consolidating and updating our investigatory powers in order to make enforcement more efficient and effective. A further objective is to reduce burdens on business without compromising consumer protection. We are doing this, for example, by making it easier for enforcers and businesses to know what enforcers’ powers are by consolidating them across 60 pieces of legislation and setting them out in one place. I think that the Committee will welcome this. We are also modernising them—clarifying that where there is a good reason enforcers can access information held or stored on computers. This brings us into the 21st century. We will return to the notice requirement again under the amendment of the noble Lord, Lord Best, and I expect that we will have a fuller debate.

I want to say a few words about why we have introduced the requirement for enforcers to give two days’ written notice, subject to some important exemptions. The Government are committed under the Protection of Freedoms Act 2012 to protect civil liberties and to reduce burdensome and intrusive powers of entry. Our aim is to strike a balance between the powers and safeguards that are needed for protecting businesses while ensuring that enforcers can tackle illegal activities. I am sure that we will come back to the detail.

I will answer a couple of points that my noble friend raised. She asked about notices and litigation, and court cases being lost on a technicality. As is currently the case, enforcers will need to ensure that they follow correct investigatory practices and procedures to ensure the integrity of their investigations and supporting evidence. We will not be amending the well developed principles on what amounts to reasonable grounds for suspicion. Many large businesses have a primary authority relationship with a local authority. This includes an inspection plan. Where an inspection plan is in place covering consumer law, this must be considered when deciding whether to carry out an inspection. We are committed to providing good guidance on what the law means; as noble Lords would expect, that is being developed by business and other organisations.

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My noble friend also touched on the fact that enforcers risk costs in the civil courts. I reiterate that it is a fundamental principle of civil litigation that one side is at risk of having to pay the other side’s costs if it loses. That would be a difficult principle to change. Of course, the object of that is to deter unmeritorious cases and ensure that the winning party is not too adversely affected.

Amendment 63ZA, on the issue of whether food hygiene visits are covered by the Bill, is a probing amendment. There may be confusion in general as to whether food is covered by the Bill so it is good to have an opportunity to clarify the position. For example, the Bill does not apply to food hygiene inspections carried out under the Food Safety Act. That sort of inspection is normally done by environmental health officers. I should add that, curiously, I was the official Civil Service lead on that very Bill; I remember it with great affection. It was an important Bill at the time. In view of those alternative provisions, we do not see the need for this probing amendment.

On the lessons that horsemeat might give us for this Bill, the issue arose mainly through fraudulent activities of traders. That highlights the importance of greater sharing and use of intelligence sources, and how important that is in safety. The Bill supports the sharing of information and intelligence by local authorities, business and other partners such as the police. That can be used by enforcers to determine whether it is necessary to exercise a power of entry to premises and whether one of the exemptions to giving notice applies.

On Amendments 60, 61, 62 and 63, tabled by the noble Baroness, Lady Bakewell, it is worth noting that currently enforcers such as the Competition and Markets Authority, which has been referenced often today, have to give notice only for civil enforcement purposes. The amendments take us back to that position. However, when an enforcer decides to carry out a visit, they will not necessarily be focusing on whether civil or criminal enforcement action may result. We therefore think it makes more sense to provide a general requirement for notice to be given regardless and then provide a number of clear exemptions to giving notice, such as where giving notice would defeat the purpose of the visit because, for example, counterfeit or illegal software might be destroyed.

I am also keen to emphasise—we will come back to this—that this means notice need be given only for routine inspections. If there is a risk of a breach of a law, enforcers can still carry out unannounced inspections where they need to investigate illegal activities. The exemptions ensure that we have the safeguards we need. Small businesses in particular, which have been consulted about the changes in the Bill, welcome this approach. They welcome clarity, and the noble Baroness, Lady King of Bow, emphasised the importance of that earlier.

I believe that the Bill provides a better and simpler enforcement regime for both businesses and enforcers, whether civil or criminal enforcement action is involved. Hygiene and food inspections are dealt with elsewhere in the statute book. Therefore, I ask my noble friend to withdraw the amendment.

