30 Nov 2015 : Column 925

House of Lords

Monday, 30 November 2015.

2.30 pm

Prayers—read by the Lord Bishop of Derby.

Introduction: Baroness Finn

2.38 pm

Simone Jari Finn, having been created Baroness Finn, of Swansea in the County of West Glamorgan, was introduced and took the oath, supported by Lord Howell of Guildford and Lord Maude of Horsham, and signed an undertaking to abide by the Code of Conduct.

Introduction: Baroness McGregor-Smith

2.43 pm

Ruby McGregor-Smith, CBE, having been created Baroness McGregor-Smith, of Sunninghill in the Royal County of Berkshire, was introduced and took the oath, supported by Baroness Verma and Lord Livingston of Parkhead, and signed an undertaking to abide by the Code of Conduct.

House of Commons: Ministers


2.48 pm

Asked by Lord Wallace of Saltaire

To ask Her Majesty’s Government what plans they have to reduce the number of Ministers in the House of Commons proportionately to the intended reduction in the overall number of members in order to avoid any increase in executive influence over the elected House.

The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con): My Lords, we have acknowledged the link between the size of the House of Commons and the size of the Executive, both in this House and in the other place, and we will continue to keep the number of Ministers under review as the consequences of the forthcoming boundary reforms are delivered and begin to take effect.

Lord Wallace of Saltaire (LD): My Lords, does the Minister agree that there is no other first Chamber in a democratic Parliament in the western world which has as high a proportion of people caught up in government as in our House of Commons? Would he also agree that that is part of the cause of tension between the two Houses, and the Commons as a result does not do its work of scrutinising and holding the Government to account as vigorously as a democratic Parliament ought to do and that, as we reduce the number of MPs, it is vital that we reduce the number of Ministers in the Commons as well?

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Lord Bridges of Headley: First, I pay tribute to what the noble Lord did on this issue in the last Parliament, in which I seem to remember that this matter was discussed quite considerably. Just to illuminate the issue, as the noble Lord said, a number of comparisons could be made between the other place and other Chambers around the world. Some 14.6% of Members in the other place can be appointed Ministers, which compares with Australia where Ministers account for 23% of their Parliament and New Zealand where, also, 23% of their Parliament comprises Ministers. I, for one, think that the other place actually does a very good job, although I would like to pay tribute to this place as well, as it performs an excellent role in what I consider to be legislative acupuncture, which can be quite painful for those standing in this place but can be very good for the nation as a whole.

Lord Foulkes of Cumnock (Lab): Did the Minister manage to read the article in the Telegraph about a proposal to reduce the size of this place by 20% by what the former Leader of the House described as a “hair cut”? How does he reconcile that with the introduction of Peers two by two, day after day and week after week?

Lord Bridges of Headley: It is always good to see the noble Lord on such fighting form. I did read that—I always read the newspapers on a Sunday morning, obviously. It is always interesting to read about what might or might not happen in the weeks ahead. I shall save what might happen for the noble Lord, Lord Strathclyde.

Lord Elton (Con): My Lords, Parliament was invented to control government. No Minister was allowed into either Chamber until the reign of George I; then they came in by invitation or permission. Since then, they have multiplied, and the body that was invented to control them is now populated by large numbers of them. If we are going back to basic constitutional principles, surely we should increase the weight of parliamentarians and reduce that of the Government.

Lord Bridges of Headley: I am sure that noble Lords and Members in the other place will wish to return to this matter as the boundary review continues its work. Let me remind noble Lords that, if the number of MPs were reduced to 600 but the percentage of Ministers in the other place were to remain the same, the number of Ministers would need to fall by about seven, in my calculation, from 92 to 85. However, as the noble Lord points out, over the years there has been a considerable rise in the number of Ministers. In researching for this Question, I came to the understanding that there were about 60 Ministers when we had an empire. In the intervening period, while we may have lost an empire, Ministers have certainly found a role.

Lord Anderson of Swansea (Lab): My Lords, is it not a little disingenuous for international comparisons to use just the number of Ministers? Should the Minister not look at the total payroll vote, which includes Parliamentary Private Secretaries, and rework those figures to give a more accurate picture of the power of the Executive over Parliament?

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Lord Bridges of Headley: The noble Lord makes a very good point. On my calculations, if the number of MPs was reduced from 650 to 600 but the number of Minister and PPSs in the other place remained static, the percentage of Ministers plus PPSs as a proportion of the other place would be 22.2%. That is equal to what it was in 2001.

Lord Pearson of Rannoch (UKIP): My Lords, does the Minister agree that the noble Lord, Lord Wallace of Saltaire, really has quite a nerve in asking this Question, because the most obvious abuse of influence over the House of Commons is the Liberal Democrats’ massive overrepresentation in this House, which they can use to defeat the will of the elected Chamber—or can we assume that some 70 Liberal Democrat Peers are about to resign?

Lord Bridges of Headley: My Lords, the noble Lord, as usual, makes an interesting point. I am sure it is one that he will wish to continue to make in future.

Baroness Hayter of Kentish Town (Lab): My Lords, is the real issue not that the Government do not like to be challenged, whether in your Lordships’ House, by Back-Benchers in the Commons or by the Opposition? How otherwise can the Minister explain that while the Chancellor apparently employs 10 political advisers at taxpayers’ expense, and the cost of special advisers to Conservative Ministers rose by £2.5 million over the past five years, the Government are cutting the Short money which helps the Opposition hold the Government to account?

Lord Bridges of Headley: Of course I understand the interest that the noble Baroness has in this issue, and she is quite entitled to ask this question. Taxpayer-funded Short money has risen year on year from £6 million in 2010-11 to £9 million in 2015-16. That is a 48% rise. Subject to confirmation by Parliament, the Government propose to reduce Short money allocations by 19%. This will save in the region of £10 million. Under these proposals, state funding to opposition parties will be greater than the special adviser pay bill.

Lord Tebbit (Con): Will my noble friend say whether he has heard whether there is any suggestion to increase the number of hours sat by the House of Commons to make it a full-time affair instead of a part-time one?

Lord Bridges of Headley: As always, my noble friend makes a very interesting point. I am sure that the other place will listen to his words with interest.

Lord Soley (Lab): Does the Minister accept that there is a growing problem with the way that our constitution is working? Many changes have been made and they have left a number of things very unsatisfactory, and his answers today have indicated some of that dissatisfaction, not least the wider issue of the constitution of the UK. Will the Government please begin a serious look at this problem and maybe have a debate in this House where we can start to look at the more serious changes that need to be made over a period of time?

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Lord Bridges of Headley: My Lords, this House is an extremely good place to debate a number of the constitutional changes that we are making. We have done so in the past few weeks over the Scotland Bill, and the noble Lord, Lord Purvis, has a Bill before this House on the convention idea, which again we will be discussing next week. We will continue to perform this useful role in all these matters.

Baroness Boothroyd (CB): My Lords, when is the situation in the Commons that is politely called “programming” going to cease so that Bills that go into Standing Committee there are properly scrutinised and debated? It is a total disgrace that they come to this House with only one-third of the Bill having been examined. It is high time that there was proper scrutiny there and programming was brought to an end by both parties.

Lord Bridges of Headley: The noble Baroness speaks with a great amount of experience and wisdom on these matters, and I am sure that the other place will take note of what she has to say.

Accident and Emergency Departments


2.56 pm

Asked by Lord Jordan

To ask Her Majesty’s Government what steps they plan to take in the light of the investigation by the Royal Society for the Prevention of Accidents and the Royal College of Emergency Medicine into the part that accident prevention could play in relieving pressure on accident and emergency departments.

The Parliamentary Under-Secretary of State, Department of Health (Lord Prior of Brampton) (Con): The Government welcome the investigation’s contribution to informing activity on public health and highlighting the part that accident prevention can play in relieving the pressure on accident and emergency departments. It is for local authorities with their local partners to consider the best actions to take to prevent accidents as part of their responsibilities for improving the health and well-being of their local communities.

Lord Jordan (Lab): I thank the Minister for his reply and declare an interest as vice-president of RoSPA. At a time when A&E departments are facing mounting pressure, the RoSPA and Royal College of Emergency Medicine report shows that accidents to children represent a disproportionate number of the injuries that A&Es treat. It also shows that 72% of injuries to children under five occur at home, and that head injuries are among the most common and most serious. Will the Minister urge the Government to back the report’s analysis and its credible proposal to invest in proven techniques that would help to reduce some of the unacceptable pressure on A&Es and the spiralling costs of the NHS and, most importantly, make a significant contribution to reducing the pain, suffering and deaths caused to children by the failure to address this problem?

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Lord Prior of Brampton: My Lords, I thank RoSPA and the Royal College of Emergency Medicine for the important work they have done in producing this report, and the work done by Queen Mary’s College in substantiating it. The Government’s policy is to put the main responsibility for children under the age of five in the hands of local authorities in the belief that they, by knowing the local conditions better than central government, can have a greater impact.

Baroness Walmsley (LD): My Lords, given that 15 to 24 year-olds are another of the three most vulnerable groups that are liable to have accidents, will the Government consider looking carefully at the national curriculum and ensure that PSHE, including personal safety and accident prevention, is taught in every single maintained school?

Lord Prior of Brampton: That is an interesting question. However, the report shows clearly that the main problem exists with the under-fives. Of course, there are issues at all ages, including falls and other aspects of accident prevention at the end of life. The interesting work that LifeForce has done in Birmingham shows that, for not very much money, we can have a big impact. Using the health visitors who are now employed by local authorities is a very important way in which we can address this important issue.

Baroness Gardner of Parkes (Con): My Lords, while I strongly support the referral of accident cases, is the Minister aware of the report in today’s paper which says that all sorts of unnecessary referrals are made in response to telephone calls for advice on what are often simple things, such as the common cold? Does he not think that resolving that would be an alternative way to take some pressure off accident and emergency services?

Lord Prior of Brampton: My noble friend makes a very important point. Many people go to A&E departments who need not go there. The review of Sir Bruce Keogh, the medical director of NHS England, concerning how we structure emergency care in this country will be very important. Clearly, we can make much more of NHS 111.

Lord Hunt of Kings Heath (Lab): My Lords, the point that Minister’s noble friend made was that the Government’s decision to phase out NHS Direct, which used qualified nurses, and replace it with call handlers who simply use algorithms on their screens means that those call handlers are risk-averse, which therefore leads to many more people being sent to A&E. Is it not time to get qualified nurses back behind those screens and talking to patients?

Lord Prior of Brampton: The noble Lord makes a good point. If qualified people take the call, the level of risk they are prepared to absorb will be greater, and that applies throughout the whole system.

Lord McKenzie of Luton (Lab): My Lords, I draw attention to my interest in the register. As we have heard from the Minister, the Government seem to accept the case that accident prevention programmes

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can have a significant beneficial impact on A&E attendances, but the Minister says that it is all down to local authorities. Given the huge cuts in local authority spending, with more announced just last week, what is the Minister’s assessment of the opportunities of local authorities to gain this benefit?

Lord Prior of Brampton: The report done by Queen Mary’s, which was based in Oxford, indicated that the under-fives attending A&E departments accounted for 7% of all attendances, which gives an idea of the scale of what we might try to achieve. The reduction, in real terms, in local authority spending over the next five years is 3.9% per annum. Our feeling is that local authorities are well equipped to live with that kind of reduction.

Lord Patel (CB): How good are A&E departments nationally at collecting information on the nature of the accident, and at root cause analysis to prevent it, and how is this information fed into a national database?

Lord Prior of Brampton: I am afraid that I am not aware of how A&E departments collect and collate this information, but I will write to the noble Lord on that matter.

Baroness Farrington of Ribbleton (Lab): My Lords, would the Minister care to reflect on the fact that when this Government talk about reducing public expenditure, it is often by putting those with full training, experience and knowledge in charge, because they have won a tender, of a particular answering service, and that the health service is just one example of that? I call to mind other mistakes or misjudgments, such as police officers with skill and experience being replaced by people who just answer the phone. Will he take that issue back to the Government?

Lord Prior of Brampton: The noble Baroness makes an interesting point. In the main, contracts, particularly in the health service, are now based on outcomes: it is outcomes, rather than inputs, that are most important.

Draft Wales Bill: Silk Commission


3.04 pm

Asked by Lord Wigley

To ask Her Majesty’s Government how many of the 61 recommendations of the report by the Silk Commission (1) have been included in the draft Wales Bill, (2) are still under consideration; and (3) have been rejected.

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con): My Lords, the Silk commission made 61 main recommendations, which break down into 100 discrete proposals. Over 75% of these are being taken forward in legislative form in the draft Wales Bill.

Lord Wigley (PC): My Lords, is the Minister aware that last month Sir Paul Silk gave evidence to a Committee of this House and expressed his “immense disappointment”

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that the draft Wales Bill fails to deliver on the unanimous cross-party agreement of the Commission on Devolution in Wales—of course the Minister himself was a distinguished member—and that the Bill does not reflect its recommendations, noting in particular the lack of devolution of policing to Wales and the failure to legislate on resolving disputes between the UK and the Welsh Government? Will the Government now take note of this, and as it is a draft Bill, will the Minister give an assurance that the final Bill will implement such proposals?

Lord Bourne of Aberystwyth: My Lords, it is worth noting that, as the noble Lord has just said, this is a draft Bill. As my right honourable friend the Secretary of State has emphasised, consultation is going on. The primary aim of the Bill is to take forward not the Silk recommendations but the St David’s Day agreement, which represented a political consensus.

