John Mann (PPS (Rt Hon Richard Caborn, Minister of State), Department for Culture, Media & Sport; Bassetlaw, Labour)

I beg to move amendment No. 279, in clause 31, page 15, line 22, after (a) insert—

‘(za) investigate the performance by an approved regulator of any of its regulatory functions.’.

The amendment is helpful to the Government’s objectives and I am keen to offer it to the Minister. As do the Government, I regard light-touch self-regulation as the way forward. To demonstrate that, we need to ensure that the lightest of touches is highly effective. I make an analogy with a surgeon: the legal profession does not require an 18th century surgeon removing arms and legs in traditional ways to get to the root of the problem; it requires small amounts of microsurgery, involving the latest laser technology, to ensure accuracy and precision. That is the point of the amendment.

If the regulators use too blunt or too heavy an instrument, the result will be vague and will cast aspersions on the profession overall. They will fail properly to identify the precise problems and to rectify them through effective regulation. In that respect, intervention from on high, to ensure that performance is of the highest standards, has proved most useful. I cite as an example the legal services ombudsman’s special report on miners’ compensation, which highlighted a number of minor inconsistencies. They were grabbed by the regulator, which totally outpaced the ombudsman in delivering an effective, consistent system and moved in a tiny period of time from agreat variety of responses—some of them absolutely superbly detailed and legally precise, some rather waffly, vague and inaccurate—to a consistency of  approach that meant that those who were complaining could begin to see consistency in judgments, and gain confidence in the system.

The regulator needs to be able to examine performance as it is happening, not merely retrospectively. Then, if there is a swathe of problems in a certain area, the regulator can improve the consistency and quality of performance in actual time, rather than retrospectively. Such strengthening of the ability to intervene on a light-touch, microsurgical basis would be entirely in the spirit of the Government’s successful attempts to introduce self-regulation.

John Hemming (Birmingham, Yardley, Liberal Democrat)

This amendment seems so helpful that I am surprised that the provision is not already in the Bill. We support it.

Nicholas Winterton (Macclesfield, Conservative)

I commend the hon. Gentleman’s brevity.

Bridget Prentice (Parliamentary Under-Secretary, Ministry of Justice; Lewisham East, Labour)

On amendment No. 279, I very much agree with my hon. Friend the Member for Bassetlaw: the board must be able to investigate approved regulators’ performance of their regulatory functions before setting targets. It would not be properly carrying out its oversight function if it did not do that. We have drafted the Bill so that it provides for the board to conduct an appropriate level of investigation of the discharge of the functions of the regulators—and not just in clause 31. My hon. Friend knows that I do not approve of the phrase “light touch”, so he tempts me down the wrong path when he uses it and other such phrases.

Let me give further examples of ways in which the board has powers. Under clause 7, it may do

“anything calculated to facilitate, or incidental or conducive to the carrying out of any of its functions.”

and it also has the power to obtain information and documents from approved regulators under clause 55. Across the Bill as a whole, we have given the boardthe appropriate tools with which to examine the effectiveness of approved regulators in exercising their regulatory functions. I anticipate that in most circumstances the board will be able to take appropriate, proportionate action, and will try to set appropriate targets through dialogue with the approved regulators. However, if a situation should arise in which that cannot or does not happen, it will be open to the board to require relevant information more formally, as under clause 55. That power is enforceable through the High Court.

I would be a wee bit concerned about inserting another power for the board to investigate in case that should muddy the waters. Given that it is already able to require information to aid its regulatory decisions,a more explicit power to investigate might need tobe supplemented by powers of search and seizure. Without there being a proper procedure in place to govern such use, that could be seen as disproportionate.

Given the ability of the board to carry out an appropriate level of investigation, and the desire of all of us to avoid disproportionate action, I would ask my hon. Friend to withdraw his amendment. Across the Bill as a whole, the board has sufficient powers to carry out the functions that he so much wants it to have.