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Baroness Bakewell of Hardington Mandeville: I thank my noble friend for her comments and I am slightly reassured. I am grateful for the reassurance that food hygiene certificates are not covered by this legislation but are covered elsewhere. I know that environmental health officers will be reassured because they were extremely concerned about how they were going to operate if they had to give notice.

With regard to competition versus the consumer’s rights and businesses generally, I thank my noble friend for her comments. I have to say that I am not totally convinced but I beg leave to withdraw the amendment.

Amendment 60 withdrawn.

Amendments 61 and 62 not moved.

Amendment 62A

Moved by Lord Best

62A: Schedule 5, page 80, line 14, leave out sub-paragraphs (3) to (11)

Lord Best: My Lords, I declare my interest as a vice-president of the Trading Standards Institute, a post I occupy because I chair the council of the Property Ombudsman, which works with trading standards in relation to the world of estate agents and letting agents. I greatly welcome the Minister’s earlier announcement on fees. I also declare my interest as president of the Local Government Association.

The TSI welcomes the Bill and applauds the Government’s efforts to simplify and clarify consumer law. The real problem for the trading standards service is the startling decline in its manpower and budgets. Over the lifetime of this Parliament, the workforce will fall by almost half and budgets will be cut by an average of 40%. These reductions mean that we all face greater risk at the hands of rogue traders. New legislation needs to strengthen the hand of the remaining trading standards officers rather than in any way undermine their good work.

There are two areas of concern to the TSI in this regard. This is the first of two amendments in my name seeking to rectify these. I am grateful to the noble Baroness, Lady Hayter, for adding her name to this amendment and already speaking in support of it. I am grateful also to the noble Baroness, Lady Crawley, for doing likewise.

6.15 pm

Amendment 62A seeks to remove the controversial new proposal in Schedule 5 that would require trading standards officers to give at least two days’ notice before inspecting premises. At present, officers—usually acting on a tip-off or other intelligence—are free to make unannounced inspections of businesses that come within their jurisdiction.

At first sight, this new requirement would appear to make a mockery of efforts to uncover wrongdoing: providing plenty of time to hide incriminating evidence sounds like a rogue’s charter. I do not imagine that the police would welcome a duty to give 48 hours’ notice

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before knocking on the door of a suspected criminal. In reality, the proposition in the Bill is not quite as daft as that. First, as we heard from the Minister, it excludes action connected to food safety. The Minister made it clear that trading standards officers can make unannounced inspections relating to food safety of supermarkets and high street shops, in parallel to their environmental health colleagues inspecting abattoirs, food processing plants and so on. After the recent horsemeat scandal, to which noble Lords have referred, everyone understands that unannounced visits relating to food standards and food safety are important.

However, consumer protection is not only about food. What about shops believed to be selling alcohol under counterfeit labels? Such products are known often to contain methanol, which can cause blindness. The illicit trading of cigarettes under counterfeit labels also represents a health hazard. Trading standards officers need to be able to look under the counter, go to the back of the shop or inspect the warehouse without giving 48 hours’ notice. What about the sale of unsafe goods, perhaps from a market trader? There was the terrible example in May of this year of a house fire in Sheffield caused by a faulty electrical charger, which killed five people. What is sensible for food safety is surely sensible for other areas where consumers need protection from traders intent on ripping them off.

Secondly, there are let-out clauses in paragraph 23 of the schedule that say that an officer need not give the minimum two days’ notice if the officer,

“reasonably considers that to give notice … would defeat the purpose of the entry”


“reasonably suspects that there is an imminent risk to public health or safety”.

Those exemptions would seem to negate the new process in a large number of cases, since the purpose of the entry is very likely to be the detection of a failure to adhere to required standards, and that purpose would be defeated by giving a period of notice of the visit.