Lord Morgan (Lab): My Lords, the St David’s Day agreement and the Silk commission reported strongly in favour of the Welsh Assembly and Government having reserved powers. The draft Wales Bill is less clear on this point and this has led to very fierce criticism from the Welsh Government. It is noticeable that Government after Government treat Wales, which is strongly committed to the union, much more ambiguously than Scotland, which is not so committed. The noble Lord is a staunch and honourable supporter of Welsh devolution: why are his colleagues so evasive?

Lord Bourne of Aberystwyth: My Lords, it is not fair to say that progress is not being made on this issue. As the noble Lord is aware, the draft Wales Bill represents a move forward in favour of a reserved powers model. Work is continuing on that, as we speak, in discussions between the Welsh and UK Governments. It is not an easy thing to resolve, but significant progress is being made.

Lord Thomas of Gresford (LD): Will the Minister explain why the Government are prepared to devolve air passenger duty to Scotland, notwithstanding the effect that may have on Newcastle, but will not do so to Wales? South-east Wales, and Cardiff Airport in particular, might benefit very much from this.

Lord Bourne of Aberystwyth: My Lords, devolution of APD is not a straightforward issue, as I am sure the noble Lord is aware. In Scotland, most people who travel by air do so from Glasgow or Edinburgh. In Wales, most people would not necessarily travel from Cardiff Airport. For example, people in the north would not think of doing so. In addition, the significant issue of state aid has to be looked at. Those are the two main reasons why it was not taken forward.

Lord Lexden (Con): My Lords, what would the Government’s view be of any proposal to reduce to 16 the voting age for elections to the Welsh Assembly?

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Lord Bourne of Aberystwyth: My Lords, my noble friend is perhaps aware that the draft Wales Bill gives power over this issue, and over elections to the Welsh Assembly in general, to the Welsh Government. That being the case, this is a matter for Cardiff and for Wales to determine.

Baroness Morgan of Ely (Lab): My Lords, tomorrow Wales will become the first UK country to adopt the soft opt-out approach to organ donation. This was approved by the National Assembly for Wales, after a long and comprehensive debate and widespread public consultation. Will the Minister clarify whether the Assembly could have introduced such a Bill under the new measures proposed in the draft Wales Bill; or would it have been forced to go cap in hand to a Minister in Westminster to ask permission because, as the First Minister has claimed, the Government are trying to roll back the devolution settlement for Wales?

Lord Bourne of Aberystwyth: My Lords, the First Minister has recently acknowledged that significant progress is being made on the draft Bill. In terms of the consenting provisions, if there is an aspect of legislation from this House to apply in Wales, it needs a legislative consent Motion and vice versa. It is not one-way traffic. Because we are a United Kingdom, it is important to preserve the consenting process. Discussions are going on on the precise scope of that process.

Lord Harries of Pentregarth (CB): My Lords, talks on reserved powers are continuing. Will the Minister give an indication of the timetable for these talks coming to a conclusion?

Lord Bourne of Aberystwyth: My Lords, as I have indicated, significant progress is being made. I remind noble Lords that this is an ongoing process. It is not anticipated that this draft Bill will become a firm one until the end of next year. There is, therefore, a good period of time. I repeat that significant progress is being made and I am very happy to update the House as and when the process is concluded.

Lord Cormack (Con): My Lords, my noble friend will know that many of us in this House are concerned about piecemeal changes to the constitution and to the franchise. Is it not a pity that the power to give votes to 16 year-olds has been granted to the Welsh Assembly before the Parliament of the United Kingdom has been able to come to a considered conclusion on the matter?

Lord Bourne of Aberystwyth: My Lords, I understand my noble friend’s views on this matter but I repeat that issues relating to election to the National Assembly for Wales are to be devolved in totality. It is a significant move to Wales, just as it is to Scotland, and it is for Wales to determine that issue.

Lord Rowe-Beddoe (CB): My Lords, will the Minister clarify a point that he made in an earlier answer—namely, what is the state aid problem with the devolution of air passenger duty to Cardiff and not to Scotland?

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Lord Bourne of Aberystwyth: My Lords, I recognise that the noble Lord has significant expertise in these areas, particularly in relation to Cardiff Airport. However, perhaps I may inform him that there is a significant issue in terms of competition from Bristol Airport. There is not a similar competition element in relation to proximity to Glasgow or Edinburgh airports.

Restaurants: Service Charge


3.11 pm

Asked by Lord Rennard

To ask Her Majesty’s Government what plans they have to ensure that customers of restaurant chains are made properly aware of the company’s policy in relation to service charges and tipping.

The Earl of Courtown (Con): My Lords, we are currently assessing evidence gathered from our investigation into tipping practices. We will consider all the evidence and proposals put to us, including those to improve transparency, for the treatment of tips. We will propose any further action to ensure fair and transparent practice in relation to tips, gratuities, cover and service charges in due course.

Lord Rennard (LD): This Christmas, many restaurant customers may decide to be particularly generous to those who serve them well, and I hope that they will. However, does the Minister accept that many of these customers will be unaware that service charges paid by credit cards are the legal property of the employer, that the staff providing the service may not receive any of this money and that some restaurant chains deduct a proportion of it to pay other business costs? It is clear that voluntary guidelines on making restaurant policies in relation to tipping and service charges properly known to customers are not working. Now that the Government have gathered evidence on the issue, will they look at measures to ensure that these charges and companies’ polices are prominently displayed in menus and on bills?

The Earl of Courtown: The noble Lord is quite right that some of these tipping practices are not as they should be. The code of practice brought in in 2008 listed a number of areas where tipping practices should be adhered to, such as making sure that all members of staff and all customers are aware of those practices. We will be looking at all the issues raised in the consultation, which finished on 10 November, and in time we will come to a decision on what we should do.

Lord Palmer (CB): My Lords, does the noble Earl not agree that, particularly bearing in mind the advent of the national living wage, tipping and service charges are completely outdated in 2015?

The Earl of Courtown: My Lords, as the noble Lord knows only too well, if one has a pleasing experience at any restaurant, whether in your Lordships’ House or elsewhere, it is only fair to tip at the right time.

Lord Stevenson of Balmacara (Lab): My Lords, the issue is really one of fairness in overall pay rather than just in tipping. Can the Minister explain how to protect

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the requirement that everyone in the country benefits from a living wage without dilution from other factors, in particular tipping?

The Earl of Courtown: My Lords, sticking initially to the national minimum wage, when the Labour Government brought in the voluntary code of practice in 2008-09, they made it clear that tips and gratuities should not be used to uprate wages to meet the national minimum wage. The living wage will be coming in this year and will help many of the lower paid.

Baroness Burt of Solihull (LD): My Lords, the Autumn Statement last week referred to lower productivity in the UK than in other countries. I imagine that one’s desire to work hard may be diminished by the knowledge that one’s employer is hanging on to one’s tips. I think that the voluntary code introduced in the other place clearly is not working. Would the Minister please ensure that, following the evidence review, steps are taken to ensure that employers who hold on to tips are named and shamed?

The Earl of Courtown: My Lords, this was drawn to the attention of my right honourable friend the Secretary of State in the other place. We will look at all the issues when it comes to the report being made.

Lord Cormack (Con): My Lords, what has all this got to do with us?

The Earl of Courtown: My Lords, the fact is that we all go out and eat in various restaurants and, to those who serve us well, we want to express our gratitude.

Lord Storey (LD): Can we be assured that when your Lordships give gratuities in this House, the gratuities go to the members of staff in full?

The Earl of Courtown: My Lords, somebody behind me whispered, “And be generous”. The noble Lord is quite right. However, I know only too well that the noble Lord the Chairman of Committees actually enjoys coming to the Dispatch Box, so I suggest, if I may, that the noble Lord pose the question to him.

Baroness Hussein-Ece (LD): Is the Minister aware that in some instances staff rely on those tips for topping up their very low salaries? I have also come across occasions in some restaurants where staff receive tips and nothing else. Are any measures in place to monitor this kind of disgraceful behaviour?

The Earl of Courtown: The noble Baroness of course will be aware that everybody must be paid the national minimum wage.

Transport for London Bill [HL]

Motion to Consider

3.17 pm

Moved by The Chairman of Committees

That the Commons message of 17 November be now considered; and that the promoters of the Transport for London Bill [HL], which was originally introduced in this House in Session 2010–12 on 24 January 2011, should have leave to proceed with

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the Bill in the current Session according to the provisions of Private Business Standing Order 150B (

Revival of



Lord Dubs (Lab): My Lords, I think the Chairman of Committees will agree that this is rather an unusual procedure; it is certainly not one with which I am familiar. This is quite a controversial Bill. Therefore, would the Chairman of Committees agree that it would be appropriate for the House to have an opportunity to debate the Bill fully and properly?

The Chairman of Committees (Lord Laming): My Lords, I well recognise the interest that the noble Lord and maybe others have in this Bill. In these circumstances, I think it is fair that I seek leave from the House to withdraw the Motion. I will re-table it at a time when it can be debated.

Motion withdrawn.

Representation of the People (England and Wales) (Amendment) (No. 2) Regulations 2015

Representation of the People (Scotland) (Amendment) (No. 2) Regulations 2015

European Parliamentary Elections (Miscellaneous Provisions) (United Kingdom and Gibraltar) Order 2015

Motions to Approve

3.18 pm

Moved by Lord Bridges of Headley

That the draft regulations and order laid before the House on 12 and 21 October be approved.

Relevant documents: 6th and 8th Reports from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 23 November.

Motions agreed.

Electricity Capacity (Amendment) (No. 2) Regulations 2015

Motion to Approve

3.19 pm

Moved by Lord Bourne of Aberystwyth

That the draft regulations laid before the House on 16 March be approved.

Relevant document: 3rd Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 24 November.

Motion agreed.

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National Insurance Contributions (Rate Ceilings) Bill

Order of Commitment Discharged

3.19 pm

Moved by Baroness Altmann

That the order of commitment be discharged.

The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con): My Lords, I understand that no amendments have been set down to the Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of commitment be discharged.

Motion agreed.

Enterprise Bill [HL]

Report (2nd Day)

3.20 pm

Amendment 68

Moved by Baroness Neville-Rolfe

68: After Clause 25, insert the following new Clause—

“UK Government Investments Limited

(1) The Treasury or the Secretary of State may—

(a) provide grants, loans, guarantees or indemnities, or any other kind of financial assistance (actual or contingent) to UK Government Investments Limited, or

(b) make other payments to UK Government Investments Limited.

(2) “UK Government Investments Limited” means the private company limited by shares incorporated on 11th September 2015 with the company number 09774296.”

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con): My Lords, the Government have brought forward this amendment because we want to ensure that UK Government Investments Ltd—UKGI—can carry out its important work, which is managing most taxpayer stakes in businesses, running most corporate and financial asset sales, and providing corporate finance advice across government to ensure value to the taxpayer from publicly owned assets.

The Chancellor announced the creation of UKGI in May this year and it will open for business from next April. UKGI will bring together, into a single company, the Shareholder Executive from BIS and UK Financial Investments Ltd from the Treasury. The move will provide UKGI with additional independence and a corporate governance structure, allowing it to provide impartial expert advice to its customer departments.

The Chancellor of the Exchequer will be the Minister responsible for the company. It will remain focused on its core activities. It is not a company that we intend to privatise in whole or in part; it will bring together expertise from the private sector with that of civil servants.

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The work to facilitate the transfer of functions and operations from the Shareholder Executive into UKGI is well under way. The issue of funding powers has been identified in recent weeks, hence its late introduction into the Bill. The 1932 concordat between Parliament and the Government, now reflected in the Treasury’s manual, Managing Public Money, requires there to be specific statutory authority for significant items of ongoing government expenditure. The Government intend that UKGI will be directly funded by its parent department, HM Treasury. This is necessary to cover UKGI’s running costs in providing a service across government. The amendment is an administrative measure to enable the Shareholder Executive’s ongoing work to continue after its functions transition to UKGI and ensures that a specific funding power is in place in line with the 1932 concordat. I beg to move.

Lord Mendelsohn (Lab): My Lords, I thank the Minister for sending a very useful letter on this amendment. It was a late addition to the Bill and we were not entirely clear about its full purpose, so I am very grateful that she wrote to us as she did.

It is fairly standard for machinery of government changes to be announced in this way, but it gives us our first opportunity to ask a series of questions about how the change is likely to work. First, we understand that the amendment establishes powers to enable the Treasury to pay the bills of the new body and underwrite its liabilities. It can provide loans or grants to these entities as it wishes. We would be grateful if the Minister could give us some idea about the combined costs of UKGI and whether there are cost savings as a result of merging the two entities. What is the anticipated run rate over the next few years of UKGI?

Naturally, the argument for removing the Shareholder Executive from the Department for Business, Innovation and Skills and establishing it as a separate company with UKFI is, in essence, that the Shareholder Executive proved useful beyond the Department for Business, Innovation and Skills and now works across government. It should therefore go to the Treasury to ensure that it can work better with all departments and be much better utilised in government. Accordingly, it needs a degree of independence, which will be enshrined in its governance arrangements and its board duties. So, across the areas, perhaps I may ask the following questions.

On the suggestion that this structure allows it to attract top talent from the private sector and the Civil Service, was there an assessment of the existing Shareholder Executive and where it had failed to recruit staff of a sufficient quality, or where there were gaps in its current operation that this structure will support? Who will be responsible for recruitment for each of the operating divisions? Could the UKGI exist without civil servants? Could it recruit only from the private sector? If civil servants are recruited, are they on secondment or will they sign new employment terms with the agency directly? Will all the employees of every part of the UKGI be subject to the proposed public sector exit payment restrictions that are in the Bill? Will guaranteed bonuses be offered to the staff, which, for the higher earners in government, is a traditional method of incentive and currently outside the public sector exit payment provisions?