John Mann (PPS (Rt Hon Richard Caborn, Minister of State), Department for Culture, Media & Sport; Bassetlaw, Labour)

I hear what the Minister says. I am happy to leave the matter for her to contemplate, because there is a danger that the board could end up being too general. It will depend, of course, on whom the members are. If she is looking for suggestions to give the board proper teeth, my hon. Friend the Member for North Durham would be a suitable independent chair, but the position might be filled by someone who is over-disposed to favour the legal profession. The variation could be enormous. I leave it for the Minister to contemplate further, as later amendments might supplement the point more effectively. On that basis, I beg to ask leave to withdraw the amendment.

Bridget Prentice (Parliamentary Under-Secretary, Ministry of Justice; Lewisham East, Labour)

I beg to move amendment No. 1, in clause 31, page 15, line 30, leave out from ‘on’ to ‘and’ in line 31 and insert

‘one or more of the regulatory objectives,’.

Nicholas Winterton (Macclesfield, Conservative)

With this it will be convenient to discuss Government amendments Nos. 2 to 5.

Bridget Prentice (Parliamentary Under-Secretary, Ministry of Justice; Lewisham East, Labour)

This group of amendments seeks to reverse the changes made in another place to the thresholds of the board’s regulatory powers. Those amendments sought to limit the exercise of the powers to circumstances involving significant adverse impact on the regulatory objectives as a whole. The Government amendments will restore the formulation enabling the board to act where there is an adverse impact on one or more of the regulatory objectives.

The Government have not been persuaded that it is necessary or desirable to strengthen the thresholds as the other place proposed. The board needs flexibility to act quickly and decisively where there is a failure. To wait until that failure has a significant adverse impact on the objectives as a whole is likely to be damaging to consumers and, I suggest, to the legal profession.

In particular, the amendments are needed to remove the requirement that the adverse impact be significant. We have serious concerns that such qualification of the thresholds will fetter the board’s ability to regulate effectively. Retaining the word “significant” could cast doubt on whether the board can take steps to rectify certain regulatory failings. In the case of smaller regulators, who may regulate fewer reserved activities or authorised persons, the impact on the objectives may not meet the significant threshold even where there is clear evidence of consumer detriment in the failing regulator’s field. The Government want to make it clear in the Bill that the board will be able to act in relation to a regulator regardless of that regulator’s size. The simple reference to adverse impact will achieve that without leaving damaging room for argument.

We also seek to reverse amendments restricting the board’s ability to take action where the adverse impact is on the regulatory objectives as a whole. In making regulatory decisions, the board will of course need to balance the impact on one objective against the other objectives and to assess them together. That might even be the intention behind the amendments made in the other place, but we do not believe that it will be their  effect. We consider that those amendments could limit recourse to the regulatory powers to circumstances impacting on all the objectives, which is clearly far too restrictive. Our amendments in this group will make it plain that the board can act where there has been an adverse impact on one or more of the regulatory objectives.

The Committee need not look further than the Bill to see that there are clear safeguards preventing the misuse of the board’s powers. The board is already under a duty to have regard to best regulatory principles, including transparency, accountability and proportionality, when carrying out all its functions. Before taking action, it must publish policy statements. As we will discuss later, the Government have tabled a refined amendment to clause 49 that will ensure that when publishing policy statements, the board must have regard to the principle that its principal role is the oversight of approved regulators. In addition, when the board considers it appropriate to use its powers, it must comply with procedural safeguards, such as the requirement for it to consider representations from the approved regulators, and the obligation for it to consult the consumer panel, the senior judiciary, the Lord Chancellor and the Office of Fair Trading.

Finally, I highlight the point that the board will not operate its regulatory powers in a vacuum. The way in which it exercises those powers will be subject to public scrutiny, it will be obliged to publish an annual report, and when appropriate, its decisions could be judicially reviewed. The combined effect of those provisions will ensure that the board can and will act only when it is right and proper that it does so. For those reasons, I move the amendment.

