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Grand Committee

Tuesday, 10 February 2015.

Arrangement of Business


3.30 pm

The Deputy Chairman of Committees (Lord Geddes) (Con): My Lords, it is now 3.30 pm and, as I am required to do on these occasions, I must advise that if there is a Division in the House, the Committee will stand adjourned for 10 minutes.

British Nationality (General) (Amendment) Regulations 2015

British Nationality (General) (Amendment) Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3.30 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the British Nationality (General) (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Baroness Williams of Trafford (Con): My Lords, these statutory instruments expand the cohort of immigration and nationality applicants from whom we will collect biometric information, while at the same time providing clear and consistent safeguards on the use and retention of these data. The changes in these instruments respond to consultation and engagement with the public. In particular, the instruments will enable the Home Office to complete the rollout of biometric residence permits, which is a type of biometric immigration document, to foreign nationals coming from overseas to stay in the UK for more than six months. The instruments also implement other biometric provisions of the Immigration Act 2014 and are a significant development to help us to combat illegal immigration and abuse of the immigration and nationality system through identity fraud.

By taking the fingerprints and facial images of foreign nationals, we are able to make checks against immigration and police databases before permitting them to enter or remain in the UK or granting them British citizenship. The use of biometric information as part of the immigration and nationality application process leads to better decisions as we are easily able to confirm and fix a person’s identity details and spot those trying to conceal an adverse criminal or immigration history.

The increased use of secure biometric documents allows us to link foreign nationals, using their biometric features, to the document that we issue as evidence of his or her right to be here. We intend biometric immigration documents to become the primary means for foreign nationals living in the UK to evidence a right to work or prove that they can access public benefits. We are committed to helping employers, public authorities and others who are required to undertake

10 Feb 2015 : Column GC276

immigration status checks by simplifying and upgrading the documents issued to foreign nationals. Secure biometric documents lend themselves to simpler, reliable and faster checks of immigration status and make it easier to confirm whether a person has the right to work in the UK.

In addition to extending the rollout of biometric immigration documents to foreign nationals coming from overseas, these instruments require new categories of people to provide biometric information when making immigration or nationality applications or when applying for a document to evidence leave or an entitlement to reside in the UK under EU law. These categories include people registering or naturalising as British citizens; non-EEA nationals applying for documentary evidence of an entitlement to enter or remain in the UK by virtue of EU law; foreign nationals required to apply for a direct airside transit visa in order to transit through a UK port without entering the UK; foreign nationals, subject to immigration control, applying from overseas for permission to live in the UK for more than six months; and foreign nationals extending their leave in the UK for a cumulative period of less than six months.

In addition to introducing new categories of people required to enrol their biometrics, these instruments will start to align the powers to retain and use biometric information so that there is a consistent approach whenever a foreign national is required to provide their biometric information for immigration or nationality purposes. These instruments are intended to be commenced in phases starting from mid-March 2015.

Looking at the changes in a bit more depth, I turn first to the rollout of biometric immigration documents to successful overseas applicants for permission to live in the UK for periods exceeding six months. This rollout will be incremental, starting in Pakistan, once these instruments have been approved, and finishing with worldwide coverage this summer. Successful overseas applicants will be issued with a short-validity vignette in their passport to enable them to travel to the UK to collect their biometric immigration document from one of the many specified post offices available across the UK. We are working with employers and the education sector to ensure that they understand the new arrangements and the impact on their businesses to ensure a smooth and efficient implementation.

These instruments also introduce a new type of biometric immigration document, which will be known as a short-stay permit. These will be issued to a small number of foreign nationals whose leave is extended in the UK to a total period of six months or less. These cards will have the same secure features as the biometric residence permit.

I turn to the various changes in these instruments to implement the biometrics provisions in the Immigration Act 2014. One of the changes is that persons registering or naturalising as British citizens will now be required to provide their biometric information as part of their application for citizenship. This is intended to improve our levels of assurance about the identity of those seeking to become British citizens and help tackle fraudulent applications. In addition, the Immigration Act implementation changes in these instruments will

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also require non-EEA nationals with enforceable EU law rights, such as family members of EEA nationals, to enrol their biometrics when applying for documentation which evidences their right to reside here. At present, these individuals are usually issued with passport vignettes. Following these changes, they will instead be issued with biometric cards, similar in format to the biometric residence permits issued to other non-EEA nationals. These changes will facilitate the exercise of these individuals’ free movement rights while making it harder for those abusing rights to work and live illegally in the UK.

These instruments also require applicants for direct airside transit visas, issued to some foreign nationals who pass through the UK for onward travel without entering, to provide their biometric information. Such information is important when identifying the person at the border should they subsequently seek to enter the UK. A key aim of the biometric provisions in the Immigration Act 2014, which is implemented by these instruments, is to align the powers to use and retain biometric information provided for immigration and nationality purposes.

Under these new provisions we will continue to retain biometric information while there is an immigration or nationality purpose to do so. Where there are immigration and nationality reasons for the retention of fingerprints, they will normally be held for a maximum of 10 years, reflecting some existing policy and legislative arrangements. However, there are some exceptions where they will be retained for longer periods. For example, when a foreign national is permanently settled in the UK we will retain their fingerprints for anti-fraud purposes. More crucially, when we consider a foreign national to pose a serious risk of harm to the UK, such as those subject to deportation orders, we will retain their fingerprints beyond 10 years so that we can identify them should they attempt to return to the UK.

We remain satisfied that the biometric immigration document scheme and the other changes these instruments implement comply with UK legislation on human rights and discrimination and that they assist not only those authorities attempting to prevent immigration fraud but protect and assist legitimate migrants by providing convenient and easily verified evidence of their immigration status.

Finally, the order makes an unrelated change to ensure that leave granted to partners and children of members of HM Forces does not lapse after two years where they are accompanying their spouse on an overseas posting.

That is what these instruments seek to achieve and I hope that noble Lords will support them. I beg to move.

Baroness Smith of Basildon (Lab): My Lords, I am grateful to the noble Baroness for her explanation of the five statutory instruments that we are debating together. These instruments are relatively straightforward, and we normally support the use of biometric data. As the noble Baroness said, its use can help reduce fraud. It is also in the interests of the citizen, particularly foreign-born citizens who need to prove their eligibility

10 Feb 2015 : Column GC278

and status. It also protects the state. However, I also have a number of questions that I have picked up from the orders, the Explanatory Notes and from what the Minister was saying.

The Explanatory Memorandum for the British Nationality (General) (Amendment) Regulations and the Immigration (Provision of Physical Data) (Amendment) Regulations says that the regulations,

“expand the range of immigration and nationality applications for which the applicant can be required to provide biometric information”.

Is this part of a process? Is it being expanded at this point, and will further amendments come forward, or is this to ensure that we have the processes in place that we now need? Is the noble Baroness expecting a further order in that regard?

I was also curious about this; I ask out of personal interest for a friend. Paragraph 7.4 of the Explanatory Memorandum says that,

“those physically unable to provide fingerprints will only have to enrol a facial image”.

A friend of mine who had very clear fingerprints at the age of 18 now finds at the age of 70 that she and her sister are losing their fingerprints. Trying to gain access to America on a holiday proved somewhat difficult; she was whisked away for further examinations. Does that mean that a lower level of proof of identity is required, or is there some other way to have additional checks, as well as a facial image?

Both Explanatory Memorandums for all the regulations say, under consultations, that there have been,

“discussions with the Information Commissioner’s Office and the Biometrics Commissioner”,

although there have been no full public consultations. The memorandums say:

“These Regulations reflect those discussions”.

Does that mean that the commissioners recommended any changes? As the noble Baroness will be aware, we had these regulations in our diary some weeks ago. They were suddenly pulled because there were mistakes and things that had to be corrected. They have now been brought back. It would be helpful to know the reason for that and whether any of that was because of changes suggested by the Information Commissioner or the Biometrics Commissioner.