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On whether it strengthens governance arrangements and the commercial disciplines and will be useful going forward, what is the case for a Permanent Secretary sitting on the board? Do the Government not think it would be better for governance arrangements to separate shareholders from company directors and their duties? How will the Permanent Secretary square their role as an accounting officer and their duties to the company under company law? Who will select the board? Who will appoint the leading executives? What will the relationship to Ministers be? Will the new body provide better governance to the management of external advisers? Will there be an internal market whereby individual departments can consider which provides the best cost option, be it the new agency UKGI or external advisers? Who will set the objectives and strategy? Will it be the board or will it still be the Treasury?

In identifying that there is a role to build a unique identity and culture, will the Minister explain what this means, or flesh out what the notions of identity and culture are for such an agency? What is the target culture of a government asset manager and what is the target culture of a government corporate finance vehicle?

Finally, on improving service to customer departments, what are the current identified weaknesses that this arrangement will help to improve? What is the Government’s current plan to evaluate this? Who evaluated the current working arrangements and found the gaps? What independent body will be charged to evaluate whether it has provided a better service to customer departments?

Lord ONeill of Clackmannan (Lab): I am always suspicious when Governments introduce amendments rather late in the proceedings because it tends to suggest that the initial thought processes have not been that rigorous. However, having said that, I am sure we have to be grateful to the Minister for some of the points to which she alluded in her introduction of this amendment.

One of the problems that we have encountered in recent years has been the issue of state aid and the European dimension. Can the Minister tell us how this arrangement will stack up with the requirements of Brussels? Obviously, if we are to be able to use some public money—money that has been earned through the success of earlier amendments—this will be a welcome step. However, we need to know what is going to happen because we would be concerned if the money ended up back in the Treasury via one massive loop, when we would want it to be reinvested in a whole range of worthwhile projects.

What, if any, will be the role of DECC in the new company? It is the department with responsibility for environmental improvements. It is also, in a number of respects, most important department in terms of government input. One thinks of the Treasury largely in the context of making sure not that the money is necessarily well spent, but that it might not be spent at all if it does not like the look of this new creature. When the Minister responds to what I imagine will be a relatively short debate, perhaps she could take up the following issues: Europe, the role of DECC and, ultimately, the degree of independence that this body will have, particularly independence from the Treasury, whose

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dead hand many of us would be very suspicious of in pretty much any government involvement apart from the collection of taxes. But, of course, it has other responsibilities. Can the Minister give us some assurance on these points? I think the House will then consider this proposal an improvement on the original recommendations set out in the earlier version of the Bill.

3.30 pm

Baroness Neville-Rolfe: My Lords, I thank the noble Lord, Lord Mendelsohn, for his questions and the noble Lord, Lord O’Neill, for his intervention, which perhaps I may come on to. As I set out at the start, this amendment is of a technical nature allowing the Government to fund UKGI in an efficient and transparent manner. Noble Lords should rest assured that the Treasury will keep the required control of funding for the new company and it is not expected to expand into totally new areas in perhaps the way the noble Lord, Lord Mendelsohn, has suggested. UKGI will have additional independence and a corporate governance structure that will allow it to provide expert advice to its customer departments. Staff who transfer into UKGI will be public servants rather than civil servants. They will retain their existing terms and conditions and will not be treated worse, and their pension provisions will be covered by the new Fair Deal arrangements and protected, as will be their wider terms. UKGI staff will be subject to public sector pay policy, including the exit cap. Therefore, while we expect UKGI to attract staff of high quality from both the Civil Service and elsewhere in the economy, they will not be in any way an overpaid elite. However, it will obviously be an interesting place for people to work as part of their career path.

Lord O’Neill of Clackmannan: Before the Minister leaves that point, is it not the case that the people engaged in this work, interesting and worth while though it will be, may well be attractive to employers outwith the public sector? Although they will be doing good work, we may well find that they are poached by those from outside. That was the case, for example, in the Nuclear Installations Inspectorate, which was responsible for overseeing the expansion of the nuclear industry. There was great heart-searching on the part of the previous Labour Government, and then the NII was changed so that its staff would not be subject to Civil Service pay and conditions, allowing them to stay in their jobs because they had become less attractive to poachers.

Baroness Neville-Rolfe: The noble Lord makes a good point. Having worked, rather uniquely, in both the public and the private sectors, I think that the move between the two can be valuable. We will obviously need to watch for the kind of point he has made, but we are trying to set the company up so that we get an elite corps drawn from both sectors who will be working on very important issues of corporate finance and governance right across the government machine.

UKGI will be a government company: that is, a Companies Act company with HM Treasury as its sole shareholder. ShEx, which is currently part of the

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business department, will transfer and be rebranded as UKGI. UKFI will become a subsidiary company of UKGI, continuing to operate with its existing board and operating model of board, articles, framework document and investment mandate, until it fully merges with UKGI. UKGI’s activities will in turn be governed by its articles, a framework agreement, and the UKGI board, which will, as I think I have said, be accountable to the Chancellor of the Exchequer and to Parliament.

The intention in setting up UK Government Investments as a company is to ensure that the culture is suitably commercial, that it can attract and retain staff with commercial skills, and that, while the Treasury is the shareholder, it has a distinct legal personality and is trusted by departments. The matter of its funding will not involve significant changes to the status quo. UKGI will be made up of personnel from the shareholder executive. As the shareholder executive is part of the core Civil Service, its costs are met from BIS, but the budget allocated to it will be transferred across to the Treasury. The proposed amendment will ensure that payment to UKGI, as a new government-owned company, can be made transparently and efficiently. Funding will be allocated from within the HM Treasury baseline agreed at the spending review.

For the same reason, I do not see a new issue with state aid. EU state aid rules will apply in the same way that they currently do. Asset management and disposals will have to be undertaken in a way that is compatible with those rules, as at present.

The new company will build on the existing shareholder executive staffing model and bring together staff from the private sector and the Civil Service. That mixture could be very powerful. As I have said, remuneration arrangements will be overseen by and agreed with Treasury Ministers. The change is not about enabling large pay increases for staff or a route around public sector pay policy.

The noble Lord, Lord Mendelsohn, asked a number of questions and the noble Lord, Lord O’Neill, asked about DECC. With their permission, I will take away those detailed questions and answer them in a letter that I will copy to anyone with an interest in this issue.

I have set out our main approach, which to me is eminently sensible. It is not a major change of policy or substance but, importantly, it brings together these teams in an appropriate way that complies with the rules of the 1932 concordat.

Amendment 68 agreed.

Amendment 69

Moved by Baroness Neville-Rolfe

69: After Clause 25, insert the following new Clause—

“Disposal of Crown’s shares in UK Green Investment Bank company

(1) Part 1 of the Enterprise and Regulatory Reform Act 2013 (UK Green Investment Bank) is amended as follows.

(2) Omit the following provisions—

(a) section 1 (the green purposes);

(b) section 3 (alteration of Bank’s objects where it is designated by Secretary of State);

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(c) section 5 (accounts, reports etc where Bank is designated by Secretary of State).

(3) In section 2 (designation of Bank)—

(a) for the heading substitute “Interpretation”,

(b) omit subsections (1) to (8) (Secretary of State’s power to designate), and

(c) after subsection (9) insert—

“(10) In this Part “UK Green Investment Bank company” means—

(a) the UK Green Investment Bank, or

(b) a company that is or at any time has been in the same group as the Bank.

(11) For the purposes of subsection (10) a company is to be regarded as being in the same “group” as the UK Green Investment Bank, if, for the purposes of section 1161(5) of the Companies Act 2006, the company is a group undertaking in relation to the UK Green Investment Bank.”

(4) In section 4 (financial assistance from the Secretary of State)—

(a) in subsection (1)—

(i) omit “Where an order has been made under section 2,”,

(ii) for “the UK Green Investment Bank” substitute “a UK Green Investment Bank company”, and

(iii) for “Crown’s shareholding in it is more than half of its issued share capital” substitute “Crown holds shares in it or another UK Green Investment Bank company”,

(b) in subsection (3), in paragraphs (d) and (e), for “the Bank” substitute “the company”,

(c) omit subsection (5), and

(d) in subsection (6) (no effect on other powers to give financial assistance to the Bank)—

(i) for “the Bank”, in the first place, substitute “a UK Green Investment Bank company”, and

(ii) for “Crown’s shareholding in the Bank is not more than half of its issued share capital” substitute “Crown does not hold shares in it or another UK Green Investment Bank company”.

(5) In section 6 (documents to be laid before Parliament)—

(a) in subsection (1)(a) omit “after an order has been made under section 2,”,

(b) in subsection (1)(b) for “the Bank” substitute “a UK Green Investment Bank company”, and

(c) omit subsections (3) and (4).

(6) After section 6 insert—

“6A Report on disposal of Crown’s shares in UK Green Investment Bank company

(1) As soon as reasonably practicable after a disposal of shares held by the Crown in a UK Green Investment Bank company the Secretary of State must lay before Parliament a report on the disposal.

(2) The report—

(a) must state—

(i) the kind of disposal, and

(ii) the proportion of the company’s share capital retained by the Crown (or that none has been retained); and

(b) must include—

(i) an assessment of how the Secretary of State’s objectives for the disposal have been achieved, and

(ii) where the Crown still holds one or more shares in a UK Green Investment Bank company, details of the Secretary of State’s intentions as to the Crown’s future role and interest in such companies.

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(3) The Secretary of State must give a copy of the report to—

(a) the Scottish Ministers,

(b) the Welsh Ministers, and

(c) the Office of the First Minister and deputy First Minister in Northern Ireland.

(4) Subsection (3) applies to a report as described in section (UK Green Investment Bank: transitional provision) as well as to a report under this section.””

Baroness Neville-Rolfe: My Lords, Amendments 69, 70 and 74 relate to the Green Investment Bank. They intend to repeal some of the legislation in Part 1 of the Enterprise and Regulatory Reform Act 2013, which places controls on the GIB. In moving Amendment 69 I will speak to the other amendments as a package.

For the benefit of those who were not present during Grand Committee, I will set out the Government’s rationale behind these amendments and explain the changes since Grand Committee to address some of the concerns raised there. I have held a number of meetings involving noble Lords in which we have all agreed that the GIB needs further capital to continue its green mission. Frankly, we have all shared our frustration about the statistical rules by which we have to operate. In the spirit of transparency, my department has also issued a policy paper on the GIB that explains the history and policy background of this matter, as well as the Government’s proposals for bringing in private capital and an explanation of some of the classification issues we face. I have placed a copy in the Libraries and I hope some noble Lords have had a chance to read it.

I believe that noble Lords in all parts of the House agree that the Green Investment Bank was one of the success stories of the last Government. It was set up in 2012 to mobilise private sector investment in the green economy, and it has done so remarkably well. It has leveraged more than £10 billion in green investment since it was set up—£2.3 billion from the GIB’s government funding and the remainder from the private sector. Of course, government funding for the GIB has an opportunity cost elsewhere in the public sector purse.

That is why the Government’s policy, as the Secretary of State announced in June, is to move the GIB into the private sector. Government ownership is holding back the GIB’s ambition, limiting the amount of funding it can access, limiting its freedom to borrow and raise capital, and limiting the sectors in which it can operate because of state aid rules. This is holding it back from growing its business, increasing its green impact and expanding into a wider range of green sectors, as the noble Lord, Lord Smith of Kelvin, the chair of the GIB, has told noble Lords recently.

As the Prime Minister said in May, it is time that the market got to work on climate change. We want to bring private capital directly into the GIB rather than leaving it to compete for public funds. During Grand Committee, noble Lords were in broad agreement that private capital was the right next step for the GIB; indeed, it has been the intention ever since it was established. The Government’s policy paper published in 2011 made it clear that the GIB would,

“initially be owned by the Government”,

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and would be,

“designed to allow for a possible eventual transfer of ownership from Government to the private sector”.

A crucial part of the Government’s proposal is to ensure that the GIB becomes classified to the private sector so that it can borrow and raise capital freely without affecting public sector net debt. The Office for National Statistics is the body which decides whether an organisation is classified to the public or private sector, using internationally agreed guidance and rules set out in the European System of Accounts 2010 and the accompanying Manual on Government Deficit and Debt. ESA is part of EU law and the rules apply to all countries across the EU.

In making its decision in accordance with these rules, the ONS will look at whether the Government have significant control over the organisation. Control is the key concept, and it covers a range of types of control, including regulation, legislation and contractual arrangements. I must also point out that Parliament and Government are equivalent in the eyes of the statisticians—curiously—in determining who exercises control. That is why, as I explained in Committee, legislation in the ERR Act 2013 is highly likely to constitute government control over the Green Investment Bank, whatever the size of the Government’s stake. This is the only reason why we intend to repeal the legislation, as a necessary and technical step in the privatisation process. It is not something we have decided on lightly, and I can assure noble Lords that it is not a step we would be taking if we did not have to. Indeed, that is the reason why we did not include these provisions in the Bill as introduced, for which I apologise.

The Government have had a number of discussions with potential investors while considering a sale, which have demonstrated that bidders are not generally concerned about the statutory lock on green. I make that point to demonstrate that it is not for reasons of price that the Government are removing the control; indeed, it should also demonstrate that the kind of bidders we are seeking are supportive of the GIB’s important green mission.

We have listened carefully to the concerns that were raised in Committee, and the amendments that I present today reflect this. We must still repeal the controls in legislation but we understand that we can do more to ensure that noble Lords and those in the other place are kept informed about the Government’s proposals. Let me outline the changes compared with our amendment in Committee. Our Amendment 70 ensures that the repeal of legislation cannot come into effect until the Government have laid a report before both Houses setting out their plans for a sale. The noble Lords, Lord Stoneham and Lord Teverson, tabled a similar amendment during Committee, and I am pleased that we have been able to accept the spirit of their amendment.