Henry Bellingham (Shadow Minister, Constitutional Affairs; North West Norfolk, Conservative)

I am grateful to the Minister for explaining both the situation and why Her Majesty’s Government want to remove from the Bill the wording that was inserted in the Lords. She has made her case, but the Opposition do not agree with it. There was a lengthy debate in the other place in Committee, and on Report when there was a vote on the provision. It was won not by a whisker, but by 52 votes, which in the other place is a reasonable-sized majority. I have just had a look at the voting list, and a significant number of Labour and Cross-Bench peers voted for the wording that was inserted. The argument was won and the vote was won, and I am disappointed that the Minister has come to the Committee with these amendments.

The reason that the Bill was amended in the Lords is simple. The amendment was designed to ensure that the various powers of intervention by the board in the regulatory work of the approved regulators would be triggered only by an adverse impact on the regulatory objectives as a whole. The original Bill stated clearly that the board’s disciplinary measures could be enforced on the basis of an adverse impact on only one of the regulatory objectives. The Opposition accept the board’s need to have formal powers, but as the Joint Committee, on which my hon. Friend the Member for Enfield, Southgate sat, made clear, those powers should be used only when necessary—when, for example, the approved regulators are clearly failing. We do not want an over-intrusive board trying to micro-manage the approved regulators.

Stephen Hesford (PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office; Wirral West, Labour)

If one looksat the regulatory objectives in clause 1, it seems astounding that if there is a clear breach of

“protecting and promoting the public interest”,

the hon. Gentleman does not want the board to act; that if there is a clear breach of

“supporting the constitutional principle of the rule of law”,

the hon. Gentleman does not want the board to act; that if there is a clear breach of

“improving access to justice”,

the hon. Gentleman does not want the board to act; that if there is a clear breach of

“protecting and promoting the interests of consumers”,

the hon. Gentleman does not want the board to act; that if there is a clear breach of

“promoting competition in the provision of services within subsection”,

again, the hon. Gentleman does not want the board to act.

Nicholas Winterton (Macclesfield, Conservative)

The hon. Gentleman is making a very good point by way of intervention, but it is an intervention, not a speech. If he wishes to continue but bring it to a conclusion briefly, I am happy that he should do so.

Stephen Hesford (PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office; Wirral West, Labour)

You are very kind, if I may say so, Sir Nicholas. I think the hon. Gentleman takes my point.

Henry Bellingham (Shadow Minister, Constitutional Affairs; North West Norfolk, Conservative)

I am grateful to the hon. Gentleman, who sat on the Joint Committee. As I understand it, the Joint Committee recommended that the amendment, which won on a vote in the Lords,be made to the Bill, so he made that point clear at the time.

Stephen Hesford (PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office; Wirral West, Labour)

Was there a vote in the Joint Committee?

Henry Bellingham (Shadow Minister, Constitutional Affairs; North West Norfolk, Conservative)

Well, the Joint Committee made that recommendation and it went through. Presumably, the hon. Gentleman could have demanded a vote and a minority report could have been published. It is still open under the Bill for the board to punish the approved regulator for breaching only one of the regulatory objectives as long as it was sufficiently serious to have an adverse impact on the objectives taken together. To some extent, his concerns have been met in the Bill, as it stands now.

The Government have said several times that the lead responsibility should rest with the approved regulator. There will be a need for agreement and partnership, and it is important that the board does not adopt an excessively heavy-handed approach. It is also worth pointing out that the regulatory objectives are to some extent bound to be in contention with each other. For example, let us consider the requirement to undertake prescribed training prior to admission as a solicitor. It would clearly have an adverse effect on competition in legal services if everyone with a law   degree could be admitted immediately as a solicitor. The potential supply of solicitors would be that much greater.

However, failing to require appropriate pre-admission training would have a detrimental effect on the interests of consumers and probably on one or two of the other regulatory objectives. Under the original formulation of the Bill, the LSB would be entitled to take action against an approved regulator whatever approach it took to pre-admission training. That is just one example of why the Lords made such a change.

We ought to consider the overall position. We want a balanced approach and, as they stand, the clauses offer that. After all, the Government have said time and again that they want full co-operation between the board and the approved regulators, and that they want a spirit of good will and understanding. We must remember that they have not sought to differentiate in weight between the regulatory objectives to which the hon. Member for Wirral, West referred. They are all of equal weight.