If these let-out clauses are intended to give trading standards officers proper discretion in deciding whether to give advance warning of their visit, are they really serving any purpose in the Bill? At present, where trading standards officers want to visit in order to give good advice to a responsible business, they will already make an appointment. Therefore is the proposed new requirement really pretty harmless? The trouble is that if and when the trading standards officer takes a trader to court, arguments seem inevitable over the interpretation of these let-out clauses. When is a risk to public health “imminent”? Would giving notice really have defeated “the purpose of the entry”? How do we define “reasonable”? And so on.

The two days’ notice period, therefore, is likely to raise legal arguments, create uncertainty and give succour to those seeking to disregard consumer rights. In today’s risk-averse world, many officers will feel they must back off from making unannounced inspections—even where shocking cases of bad behaviour are suspected—for fear of offending the proposed new rule.

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It is interesting to note that Ofsted, following a period of carrying out school inspections only after giving notice, has recently reverted to unannounced visits following the high-profile cases in Birmingham, and, of course, the public has demanded that the Care Quality Commission make spot checks of residential care homes to ensure that they are meeting the necessary standards. Therefore, in other fields where inspections of premises are required, there is no argument about the merits of these being unannounced.

We are all supportive of efforts by BIS to reduce bureaucracy, but this measure would undermine an important service and it would add a layer of extra form-filling and administration created by the need to issue—according to the Government’s impact assessment—nearly 7,000 notices of intention to inspect each year, at considerable extra cost to a service with serious budgetary constraints. Amendment 62A seeks to remove from the Bill a measure which could undermine a vital service already seriously overstretched. I beg to move.

Baroness Crawley: My Lords, I rise to support the amendment in the names of my noble friend Lady Hayter and the noble Lord, Lord Best. This amendment proposes that the requirement in the Bill for trading standards to give 48 hours’ notice to businesses before entering their premises be removed. In supporting this amendment, I remind noble Lords that it is my privilege to be the current president of the Trading Standards Institute. I refer noble Lords to my entry in the register of interests.

Let us be clear: the power to enter business premises remains but the Bill introduces a new safeguard requiring written notice to be served before entering. Because of the strong response to this highly controversial proposal from the enforcement profession, there is now a list of exemptions to this new proposal from the Government. However, I believe, as do several other noble Lords, that these exemptions will only lead to confusion and the possible introduction of overcautious behaviour on the part of the trading standards profession, which is already seriously stretched. It will also lead to increased financial and judicial burdens, as outlined by the noble Lord, Lord Best.

I remind noble Lords that the budgets of trading standards departments at local government level have in some cases seen cuts of up to 86% since 2009. While the Government have listened and made some changes to the Bill, the Trading Standards Institute does not believe that those changes yet strike the right balance, which the noble Lord, Lord Best, talked about. It is essential that we achieve that balance between the right to carry on a business unimpeded by officials and the right to protect consumers.

It is not the case that all businesses are clamouring for the removal of unannounced visits. In a recent edition of The Grocer, the chairman of a large cash-and-carry business in the north-west stated:

“It is independent retailers saying that local authority test purchasing is less effective if there has to be 48 hours notice of a visit.”

Many retailers welcome spot checks because they want to see a level playing field in the high street and with larger retailers.

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Last week I spoke to a trading standards officer about food fraud in the light of the very important Elliot report into the horsemeat scandal, which the Minister has referred to. She told me that while checking one of those large storage units that are so prevalent nowadays—we seem to have a lot of things to store in our lives, do we not?—she came across a unit that was being used to cut up some kind of raw meat. This was a unit that was usually used to store furniture; it had no running water or utilities necessary for processing meat. The trading standards officer had the unit closed down immediately. She was able to close it down under the Food Safety Act—which the Minister has also referred to—because, unlike this proposed legislation being brought forward under BIS, food fault is an area where spot checks are still allowed: 48 hours’ notice is not required. Had that unit been processing highly dangerous electrical goods—such as in the tragic case of the phone chargers to which the noble Lord, Lord Best, referred, or the hair straighteners that I have seen in trading standards offices and which can be very detrimental to health when they are criminally produced—she would most likely have had to give 48 hours’ notice. No doubt she would never have seen the rogue trader again.