3.45 pm

Amendment 69 ensures that the Government will report back to both Houses after a sale has taken place, and again in the future, should the Government initially retain a stake in the GIB which it later sells. Furthermore, reflecting the fact that the Government

30 Nov 2015 : Column 944

have listened to the concerns expressed by noble Lords, Amendment 69 also retains two aspects of the existing ERRA 2013. First, Section 4, which gives the Government the specific power to provide funding to the GIB, is now retained and extended. Currently that power applies only when the Government own a majority of the GIB but we are extending it to apply at any time when the Government are a shareholder. The spending review last week allows for the Government to continue to fully fund the GIB to the point of a majority sale, assuming one takes place next year, and to fund our share of a minority holding following a sale. Secondly, the duty in Section 6 of the original legislation, which requires the Secretary of State to lay a copy of the GIB’s annual report and accounts before Parliament each year as long as he is a shareholder, is also now retained.

I understand the concerns that were raised in Committee around removing the statutory lock over the GIB’s green mission. I know that noble Lords are concerned that without that control in place the GIB could become just another bank. The nub of the problem is this: if the Government were to retain control over the GIB’s corporate policy, including mandating that it may invest only in green, the GIB would be deemed to be part of the public sector. That would not give the GIB the freedom and the access to capital that management are so clear are needed, as it would remain on the Government’s balance sheet.

Green investment is what the Green Investment Bank does, and it is why people will be buying it. The Government want and expect a privately owned GIB to continue its clear focus on green sectors, mobilising more private capital and further accelerating the transition to a green economy. We will secure commitments from investors, including: to protect the green purposes in the GIB’s articles of association; to continue to invest in green; and to continue the GIB’s high standards of green reporting. We fully expect investors to sign up to those commitments quite willingly because they are a key part of what the GIB does.

Bringing in private capital to the GIB is the natural next step for the company. We are confident that the GIB has a successful green future in the private sector, with private investors who are committed to maintaining its green focus. Our plans have the support of the GIB and its independent board, including the noble Lord, Lord Smith of Kelvin. I hope noble Lords will also be able to support our revised package of amendments. I beg to move.

Lord Smith of Kelvin (CB): My Lords, before I make my remarks, I must declare a pecuniary interest in the Green Investment Bank, as set out in the register of interests. I am its chair, appointed by the then Business Secretary on its creation in 2012, and subsequently reappointed earlier this year by the current Business Secretary. Despite that interest, I hope that my position both as chair and as a Cross-Bencher without party affiliation will offer the House an opportunity to hear directly about the bank’s current position and its future ambitions.

I have spoken to many noble Lords across the House over the past few weeks and have been very grateful for the time that they have given me. I think

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we can all agree that the Government’s amendments before us today are unfortunate but they are none the less necessary. In my discussions with noble Lords, I have been struck by the consensus that exists across the Chamber. I have been heartened by the support for the GIB’s mission and our progress over the past three years. I have also been pleased to see broad support for the idea of introducing private capital to the GIB. This consensus is important to us and we do not take it for granted.

Noble Lords have rightly sought assurances that the GIB’s special green mission and values will be protected under new ownership. I share those concerns, as does every member of the board of the Bank, and as I believe the Government do. As the Minister explained, the Government are restricted in what they can do to offer cast-iron guarantees because of the guidance from the ONS regarding the classification of the GIB. I think we all share a frustration with this advice.

While the Government are in a difficult position, I am heartened by the constructive approach that they are taking. It is right that we should seek the fullest measures available to secure the GIB’s green approach and I believe that is what the Government have done and will continue to do. It is important that these discussions continue and that the Government take this opportunity to secure all measures to protect the GIB’s green mission. However, that has to happen within the parameters of declassifying the GIB.

I am confident about securing the GIB’s green mission. Let me set out to your Lordships the basis of that confidence. It is based on the logic that investors will be buying into the GIB precisely because they want it to be green, not in spite of it being green. The GIB is a global leader in green investment; investors will be buying, and most likely paying a premium, for that expertise. However, noble Lords and others have made the point that commercial logic is not in itself enough and I believe it is right that we do not rely on that logic alone. We must seek assurances and specific measured to protect the GIB’s green approach. I am confident that the measures which the Government have set out, and others that they continue to consider, will deliver the maximum possible protections.

I conclude, though, with a word of caution over unintended consequences. The biggest risk to the GIB’s green mission would be a failure to secure the capital that it needs to continue investing and growing. I have been told that the GIB has secured additional funding from the Government, as we have just heard, through the recent spending review. That commitment, however, is premised on a part sale of the GIB so it is vital that we are able to start raising capital from new investors. To do that, the Government must be able to proceed with the legislation which they believe will achieve their aim of declassifying the GIB. If we cannot move forward with certainty without delay, I fear that the tremendous success achieved by the GIB so far will be placed under threat. I thank the Minister for taking my intervention.

Lord Barker of Battle (Con): My Lords, I support this amendment but I do so reluctantly and having thought about it a great deal. Before I go any further, I

30 Nov 2015 : Column 946

should draw the attention of the House to my declaration in the register of interests regarding private equity and clean energy, but that is not the reason I wished to speak.

I particularly wanted to speak because as a Minister at the Department of Energy and Climate Change, and more importantly perhaps as a shadow Minister for climate change in 2009, I was intimately involved in the creation of the policy that led to the creation of the Green Investment Bank itself and setting up, in opposition, the Green Investment Bank commission, which did an excellent job. I am delighted and privileged to follow the noble Lord, Lord Smith, who has been an outstanding chair of that institution, created in the previous Government as a result of that policy. I think that the Minister said that the Green Investment Bank was one of the key successes of the term of the coalition Government. I absolutely agree. Perhaps I am slightly partial but I think it will be one of the important, enduring legacies of that term of government.

I therefore looked at this amendment very carefully and was rather puzzled why, having made such a success of this institution, there should be what seems like indecent haste in trying to take it off the public books. But the more I looked into it the more persuaded I was that it was unfortunate but necessary, in the phrase that the noble Lord, Lord Smith, used. In so doing, however, and particularly as we are debating this on the first day of the climate change conference in Paris, COP 21, it is very important that a clear message be sent out: this is not a retreat from the green agenda or a lowering of ambition here in the UK on our commitment to meeting our stringent and ambitious carbon reduction targets, which are implicit and explicit in the Climate Change Act. Far from it—what we are actually doing is recognising that, perhaps unfortunately due to these complex accounting rules, we are being pragmatic and sensible and following a route that will allow this fast-growing institution to continue on its mission to mobilise capital and set it to work in the UK low-carbon sector.

By doing that, we are allowing the GIB not only to raise new equity from new investors—up to £2 billion in the first instance, I believe—but to have access to far greater borrowing. This was a key demand of other political parties and the major green NGOs at the time that the GIB was created, and indeed in the run-up to the general election. A constant refrain from those that had a particular interest and concern with mobilising capital into the green economy has been that the GIB should be given powers to borrow. This legislation will, at last, allow the GIB to spread its wings even further.

Other benefits of the legislation will be to remove state aid constraints, to speed up the GIB’s ability to make quick and prompt investment decisions and to allow it to invest in new sectors. One of the complaints I heard about the GIB was that it was not able to invest in things like low-carbon transport or storage, the latter of which is particularly important now. This will help widen the GIB’s remit. There is protection in the fact that the Government will retain a minority, but nevertheless important, stake. I would be very concerned if there was a proposal to sell that stake completely. That minority share may not enable the

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Government to dictate the articles of association or to prevent the bank changing its remit, but it sends a very important signal, particularly to foreign investors, that Her Majesty’s Government have skin in the game in the UK’s low-carbon economy.

The most important element of the whole mission of the GIB when we were considering its creation was to demonstrate, at a time when we faced the prospect of almost unprecedented investment in these novel low-carbon technologies, such as offshore wind, energy from waste and other key elements of a successful low-carbon economy, that we would not leave it to the market alone but would harness the power, ingenuity and capital reserves of the market, with government nevertheless as a partner. I would certainly be very concerned if there were to be a complete selling down to 0% of the government stake. However, that is not what this legislation proposes, nor is it what the Minister has proposed from the Dispatch Box. I take a great deal of comfort from the thoughtful way in which the Minister has explained government strategy here. On balance, having come to these amendments rather sceptical about their intention but having looked carefully at them, I am very pleased to be able to support my noble friend.

Lord Teverson (LD): My Lords, I will speak to Amendment 70ZA, which is in my name and in this group. Following consideration in Grand Committee, I thank the Minister for all the co-operation that she has given us—as, I am sure, will other Members around the House—and for presenting a number of amendments on reporting, which we welcome completely. However, most of all, although this has been a mixed experience, I thank her for putting me in touch with the Treasury and the Office for National Statistics. I can now start to understand some of the Minister’s frustrations in trying to resolve some of the issues. I say all of that most genuinely.

But I also say that we have good news—or, as it is the first day of advent, perhaps I should say “glad tidings”—for the Minister, for the noble Lord, Lord Smith of Kelvin, and, I think, for the noble Lord, Lord Barker, whom I very much welcome to the House. In the Grand Committee debate on 4 November, as she has today, the Minister rightly threw a challenge back at us. She said that the heart of the problem was that, if we could keep the legislation on the objectives of the bank without prejudicing the bank’s status, we would do so. She rightly threw back a challenge to us to find a way to move forward.

4 pm

I agree with a lot of what the noble Lord, Lord Barker, and others have said. First, the GIB is definitely restricted through state aid rules. It is quite obvious that the Treasury—and I very much welcome the announcement last week—will not finance the Green Investment Bank for the long term in the way that it needs to be financed. That will also be a constraint. I have come to the conclusion, in some ways reluctantly although I treat it in a positive manner, that this privatisation needs to take place to ensure that future, under the excellent chairmanship of the noble Lord, Lord Smith of Kelvin, and his management team.

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The question is, as the Minister asked in Grand Committee, how we can make sure that this privatisation can take place unhindered and without being slowed up, while retaining the objectives of the Green Investment Bank for the long term. Why is that important? Well, I am sure that the Minister’s assurances are well meant and completely correct as far as they can go, as are those of the noble Lord, Lord Smith of Kelvin, but the fact is that all organisations change over time—and that is good; they have to. However, in this instance, because of exactly the scenario that the noble Lord, Lord Barker of Battle, outlined, we have a huge need for green investment in this country over the next decades.

We must consider the track record. I will not go through the example again in any detail, but 3i effectively went from being a publicly controlled body to a private body and, over time, its mission crept for a while and then accelerated into the completely different area of international investment, moving from SMEs to mid-caps, to become a very successful organisation—but one that did not fulfil its original objectives. That is why I have tabled my amendment, which among other things would entrench, as far as is possible within the rules, the existing green objectives of the GIB for the longer term.

How does my amendment do that? Well, as well as having spoken to the Office for National Statistics, I have gone through the ONS guideline—I commend it to Members as an interesting document—paragraph 3.1.1 of which is entitled, “is the unit public or private?”. That is exactly the dilemma or difficulty or challenge that the House and the Government face, to which we are all trying to find a solution. The document asks 14 questions to determine whether a body is public or private following privatisation. As the Minister said, the issue is primarily about control, or whether legislation is active during that time, and how that moves forwards. It even asks about directors’ appointments and so on.

That is why my amendment copies in some detail a number of instances used in the private sector to make sure that an organisation’s objectives are kept for the long term and that, if those objectives need to change, there is a court of trustees—we might call them call “green guardians” in this instance—who can make sure that any decisions are reasonable. This ensures that the objectives of the company are, first, entrenched in the company constitution prior to privatisation. The amendment then sets up what we have called a “special share”, which is owned by a charitable company which has a veto over whether those objectives are changed in future. It does not mean to say that the objectives cannot be changed, but those three members of that organisation are able to determine by unanimity whether those objectives should change.

I point out that the objectives at the moment are extremely wide, so they are not going to get in the way of any significant green investments in the way that state aid and other things do. In fact, the GIB executive board has said publicly that in no way would the breadth of the current objectives affect the value or the way in which the GIB would operate in future.

Basically, the amendment means that the charitable members are appointed first of all by the Committee on Climate Change, which is a public body, but this

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has to happen prior to privatisation. After that process, if one of those three members—who would in effect be the “green guardians”—stand down as members of the charitable company, they would be replaced by the agreement of the other two members. This means that, yes, a quasi-public body would be involved prior to privatisation, but it would not be involved in any way following privatisation. There would be no public input whatever, and the last subsection in the new clause proposed in my amendment makes that absolutely clear.

On whether my proposal would pass the ONS test, I have gone through those 14 points and spoken to the ONS—which, as the Minister knows, gives no guarantees at any time on these issues—and I am certain, as are my colleagues, that this solution, which is tried and tested in the private sector, follows those tests. If it does not pass those tests, the fact that the directors of the board of the GIB will, I sincerely hope, remain directors and board members post-privatisation—because that is the success of the organisation and what gives it its value—would tick these boxes more than my amendment under construction does.

There is good news, in that we have a system here that is straightforward, is easily understood and is used in the private sector to protect such interests and objectives, and we can apply this to the GIB without fear of loss of value, without fear of loss of time and without fear that it would be a public sector body afterwards.

Lord Framlingham (Con): My Lords, I shall briefly follow the noble Lord, whose concerns I am sure we all share.

There is always a debate to be had about the balance to be struck between state and privately run enterprises. The truth is that it largely depends on the nature of the enterprise. In the case of the Green Investment Bank, I think that this launch is the right move at the right time. There is now—and, I believe, in the future—no shortage of investors because of the essential, green, environmentally friendly nature of the core business of the bank. Green is attractive in every way in banking terms: it is profitable and at the same time good for the environment; it captures both the imagination and the capital.