Stephen Hesford rose—

Henry Bellingham (Shadow Minister, Constitutional Affairs; North West Norfolk, Conservative)

I shall not give way as I intend to come to a conclusion quite soon. The Whip is keen for us to make progress. Let us focus on one objective. It could be tantamount to acting in a arbitrary fashion, so the proper approach is for the board to analyse each of the regulatory objectives before deciding to act. It is a balancing exercise. There is no need for the board to become another front-line regulator. The third-party endorsement for such an approach is widespread. There is no question about it. The Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys made it clear that all of the different procedures should be in line with the Hampton risk-based regulation recommendations.

In its latest report, the Bar Standards Board made it clear that there should be the sensible, delicate-touch regulation that was envisaged by Sir David Clementi. It pointed out that the danger with any other approach was that unnecessary costs and delay would be built into the regulatory process. I have not once mentioned “light” touch. The Minister has prohibited the use of that phrase. I would instead use the words “delicate”, “de minimis”, “sensitive” or “pragmatic” to describe the sort of touch that should be used. Alternatively, perhaps we should intervene only in extremis or on a common-sense basis.

Let us consider the organisations that endorsed the Lords amendments, which were won by a substantial majority. We must bear in mind not only those that I am sure the hon. Member for Bassetlaw would describe as the usual suspects, but the many others that supported the amendments and considered that they would improve the Bill substantially. While I take on board entirely the points made by the Minister about other elements of protection under the Bill and the provisions on proportionality and checks and balances, it would be a retrograde step to support the Government’s amendments. They are not necessary. If they had been, the Lords—after substantial debate that involved a lot of very experienced people—would not have wanted to amend the Bill in such a way. That is why Conservative Members will work extremely hard, but in a constructive and pragmatic way, to keep the Bill as it is.

John Hemming (Birmingham, Yardley, Liberal Democrat)

I am sure that my party unanimously took the same view in the House of Lords. Light touch is not necessarily the best way of describing the measure. It is, rather, a rational approach to the attitude that if improving one regulatory objective has a worsening effect on another, intervention is required. I like to take practical examples. Let us consider the balance between improving access to justice, which must be a priority in terms of the rule of law, and increasing public understanding of the citizen’s legal rights and duties. Both of those are regulatory objectives under clause 1. My example concerns a firm of solicitors that is particularly good at ensuring that people have access to justice. It gets information out of the clients, takes it to the courts and litigates effectively in, say, a hearing damage case, so that compensation is paid. However, it does not explain every step of what it is doing. Because of that, it is deemed to be contravening clause 1(1)(g) on increasing public understanding.

The initial regulator might say, “Well, it is all right that it has acted in a mechanical manner, because it is improving access to justice, and people who would not otherwise have got justice have done so.” However, the LSB would say, “Ah, but we are losing out on clause 1(1)(g), so we need to intervene, even though we are benefiting on subsection (1)(c).” The point about taking the objectives as a whole is that we can take into account whether we are winning on one and losing on another. Clearly, if we are losing out on one objective, and it is not making any difference to any of the others, we are losing out as a whole. The issue is not necessarily to do with lightness of touch, it is moreto do with proportionality. This is just a rational approach to the fact that LSB intervention should be based on a net loss, not on a situation in which there is a loss on one regulatory objective and a gain on another.

David Burrowes (Enfield, Southgate, Conservative)

It is a pleasure to make a few remarks under your chairmanship, Sir Nicholas.

I support my hon. Friend the Member for North-West Norfolk in wanting to assert the importance of the work undertaken in the other place, and to highlight all the good work that would be undone by the Minister. I should like to draw attention to her undue emphasis on the wording—no doubt she will rebut this—in suggesting that the fact that one cannot easily define “substantial” will lead to a lack of clarity. We should draw back from details of definition and consider the important point of principle. Our concern is not so much the strength of intervention of the LSB, but the way in which the Government wish to implement and apply the Bill.