Life is hard enough for the seriously overstretched trading standards service—which still does a magnificent job on behalf of the public—without putting another bureaucratic obstacle in its way. Such an obstacle could only allow rogue traders to prosper, damaging legitimate businesses—which are, of course, the vast majority of businesses in this country—and diminishing consumer protection.

Before I sit down I would like to ask the Minister where the evidence is that these inspections interfere with or hamper the operation of a business. The recent Elliott report on food fraud highlights the value of unannounced inspections, so why are the Government moving away from them in this Bill? The amendment of the noble Lord, Lord Best—which is also signed by my noble friend—denotes the line between the honest business and the hard-pressed consumer on the one side, and the rogue trader on the other. I call on noble Lords to support this amendment.

Lord Harris of Haringey: My Lords, I repeat my declaration of interest as chair of National Trading Standards. Will the Minister tell us what exactly is the problem that the clauses we are debating now are there to solve? What is the evidence that this has been a power that has been abused or misused by trading standards departments? If she can give us chapter and verse today, I would like her to do so but, if not, I ask her to lay in the Library all the complaints that the Department for Business has received on this specific point. It is not clear to me that this has ever been a significant problem or burden on anybody.

We have to recognise that, certainly as initially put forward, this proposal was a complete nonsense. It was essentially saying that: if you were a rogue trader who had something to hide, you would have 48 hours to make sure that it really was hidden before the trading standards department came around to do an inspection. Since then, we have made some changes

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which are the exclusions in paragraph 23(5) of Schedule 5. However, as the noble Lord, Lord Best, suggested, they pose a whole series of new potential problems. For example, the power of entry is to be exercised by an officer when,

“the officer reasonably suspects a breach of the enforcer’s legislation”.

What does “reasonably” amount to in this case? I have seen how litigious some of the people against whom enforcement action has been taken can be. They will string things out and argue abuse of process. The more serious the case, the more they argue. The litigious will say that there were no “reasonable” grounds. What is going to be the basis of the reasonable suspicion? All of this will have to be defined and the danger is that that will lead to litigation which takes up more time and generates more problems as a result.

If the officer reasonably—that word comes in again—suspects that there is an imminent risk to public health or safety, that is fine, but that is about public health and public safety. Other issues may arise where the evidence will disappear. What is it that is being gained by these changes? The whole point of having the power of random inspection is not just to find something on the occasions when a random inspection is made; it is also the deterrent implication for all those whom the inspector may or may not visit. There is a chance that they will be inspected, something will be found and the consequences will flow. If that is taken away, frankly, one of the most effective deterrent mechanisms as far as these issues are concerned will be lost.

6.30 pm

We have to ask what this is all about. I rather suspect that at some point during the high noon of the deregulation zeal of this Government, some business organisation was asked to list all the things that might conceivably irritate businesses at some point. This, along with a number of other things, was on the list. It then trundled along as we went on. When it was initially proposed, there was quite properly an uproar of protest with people saying, “This is nonsensical”. Civil servants in BIS, being good civil servants, have come up with a way that tries to ameliorate the situation. They have come up with the exceptions as set out in this schedule. But the reality is that by creating these exceptions, they are raising the possibility of legal challenge. If they are so effective and so all-embracing, why do it in the first place? If in practice what we are being told is that when an officer,

“reasonably considers that to give notice in accordance with this paragraph would defeat the purpose of the entry”,

that means that trading standards officers can inspect when they want to because if they gave notice it would defeat the purpose of a random inspection, all that we have created is a legal circle.

I am happy if the advice from BIS is that random inspections are therefore permissible because of paragraph (5)(c) because it would defeat the purpose of random inspections to give notice. But if that is the case, why was the power taken away in the first place, thus making the rather silly requirement of 48 hours’ notice necessary? Perhaps the Minister can give us the precise circumstances. In how many instances does she anticipate that these various exemptions will be triggered?