The bank must, of course, remain true to its green principles, and this is what particularly concerns me. I believe that it will do so, for two reasons. First, its strict terms of reference and articles of association oblige it to do so, and it will no doubt be subjected to the closest possible scrutiny from all quarters as it proceeds. Secondly, if it is not genuinely green, it is nothing; it becomes at once just another bank—it loses its claim to be different, its environmental integrity and its investor appeal.

Under all the circumstances, I believe that to allow the bank to move forward in this way is the right move at the right time. Freed from government constraint, the bank will—if you will forgive me for using the word—blossom. I trust that the House will give the proposal a fair wind this evening.

Lord O'Neill of Clackmannan (Lab): My Lords, I congratulate the noble Lord, Lord Teverson, on his amendment. He covers a number of the concerns

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which we all have about the proposals. He laid great and correct emphasis on the systems of control of this bank—the board, et cetera—but one thing has not yet been mentioned. Perhaps the Minister can give us some information on whether the Green Investment Bank will continue to be British. The international character of banking is such that many banks are not British, and they will take an interest in this. We have already seen that many railway companies are not British—indeed, some of them are not even private enterprise companies—and they take ownership of British assets. Can we get an assurance that the process of privatisation will not involve the selling off of these assets—which are of an almost unique character, given the ambitions and mission of the bank—and that they will not be put into the hands of countries which may not be wholly sympathetic to the green ambitions which this Government and most of us in this Chamber espouse? One would question, for example, some of the green credentials of our new-found friends from China or, indeed, the green credentials of a number of Indian institutions, to mention only two. So the House needs reassurance that before we pass legislation to dispose of these government-owned assets—in the main: I realise there will be a UK element—all efforts will be taken to avoid a unique British institution becoming foreign-owned in the main.

Lord Leigh of Hurley (Con): My Lords, I rise to support the Minister’s amendment. The Green Investment Bank is a great success. It is the first of its kind, and it probably has the largest specialist team of green investment experts in Europe. The Government did the right thing in starting it up and are now doing the right thing in allowing private investors to assess whether it is credible and whether it will produce a proper return but keep to its core principles of staying as an investor in green ideas and businesses. Clearly, investors will not invest in it unless they are assured that it will remain a green investment bank that does what it says on the tin. There is enormous private sector appetite looking for investments of this type, so the Government should press ahead and not rely on taxpayers’ money to support it.

With respect, I disagree with the noble Lord, Lord O’Neill. Surely the whole purpose of this is to encourage foreign direct investment into the United Kingdom. Will the Minister assure us that foreign investors will be encouraged to take a stake in the Green Investment Bank? This country has done exceptionally well in FDI. I think that we are second in the world after the United States. We have sent a very clear message to overseas investors that this is a great country to invest in, for all sorts of reasons. Let us hope that the GIB continues this path.

Lord Stoneham of Droxford (LD): My Lords, I am reluctant to take too much of the time of the House given the excellent speech of my noble friend Lord Teverson, but I want to thank the Minister for coming forward with her amendments because, as she knows, I was very concerned at the slight lack of detail in the amendment initially put forward. I accept that the efforts to ensure that Parliament will have oversight over the process of sale and its mechanisms are important.

30 Nov 2015 : Column 951

On this side of the House, we accept that it is perfectly right and proper that this organisation is going to be privatised and that it is important to get private capital in. If we were judging where we are, we would probably say that this is being done a little too quickly. Given the success of the bank so far, it would have been right to ensure that the state gets its fair share of the proceeds once the bank has a bit more of a track record. The fact is, though, that the Government are going to do this. We also accept that if we do not do it, the Green Investment Bank will run out of funds and resources—so clearly it has to be done.

4.15 pm

Ideally, we would like to see the Government retaining a minority shareholding, not least so that they can get some future benefit but also to give them some oversight as the bank goes forward. However, the amendments as they stand give us no guarantee of that. Similarly, although it is the intention of the current board, the chair and the Government that the objectives and mission of the bank will be retained, unless Amendment 70ZA is accepted there is no guarantee that we can get some surety going forward. That is why we have tabled this amendment.

We are very proud of being associated with the setting up of the Green Investment Bank. We think that it is timely and has huge potential. The expertise working within it now is a world-beater, and we want to support that. But we want to see the mission and objectives enshrined, and we want to see some oversight over whether or not the ownership could go overseas. It would also make sense for the Government, despite their wish to get quick money for themselves, to retain some shareholding so that they could retain some value for the future.

Lord Mendelsohn: My Lords, I thank the Minister for coming forward with these amendments. I was very grateful that she withdrew the very brief initial amendment in Grand Committee after a very useful debate and has come back with a much more considered position. We support the amendments that she has proposed. However, we on this side have added our name to the amendment from the noble Lord, Lord Teverson, which carries on some of the discussions that we have had ever since this issue was mooted about the right way forward. We had a very useful and wide-ranging debate in Committee on issues relating to the conduct of the sale, along with other matters.

It is very important to note that we are where we are. There is no additional money coming in from the Government with the sort of force needed to keep this moving. The decision has been made to privatise the bank, so the question is what the best way is in which we can go forward with all the Government’s issues regarding value for money and other sorts of things while, crucially, keeping to the mission that we had. It was that desire to ensure that we had something that kept the mission going and allowed for the greatest flexibility that was the progenitor of this amendment from the noble Lord, Lord Teverson, with which we strongly agree.

30 Nov 2015 : Column 952

One has to be realistic about the Green Investment Bank. It is indeed an outstanding success and is ably chaired by the noble Lord, Lord Smith of Kelvin, but it is an unusual asset to sell. The noble Lord, Lord Leigh, is one of London’s great corporate financiers; I declare an interest as a relative twig compared to the tree that is the noble Lord. This is not a business that makes money. It made £100,000 last time and has a run rate of about £30 million, which is paid for by the department. Now that it has a fund, its run rate is probably about £20 million. It is a portfolio sale so one has to be realistic about what assets are being sold and who the likely purchaser is, as opposed to just investors investing in the funds.

We have to ensure a smooth transition to the private sector, which will allow the Green Investment Bank to continue its task. In this, the most crucial element is how we maintain its mission and free it into the private sector, released from some of the state aid constraints and the ONS restrictions. Those two things should not get confused. They are entirely separate; you can lose one and keep the other, and vice versa. The structure that the noble Lord, Lord Teverson, has come up with is outstanding and he has put a lot of work into it. My team thinks that it is immaculate, and those people they have spoken to who have done jobs like this in a private sector context think that it works immaculately, so it has our absolute support.

In this instance, the Government can achieve the Green Investment Bank’s original policy objectives without having to put any further money into it, although it was welcome to hear that the Government will put in some additional money on the basis that it will be privatised. It is also true that the Government have not yet decided what level of shareholding they want or how long they want to hold it. They have sent bankers into the market to see what potential purchasers and acquirers want and will design the transaction structure accordingly. This is what the Government mean when they say that they cannot prejudice the bank’s status and why they cannot establish any meaningful commitments or undertakings. In our view and in most people’s view, whether the Government keep a minority stake is irrelevant as regards whether they have any powers. Minority stakes have very little powers; indeed, the stake the Government will hold is no more than the protections that the UK in general affords, which I happen to think are the best minority protections in the world. But it has no special duties.

Lord Barker of Battle: On that point of whether the Government should retain a stake, it is important, for example, in management buyouts, where the management may only have a small stake but nevertheless is shown to have a financial interest in the ongoing success of the institution. A lot of people—particularly foreign investors coming into the UK—would see that point; a small, although not controlling, stake in the GIB going forward would be a clear signal that the financial interests of the Government were aligned with those of other investors.

Lord Mendelsohn: I thank the noble Lord for that unusual intervention. He is absolutely right—it is important that management is retained and incentivised,

30 Nov 2015 : Column 953

and that will happen. The bank may or may not make an appeal for anyone to come in as an investor, and as the bank goes forward it will be fairly irrelevant. There will have to be some provision as to how you will acquire the full amount and what price you pay for it. Given that it is a portfolio, it has to be established how much the Government want back from the money they have supplied, and that will be calculated. The merits of whether you have such a stake seem fairly minimal, if not irrelevant.

Apart from all that, I feel strongly, in keeping with the interventions we have had, that we should try to cherish this fantastic instrument we have created and find a way to maintain its mission. The noble Lord, Lord Teverson, has done that and has the support of a number of people who have examined his amendment in detail, and here we have a win-win. It gives greenness a degree of certainty; it does not affect the sale or the price; there is no risk that the bank will fall on the Government’s balance sheet; and the Government have complete flexibility as to what they sell, be it 51%, 76% or even 100%—they can cash in on the rest if they so choose at another time, or can do other things.

The mission is worth protecting and the organisation is worth backing. In this amendment, both have been achieved. It broadens the mission of the Green Investment Bank to areas currently excluded by state aid rules and avoids some of the problems of trying to be, in a sense, half pregnant. Therefore, rather than a recipe for conflict, controversy and confrontation, it provides clarity and greater flexibility to deliver a sale. The amendment is a perfect example of something which achieves all the objectives everyone is looking for, and we strongly support it.

Baroness Neville-Rolfe: I am very grateful to the noble Lord, Lord Smith, for being here this evening and, on behalf of us all, for the work he has done in getting the GIB off the ground so successfully. It has reached a break-even position from a standing start in two and a half years, which is an amazing track record, and his speech demonstrated the opportunities and the green intent of the GIB very well.

I am also delighted to welcome my noble friend Lord Barker of Battle to the debate and to our discussions. He brings such huge knowledge of environmental matters to our Benches. I was glad that he mentioned the climate change conference in Paris, because it underlines the importance of capital for green business, and I am in complete agreement with him about the potential for new areas of investment once the GIB is privatised. It was also very good to hear from my noble friend Lord Framlingham. I agree that if the GIB is not green, it is nothing. It is a brand and can blossom.

I am very grateful to the noble Lord, Lord Teverson, for his courtesy, for the discussions we have had and for the support he expressed today for GIB privatisation; and to the noble Lord, Lord Mendelsohn. With other noble Lords, they have tabled Amendment 70ZA, which would place a special share in the control of a third party—a newly established charitable company—which would have the power to block changes to the GIB’s articles of association. I fully understand and appreciate the intent behind this amendment, which is

30 Nov 2015 : Column 954

to ensure that the GIB can have a successful future in the private sector while seeking to enshrine its green purpose.

I place on record my thanks to noble Lords opposite for the very helpful discussions which they have already referenced. We are all working to the same purpose: to ensure that the GIB has a successful future. I commend the noble Lords for the way they have probed and tested the Government. I do not believe that anyone wants to remove the “Green” from the GIB. I certainly do not, nor do the noble Lords opposite and, most importantly, nor does the GIB itself. As I said in my opening remarks, the Government would not repeal this legislation unless it were necessary, but necessary it is. The challenge we face—this is where, unfortunately, the Government and noble Lords opposite are not aligned—is whether it is possible to lock down that green mission in a way that does not constitute public sector control.

I would like to propose a way forward, because I understand and share the frustrations on this issue. However, it remains the case that, if the Government exercise significant control over the corporate policy of an organisation—for example, by holding a lock over its objects—it would be deemed to be part of the public sector. It is not the form of control that is important, but the effect. Legislation, regulation, contractual agreements: all can have the same effect. The noble Lord, Lord Teverson, understands this very well and I am grateful to him for the hours he has put into trying to find a solution to this problem, although I do not entirely share his confidence that his proposals would work. We need to provide investors with certainty on the important issue of classification. In reply to my noble friend Lord Barker, we have made it clear that we intend to sell a majority stake. Decisions on the size will depend on the outcome of discussions with potential investors, some of whom might value the Government’s continued involvement. However, it is important to be clear that, under corporate law, retaining a minority stake would not afford the Government a special right to exercise control over the company.

The noble Lord, Lord O’Neill, asked about Britishness. I completely understand his concern. The GIB, which is based in Scotland, contains top class UK experts on green and climate change issues. As my noble friend Lord Leigh of Hurley said, foreign investors could take a stake, but it is the UK’s Green Investment Bank and has invested in every region in the UK, although it has already had some overseas investors in particular projects.

As I said, I would like to propose a way forward. The amendment is well reasoned and merits close scrutiny; I commend the amount of work that has gone into developing it. I know that the noble Lord, Lord Teverson, brings experience of a similar structure through his role as a trustee of Regen SW. I invite him and his colleagues to work with the Government in testing further his proposal for a charitable company structure, and exploring with our advisers in the coming weeks whether it might be a feasible structure for the GIB. In considering this, we will have to look at whether such a structure would not only allow the GIB to be classified to the private sector, but to attract

30 Nov 2015 : Column 955

private investment and, most importantly, private investors with the capacity to fund its future business plan, which is what we all want.

As I said, we want to work with noble Lords. The fly in the ointment is that Parliament’s mandating this structure in statute might be deemed control—Parliament and the Government are equivalent in the eyes of the statisticians. Therefore, we are keen to keep talking and looking for a workable option, but I am afraid that I cannot support the noble Lords’ amendment.

On the basis of the shared purpose that has been so well articulated today, and of the commitments I have made to the House, I hope that noble Lords feel able not to press their amendment and will agree to work with the Government over the coming weeks and look at the proposal in more detail.

4.30 pm

Lord Stevenson of Balmacara (Lab): I hesitate to interrupt the Minister but can she be very clear about exactly what she is offering? The offer of talks is obviously welcome and we would like to engage in those, but is she saying that following the talks there will be an amendment that we can discuss at Third Reading?