The Explanatory Memorandum for the British Nationality (General) (Amendment) Regulations and the Immigration (Provision of Physical Data) (Amendment) Regulations says:

“The majority of the responses were favourable although some respondents were concerned about potential equality and discrimination issues”.

Have the Government addressed those issues? There were 60 responses; can the Minister tell me how many of those raised concerns about this? If it was one or two, I hope that those issues could be addressed relatively easily. If they are a significant number and those issues have not been addressed, that would give cause for concern.

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My final point on these two regulations—I know we are discussing them as a whole, but I have some points on the others as well—is that both Explanatory Memorandums say:

“The Home Office will monitor the impact of these Regulations against its delivery targets and the impact of the policy”.

The memorandum to these two regulations says:

“This will be achieved through discussions with internal and external partners”.

That does not seem a very systematic way of reviewing anything. Is it because there is a heading and template that says “monitoring and review”, and the Government think, “Gosh, what are we going to put under this heading? We have to say something about review. We’ll say we’re going to discuss it”? Who are the internal and external partners? How will the discussions be conducted? What feedback will there be? How will they be monitored? This seems very woolly. I wonder whether that paragraph was put in without any great thought as to what is happening. Can the Minister give me some further information on that?

I have a couple of other points. The Explanatory Memorandum states that if someone,

“does not collect their biometric immigration document within the period specified … they will face a warning and then possible sanction under the Code of Practice”.

I apologise if I missed this, as I was not always able to go back to the original legislation that these regulations amend. Someone could have a problem or might foresee a delay in obtaining their document: they could be ill; they could have had to deal with a sick relative; they may have a temporary document here but suddenly have to return to their country of origin for some reason. There could be a whole host of reasons why somebody could not immediately collect it. Is there any process by which they can come to an arrangement with the Home Office to say, “There isn’t a problem, I want to collect it, but for these reasons I can’t”? There does not seem to be anything in the regulations to allow for that kind of discussion or appeal. There may be times when there is not a good reason, but I can think of circumstances where there could be a good reason for not being able to collect in the time given. The memorandum just says,

“the period specified in the written decision”.

How long will that be? Will it vary according to a decision? It will be helpful to know how that time would be arrived at.

3.45 pm

On consultation outcomes, again we see the same issue of not undertaking a full public consultation. What concerns me is that the document states that the consultation on the policy has already been undertaken, but I am talking about the implementation of the measure. Good implementation often involves engaging with those who will be responsible for the measure’s implementation, or with those who will be involved in some way. Is it usual government policy not to consult on implementation? If you consult on policy but go ahead without consulting those who will implement the measure, it seems to create an opportunity to get things wrong. It is extremely important to get this right.

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I raise the same point in relation to an impact assessment not being prepared. The document states that the measure is beneficial. I thought that the purpose of an impact assessment was to assess the benefits. That is perhaps why we have no information on the costs and benefits or on how much the measure will cost. I was, therefore, a little concerned about the lack of an impact assessment. It would have been helpful in assessing the benefits, rather than just being told that there are benefits, and learning what the costs are. I am not saying that the costs would ever be prohibitive—because I do not think that security issues should be driven by cost—but it would be helpful to know what those costs are.

Those are in some ways technical matters regarding how this measure will work in practice. It would be very helpful if the noble Baroness could respond to them. If she cannot answer my questions today, I would be very grateful if she would address them in writing.

Baroness Williams of Trafford: I thank the noble Baroness for her questions. I will attempt to answer some of them and will follow up the rest in writing. She made a very good point about people who are unable to provide additional evidence such as fingerprints simply because their fingerprints had faded. Every applicant will need to provide a facial image but children aged under five and those physically unable to provide fingerprints will not be required to do so. As regards what the additional proof will be, based on my knowledge, that will suffice for a child under five and for somebody unable to provide—

Baroness Smith of Basildon: I hoped that the relevant note would provide further clarification but all the noble Baroness has done is to read out the reason why I asked the question. I asked what additional proof would be required. Some people are unable to provide fingerprints for very genuine reasons, such as the friend I mentioned. We have all watched films on television in which people try to destroy their fingerprints. That is why I asked whether a mechanism was in place which provided the additional proof required and could distinguish those who are genuinely unable to provide fingerprints from those who have sought not to do so.

Baroness Williams of Trafford: I totally understand where the noble Baroness is coming from. My understanding is that if someone is unable to provide fingerprints, they will not be required to do so. However, on the point about maliciously or deliberately removing evidence of fingerprints, I hope that she will allow me to write to her with that additional information.

The noble Baroness also asked about the sanctions for non-compliance as regards unavoidable non-collection. A person arriving in this country will have 10 days in which to collect their BRP card, so delay in the country of origin would not be applicable because the time required is 10 days from arriving in this country. A warning letter would be issued to the customer, giving them 10 days to respond and to explain why a sanction should not be imposed. At that point the person could give a perfectly valid reason why he or she had not

10 Feb 2015 : Column GC281

turned up to collect their card. However, if there is no response, or an inadequate response is given, and continued non-compliance and lack of communication ensue, the Secretary of State can issue a civil penalty notice with a fine. I hope that that deals with the point.

Baroness Smith of Basildon: The noble Baroness says that they can be issued with a notice and will receive a fine. Will they lose their citizenship if they never respond in any way?

Baroness Williams of Trafford: My Lords, it could end up with cancellation of leave if there was absolutely no communication or reason for not collecting the BRP document, so the answer is: possibly yes, but it depends upon the circumstances.

The noble Baroness also asked what communication has taken place with potential customers and organisations affected by the introduction of overseas BRP applications. I understand that a comprehensive online communication strategy has been implemented which explains the change to anyone applying for a visa, and that they will receive a BRP if their application is successful. The proposed changes to the code of practice regarding the new requirement to collect the BRP in the UK were subject to consultation, and although the responses will be brought together in the final published consultation report, every response was replied to individually to help raise awareness of the introduction of the overseas applications for BRPs.

The noble Baroness asked whether the Information Commissioner recommended any changes. The answer is no; the commissioner sought an explanation of the changes we proposed, and the explanation was to make the retention powers more targeted. They questioned the retention of photographs if a citizen can get a passport but we explained that this—I really wish I could read some of this handwriting but I cannot. However, the basic answer is: no, but they sought an explanation. Perhaps I may write to the noble Baroness on the second point.

There is another point here about damaged fingerprints. Biometric supervision will make a decision to exempt a person from providing their fingerprints which have already been through. People who damage their prints will be asked to enrol them on a later occasion, and there is a full policy regarding these issues for the caseworkers who enrol biometric information.

The noble Baroness’s first question was whether this will be expanded to require biometric information from those making other immigration applications. The existing statutory provision for allowing regulations to be made to require the provision of biometric information—Section 126 of the Nationality, Immigration and Asylum Act 2002—was amended by the Immigration Act 2014 to add the possibility of requiring the information from those non-EEA countries exercising EU law rights and direct airside transit visas, and the amendments to the provision of physical data regulations are made to implement that.

As regards feedback from businesses, we have discussed the new process with a number of large immigration law firms and will continue to engage with the business

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sector. The general response has been recognition of the common-sense solutions that we have put in place for business; for instance, around right-to-work checks.

As for why the dates of the debates on these instruments have changed, the JCSI raised a technical drafting point about defining the term “short-term biometric entry clearance”, so the instruments have been amended to address that. As for the point on public consultation, public consultation before implementing overseas BRPs was not thought appropriate due to continuation of the in-court BRP process under the UK’s legal obligation to comply with EU regulations.

Baroness Smith of Basildon: My question was not about consultation on the policy but about consultation on the implementation. The Minister mentioned businesses. I was not sure whether she was trying to address the same point.