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Does she in fact envisage that most inspections will be permitted without notice on the basis of paragraph (5)(c) or does she expect that most businesses will be given 48 hours’ notice? We need to understand what the rationale is behind this.

Much has been made of the fact that, thank goodness, this does not cover food. The reality is that in some local authorities it is the same officers who inspect for food safety as for electrical safety and other matters. You might visit a shop that sells a bit of food as well as all sorts of other goods, some of them perhaps dodgy imports of electrical goods and so on. The officers make the random inspection because there is a potential food safety issue; there is food in open cabinets. However, they are not allowed to look at anything else, so they have to come back on a separate occasion with 48 hours’ notice to inspect the same premises. I ask the Minister to defend the sense in this. It means that the business is disrupted twice and that the limited resources of the local authority officers have to be deployed twice. In addition, a notice has to be issued.

While the officers are inspecting the open tray of food, they notice on display or perhaps more significantly in a box behind the counter they have gone behind in order to make their inspection, food that is just as dangerous. They cannot take any action on that box because it would be an abuse of process. Does that make any logical sense? I suspect that it does not.

The Government are building in extra work for small businesses and for local authorities at a time when they are facing substantial cuts. The noble Lord, Lord Best, referred to the TSI survey and the fact that trading standards departments have faced reductions of between 40% and 50%. I met a regional group of trading standards officers last week. I have referred in passing to the Trading Standards Institute survey. One after another the officers said that they did not really like the survey because it presented an average figure across the country and it did not give the picture in their region. The reductions in their region were far worse than what was recorded in the survey.

We still have not seen the further impacts of another huge round of local government cuts that are coming in over the next two or three years. I was discussing cuts with a local council leader a few days ago. If any more cuts at all are made to the trading standards department there, there would be absolutely nothing left; there is no more to cut. Under those circumstances, how on earth can it be right to be imposing additional bureaucratic burdens on these departments to carry out a job to protect the public?

I hope that the Minister will cut her losses on this clause and on trying to have a 48-hour notice period. I hope she recognises that these things should be left to the sense of trading standards authorities. They will be so busy anyway that they will not randomly victimise people just for the sheer joie de vivre of saying, “Let’s harass a small trader”, because they have nothing better to do on a Tuesday afternoon. This is not what it is about. The reality is that the Government are imposing extra responsibilities and requirements that make no sense in practical terms. They will simply take up time and create an opportunity for legal challenge by people who should quite properly be

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stopped from trading or fined for what they are doing, but who see an opportunity for wriggling out of it with a claim that the process was not right and that there was not enough evidence and intelligence for the trading standards officer to make a reasonable judgment of this nature.

Baroness Hayter of Kentish Town: My Lords, at Second Reading and at the start of this Committee I said that this was not a bad Bill, it is just a weak one. I also said that there was one exception, and this is it. I hope that when the noble Baroness replies, she will allow herself—using what is probably not a very Hansardian term—some “wriggle room”. The debate we have already had will be loud and clear at Report. The Minister will know better than me how well this could come across in the House. It would perhaps be much easier to withdraw gracefully rather than to try to fight to the bitter end. As I have offered to Ministers before, we will give them all the credit and say what wisdom they brought to it, although we will allow the noble Lord, Lord Best, some credit.

It is a nonsense—I do not know who used that word before—to require trading standards officers, who work to protect consumers, to warn traders of an inspection visit. My noble friend Lady Crawley asked what evidence there is of misuse and my noble friend Lord Harris asked what the problem is that this has been set up to solve. I will add three more questions. First, what is the benefit of this measure to consumers? Secondly, who asked for it? Thirdly, what consultation took place? Before anyone jumps to the 2013 consultation, which I have read very carefully, I would remind the Ministers that businesses were mixed in their responses and were not unanimous. Only some of them supported this notice. Some of them said it would lead to better co-operation between enforcers and businesses, but I thought that enforcers were meant to act on behalf of consumers rather than work too closely with businesses.