Baroness Neville-Rolfe: My Lords, I can promise talks and I can promise that, if we find a way through that meets the concerns about classification that have been identified, we will be very happy to think about how that can be implemented, whether in the Bill or elsewhere. The work might take some weeks but clearly we will be happy to continue with those talks.

Lord Stevenson of Balmacara: I am sorry to press the noble Baroness but she has to be very clear about this. She needs to say to the House that she will accept an amendment being brought back in one of two cases: either we have an agreed position with her, in which case the Government can bring it forward; or, if that agreement is not forthcoming, we will be permitted to come back with an amendment. Obviously the rules are very tight, and I am looking very closely at the clerk to make sure that this is sufficient for us to be able to continue the debate.

Lord Teverson: While we are going into a sort of dialogue, and without drawing matters to a conclusion at this moment, the only way I can see of moving forward effectively is if Third Reading is postponed to get this matter right. It would be quite difficult to proceed if we did not postpone Third Reading, and I should be interested to know whether that is in the Minister’s remit as far as this discussion is concerned.

Baroness Neville-Rolfe: My Lords, I do not think I can go any further. Of course, I can assert that if we can find something on which we agree, we can bring that back, but I do not think I can commit to anything by Third Reading and, if there is an issue on this aspect, the noble Lord will have to test the opinion of the House.

30 Nov 2015 : Column 956

Baroness Burt of Solihull (LD): Perhaps I may ask the noble Baroness a question. We are struggling with where in the legislation these amendments might come. If we do not press this amendment now and Third Reading goes ahead, at what stage could further provisions which had been agreed by all the parties be legislated for?

Baroness Neville-Rolfe: My Lords, I do not think I can make a promise. Of course, the Bill is unusual in having been introduced in this House and it will be discussed further. Obviously we would have to work together to find something satisfactory. I say that in an optimistic frame of mind but I do not want to promise to deliver something that I am not able to deliver in the event.

Amendment 69 agreed.

Amendment 70

Moved by Baroness Neville-Rolfe

70: After Clause 25, insert the following new Clause—

“UK Green Investment Bank: transitional provision

(1) The Secretary of State may not make regulations under section 29appointing the day on which section (Disposal of Crown’s shares in UK Green Investment Bank company) comes into force unless the Secretary of State has—

(a) decided to make a disposal of shares held by the Crown in a UK Green Investment Bank company, and

(b) laid before Parliament a report on the proposed disposal (or, if more than one, on each of them) which states—

(i) the kind of disposal intended,

(ii) the expected time-scale for the disposal, and

(iii) the Secretary of State’s objectives for the disposal.

(2) In this section “UK Green Investment Bank company” means—

(a) the public company limited by shares incorporated on 15 May 2012 with the company number SC424067 and with the name UK Green Investment Bank plc, or

(b) a company that is or at any time has been in the same group as that company.”

(3) For the purposes of subsection (2) a company is to be regarded as being in the same “group” as another company, if, for the purposes of section 1161(5) of the Companies Act 2006, the company is a group undertaking in relation to that other company.”

Amendment 70 agreed.

Amendment 70ZA

Moved by Lord Teverson

70ZA: After Clause 25, insert the following new Clause—

“Objectives of UK Green Investment Bank

(1) Prior to a sale of shares of a UK Green Investment Bank Company (as defined in section (UK Green Investment Bank: transitional provision)(2)) the Secretary of State shall—

(a) ensure that the objects of the UK Green Investment Bank Company contained in its articles of association (“the Objectives”) shall be—

(i) the reduction of greenhouse gas emissions;

(ii) the advancement of efficiency in the use of natural resources;

(iii) the protection or enhancement of the natural environment;

(iv) the protection or enhancement of biodiversity;

(v) the promotion of environmental sustainability;

30 Nov 2015 : Column 957

(b) ensure the articles of association of the UK Green Investment Bank Company require its directors to act and review their actions against the Objectives;

(c) create a special share; and

(d) establish a company limited by guarantee registered with the Charity Commission (“the Charitable Company”) that will own the special share.

(2) Any amendment to the Objectives shall require the consent of the Charitable Company, as holder of the special share.

(3) The special share shall—

(a) have no income or capital rights;

(b) have no voting rights except on a vote to amend the Objectives and on a vote to alter the rights of the special share.

(4) The rights of the special share shall be deemed altered by the issue of any other special share of the same class.

(5) The Charitable Company that will own the special share shall—

(a) have three members, none of which shall be public bodies;

(b) have as initial members legal persons appointed by the Committee on Climate Change established under the Climate Change Act 2008;

(c) provide that if any member ceases to be a member the remaining members shall nominate the replacement member;

(d) provide that the members will be required to act unanimously in exercising the rights attached to the special share.

(6) For the avoidance of doubt, the Committee on Climate Change shall play no role in the conduct of the Charitable Company or its members following the initial appointment of those members prior to the sale of UK Green Investment Bank company shares by the Secretary of State.”

Lord Teverson: My Lords, I thank everyone who has contributed to this debate. I shall be very brief. We seem to have come to a point where we have a solution to everybody’s problem. The Minister has worked very hard, and I really appreciate that, but she was not able to say exactly why this amendment does not fit what we are trying to fix. I have gone through it all, and other people who know far more about the ONS than I do have gone through it all, and it works.

We have come to a point at which we need the GIB to be successful. We need to move it through to privatisation and we need to remove the shackles that it has at the moment. But, exactly as the noble Lord, Lord Barker of Battle, said, we need UK plc to have this body there for the green infrastructure for the long term. The only way we can do that is by using the method that we put forward in this amendment and have discussed in this debate. It is the successful way forward. On that basis, I would like to test the opinion of the House.

4.36 pm

Division on Amendment 70ZA

Contents 258; Not-Contents 212.

Amendment 70ZA agreed.

Division No.  1


Adams of Craigielea, B.

Addington, L.

Adebowale, L.

Ahmed, L.

Allan of Hallam, L.

Anderson of Swansea, L.

Andrews, B.

30 Nov 2015 : Column 958

Ashdown of Norton-sub-Hamdon, L.

Ashton of Upholland, B.

Avebury, L.

Bach, L.

Bakewell, B.

Bakewell of Hardington Mandeville, B.

Barker, B.

Bassam of Brighton, L.

Beecham, L.

Beith, L.

Benjamin, B.

Berkeley, L.

Bew, L.

Blackstone, B.

Blood, B.

Boateng, L.

Bradley, L.

Bragg, L.

Brennan, L.

Brinton, B.

Brooke of Alverthorpe, L.

Brookman, L.

Bruce of Bennachie, L.

Burt of Solihull , B.

Butler of Brockwell, L.

Cameron of Dillington, L.

Campbell-Savours, L.

Carlile of Berriew, L.

Carter of Coles, L.

Cashman, L.

Chandos, V.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clement-Jones, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Cotter, L.

Coussins, B.

Craigavon, V.

Cunningham of Felling, L.

Davies of Oldham, L.

Davies of Stamford, L.

Dean of Thornton-le-Fylde, B.

Desai, L.

Dholakia, L.

Donaghy, B.

Donoughue, L.

Doocey, B.

Drake, B.

Dubs, L.

Dykes, L.

Evans of Temple Guiting, L.

Falkner of Margravine, B.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Fearn, L.

Featherstone, B.

Filkin, L.

Finlay of Llandaff, B.

Ford, B.

Foster of Bath, L.

Foulkes of Cumnock, L.

Fox, L.

Freyberg, L.

Gale, B.

Garden of Frognal, B.

German, L.

Glasgow, E.

Glasman, L.

Goddard of Stockport, L.

Golding, B.

Goudie, B.

Gould of Potternewton, B.

Greaves, L.

Grender, B.

Griffiths of Burry Port, L.

Grocott, L.

Hain, L.

Hamwee, B.

Hanworth, V.

Harris of Haringey, L.

Harris of Richmond, B.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Haworth, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hollick, L.

Hollis of Heigham, B.

Howarth of Newport, L.

Howe of Idlicote, B.

Howells of St Davids, B.

Hughes of Woodside, L.

Humphreys, B.

Hunt of Kings Heath, L.

Hussain, L.

Hussein-Ece, B.

Irvine of Lairg, L.

Janke, B.

Jay of Paddington, B.

Jolly, B.

Jones, L.

Jones of Cheltenham, L.

Jones of Moulsecoomb, B.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

Kidron, B.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkhill, L.

Kirkwood of Kirkhope, L.

Knight of Weymouth, L.

Kramer, B.

Lawrence of Clarendon, B.

Lea of Crondall, L.

Lee of Trafford, L.

Leitch, L.

Lennie, L.

Lester of Herne Hill, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Loomba, L.

Low of Dalston, L.

Ludford, B.

McAvoy, L.

McDonagh, B.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

McKenzie of Luton, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Mandelson, L.

Manzoor, B.

Marks of Henley-on-Thames, L.

Massey of Darwen, B.

Maxton, L.

Meacher, B.

Mendelsohn, L.

30 Nov 2015 : Column 959

Miller of Chilthorne Domer, B.

Mitchell, L.

Morgan, L.

Morgan of Ely, B.

Morgan of Huyton, B.

Morris of Aberavon, L.

Morris of Handsworth, L.

Morris of Yardley, B.

Murphy of Torfaen, L.

Newby, L. [Teller]

Northover, B.

Nye, B.

Oates, L.

O'Neill of Clackmannan, L.

Paddick, L.

Palmer of Childs Hill, L.

Parminter, B.

Patel of Blackburn, L.

Patel of Bradford, L.

Paul, L.

Pendry, L.

Pinnock, B.

Pitkeathley, B.

Plant of Highfield, L.

Ponsonby of Shulbrede, L.

Prescott, L.

Prosser, B.

Purvis of Tweed, L.

Ramsay of Cartvale, B.

Razzall, L.

Rebuck, B.

Redesdale, L.

Reid of Cardowan, L.

Rennard, L.

Richard, L.

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scotland of Asthal, B.

Scott of Needham Market, B.

Scriven, L.

Sharkey, L.

Sharp of Guildford, B.

Sheehan, B.

Sherlock, B.

Shipley, L.

Shutt of Greetland, L.

Simon, V.

Singh of Wimbledon, L.

Smith of Basildon, B.

Smith of Clifton, L.

Smith of Gilmorehill, B.

Snape, L.

Soley, L.

Somerset, D.

Stern, B.

Stevenson of Balmacara, L.

Stoddart of Swindon, L.

Stoneham of Droxford, L.

Storey, L.

Strasburger, L.

Taverne, L.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Taylor of Goss Moor, L.

Temple-Morris, L.

Teverson, L.

Thomas of Gresford, L.

Thornton, B.

Tonge, B.

Tope, L.

Touhig, L.

Triesman, L.

Truscott, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Tyler, L.

Tyler of Enfield, B.

Uddin, B.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Walpole, L.

Warner, L.

Warwick of Undercliffe, B.

Watson of Invergowrie, L.

Wheeler, B.

Whitaker, B.

Wigley, L.

Williams of Crosby, B.

Williams of Elvel, L.

Wills, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Wrigglesworth, L.

Young of Hornsey, B.

Young of Norwood Green, L.

Young of Old Scone, B.


Aberdare, L.

Ahmad of Wimbledon, L.

Altmann, B.

Anelay of St Johns, B.

Arbuthnot of Edrom, L.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Baker of Dorking, L.

Balfe, L.

Barker of Battle, L.

Bates, L.

Bell, L.

Berridge, B.

Black of Brentwood, L.

Blencathra, L.

Borwick, L.

Bottomley of Nettlestone, B.

Bourne of Aberystwyth, L.

Bowness, L.

Brabazon of Tara, L.

Brady, B.

Bridges of Headley, L.

Brougham and Vaux, L.

Browne of Belmont, L.

Browning, B.

Buscombe, B.

Butler-Sloss, B.

Byford, B.

Callanan, L.

Carrington of Fulham, L.

Cathcart, E.

Cavendish of Furness, L.

Chadlington, L.

Chalker of Wallasey, B.

Chester, Bp.

Chisholm of Owlpen, B.

Colwyn, L.

Condon, L.

Cooper of Windrush, L.

Cope of Berkeley, L.

Cormack, L.

Courtown, E.

Crickhowell, L.

Cumberlege, B.

Dannatt, L.

De Mauley, L.

Deben, L.

30 Nov 2015 : Column 960

Denham, L.

Dixon-Smith, L.

Dobbs, L.

Dunlop, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Elton, L.

Empey, L.

Evans of Bowes Park, B.

Fairfax of Cameron, L.

Falkland, V.

Faulks, L.

Fellowes, L.

Fink, L.

Finkelstein, L.

Finn, B.

Flight, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freeman, L.

Freud, L.

Gardiner of Kimble, L. [Teller]

Gardner of Parkes, B.

Geddes, L.

Gilbert of Panteg, L.

Goodlad, L.

Goschen, V.

Grade of Yarmouth, L.

Hague of Richmond, L.

Hamilton of Epsom, L.

Harris of Peckham, L.

Hayward, L.

Helic, B.

Heseltine, L.

Heyhoe Flint, B.

Higgins, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Holmes of Richmond, L.

Hooper, B.

Horam, L.

Howard of Lympne, L.

Howe, E.

Howell of Guildford, L.

Hunt of Wirral, L.

Inglewood, L.

James of Blackheath, L.

Janvrin, L.

Jenkin of Kennington, B.

Jopling, L.

Kakkar, L.

Keen of Elie, L.

Kilclooney, L.

King of Bridgwater, L.

Kinnoull, E.

Kirkham, L.

Lamont of Lerwick, L.