Baroness Williams of Trafford: I will write to the noble Baroness to clarify that.

We estimate the cost of requiring biometric enrolment for the new category of people to be about £1.8 million annually. In addition, we estimate a one-off cost for electronic deletion of biometrics of £1.3 million and a £1 million annual cost for the physical destruction of biometrics, although we estimate that this will be only some £0.5 million in 2015-16. I think that I have answered most—

Baroness Smith of Basildon: I asked questions on all the orders regarding the monitoring and review. If the Minister does not have notes on that, I am happy for her to write to me, because it is quite an important point.

Baroness Williams of Trafford: I will certainly write to the noble Baroness on that.

Motion agreed.

Immigration (Biometric Registration) (Amendment) (No. 2) Regulations 2015

Immigration (Biometric Registration) (Amendment) (No. 2) Regulations 201518th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3.55 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Immigration (Biometric Registration) (Amendment) (No. 2) Regulations 2015.

Relevant document: 18th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Immigration (Provision of Physical Data) (Amendment) Regulations 2015

Immigration (Provision of Physical Data) (Amendment) Regulations 201518th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3.56 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Immigration (Provision of Physical Data) (Amendment) Regulations 2015.

10 Feb 2015 : Column GC283

Relevant document: 18th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Immigration (Biometric Registration) (Amendment) Regulations 2015

Immigration (Biometric Registration) (Amendment) Regulations 201520th Report from the Joint Committee on Statutory Instruments25th Report from the Secondary Legislation Committee

Motion to Consider

Moved by Baroness Williams of Trafford

3.56 pm

That the Grand Committee do consider the Immigration (Biometric Registration) (Amendment) Regulations 2015.

Relevant documents: 20th Report from the Joint Committee on Statutory Instruments, 25th Report from the Secondary Legislation Committee

Motion agreed.

Immigration (Leave to Enter and Remain) (Amendment) Order 2015

Immigration (Leave to Enter and Remain) (Amendment) Order 201520th Report from the Joint Committee on Statutory Instruments25th Report from the Secondary Legislation Committee

Motion to Consider

3.56 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Immigration (Leave to Enter and Remain) (Amendment) Order 2015.

Relevant documents: 20th Report from the Joint Committee on Statutory Instruments, 25th Report from the Secondary Legislation Committee

Motion agreed.

Passenger and Goods Vehicles (Recording Equipment) (Downloading of Data) Regulations 2015

Passenger and Goods Vehicles (Recording Equipment) (Downloading of Data) Regulations 201520th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3.58 pm

Moved by Baroness Kramer

That the Grand Committee do consider the Passenger and Goods Vehicles (Recording Equipment) (Downloading of Data) Regulations 2015.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments

The Minister of State, Department for Transport (Baroness Kramer) (LD): My Lords, these draft regulations are being made to remove unnecessary gold-plating of EU rules by giving transport operators longer to download data of drivers’ hours from digital tachographs. The change was recommended in the Government’s Red Tape Challenge and Logistics Growth Review, and removes unnecessary restrictions on operators. It is estimated that it will save hauliers nearly £1 million a year, as well as giving some operators much-needed flexibility.

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For the benefit of noble Lords who may not be aware, EU drivers’ hours rules apply to goods vehicles over 3.5 tonnes and passenger vehicles with 10 or more seats, unless covered by a range of specific EU-wide exemptions and national derogations. Drivers and operators of vehicles that are in scope of these rules are required to fit and use a tachograph—a mechanical device that records, in real time, each driver’s driving time.

Operators are required to download data from digital tachographs and from drivers’ tachograph cards at regular intervals to check their drivers’ compliance with the rules relating to drivers’ hours. The 28-day maximum interval between downloads of the driver card data will remain unchanged. These regulations lengthen from 56 days to 90 days the maximum interval transport operators are permitted between data downloads, bringing GB hauliers in line with the maximum permitted under the EU rules.

The Government’s consultation on this change was published on the department’s website between December 2012 and February 2013. The proposed 90-day limit was welcomed by operators, particularly those involved in long, international journeys and tours, as the additional flexibility would alleviate the problems that they currently encounter trying to download the data while abroad. Enforcement agencies can require operators to produce records at any time, and can access a driver’s or vehicle’s records at the roadside, so this added flexibility for operators will not have implications for the enforcement of the drivers’ hours rules. In addition, most operators download data from the tachograph much more frequently as part of their routine maintenance checks.

Improving conditions for growth in the logistics sector is critical to the Government’s growth agenda, and this change forms part of a package of measures that the Government are bringing forward to help this vital industry, such as taking 76,000 mechanics and valets out of scope of burdensome EU rules on professional driver training and raising the speed limits for lorries on single and dual carriageway roads. This is a common-sense and industry-supported move to remove unnecessary restrictions on a key sector, helping it to make its contribution to Britain’s long-term economic plan. I beg to move.

Lord Rosser (Lab): My Lords, I thank the Minister for explaining the thinking behind the order, which increases the maximum interval that transport operators are permitted between downloads of drivers’ hours data from tachographs from 56 days to 90 days, which as has been said, is the maximum permitted interval under EU Commission Regulation No. 581/2010.

Will the Minister confirm that one of the effects of this change will be to enable operators who already seek to undermine drivers’ hours legislation to have an additional 34 days to break that legislation without detection and, as a result, the DVSA will potentially have a month less to prepare a prosecution case against historical drivers’ hours offences? If that is the case, what is the Government’s assessment of the impact of that on road safety, since on a fairly quick look-through it does not seem to be covered in the impact assessment?

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Indeed, the impact assessment, dated last July, states that the DVSA thought that adopting the 90-day maximum European timescales could hinder enforcement as it could make it more difficult to gather evidence from prosecutions within the six-month deadline imposed by the courts. If Ministers have now managed to persuade the DVSA of the error of their thinking, perhaps the Minister will confirm that that is the case, and indicate either why the DVSA has misunderstood the situation, or what changes have been made to address the concerns raised by the DVSA.

There are already concerns about the DVSA’s enforcement capabilities. According to government answers, the relevant agency made 43,000 fewer checks under drivers’ hours regulations for foreign-registered HGVs at the roadside last year than four years ago and less than half the number of foreign HGV drivers breaking the drivers’ hours rules received prohibitions or fixed-penalty notices last year than four years ago. For what reason have the Government presided over this considerable reduction in both checks and prohibitions and fixed-penalty notices?

Under the current requirement to download data at least every 56 days, what is the Government’s assessment of the current percentage of operators who already breach drivers’ hours legislation to a greater or lesser degree? Once again, on a relatively quick look through the impact assessment, that issue does not seem to be addressed in it, yet non-compliance not only risks the safety of drivers and other road users but undermines fair competition and adversely affects the majority of operators who adhere to the rules. Have the Government considered bringing forward tougher measures and sanctions to enforce weekly rest rules, as have apparently the French and Belgian Governments recently?

The Explanatory Memorandum indicates that a “targeted industry consultation” was undertaken. Can the Minister clarify what is meant by that? Is it a euphemism for saying, “We consulted rather fewer people and organisations than normal”? The Explanatory Memorandum refers to the 20 responses received, which seems a relatively small number unless it turns out that the targeted consultation only invited that number or not many more to respond. Where did the 20 responses come from and how many were in favour of the change in the limit and how many voiced opposition or expressed reservations? How many people or organisations were invited to respond? Why could this information not have been provided in the Explanatory Memorandum under paragraph 8, headed “Consultation Outcome”? There appears to be some separate document on the outcome of the consultation. I do not think—I am prepared to be corrected—that reference is even made in the Explanatory Memorandum to such a document. All that I have been able to find is a passing reference to it tucked away on page 5 of the impact assessment.