The consumer reps who responded to the consultation were worried that giving notice would hamper enforcers’ ability to tackle rogue traders. There were three categories. The third category, comprised of local authorities and regulators, was similarly concerned about the requirement to give notice before exercising a power of entry as it could encourage the obstruction of officers or hinder an intelligence-led approach. Local authorities and regulators also commented that on-the-spot checks would be necessary where there was intelligence about non-compliance, but of course, some of that intelligence could never be used in a court of law. If challenged in the way we have heard either over costs or whether it was reasonable, there would be times when a trading standards officer would not be able to cite the intelligence that led him to that particular retailer. It is true that the respondents supported the restriction on powers, but that was in relation to private dwellings, and that is not what this whole issue is about.

While the Minister tries to find some more persuasive answers to the questions posed today, I will make a couple of extra points. Even with the let-outs mentioned by my noble friend Lord Harris, it still makes no sense to give notice to those who are potentially breaking the law about when enforcers are going to check on them. As we have heard, food safety officers do not

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have to do this, although very often they are the same people. It is hard to know why they should have to do so here. As we have just heard, it is difficult for the very same person to need to have different criteria in their head and different lots of powers depending on which breach they are trying to check up on.

The Government have said—certainly to us, but I am not sure if in public—that a trading standards officer can always enter the premises as a member of the public. That way, they can see what any ordinary shopper could, assuming it was a retail rather than wholesale area. However, I have to tell noble Lords that retailers do not keep the counterfeit drink on top; they keep it underneath for those who come in with a nod and a wink. They do not put counterfeit cigarettes out on top either. They are put where a member of the public could not see them but where, on our behalf, we want trading standards officers to be able to see them.

The Government have also argued that this amendment would help small businesses so that they are not troubled by too many visits from the TSO. However, trading standards officers these days work very much on a risk-based programme. Having looked at some of the detail behind that, small businesses are actually very low risk. One TSO said, “We never go to small businesses”. Please do not tell small businesses this, but actually TSOs go to the big ones much more because they work on a basis of risk. The idea that one should constrain the powers across the piece because apparently some small businesses do not like it is worrying.

Another issue, of course, is that wanting 48 hours’ notice in writing still does not allow the trading standards officer to politely phone or text to say, “Can I come on Tuesday?”, which may well be what is best for the small trader that the Government seem to be worried about. It would anyway be perfectly possible for a trading officer to give notice; it is only the absolute requirement that we are worried about. Good practice would be, for many routine visits, that notice would be given for exactly the reason that has been given: so that the right person is there. None of this would prevent that.

6.45 pm

We should also note that many small firms do not like competitive retailers undercutting them by being able to sell counterfeit cigarettes, booze or anything else. In fact, we have been urged by the tobacco retailers’ organisation to push this amendment because it knows jolly well that the trading standards authorities need their existing powers to be able to crack down on the sellers of fake cigarettes and those who are selling to underage children. The national spokesperson for the Tobacco Retailers’ Alliance, which represents legitimate retailers who sell tobacco, has said particularly in view of its concern over tobacco smuggling that: “We were disappointed … to learn that a … provision in this Bill will give a retailer suspected of selling smuggled tobacco 48 hours’ advance warning of having their premises inspected. Frankly, this seems madness. It is like giving drivers 48 hours’ notice of when the police may be out on a particular road to catch those breaking

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the speed limit”. The letter goes on in similar terms and urges very strongly that this provision should be removed.

I know that the noble Lord, Lord Blencathra, who is not in his place, responded to a similar letter from this group, agreeing completely with its views. He pointed out that: “We did a report on tobacco plain packaging last year and there was very telling evidence of massive tobacco smuggling amounting to billions. While there are many inspections of businesses which I believe are excessive, there is no justification for giving 48 hours’ notice of an inspection of a tobacconist’s shop. It is not as if it is an intrusion into your personal home”.