Lang of Monkton, L.

Lansley, L.

Lawson of Blaby, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Liverpool, E.

Livingston of Parkhead, L.

Lucas, L.

Luce, L.

Lupton, L.

Lyell, L.

McColl of Dulwich, L.

MacGregor of Pulham Market, L.

McGregor-Smith, B.

McIntosh of Pickering, B.

Maginnis of Drumglass, L.

Marland, L.

Marlesford, L.

Maude of Horsham, L.

Mobarik, B.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newlove, B.

Noakes, B.

Northbrook, L.

O'Cathain, B.

Oppenheim-Barnes, B.

O'Shaughnessy, L.

Patel, L.

Patten, L.

Patten of Barnes, L.

Perry of Southwark, B.

Pidding, B.

Polak, L.

Popat, L.

Porter of Spalding, L.

Prior of Brampton, L.

Ramsbotham, L.

Rawlings, B.

Redfern, B.

Renfrew of Kaimsthorn, L.

Renton of Mount Harry, L.

Renwick of Clifton, L.

Ribeiro, L.

Ridley, V.

Risby, L.

Robathan, L.

Rock, B.

Rogan, L.

Rotherwick, L.

Rowe-Beddoe, L.

Ryder of Wensum, L.

St John of Bletso, L.

Sanderson of Bowden, L.

Scott of Bybrook, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shields, B.

Shinkwin, L.

Shrewsbury, E.

Skelmersdale, L.

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Stedman-Scott, B.

Sterling of Plaistow, L.

Stowell of Beeston, B.

Stroud, B.

Suri, L.

Swinfen, L.

Tanlaw, L.

Taylor of Holbeach, L. [Teller]

Tebbit, L.

Thomas of Swynnerton, L.

Trefgarne, L.

Trimble, L.

True, L.

Tugendhat, L.

Turnbull, L.

Ullswater, V.

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Verma, B.

Wakeham, L.

Wasserman, L.

Wei, L.

Wellington, D.

Wheatcroft, B.

Wilcox, B.

Willetts, L.

Williams of Trafford, B.

Wright of Richmond, L.

Young of Cookham, L.

Younger of Leckie, V.

4.51 pm

Amendment 70ZB not moved.

Amendment 70ZC

Moved by Lord Mendelsohn

70ZC: After Clause 25, insert the following new Clause—

“Market rent only: conditions and triggers

(1) The Pubs Code shall require pub-owning businesses to offer a market rent only option to tied pub tenants which fall within the definition in section 70(1)(a) of the Small Business, Enterprise and Employment Act 2015 in the following circumstances—

(a) in connection with the renewal of any of the pub arrangements;

(b) in connection with a rent assessment or assessment of money payable by the tenant in lieu of rent;

(c) in connection with a significant increase in the price at which any product or service which is subject to a product or service tie is supplied to the tied pub tenant where the increase was not reasonably foreseeable—

(i) when the tenancy or licence was granted, or

(ii) if there has been an assessment of the kind specified in paragraph (b), when the last assessment was concluded;

(d) after a trigger event has occured.

(2) A “trigger event”, in relation to a tied pub tenant, means an event which—

(a) is beyond the control of the tied pub tenant,

(b) was not reasonably foreseeable,

(c) has a significant impact on the level of trade that could reasonably be expected to be achieved at the tied pub, and

(d) is of a description specified in the Pubs Code.”

Lord Mendelsohn: My Lords, these amendments are concerned with matters related to pubs. It is regrettable that we had to table them because we had a very productive discussion and came to quite an effective conclusion during the passage of the Small Business, Enterprise and Employment Act 2015. Given the consultations, we had not anticipated that we would have to return to this issue, but unfortunately we have. First, I pay tribute to the Minister, who has always been constructive and has helped us to try to address some of the problems that have arisen. In many ways, the amendments are the result of problems which became apparent during the consultation. Some feared that there was a conspiracy. I will not refer to the other option explicitly—but it is more the other option than a conspiracy. I hope that during today’s proceedings we will be able to resolve the problems.

Some technical matters which are material to getting the situation right still need to be sorted out. Certainly the response deadline for the consultation with the pub industry has been difficult, not least because this is the busiest time of year for publicans, given that 25% of their trade is through the Christmas period. This is not an easy thing for them to assimilate at this point. Further, a consultation in two parts for provisions which may interlink is difficult to respond to until

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such time as the second part is available. That lies behind part of our argument as to why they should be taken together and the deadline extended. As I say, there are also some technical matters to which we should give further consideration, and we hope that the Government will look at them.

One of those is the reference to a wholesale price list. There is not really a national wholesale price list. Many brewers will not produce a wholesale price list at all, citing competition reasons. A price list comes from a trade body and is made up of merely outline prices, but it is artificial in terms of the open and free market. No free trader pays the prices outlined; only tied tenants pay anything near the prices shown, and sometimes but not always with varying degrees of discount. There is no such provision. Part of this is because, as always with government, sometimes the people who prepared the detail of a Bill have been moved on by the time it has gone through. I have one question for the Minister on these matters: would the Government consider in the future having at least one of the civil servants who had been involved in a Bill remain to see through all the consultations on the secondary instruments? That would be useful.

The fundamental foundation for the consultation paper should have been that there would be a form of parallel rent assessment for new and existing tied tenants, and that existing tied tenants would have various opportunities to consider a market rent only option—the bare minimum and simplest event being the periodic rent review, which in most cases is every five years. The announcement that the PRA would be done away with altogether, along with the proposal for additional conditions to be placed on the MRO opportunity at rent review—it would come into play only when a higher rent had been proposed by the pub-owning businesses—looked to many like a suspicious neutering of all the positive steps that the primary legislation had provided. These were merely errors in framing, rather than a desire to reverse the legislation.

The PRA was initially proposed by tenant and consumer groups as simply an informative tool, enabling a tenant to have a meaningful comparison of the tied and free-of-tie terms on offer. Should the tied tenant consider the tied terms demanded by their pub-owning businesses to be leaving them worse off than if they were free of tie, they could remedy the situation by taking a market rent only option, severing their product and service ties, and paying a market rent. For that reason, PRA and MRO are closely co-dependent, one providing necessary information and the other providing remedy if required. The original draft small business Bill proposed no MRO option, leaving a remedy void. Therefore, the PRA proposed by the Government was to be both an informative tool and a remedy, allowing for a third party potentially to determine a tied rent but leaving the tied product and service ties intact.

The combination of the MRO being voted in, following the events in another place on 18 November 2014, and the realisation that conducting a PRA calculation would throw up problems for the adjudicator potentially controlling the market and saddled with the task of valuing what is called SCOFA—special commercial or financial advantages on offer by pub-owning businesses, some of which might be difficult to quantify—led to

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the conclusion that the MRO could be the remedy. By eliminating the PRA, the consultation proposal failed to recognise that PRA is necessary to consider whether the MRO remedy should be taken.

We have got to a position where the Government, in bringing together these things, tried to ensure that the process was simplified, so they have absorbed the PRA process in the MRO process. Following discussions that we and stakeholders have had, we believe that we have probably reached a satisfactory position and that Amendment 70ZD is catered for, subject to confirmation from the Minister that the Government will consult, in the secondary consultation paper, on a mechanism that ensures that a tenant who requests an MRO offer under the terms of the Act would also have the option of accepting a rent review proposal and initiating a rent assessment at the same time. The latter ensures that the tenant has a meaningful comparison of the tied and free-of-tie terms on offer when considering taking the MRO option.

The wording of Amendment 70ZC may be familiar to noble Lords. This is because it would reinstate the MRO opportunities and triggers in the Small Business, Enterprise and Employment Act 2015, debated earlier this year. I will briefly outline the chain of events that led us to table the amendment. The small business Bill introduced the original MRO package and the conditions under which it would be offered. A tenant would have the right to request MRO: at rent renewal or at lease renewal; in connection with a significant increase in the price at which any product or service subject to a product or service tie was applied to the tied pub tenant, where the increase was not reasonably foreseeable; or after a trigger event occurred that,

“is beyond the control of the tied pub tenant … was not reasonably foreseeable … has a significant impact on the level of trade that could reasonably be expected to be achieved at the tied pub”,


“is of a description specified in the Pubs Code”.

However, the consultation indicated otherwise. It proposed that, to meet the right balance, the tenant will gain the right to request an MRO offer following receipt of a rent review proposal, but only if the rent proposed by the pubco is higher than the existing rent the tenant pays. Rents that rise in line with inflation would not trigger the MRO, so in effect a pubco could sidestep the legislation by maintaining rent—very possibly at an unfair level. The tenant would be worse off as their rent increases year on year, in line with inflation. How does triggering an MRO only at a rent increase provide a balance, as stated in the consultation? Will the Minister confirm that, if rents were to rise as a result of inflation, this would fail to trigger an MRO? What other opportunities does the tenant then have for an MRO and how likely is it to happen? We are keen to gauge a sense of why there has been a significant policy change when it was firmly understood that tenants push for a rent review to trigger an MRO as a bare minimum.

5 pm

We are optimistic that the Government may consider accepting our amendment, which reinforces what was previously agreed. If so, I understand that the consultation would have to be reissued, which we do not think is a

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major concern, except as regards the timing. The Government have been very keen to hit the May deadline. However, I suspect that getting this right would not extend the deadline too much further, especially as the second consultation has not been issued to everyone at this stage. The debate over MRO is a serious concern which could affect the livelihoods of hundreds of publicans, so we are keen to get this right. We are led to believe that the conditions as outlined in the consultation would mean that in practice it would be very difficult for a tenant to qualify for MRO. We have had some discussions outside the Chamber, for which we are grateful, but we have identified that small rises already take place, so the ability to game this situation is very evident. Earlier, I discussed with the Minister the rent rises identified in the financial documents presented to the City by pubcos, which demonstrate that this is not a particularly fair introduction of a different term that was never raised or mentioned previously. Therefore, we are keen to reinstate the previous purposes and ensure that we knock out the idea that the relevant measure has to be taken after a rent increase. This is reflected in our amendment. This is a fundamental and important principle, and one which makes a huge difference to tenants.

We have tabled Amendment 70ZE to deal with some of the issues relating to pubcos gaming the situation since the passing of the Small Business, Enterprise and Employment Act 2015 and the establishment of the code. Some comments have been made publicly to frustrate people choosing an MRO option either by bringing forward terms or by placing the arrangements in what some have called a holding tank. We are keen for the Government to adopt these measures so that we can ensure that no one takes advantage of their situation or continues to take advantage of any potential loopholes, as that frustrates the will of Parliament and the sensible and equitable arrangements that were brought forward after discussions in this place. I beg to move.

Lord Hodgson of Astley Abbotts (Con): My Lords, those of us who sat through long—some may say interminable—debates on this topic in not one but two Bills will be familiar with the details of the situation. I do not propose to replough the ground, except just to state for the record that I was until two years ago a non-executive director of one of the pubcos affected by the code. Given that familiarity, I hope that the noble Lord, Lord Mendelsohn, will forgive me if I describe the amendments essentially as either unfair, ineffective or superfluous.

I accept that that is a rather uncompromising beginning. However, there is a point on which we are all agreed—namely, that we wish to keep pubs open. They are an important and historical part of the country’s social fabric. But how do we achieve this against a background of increasing pressure on the pub sector from a variety of sources which I have described before: availability of low-priced alcohol in the supermarkets; changes in people’s leisure patterns; and more restrictive licensing laws, which have led to much lower returns and lower profitability in the sector as a whole?

Underlying the comments of the noble Lord, Lord Mendelsohn, and, I dare say, those of the noble Lord,

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Lord Snape—I will not predict what he will say, but I have an idea—is a belief that in reality profitability in the sector is not low, there is a hidden pot of gold in the cupboard, and that, if only one could get one’s hands on the key, everything would be well. However, I fear that no such pot exists. What is needed in my view is something much more prosaic—a reasonable equality of arms so that landlords can plan future developments against a reasonably certain background and tenants can be protected against the impact of sudden, unexpected shocks. That is what I understood we had arrived at with the Small Business, Enterprise and Employment Act. Every tenant could opt for the market rent only option, which gave them complete freedom, but if they decided to remain tied and any of a series of adverse events—called “trigger events” in the legislation—happened subsequently, they would be able to revisit their decision to remain tied.

In my view, Amendment 70ZC upsets this delicate balance because, as the noble Lord, Lord Mendelsohn, said, at every rent review, even when the rents are remaining the same or maybe even declining, there has to be an option to re-examine and exercise the MRO option. What sort of business can plan confidently on a basis which will mean that every five years, or possibly more frequently, the terms of trade could change so dramatically? This will make no contribution to keeping pubs open.

Amendment 70ZD revives the parallel rent assessment. It is important that we examine the background to the PRA. The PRA came about to help the “no worse off” principle, which we have all accepted, but this preceded the MRO option. Therefore, the arrival of the latter made PRAs redundant. It is clear that parallel rent assessments present valuers with huge challenges, as the Royal Institution of Chartered Surveyors has made clear. This is because of the rather unattractively named SCORFA—special commercial or financial advantages—under which pubcos can offer their tenants additional special advantages, such as support and training; marketing and menu support; or discounts on the Sky subscription or on wi-fi. Putting a value on those is exceptionally difficult. Even more importantly, every tied tenant has recourse to the adjudicator established under the Small Business, Enterprise and Employment Act if they feel that their rent is unfair.