The Explanatory Memorandum states that,

“many operators already download data from the vehicle unit more regularly than the current 56 days required”,

as some 80% of HGVs need more frequent maintenance checks than that, but for those involved in long international journeys and tours of more than 56 days,

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the extended interval to 90 days would alleviate, as the Minister has said, a number of problems encountered when trying to download data while abroad.

Why, in order to address a problem faced by what I presume is a minority of operators involved in extended journeys and tours abroad, is it necessary to increase the limit to a maximum 90 days for all operators when it seems that many of them already download data more regularly than the current 56 days? How assiduously has the department tried to address the problems facing operators who are abroad for more than 56 days without changing the requirement for those operators who are not in that position?

We do not intend to oppose the order, but it would nevertheless help if the Minister could respond to the points that I have raised and provide some information on what the limit is in other comparable EU economies such as France and Germany, particularly as the impact assessment seeks to imply, but does not clearly state, that the change would bring us into line with our European counterparts.

Baroness Kramer: My Lords, I shall start by responding to the questions asked about the consultation—there may be some that I cannot cover because I do not have sufficient information at the moment, in which case we will be glad to write. The respondents were hauliers, Unite, traffic commissioners, ACPO, the police and tachograph analysis companies. That is quite a wide range across the industry.

The noble Lord asked about the DVSA. Obviously, we followed up its response to the consultation, and from those discussions our understanding is that it believes its enforcement powers, which enable it to access this information at any time, are the important measure which supports its enforcement activity. Therefore we are comfortable that we are not creating additional problems here for the DVSA. Indeed, the noble Lord will know—and this goes back to the whole question of safety which he discussed—that, increasingly, the whole approach to enforcement has been intelligence-led. That has always been true, but it has become even more so. He will be aware of the London task force, which I believe started its work in October 2013. That is a combined effort by the DVSA, Transport for London, the department and the Met to use a targeted approach, and it has been very successful in London by, again, using intelligence, so that the knowledge of the operators to helps drive the enforcement process, rather than simply using a random process which might have been more prevalent in the past.

The Deputy Chairman of Committees (Lord Geddes) (Con): A Division has been called in the Chamber. The Grand Committee stands adjourned.

4.11 pm

Sitting suspended for a Division in the Chamber.

4.18 pm

The Deputy Chairman of Committees: All Members are now present. I rudely interrupted the noble Lord, Lord Rosser, in mid-flow—I beg your pardon, the noble Baroness, Lady Kramer, was speaking.

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Baroness Kramer: I am sure that interruptions to the flow will only improve matters. I was talking about enforcement when we took a break for the Division. One of the questions that the noble Lord, Lord Rosser, raised was whether the DVSA was doing sufficient checks. He is right that the number of checks is down but, as a result of the enhanced targeting I described, there has been a quite dramatic increase in the effectiveness of those checks. On drivers’ hours the prohibition rate has risen from 15.7% in 2009-10 to 18.1% in 2013-14, and on roadworthiness from 31.8% in 2009-10 to 37.7% in 2013-14.

Lord Rosser: In the light of that, those figures still mean that the number of prohibitions and fixed penalty notices has gone down. The percentage may have gone up, but that should be compared with the large reduction in the number of checks, prohibitions and fixed penalty notices. What is a relatively small increase in the percentage surely still means that the number of checks, prohibitions and fixed penalty notices has gone down. Would the Minister confirm this?

Baroness Kramer: My Lords, surely what we are all looking for is effectiveness, which we need. Having a more effective way of tackling this problem strikes me as important, since the issue we are looking at is the recording of tachograph information.

Lord Rosser: I am sorry, is the Minister arguing that having a reduction in the number of checks, prohibitions and fixed penalty notices, which she has not denied, makes it more effective?

Baroness Kramer: My Lords, I am simply arguing that the important thing is catching those who are breaking the law and breaking the rules, and to do so effectively. The mode of working that has now been adopted is more effective. Surely effectiveness is something that we are all seeking to achieve.

Going back to the subject of this regulation, one of the key elements is the downloading of driver data. That interval for doing so remains 28 days. Operators remain responsible for their drivers being in compliance—that has not changed either. The noble Lord noted that, for most companies, the common way of downloading the vehicle data is simply to do it at the time of maintenance on the vehicle, which for most companies is more frequently even than 56 days. The outer time limit and the actuality are not in fact particularly closely linked. The way that operators work means that the data are downloaded far more regularly.

The noble Lord also asked about countries in continental Europe and what benchmarks they were using. I can tell him that France, Austria, Belgium, Germany and Italy all have 90-day limits. That may give him some comfort that we are working within the same kind of range as continental Europe.

Lord Rosser: The Minister quite rightly referred again to the problems being faced by operators that have vehicles abroad on extended journeys; the maximum of 90 days will certainly make life easier for them.

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However, they are a relatively small percentage of the number covered. I asked how assiduously the department has tried to address the problems facing operators abroad for more than 56 days without changing the requirement for operators that are not in that position, in light of what the Minister has repeated—that most of them do it more frequently than every 56 days. Why could it not have been a more targeted approach to address where the problem apparently lies?

Baroness Kramer: My Lords, one of the reasons for having a consultation, which the industry was widely aware of, was to provide an opportunity to come up with other mechanisms. This one appears to have an appropriate benefit in giving that greater and necessary flexibility to operators who have vehicles travelling overseas, but it does not create additional enforcement issues domestically. As the noble Lord said, most operators download the data more frequently anyway. We have moved towards a pattern of enforcement that is based far more on intelligence than on random checks. A random turn-up at an operator is not likely; it would be an intelligence-led arrival at an operator’s premises.

There is also the regular process of enforcement through approaches such as that of the London task force. There are now thoughts about whether this approach could be taken in places such as Manchester. Using that intelligence-led information and using the opportunity to enforce readings of both the driver and the vehicle unit tachometers at the roadside are among the primary tools of enforcement.

Therefore, making this change does not seem to us to undermine the enforcement process. It provides some additional flexibility for companies which have vehicles overseas and which have had problems trying to meet the 56-day benchmark simply because their vehicle is somewhere on the continent. Although it may be a relatively small change—as I admit it is—it is surely no bad thing to lift a burden of about £1 million off the industry, particularly in the highly competitive world in which companies must currently operate.

The case for making these changes is there is no weakening of the key enforcement mechanisms, which remain in place, and that enforcement mechanisms are more effective today than they have been historically—which surely has to be a good thing. The download of the drivers’ card, which is the primary method for measuring drivers’ hours, continues to be every 28 days; the download of data from the vehicle at 90 days, which in a sense is back-up or a cross-check, is not causing, as we understand it, any concerns to either the enforcement or the operators. The noble Lord said, “Well, surely this is unfair to good operators”, but operators have not come to us and said, “Don’t do this”, and there are many good operators based in the UK who surely would have raised that issue if they felt that it was a concern.

Therefore, with all those issues in mind—and as I say, if I have missed out on specific questions that the noble Lord, Lord Rosser, raised, I will try to get back to him in writing—I commend the regulations.

10 Feb 2015 : Column GC289

Lord Rosser: I think that the Minister said that she would write to me on the issue of the consultation and how many people or organisations were invited to respond, since I am still not sure what a “targeted industry consultation” is a euphemism for, and clearly it means something. On the face of it, 20 responses does not seem a particularly high number, but that begs the question of how many were invited. I asked how many had voiced opposition or reservations about the changes, and I appreciate that the Minister said right at the beginning that she would respond subsequently to me on the consultation. However, I would also be grateful, since I do not think that I have had a clear answer to the question, if, when the Minister comes to reply, she could confirm or deny that the number of checks, prohibitions and fixed penalty notices has gone down over the past four years. The answer to that question is either yes or no, because I am still not clear how a reduction—which is what I think it has been—actually improves the situation. Perhaps the Minister could address that in the letter she will send to me on the consultation.