What is serious for consumers is that there are likely to be fewer inspections by trading standards authorities because local officers are bound to become risk-averse where they have to articulate, document and be able to prove in court what their evidence was for suspicion of malpractice. It is something that they may not be able to do and it will make them risk-averse. They know that a challenge in court could cost their local authority enormous amounts of money, which we will come on to later.

We are talking here about checks against the sale of dangerous goods such as flammable mattresses; sales to underage children; sales of alcohol to people already inebriated; sales of fake jewellery or household goods; estate agent misbehaviour and misleading advertisements. There is no one but trading standards to protect us, the consumers, so why do the Government want them to do their work with one hand tied behind their back?

Baroness Neville-Rolfe: My Lords, I thank the noble Lord, Lord Best, for provoking a wide-ranging and thoughtful debate. As I mentioned in respect of the previous amendment, we are consolidating and updating consumer law investigatory powers in order to make enforcement more efficient and more effective. I will try not to be too repetitious of that debate, but I will repeat something I said in earlier sessions of this Committee: I feel strongly that trading standards officers around the country do a very good job. I have dealt with them a lot over many years and I am very grateful for the work they do.

The Government are keen to support the honest trader and to tackle the rogue, so there is a joint and agreed objective in these areas. I am going to speak at some length, for which I apologise in advance. I hope that noble Lords will realise that our heart is in the right place and we are trying to do the right thing in this area. As I have said, we are consolidating and simplifying consumer law investigatory powers across 60 pieces of legislation, setting them all in one place. This variety of instruments can be a cause of confusion and a burden for enforcers as well as businesses. We are also clarifying the law to make it easier for trading standards to work across their local authority boundaries in order to tackle the rogue traders who cause real harm to consumers and damage consumer confidence and reputable businesses.

The noble Baroness, Lady Hayter, asked about what had happened with the consultation and about the benefit to consumers. I can confirm that we did

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have mixed responses, but the British Retail Consortium and the Federation of Small Businesses, which together represent a large number of small businesses, support the notice provision. Businesses in general welcome it for reasons that I will come on to explain. It reduces the burdens and unnecessary costs that they are facing, and those costs are in turn passed on to consumers in a competitive market. The Government consider it vital that trading standards and other consumer law enforcers can protect us from businesses that are deliberately or inadvertently breaking the law.

Lord Harris of Haringey: I am sorry to interrupt her, but can the Minister tell us why it is more costly for a business to be inspected without notice than it is to be inspected with notice?

Baroness Neville-Rolfe: If the noble Lord would bear with me, I have an example which we can debate.

While we share some common objectives, there are clearly real differences of opinion about how trading standards officers and other law enforcers should carry out their duties. The Government start from the principle behind the Protection of Freedoms Act 2012, which aims to protect civil liberties and reduce burdensome and intrusive powers of entry. It starts from the simple premise that an investigating officer should have good reason for entering premises. This is really important because both as private individuals and as businesses we should rightly expect to be treated as law-abiding unless there is a justification. The requirement in the Bill for enforcers to give two days’ written notice for routine inspections—I emphasise routine—flows from this principle. However, we take very seriously the importance of ensuring that enforcers such as trading standards can continue to tackle rogue traders. I am sorry to keep repeating this but I think it is common ground, and I can assure noble Lords that we are doing nothing to prevent enforcers investigating illegal activities—quite the opposite.