Finally, Amendment 70ZE seeks to insert a clause headed, “Report on pub company avoidance”. This is entirely duplicative of what is already provided for in the Small Business, Enterprise and Employment Act. Noble Lords may not be familiar with the Act but Section 46 ensures that the Secretary of State must produce a report on the Pubs Code in general. Sections 53 and 54 give a power to the adjudicator to investigate non-compliance and produce investigation reports on any potential breaches of the legislation. Section 62 requires annual reporting by the adjudicator. Section 65 requires the review of the adjudicator’s functions, and guidance by the Secretary of State on a regular basis. Finally, Section 69 gives the Secretary of State the power to determine which pubs are in scope of the legislation. Therefore, Amendment 70ZE adds nothing to the sum of human knowledge or to the prosperity of the industry other than causing some more forms to be filled in and some more duplicative work to be undertaken.

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To conclude, the pubs sector is in a delicate financial condition for all sorts of reasons—societal and economic—that are outside its control. After extensive debate, we reached a modus vivendi. Nobody on either side of the argument was ecstatic about it but that is probably in the nature of a negotiated settlement. In my view, we need to go through the consultation process on the code and get the adjudicator up and running. After some practical experience, it may be necessary to revisit the balance now established, but to do so now, before the ink is even dry on the original settlement, cannot improve the sector’s health, confidence or prosperity. So I very much hope that my noble friend will reject these amendments.

Lord Snape (Lab): My Lords, I am grateful to the noble Lord, Lord Hodgson, for telling your Lordships what would be in my speech. I had no idea he was so perceptive. He might have had the idea that I would disagree with pretty much everything he said, as I am sure he would acknowledge I have done at every stage of the Bill. To listen to the noble Lord, one would think that the employers’ side—the pubcos—are a group of eminently reasonable people who are anxious only that their tenants enjoy a decent living. Without going back to my own experiences, which I related at an earlier stage of the Bill, such a figment of the imagination should be treated as exactly that.

The amendments we are discussing are perfectly reasonable. As we keep saying, apparently to no avail, they would reinforce what we thought was agreed in the other place before the last general election, and during discussions in your Lordships’ House since. Even if the noble Lord, Lord Hodgson, disagrees, it appears perfectly reasonable for MRO to be offered on a fixed timescale and not just in the event of a rent increase. There are lots of ways the pubcos can get round the proposals if they remain as they are in the Bill. Indeed, they are planning to do so already. The chief executive of Enterprise Inns, Simon Townsend, has already said publicly what they intend to do. Given that these matters have been debated ad nauseam, both at previous hearings and in Committee, I do not propose to repeat what was said but I ask the Minister to reflect on whether the pubcos are already planning ways around the proposals in the legislation. They are certainly adamant in their opposition to my noble friend’s amendments.

For example, can the noble Lord, Lord Hodgson, assure us that there have been no instances of pub companies gaming or intending to game the Pubs Code by selling pubs to avoid the 500-pub threshold? Can he assure the House that such conduct is not taking place or that the pubcos are not manipulating rents at present, and preparing what they describe as a holding tank for certain pubs that they would wish to see outwith this legislation? I would be delighted to give way to him if he can, but of course he cannot because the pubcos are, as ever, planning to evade the legislation in any way they can. My noble friend’s amendments are perfectly reasonable, as they would put into the Bill the promises the Government made before the last general election and which, if the legislation is passed as it stands, will not be kept. Indeed, a lot of pub tenants will be in the same invidious position that—

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Lord Hodgson of Astley Abbotts: My Lords—

Lord Snape: I will give way in a second if the noble Lord can control himself while I finish this sentence. Tenants would be put in the same position they were in prior to the passing of that legislation in the other place before the last general election.

Lord Hodgson of Astley Abbotts: I am grateful to the noble Lord. He knows, of course, that I cannot speak for every single pubco in the country. It would be exceptionally foolish to do that. But if the noble Lord reads the small business Act, which contains the powers with which the adjudicator is set up, he will see that it has the power to investigate potential breaches of legislation. So this is not just about waiting until the horse bolts; it can be tackled in advance. There is a great deal of power already there, which I do not think the noble Lord’s remarks give full weight to.

5.15 pm

Lord Snape: Again, both of us have to stand by our remarks, but I reinforce mine by quoting the statement made by Enterprise Inns’ chief executive on 17 November 2015:

“Where publicans who are currently on tied agreements transfer to the MRO model, the sites will be managed by our commercial property team, but will only be transferred to our commercial property estate on a permanent basis if they meet our strict quality criteria, in order that the underlying quality of the estate is not compromised. Sites that fail to meet the quality criteria, and where we believe that the MRO outcome is unattractive”—

to the pubco, of course, not to the tenant—

“will be run as commercial properties until such time as an opportunity arises to generate optimal returns through conversion to an alternative model”.

Nothing the pubcos could say as far as this legislation is concerned can really be believed. The only real protection for tenants and for pubco employees lies in the acceptance of these amendments. If the Government are not prepared to accept them and to stand by the promises and pledges made continuously over the 10 or 11 months since the House of Commons passed the relevant amendment, I urge my noble friends on the Front Bench to test the will of the House and to see that these eminently reasonable proposals are implemented.

Baroness Wheatcroft (Con): My Lords, the background to this short debate is that pubs around the country are closing at an unprecedented rate. There are many communities in which the pub is the hub. The one thing we can be clear about is that these amendments will not do anything to halt that trend and may—indeed, almost certainly will—exacerbate it.

On the detail, I bow to the knowledge of my noble friend Lord Hodgson of Astley Abbotts. However, on the first amendment, it seems quite wrong to try to make such a change when a consultation process is already under way on the related secondary legislation. Surely we should allow that process to go through before attempting to change the situation. Equally, the pub adjudicator, the result of very recent legislation, has not been seen at work in practice. As my noble friend Lord Hodgson pointed out, the pub adjudicator

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has great power to intervene when there are complaints. Again, surely we should allow that situation to at least be tested before trying to change the legislation.

Lord Stoneham of Droxford: My Lords, I think we established in Committee that the current, ongoing consultation has departed from the objective of the enterprise Bill we were looking at in January, which was to introduce the PRA, the parallel rent assessment. The Minister told us in Committee that there were two reasons for this change. One was the cost to the sector of £600,000, and the second was about trying to do away with complexity. However, there was also the slight suggestion as the discussion developed that there had been some oversight here, and I would just like it clarified that this was intentional and that the Government have gone back on the previous legislation.

My former colleague, the noble Baroness, Lady Wheatcroft, said that we should continue the consultation now it has started, but the consultation started on a basis which the legislation did not provide for. The intention of the legislation we looked at in January was to have a parallel rent assessment, which was part of the further protection for tenants in this whole process. I would like some confirmation on that, but we remain sympathetic to this amendment because it basically restores what we agreed in January.

Baroness Neville-Rolfe: My Lords, I thank the noble Lord, Lord Mendelsohn, for his amendments, and the noble Lord, Lord Snape, for bringing his knowledge of the industry to our debates yet again. I also thank my noble friend Lord Hodgson for his contribution. As always, his knowledge of the pub industry is helpful to our consideration, and I am grateful for his considered analysis of the amendments. My noble friend Lady Wheatcroft was right to say that consultations are ongoing—lively ones, I understand—and that we should allow them to continue, although I will discuss that in a bit more detail.

I used to contemplate the subject of pubs with great enthusiasm, reflecting a very positive consumer experience over many years—with four sons and a husband who likes a pint—but I understand the feeling on the House on this issue, so I will try to explain where I think matters stand and then address in turn the amendments on market rent only, on parallel rent assessment and on gaming the system by company avoidance. Pubs were never part of the Bill, and I, at any rate, was taken aback by the turn of events ahead of our debate in Committee. I have attempted to do what I can to engage with noble Lords about their concerns and get us back on track, and I am very grateful to the noble Lord, Lord Mendelsohn, for his courteous words.

My first point is that we will shortly be issuing a second consultation, which will complement and clarify the one issued on 29 October, which had such a poor reception from the Committee. The Government have listened to concerns about the timing of the consultation. We cannot withdraw part 1 and reissue the consultation as one document without delaying the whole package beyond the May deadline, which many stakeholders want to meet. Therefore, to meet the concerns expressed, we instead intend to extend the deadline for responses

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to the first consultation well into the new year. This will give stakeholders more time to look at our proposals in the round and respond to them as a whole. The Government have asked open questions in the consultation document, will ask more in the second consultation document and will carefully consider the material received from all respondents. The results will inform the content of the regulations, which of course will have to be debated in both Houses of Parliament, as we agreed earlier, on the affirmative resolution procedure.

Amendment 70ZC relates to MRO conditions and triggers. I listened carefully in Committee to the noble Lord, Lord Whitty, who I think cannot be here today, and the noble Lords, Lord Snape, Lord Berkeley and Lord Mendelsohn, and have of course heard what has been said today. The Government have heard the strength of feeling from noble Lords and stakeholders in response to our proposal in paragraph 8.12 of the first consultation and draft Regulation 15(b) that the tenant will have access to the MRO option only if the rent review proposal shows an increase in the rent that they are currently paying under the tenancy agreement. This proposal was based on an assumption that the amount payable would be expected to rise at each rent review and so MRO could be triggered in most cases. The Government intended this to be a proportionate intervention—there has never been any expectation on the Government’s part that it could or should defeat the statutory duty to introduce the right to MRO at rent assessment.

Since the publication of the first part of the consultation, we have been told that the effect of existing rent indexing arrangements and current trends in rent settlement figures would be to limit significantly the number of times tenants would, on the basis proposed, be able to exercise the MRO option at the time of their rent assessment. This was never the Government’s intention. We would be greatly concerned if it were to be the practical effect of our draft regulations. The Government believe that it is important to ensure maximum clarity on this issue and to obtain evidence of any and all unintended consequences. We will therefore take the opportunity of the second consultation to ask for consultees’ views on what would be the effect of removing from the draft Pubs Code the condition that there must be a proposal for an increase in the rent at rent assessment before a tenant may exercise the MRO option.

We also note the concerns regarding other MRO option triggers, the concerns of the noble Lord, Lord Mendelsohn, about the definition of price lists and other points. Again, there will be questions in the second part of the consultation that seek stakeholders’ views and allow those issues to be properly considered. It may be worth reflecting on the fact that allowing the current consultation to proceed alongside the first one, rather than passing the amendment today, would avoid the situation where the Pubs Code rests on two separate pieces of primary legislation, one of which would not become law until after the Pubs Code is intended to be in place—which could of course create legal uncertainties. I would also say that, protest apart, Amendment 70ZC is unnecessary, as existing powers in the SBEE Act 2015 permit the change in wording, should that be the outcome of the consultation.

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I turn to the second amendment in this group and the issue of the relationship between the parallel rent assessment and the market rent only option. The noble Lord, Lord Mendelsohn, was kind enough to suggest that he thought that we had made progress in that area, and I hope that we can find a way through. The first part of our consultation on the draft Pubs Code set out that we would not be providing for a separate PRA process within the code. It may be helpful for me to explain the Government’s logic.

Before the market rent only option was put in the legislation last November, the PRA was the Government’s key remedy for delivering the principle that tied tenants should be no worse off than free-of-tie tenants. At this time, the supporters of the MRO option, the Fair Deal for Your Local campaign and its constituent groups, were opposed to this approach—understandably, given that they supported MRO as the key remedy for unfairness. They and stakeholders from all sides have also provided detailed comments on the operation of MRO that the Government have taken on board in drafting the regulations setting out the MRO option.

For example, the Save the Pub group wrote to the Government last year, and I think it would be helpful to read a brief excerpt. It said:

“A parallel rent assessment has been proposed which I believe all parties to this dispute have agreed, for different reasons, is unworkable. The tenant organisations have highlighted that, whilst a useful informative tool in the right hands, the method is time consuming and complex and should only be used in conjunction with the MRO option as a mechanism to calculate which agreement (tied or free of tie) would deliver the most likely sustainable/profitable future for the tenant”.

I could not have put it better. Similar feedback on the potential complexity of PRA was received from pub companies and their representatives.

So when the Government made a commitment, on Report in the Lords on 9 March, to include PRA in the Pubs Code, we went on to say:

“I am always keen to minimise bureaucracy, and as I said earlier it is our intention to streamline and integrate the two processes as far as possible, but we need to do the detailed work and process mapping to understand where and how the processes dovetail. This will benefit from further formal consultation, which will inform how we set this out in secondary legislation”.—[

Official Report

, 9/3/15; col. 464.]

It is this streamlining and integration that the Government have undertaken to inform their draft proposals in the consultation so that, as was suggested to us at the time, the PRA can be used in conjunction with the MRO option.

We therefore propose that the MRO process should allow the tied tenant to use the MRO offer to make an informed choice between two options—a tied rent figure and a parallel free-of-tie figure. These would both be subject to independent third-party scrutiny and based on evidence prescribed in the Pubs Code. I understand that at least some tenant representatives see no need for a parallel rent assessment as a separate remedy for the no-worse-off principle, as this amendment could require. I can also say today that engagement will continue throughout the consultation period with all sides of the debate. Indeed, Small Business Minister Anna Soubry will continue discussions tomorrow in round-table meetings with tenant groups and pub companies.

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The hope is that, under our consultation proposals, the Pubs Code regulations can deliver PRA as part of the MRO process. Our intention is—and we are consulting on this—that the regulations will ensure tenants are provided with a detailed comparison of a tied rent in parallel to a free-of-tie rent, which will deliver the no-worse-off principle. If there are concerns that, in incorporating the key elements of PRA in the MRO procedure, the Government have made the process too “time consuming and complex”, the Government need to hear this through the consultation. If there are views that there is not enough information being required of pub-owning businesses and that PRA needs to be implemented in another way, the Government wish to hear that, too, again through the consultation. To give all sides time to study the proposals, the Government have decided to extend the consultation deadline to after the busy Christmas period.

5.30 pm