Baroness Kramer: I will be very glad to do that, because our target, obviously, is safety, and that is the absolute standard we have to go by. With that understanding, I hope that the noble Lord, Lord Rosser, will be satisfied.

Motion agreed.

Road Safety Act 2006 (Consequential Amendments) Order 2015

Road Safety Act 2006 (Consequential Amendments) Order 201520th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.29 pm

Moved by Baroness Kramer

That the Grand Committee do consider the Road Safety Act 2006 (Consequential Amendments) Order 2015.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments

The Minister of State, Department for Transport (Baroness Kramer) (LD): My Lords, I beg to move that the draft Road Safety Act (Consequential Amendments) Order, which was laid before the House on 16 January, be considered.

The driving licence paper counterpart is to be abolished from 8 June 2015. The primary legislative changes that provide for this were included in the Road Safety Act 2006, and will be brought into force on the same day as this order. This order amends several additional pieces of primary and secondary legislation, many of which were enacted since 2006, that include references to the paper counterpart.

Old-style paper licences are not being abolished and will remain valid documents. The driving licence paper counterpart has been issued since the photocard driving licence was introduced in 1998. The main function of the paper counterpart that is issued with

10 Feb 2015 : Column GC290

the photocard licences has been to show provisional driving entitlement and penalty points or driving disqualifications. The counterpart was necessary because the EU driving licence directives, with which every member state must comply, do not allow provisional driving entitlement or endorsement details to be displayed on the photocard. This meant that introducing a counterpart was, at the time, the only way this information could be provided for individual drivers and for them to then share that information, if they needed to, with those who required it for driving entitlement validation or enforcement purposes.

The primary powers to abolish the paper counterpart were included in the Road Safety Act 2006. We intend to enact these provisions by commencement of Section 10 and Schedule 3 of the Act, which are to be brought into force on the same day as this order by commencement order.

The secure electronic inquiry services needed to share driver data to replace the counterpart were not available in 2006. Since then, there has been significant development of online services and this Government are committed to developing the wider use of digital services as a key element of providing improved customer services. The paper counterpart was identified as an area of unnecessary bureaucracy and burden. This Government have made a clear commitment to remove such unnecessary burden under the Red Tape Challenge initiative, and abolishing the counterpart will result in significant savings for motorists. The paper counterpart will be replaced with a digital service that will enable customers and stakeholders to access their driving licence details securely. This will be an online service, called Share Driving Licence, which will enable individual drivers to check their own information and share it, as they need to, with a third party who will be able to securely view the up-to-date driver record digitally and securely.

Protecting individual driver data is of paramount concern. The Share Driving Licence service enables customers to generate a one-time use authentication code which they can then share with a third party to enable them to access the relevant information held on the DVLA’s driver record. This online service ensures that control remains in the hands of customers, giving them the power to share or not share the information.

There will also be an assisted digital inquiry service for those who are unable or do not want to use the online service themselves. The assisted service will provide two options. A customer can telephone the DVLA’s contact centre, which will provide them with a one-time use access code that the customer can then share with a third party. Alternatively, businesses can call the DVLA’s driving licence checking service. This is a three-way conversation between the customer, the third party and the DVLA to verify information from the individual’s driver record. These services are in addition to the online inquiry service that the DVLA has already made available to motor insurance companies, called My Licence. This enables them to check the status of the driving licence, with the consent of the driver, when giving a quote and when a policy is renewed.

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Pre-photocard paper driving licences are not being abolished and will remain valid documents showing the categories of vehicle an individual can drive. However, they will no longer be endorsed with new penalty point information. The digital driver record held by the DVLA will be the legal record of penalty point information. So drivers with old-style paper driving licences will also need to use the new inquiry services to access the most up-to-date information on penalty points and endorsements.

I recognise the need to minimise any confusion between the paper counterpart and the pre-photocard paper driving licence. This is one of the key messages that features prominently in the wide-ranging communications activities being carried out now and will continue to be developed as abolition draws nearer. The DVLA is working with customers and businesses to help individual drivers understand the change.

Around 90% of motorists do not have penalty points and rarely need their paper counterpart. If a driver loses it, they must obtain a replacement licence at a cost of £20. The requirement for drivers to hold a paper counterpart to their driving licence is no longer considered by motorists to be the most effective way of enabling people to demonstrate their up-to-date penalty point information. The current arrangements impose unnecessary costs on motorists and can perpetuate the use of inaccurate and out-of-date information.

Generally, abolishing the paper counterpart has been welcomed by businesses. However, there was some industry concern about the original planned date for abolition, which was 31 December 2014. Some organisations advised that they were not ready to operate without the counterpart. My department has listened to these concerns and has delayed abolishing the counterpart until 8 June 2015. This revised implementation date will allow businesses more time to work with the DVLA on introducing the changes and communicate the change to their customers.

This department has worked closely with enforcement partners, including the Ministry of Justice and the Scottish Court Service, to ensure that they are prepared for the change. The processing of road traffic offences will continue without any issues as fixed penalty offices and courts are prepared for when the paper counterpart is abolished. Abolishing the paper counterpart will save motorists around £17 million per year. The changes before your Lordships support the Government’s commitment to improving public services through increased digital delivery and will realise significant savings to motorists. I commend the order to the Committee.

Lord Rosser (Lab): I thank the Minister for explaining the background to, and purpose of, this order. I hope that she feels on top of the detail of the order to a rather greater extent than I do.

Since their introduction in 1998, all drivers issued with a Great Britain photocard driving licence have also been issued with an A4 paper counterpart because under an EU directive provisional entitlement or endorsement details were not allowed to be displayed on the photocard, and there was a need to provide this information for those who might be required to give details of any current convictions, disqualifications

10 Feb 2015 : Column GC292

and other penalties, or in the case of a driver with a substantive licence the need, if it arose, to verify an additional provisional driving entitlement.

In 2004, a public consultation indicated that more than 80% of those responding supported the paper counterpart being abolished, with the overall preference being that instead the information on the paper counterpart should be made obtainable by secure electronic links to the Driver and Vehicle Licensing Agency database. However, as the Minister said, the Government at the time did not have the necessary electronic system in place to abolish the paper counterpart.

As I understand it, this order amends primary and secondary legislation in the light of the commencement of the parts of the Road Safety Act 2006 which provide for the abolition of the driving licence counterpart in Great Britain. These parts of the 2006 Act will be brought into force on the same day as this order by the Road Safety Act 2006 (Commencement No. 11 and Transitional Provisions) Order 2015.

Apart from the paper counterpart displaying details of a driver’s current convictions, disqualifications and penalties, it is also used by the freight industry to carry out safety checks of commercial vehicle drivers, by the rental and leasing industry to verify customer driving licence details for car hire, and for other employment and enforcement purposes.

We are not opposed to the order but I would like to raise a few points. If I raise points that are answered in the impact assessment, I offer my apologies in advance for not having read it as thoroughly as I should have done. Under the arrangements to be introduced in the light of the abolition of the driving counterpart, those entitled to will be able to check securely information held on the document via a new electronic inquiry database, including driving entitlements and endorsements. Drivers will also be able to print their information. Who or what will be held responsible for making sure that the information held on the inquiry database in respect of each individual is accurate? How will an individual know whether that information held about them is accurate, bearing in mind the potential consequences if it is wrong? Is it the case that an individual will be expected themselves to check the information on the database for accuracy, and will there be any redress if it is incorrect and the individual has been penalised in some way as a result? If an individual finds incorrect information about themselves on the database, will they have to use a premium rate telephone line to ring up and challenge the accuracy of the entry?

It is essential that the abolition of the paper counterpart is managed effectively—unlike the reorganisation and merger of agencies last year, which was not. Abolition will not be successful unless a replacement electronic service is effective, easy to use and up to date. How secure will the information on the database be? Are the Government satisfied that people’s personal information on the database cannot be hacked into by others who should not be able to see or have that information?