Let me explain in more detail why we have decided to require notice for routine inspections. Enforcers currently have some very intrusive powers such as the power to enter commercial premises without a warrant to carry out their inspections. They can demand that documents are produced and break open containers, and any person on the premises has to provide assistance and the information requested. Small businesses have told us that unannounced inspections are burdensome and inefficient. In particular, the Federation of Small Businesses is concerned about unannounced visits and has said that booking inspections in advance will allow the businesses to ensure the appropriate staff and paperwork are available. This ensures that neither the trader’s nor the enforcer’s time is wasted in these routine inspections. The owner or manager might be visiting a supplier away from the premises, leaving a junior member of staff not equipped to deal with an investigator’s questions or to find the documents needed. Staff may be in the middle of receiving deliveries or busy dealing with customers or an important new client when the enforcer arrives. This can be disruptive and embarrassing for the business. While large retailers may be able to cope more easily—the noble Lord

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mentioned them—it is really difficult for compliant businesses to see why they should be so disrupted when they are giving no cause for suspicion.

Business disruption hits the bottom line. We estimate that this measure would generate net savings to the economy of almost £50 million over 10 years. This net figure includes the savings to business as well as the costs and benefits to enforcers arising from a greater degree of efficiency in inspection.

Of course, I agree entirely that businesses cannot expect to have notice of an inspection when there is risk of a breach of the law. We have listened very carefully to enforcers’ concerns on that: to local authorities, regulators and trading standards officers, as I think was hinted at earlier in the discussion. Therefore, the Bill provides a number of very clear exemptions that still allow enforcers to carry out unannounced inspections, as they do at present, where they need to investigate illegal activities and matters of urgency. I will go through those and try to pick up the examples that have been quoted in debates and which have obviously been concerning people.

The first exemption would apply where an enforcer reasonably suspects a breach, for example where the sale of counterfeit alcohol is suspected or where a test purchase has been made and failed, e.g. on an age-restricted purchase. The noble Baroness, Lady Crawley, asked about access to warehouses and whether, if the officer suspects a breach, the exemption applies. Of course, that is particularly important in relation to rogue traders and the same would be true of the example of the sale of counterfeit goods.

Lord Harris of Haringey: Is it then reasonable for a local authority to invoke that grounds of reasonable suspicion if, for example, it is clear to the trading standards department in a small town that a certain form of counterfeit or dangerous goods is circulating and there are eight potential retailers who might be selling it? Is it then reasonable for the trading standards department to inspect all eight? If it is reasonable to inspect all eight in that town, is it reasonable to inspect 200 in a city?

Baroness Neville-Rolfe: In my opinion, that is reasonable if there is a suspicion—for example, if trading standards officers have had some intelligence. There is an example I am coming to about cigarette butts, unless we cut that out. In relation to each of these exemptions, I am trying to explain why they are generously drafted so that we can do what we think is needed.

The second exemption would apply where giving notice would defeat the purpose of entry, for example, where an enforcer suspects that counterfeit DVDs are being sold and the enforcer considers that the traders in question are likely to conceal the illegal products if notice is given. The third exemption would apply where it is not reasonably practicable in all the circumstances to give notice, for instance because an officer reasonably suspects that there is an imminent risk to public health or safety. For example, enforcers may find evidence of illicit tobacco, such as stubs and papers, in the street near a couple of suspected outlets. The enforcers need to act swiftly to remove it from sale. I know that illicit tobacco is a concern.

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A fourth exemption would apply where the enforcer is carrying out market surveillance, for example to check the safety of toys. Finally, notice need not be given where the trader has waived the requirement to give notice so that agreement to an immediate visit is always possible. We also carefully listened and have already responded to the BIS Select Committee’s very sensible recommendation on this issue by simplifying the exemption for giving notice where that would defeat the purpose of the visit. That is the second safeguard I referred to and I think that noble Lords commented favourably on that earlier in the debate.

I have set out these examples to show that we really are only talking about giving notice for routine inspections. In my view, it is perfectly reasonable to do that and highly desirable. Routine inspections are where a business, such as a DIY store, may be operating properly without any significant breaches of legislation. Trading standards may consider them to present a risk simply due to the nature of the sector in which they operate or because of the time that has lapsed since an inspection. Trading standards officers have raised with us a number of examples where they felt they would need to inspect without notice and, without exception, we were able to show how the powers of these wide-ranging exemptions could be used.