As the Minister has said, the move away from the paper counterpart was originally planned for the last day of last year, but will not now happen until June,

10 Feb 2015 : Column GC293

with, as she has indicated, the British Vehicle Rental and Leasing Association and Freight Transport Association having called for an extension to ensure that the online alternative was fit for purpose. As I understand it, the BVRLA is still saying it is vital that the agencies are given an adequate budget to publicise and provide guidance around key events such as the recent abolition of the paper tax disc, which is another issue from the one that we are discussing, and the impending removal of the paper driving licence counterpart, which we are discussing. Have the Government responded to that call and, if so, in what way? I appreciate that in her introductory comments the Minister made reference to this, but if she could say a little more about what the Government are doing to respond to that call from the BVRLA, it would be helpful. Given the experience of the tax disc abolition, including the DVLA’s website crashing, what assurances can the Government give that the abolition of the driving licence paper counterpart will be properly managed, explained and communicated to the public and business?

On the potential costs and benefits, the impact assessment states that there could be additional costs for some businesses as checking driving details online could take longer and the cost of calls to the DVLA’s premium rate telephone lines to access the information will increase. If the information is in the impact assessment, I apologise for asking this but could the Minister indicate what these costs will amount to?

The documentation also indicates that a range of inquiry services will be established for accessing driving licence details online, including the use of a premium rate telephone number, which, once again, the Minister referred to in her introductory comments. The impact assessment refers on page 7 to the DVLA receiving 1,207,104 premium line calls last year. On page 12 that figure is repeated, but another figure is also given: namely, that 940,000 premium line telephone inquiries relate to the general public. Perhaps the Minister could say whether that figure of 940,000 is included in the higher 1,207,104 figure or is in addition to it.

I understand that as a response to serious concerns about the Government’s use of premium rate phone lines, the Cabinet Office issued guidance stating that the use of premium rate phone numbers is inappropriate. If that is the case and the Minister accepts that that is in the Cabinet Office guidelines, how does the use of a premium rate phone number in this instance fit in with those guidelines? What cheaper alternatives, such as the 03 range, were considered, and why were they rejected?

4.45 pm

Baroness Kramer: My Lords, I thank the noble Lord for the issues raised. If I miss some of the questions, we will try to catch those up afterwards. I understand that for the ordinary motorist the number to call for the DVLA is a standard-rate number—an 0300 number—0300 790 6801. That may answer a number of the noble Lord’s concerns.

10 Feb 2015 : Column GC294

In terms of costs to businesses, we have acknowledged that this may add somewhat to the burden of the car rental industry. However, we can compare the advantages to the motorist. It seems that the benefit is significant. The noble Lord may know anecdotally from friends and family that trying to find the paper counterpart is one of the great annoyances as so many people manage to mislay or lose them, which creates problems in having to apply again, with all the costs and inconvenience involved. The benefits to the motorist are significant, which outweighs what I suspect will be rather minor additional burdens to the industry, outlined by the noble Lord. We appreciate that the industry will need to manage this process effectively.

The DVLA will use its many regular communications with the public through a whole variety of channels. It will send out information leaflets with all full drivers’ licences, which equates to 1 million drivers a month getting a leaflet to outline this. The DVLA is working with industry stakeholders, such as trade associations for the car hire companies and the motor industry, to make sure that they have up-to-date information that they can communicate to their members and the motoring public. A campaign page has been created on GOV.UK to provide the Government with general information and the DVLA will use all those forms of media, which I confess I do not look at much myself, but a large part of the world does, such as web chat, social media, information videos and blogs to maximise awareness. A substantial communications campaign sits behind this, but it is also true that when people call to make bookings with a car hire company, they are typically told what documents to bring with them. Therefore, that is an opportunity for the car hire company to make it clear that people need to come along with an access code.

Change is never without the occasional hiccup but there will certainly be a substantial communication process. Indeed, there probably will be additional calls. The DVLA is expecting calls from people who do not feel comfortable going online to obtain information. That, by the way, is a free service. The DVLA is staffing up to be able to respond appropriately to that additional level of demand.

The noble Lord, Lord Rosser, asked if the information was secure, as government is responsible for a great deal of data affecting the lives of many people. Therefore, the levels of security are always significant—no less so in this case than in any other. I can give the noble Lord the confidence that this will not be treated in a more casual way than important information that is held on individuals by government departments and agencies. In terms of the accuracy of the data, because an individual can go online and check for themselves, it gives them an opportunity to make sure that the data are accurate. They can also call the DVLA if they have some concern. In many ways this gives them an opportunity to be sure that they are up to date in the way that the paper counterpart, sitting in a back drawer and possibly long forgotten, does not.

Lord Rosser: We are not opposing the order, so I am not making this point on the basis that we are. I am not sure that I see a way around this, so in a sense I

10 Feb 2015 : Column GC295

am asking the Minister to clarify that the onus is actually on the individual to check on a reasonably regular basis that the information held about them is accurate. For many individuals, the first indication they may have that something is wrong will be when they are denied something that they are seeking, or find out that something is on the record that should not be which has adverse consequences for them. It is only then that they will check on the database and find out that the information is wrong. I have no solution as to how you get around that, but that seems to be the situation.

Baroness Kramer: I point out to the noble Lord, Lord Rosser, that at present the DVLA accesses its information from the courts and fixed penalty services, so that will be exactly the same pathway, except that it will be available for an individual to check on a live basis—for example, if they have forgotten to send in their counterpart to get it endorsed. I think that there are probably potentially fewer potential trip-ups with the new system than under the old one.

I am trying to remember other questions that the noble Lord asked, but I think I have covered most of his concerns around this issue. As I say, we will look back through Hansard and if there are particular issues that I have not covered in full, we will be glad to follow them up in writing. If he is satisfied with that response, I hope that he will feel able to support this order.

Motion agreed.

Tax Credits Up-rating Regulations 2015

Tax Credits Up-rating Regulations 201520th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.52 pm

Moved by Lord Newby

That the Grand Committee do consider the Tax Credits Up-rating Regulations 2015.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments

Lord Newby (LD): My Lords, with these regulations it will be convenient to consider the two draft guardian’s allowance orders. It is a requirement that I confirm that the provisions contained in the orders and regulations before the Committee today are compatible with the European Convention on Human Rights, and I so confirm.

Before I start, the Committee should note an amendment to the Explanatory Memorandum to the Tax Credits Up-rating Regulations 2015. The rate of CPI to be applied to these regulations is 1.2%, in line with the rate of CPI published by the ONS, rather than the 1.3% that was mistakenly written in the original document. A revised Explanatory Memorandum and accompanying Section 41 report correcting the error was laid before Parliament on Friday 6 February.

10 Feb 2015 : Column GC296

The regulations increase the maximum rates of the disability elements of tax credits—that is, the disabled child and severely disabled child elements of child tax credit, and disabled worker and severely disabled worker elements of working tax credit—in line with CPI. This decision was taken to protect those benefits that help with the extra cost of disability. The regulations also increase the earnings threshold for those entitled to child tax credit only, after which payments begin to be tapered away. The orders increase by CPI the rate of guardian’s allowance, which is the payment made to provide support to those who look after a child whose parents are deceased.

Child benefit and other elements of tax credits will be uprated by 1% by the child benefit and tax credits uprating order 2015. This is a separate instrument and these increases are not before the Committee today.

The regulations and orders before the Committee protect the most vulnerable by ensuring that the guardian’s allowance and the elements of working tax credits and child tax credits designed to assist with the extra costs of disability keep pace with the change in prices. This Government have ensured that these elements of financial support paid to low-income and vulnerable households have kept pace with inflation and will continue to do so until the end of this Parliament.

The regulations and orders before the Committee today will uprate the disability elements of tax credits by CPI. The rate of guardian’s allowance will also be uprated by CPI. In line with normal practice, we are applying the rate of CPI from September 2014, which, as I said earlier, was 1.2%. I beg to move.

Lord Tunnicliffe (Lab): My Lords, we do not intend to oppose any three of these orders, and I have no questions.

Motion agreed.

Guardian’s Allowance Up-rating Order 2015

Guardian’s Allowance Up-rating Order 201520th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.55 pm

Moved by Lord Newby

That the Grand Committee do consider the Guardian’s Allowance Up-rating Order 2015.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Guardian’s Allowance Up-rating (Northern Ireland) Order 2015

Guardian’s Allowance Up-rating (Northern Ireland) Order 201520th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.55 pm

Moved by Lord Newby

That the Grand Committee do consider the Guardian’s Allowance Up-rating (Northern Ireland) Order 2015.

10 Feb 2015 : Column GC297

Relevant document: 20th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2015

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 201520th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.56 pm

Moved by Lord Newby

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2015.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments

Lord Newby (LD): My Lords, the financial services industry matters greatly to our economy, which is why the Government have taken wide-ranging action to ensure the integrity and stability of financial services in the UK. A framework of legislation for financial market benchmarks was introduced in response to the LIBOR scandal, when the Government took action to criminalise the manipulation of LIBOR and to create further supervisory requirements on administrators and submitters to LIBOR.

Last June the Chancellor announced the establishment of the Fair and Effective Markets Review, which reinforces the Government’s determination to ensure confidence in the fairness and effectiveness of UK wholesale financial market activity. The review is chaired by Minouche Shafik, Deputy Governor of the Bank of England, with Charles Roxburgh, director-general of financial services at HM Treasury, and Martin Wheatley, CEO of the Financial Conduct Authority, as co-chairs. The chairs are supported by a secretariat drawn from those three authorities. The review will report this June.

In addition, the Chancellor announced that the Fair and Effective Markets Review would make early recommendations on which further major financial benchmarks ought to be brought into the UK criminal and regulatory regime originally put in place for LIBOR. Given the widespread use of benchmarks in financial contracts, it is vital that consumers and markets are confident that benchmarks are credible and trustworthy.

In August the review recommended to the Treasury that seven additional benchmarks should be named in legislation. The review considered a wide range of benchmarks in fixed-income, currency and commodity markets—FICC—selecting a recommended list to target those benchmarks where the regulator currently has fewer powers and where manipulation of a benchmark would have the greatest impact on financial markets.

In drawing up its recommended list, the review sought to identify benchmarks that are major FICC benchmarks, those where the main benchmark administration activities are located in the UK, and those based on transactions in financial instruments

10 Feb 2015 : Column GC298

that are not covered comprehensively by existing market abuse regulation. The Government opened a four-week consultation on these recommendations and held round-table discussions with participants from all sectors of the market. Overall, respondents agreed that the seven benchmarks recommended by the review should be brought into the UK regulatory regime.

Following that consultation, the Government announced in December that they agreed with the review’s recommendations in full. The changes set out in this draft order therefore extend the criminal and civil regulatory regime to cover those further seven major financial benchmarks. These changes will extend the legislation covering LIBOR to the following seven major benchmarks: the WM/Reuters 4 pm London Fix, which is the dominant global foreign exchange benchmark; the Sterling Overnight Index Average—SONIA—and the Repurchase Overnight Index Average, or RONIA, which both serve as reference rates for overnight index swaps; ISDAfix, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions; the London Gold Fixing, soon to be known as the LBMA Gold Price, and the LBMA Silver Price, which determine the price of gold and silver in the London market; and the ICE Brent Index, which acts as the crude oil market’s principal financial benchmark.

5 pm

These changes will ensure that the key rates that underpin financial markets hereand around the world are robust, and that anyone who seeks to manipulate them is subject to the full force of the law. Specifically, they will extend the criminal offence of manipulating a “relevant benchmark”, originally introduced for LIBOR, to any person manipulating the seven benchmarks, with those found guilty of doing so facing up to seven years in prison.

The changes will also subject the administrators of, and submitters to, the benchmarks to a number of specific rules, and authorised firms will face a range of sanctions if they breach any of the FCA’s rules and principles, including financial penalties, suspensions and censures. The FCA has recently closed its consultation on its draft rules for regulating the benchmarks and will publish its final rules before the changes commence on 1 April.

The Government have also published a full impact assessment in line with their commitment to better regulation. This shows that the main costs of the changes will fall to the contributing banks, the benchmark administrators and the Financial Conduct Authority. The majority of the costs fall on administrators through staff and IT costs for compliance, with regulation amounting to a total of £11.65 million of transitional costs and £7.53 million annual ongoing costs. However, because of their systemic importance, the costs associated with SONIA and RONIA are not captured by “one in, two out”. The benefits include: improved resilience against attempted manipulation; reduced risk of misconduct, associated fines and litigation; decreased likelihood of cessation of the key benchmarks; increased credibility and integrity of the benchmarks among

10 Feb 2015 : Column GC299

authorities, market participants and the public; greater confidence in financial markets; and increased governance and regulatory oversight.

Together, these changes show the Government’s continued determination to deal with market abuses, to tackle the unacceptable behaviour of the few and to ensure that markets are fair for the many who depend on them. I beg to move.

Lord Soley (Lab): I apologise to the Committee and to the Minister for being two minutes late for his opening statement, having been in the Chamber for the Recall of MPs Bill. I then heard the call of the noble Lord, Lord Newby, so I thought that I had better do that instead.

There are just a couple of points that I want to make on this very welcome SI; I have no problems with the thrust of it. The last bullet point in paragraph 7 of the Explanatory Memorandum refers to the European Union introducing powers in 2017. When the European Union brings in those rules in 2017, will we then have totally new legislation to address that? As I understand it—the Minister will correct me if I am wrong—the European Union has not decided on the content of the laws that it wishes to apply but, clearly, if we do not apply it then we will find ourselves with a different set of regulations from those that apply in European Union states. I am not sure whether they will apply to all states, but certainly they will apply to many. I want to be clear about whether we will bring in that regulation here and adjust to whatever the European Union decides after 2017, in which case we will then have to come back to the Floor of one House or the other to pass new legislation.

My understanding is that any criminal charges relating to a breach of the European Union regulations would not apply in the United Kingdom. Any breach of any European Union rule could be a criminal act, as it is here under Part 7 of the Financial Services Act. If that is to be the case, would we make our criminal offence the same as it would be in the European Union? The Minister might need to think about that, but one can see the dangers in that we would have a criminal code operating in new European Union legislation that was different from the criminal code that might apply here in the UK.

The only other matter I wanted to raise is not minor in content but is very brief. It is about where this SI applies to small businesses under Section 11. I recognise that it is very unlikely to have a big impact on small businesses of any type, but it could. I want to make sure that the Government have consulted with not only the British Chambers of Commerce but the Federation of Small Businesses. Is the FSB aware of this? Has it said that it is relaxed about it, from its members’ point of view?

Lord Tunnicliffe (Lab): My Lords, I thank the Minister for presenting this order and explaining it to us. I also thank my noble friend Lord Soley for coming along to swell our numbers. We have had so many interesting debates just between the two of us that three is difficult to cope with.

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As usual on these exciting Treasury SIs, which I am asked by my party to handle, I studied the paperwork with great care. The superficial presentation of the order seems to take seven indices and put them into the LIBOR legislation. I remember that to some extent from our time discussing the Bill, but I had a further look into it. The essence of the legislation is summarised in the August 2014 report by the Fair and Effective Markets Review, which led to this recommendation. It seems to me that the process in fact bears on submittance. On page 5 of the report there is a list of submitters’ responsibilities. The responsibilities of benchmark administrators are overwhelmingly to look at submitters and make sure that they are right. I am very happy to be corrected by the Minister if I have got that wrong.

Since we are using this LIBOR framework—or LIBOR-type acts—as a vehicle for this order, I first ask the Minister how well the FCA has performed its LIBOR role over the couple of years that it has been in place. I made the point about the division between administrators and submitters because if I have read the paperwork properly—I would be only too pleased to be corrected—only two of these indices, SONIA and RONIA, have submitters at all. The full effect of the primary legislation makes sense for those. Can I ask the Minister whether these are here for completeness, or has there been malpractice in these indices? Obviously you cannot prove negatives, but has any known malpractice taken place in the creation and management of these indices in recent times?

Moving on to the other five indices, looking first at ISDAFIX, as I understand it the objective is to make it mechanical. The report I referred to says:

“Where practicable, IBA plans to transition the calculation methodology from this polled submission model to an algorithm-based approach, using tradeable quotes from regulated trading venues as the input for the rate”.

That is the end of the important part of the quote. More recently, the impact assessment says:

“ISDAFIX will be transitioned to a different methodology before April 2015”.

That would create a situation where, as far as I can see, there would be just an administrator. It would be valuable if the Minister could confirm that. Can he also confirm that the transition to the algorithm-based methodology will be completed by April 2015? If that deadline is missed, what is the Government’s intention? Will they use this to supervise the old system, or will they delay the introduction of the new system?

I understand from the paperwork that the gold fixing system is once again in transition. Will the transition to the new gold fixing methodology be completed by 1 April? If not, what will happen?

I was fascinated to read that the WM/Reuters London 4 pm Closing Spot Rate is once again, as far as I can see, mechanical—that is, it is a derivation from publicly available information, or at least market-recorded information, which implies that it is a mechanical index. I am somewhat confused at this when in recent years, and indeed months, we have had scandals in the foreign exchange market. Perhaps these are markets that fall out of the control that the order seeks to relate to. If not, and the order does not relate to those

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scandals, what are the Government doing to ensure that those markets where we have had problems in the recent past are properly under control?

If I am right in my understanding—I could have great humiliation in a few moments when the Minister explains to me that I am completely wrong—five out of the seven indices seem to be administrator-only. That raises the interesting question: what happens if there is an error? Surprisingly to me, not being a person of the City, there were no civil actions, as far as I know, as a result of the original LIBOR scandal. Looking at it from a distance, one felt that some parties may have been disadvantaged and there would be efforts by them to secure damages from the people who created that disadvantage. The only way there could be a problem with the administrator-only indices would be if there were errors. If there were, though, would the administrators have a commercial liability? If they did, who would pay? The administrators per se, as far as I can see, are not businesses of great substance; they are businesses created for the relatively modest task of administration.

I have a couple of other points. The UK is forging ahead of the EU in this area. I have no criticism of that; it makes perfect sense. My noble friend has asked how the thing will eventually come together, and I look forward to the response to that. However, have any other countries initiated legislation in these areas, and how does that legislation interface with the orders that we are looking at today?

My other question is: why seven? Were other indices considered? None is mentioned in the report, but do we know of other indices that were considered, what were they and why were they not included?

5.15 pm

Lord Newby: My Lords, I am grateful to both noble Lords who have participated in this debate, particularly to the noble Lord, Lord Soley, for breaking up our traditional duet. He asked about the relationship between this order and the developing EU plans to do roughly the same thing. Negotiations are going on at EU level in which the UK is actively participating. The aim is that the EU regulation, when it comes forward, will be compatible with these measures. When it comes in, it will replace this order automatically because it will have legal force. However, the aim—there is no reason to think that this will not be possible—is that the EU measure does not require us to make any substantial change to the way that we run this regime. It will come in and supersede what we are doing, but only, as it were, in a legal sense rather than in a practical sense. That is the plan. We do not envisage that we will need to make any significant changes in the way that the administration or the procedures work as a result of that measure coming in.

Lord Soley: How will this measure come off the statute book? Is it because it is identical to another? I understand that this measure will have to come off the statute book.

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Lord Newby: I will write to the noble Lord if I am wrong, but I believe that if an EU regulation is passed which covers the same area as existing domestic legislation, it automatically supersedes it under the terms of the 1974 legislation.

As regards criminal charges and the criminal system, the relevant criminal code dealing with any charges will depend on which country the offences are committed in, so if an offence is committed in Germany it will obviously be dealt with under its criminal code, just as an offence committed in this country will be dealt with under our criminal code.

The noble Lord, Lord Soley, asked about consultation with the FSB. I suspect that there was no consultation with the FSB because the kind of businesses we are talking about here are not typical small businesses. I would be extremely surprised if any business that was going to be significantly involved with these indices were a member of the FSB. However, as I said, consultation was undertaken with those stakeholders which are most closely involved at present.

The noble Lord, Lord Tunnicliffe, asked a number of questions. He asked how the implementation of the equivalent LIBOR order had been carried out. That order came in in April 2013, but applies only to activity undertaken after 2013. The criminal cases taken in respect of manipulating LIBOR relate to an earlier period. The charge was conspiracy to defraud and there has already been one guilty plea. We have not taken any cases under this legislation yet as it relates to the recent period. We hope that since it came in there has not been the kind of malfeasance that would require us to use it. The other legislation was used for earlier offences.

On malpractice in relation to other benchmarks, the two benchmarks against which malpractice has occurred are the gold fix, where Barclays got into difficulty due to manipulation, and there was a case involving WM/Reuters in November last year. We are not aware of systematic problems going forward because the new regulatory regime is stronger than it was in the past. However, some problems have arisen with some of those benchmark areas.

The noble Lord asked about the ISDAFIX and whether the change of administrator would be in place in April this year, to which the answer is yes. On Gold Fixing and the change in the administrator, live testing of the new arrangements is imminent and, again, we expect it to be in place before April. He suggested that in future, because of the nature of the benchmark, administration has changed, and it will be virtually impossible for it to be manipulated—certainly not manipulated in the way in which it was in the past. Sadly, it is not quite as straightforward as that. The main change in the methodology is that, in the past, the indices were based on quotes, but in the future they will be based on trades. It is possible that trades could be made with manipulative intent. You could be making real trades with a view to manipulating the index. There is rather more to the system than just a passive, administrative procedure. If somebody wants to manipulate the index they will still be able to do it in theory, although it will be more difficult. That is leaving aside

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all the rules to try to stop them, but in theory it could be manipulated by trades with manipulative intent.

Lord Tunnicliffe: Am I right that in five of the seven indices the manipulation that happened in LIBOR, which was essentially submitters manipulating the index for their fellow bankers, and so on, would not take place? If someone tried to manipulate the benchmark, particularly in the five I mentioned, he would have to go to the market and alter things happening there. It would be a much more exposed position and probably a rather more expensive one.

Lord Newby: The noble Lord is absolutely right. The point I was seeking to make was that it is not impossible to do it but the costs of doing it are potentially greater.

Lord Tunnicliffe: More than a bottle of champagne?

Lord Newby: Probably more than a case of champagne.

The noble Lord asked what happens if there are errors and who would pay up. If there were an error in the way in which the system worked, the administrators

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would pay up. That is obviously different from what happens if damages are caused because somebody is manipulating the exchange. If the exchange itself causes errors to be made or makes errors, the exchange will be liable for those errors.

With regard to what is happening elsewhere, we are not aware of any other European country that is planning to do this. They are awaiting EU legislation. Of course London is a global centre for these types of index, which is why it is more important here than in some other financial centres in the EU.

Finally, the noble Lord asked why we went for these seven rather than going beyond. The view was that these were the seven most systemically important indices. We consulted on the scope and whether we should go further and the view taken was that these were the key ones and we should stop at seven. That was thought to be a proportionate response. I hope that I have answered the questions asked by noble Lords and that the Committee will feel able to support the order.

Motion agreed

Committee adjourned at 5.23 pm.