I return to the opening debate on the regulatory objectives. When we debated whether there was a hierarchy of, or competition between, regulatory objectives and sought assurance that there was not,the Minister argued that it was made clear in the explanatory notes that there was no hierarchy. Throughout her remarks, she has made particular reference to certain objectives and not to others. We are concerned that when we address the issue of how the strength of intervention of the LSB will apply, she is not balancing the objectives. That is of the essence in this Bill. Right at the start, in clause 1, all the objectives have equal value. They need to be properly balanced;   that was the purpose of the Lords amendment, which is now part of the Bill. Its aim was to considerthe impact of the objectives, rather than have one competing with another. To respond to the intervention of the hon. Member for Wirral, West, one particular objective might be infringed, but that infringement needs to be considered against the whole balance of the objectives.

The Minister’s concern is that the amendment would undermine the clause by allowing intervention when one or more of the regulatory objectives is adversely affected. It undermines the case that was made atthe beginning and raises concerns not just about intervention. Indeed, given the passage of the Government amendment relating to appointmentsto the Legal Services Board, the Government’s involvement without proper checks and balances and the concurrence of the Lord Chief Justice, there is a concern that independence is being undermined systematically in terms of the Legal Services Board’s potential to intervene on any of the objectives.

I ask the Minister at this eleventh hour to take careful note whether Baroness Ashton indeed said in the other place when the amendment passed that, in her opinion, all their Lordships were making the same point—whether in fact we are all united in the point that we are seeking to make. Can she assure me that a balanced approach will still be taken to regulatory objectives, and not the pick-and-mix approach that causes so much concern about over-intervention in the regulatory bodies?

John Mann (PPS (Rt Hon Richard Caborn, Minister of State), Department for Culture, Media & Sport; Bassetlaw, Labour)

There is a unity in the Lords—a unity of judges, barristers and lawyers, the vested interests who raise the spectre of loss of independence but somehow feel it appropriate for the judiciary to participate and vote in the very Parliament from which they claim they want independence. The term “cake and eat it” comes to mind, but unfortunately we have not had the opportunity to make constitutional changes to put them out of their misery in that respect.

Perhaps I am the only one pursuing a light touch following the debate, but light-touch self-regulation is very dear to my heart. As for the idea that there should be no effective Legal Services Board—that its powers should be watered down by the House of Lords and the vested interests in the House of Commons so that it becomes a meaningless talking shop unempowered in any specifics—there are two good retorts to that. The first is that no investigation has yet been made by the regulatory arm or anyone else in the legal profession into the situation with barristers and legal expense insurance. I called for such an investigation. The current system is a scandal. It is a national scandal, and not just individuals but the whole system should be investigated, because it brings barristers’ profession into disrepute.

Secondly—it was more publicised previously—there has still been no investigation into why large numbers of solicitors dealing with industrial deafness claims are allowed to do so, giving specific and crucial advice, over the telephone. That is a national scandal, and the legal profession should be embarrassed and humiliated by it. Any suggestion that this House and this Committee should water down light-touch powers to allow self-regulation with proper teeth is, frankly, nonsense. While the Minister resists my attempts to   beef up parts of the Bill, I trust that she will be equally robust in resisting the House of Lords and others trying to water it down.

Bridget Prentice (Parliamentary Under-Secretary, Ministry of Justice; Lewisham East, Labour)

My hon. Friend has made the case for me in many ways. There are a number of important and effective regulatory powers in the Bill, and they are absolutely necessary to ensure that failure by an approved regulator can be properly addressed. It is crucial that those thresholds should be set at the right level and that the board should not be restricted from exercising its powers when appropriate. It is clearly in the interests of the consumer for the board to be able to take steps quickly without having to wait until there is a significant adverse effect

“on the...objectives taken as a whole”.

As I have already set out, the Bill provides strong safeguards that will prevent the arbitrary use of the regulatory powers. To that end, I am absolutely of the belief that the amendments made in another place are unnecessary and, as my hon. Friend the Member for Bassetlaw said, they will undermine the board’s role of being a strong, oversight regulator that is able to react decisively to problems in the legal sector, a number of which he raised.

I shall finish by talking about the view of the National Consumer Council. It said that it was

“concerned that this will leave the LSB impotent to act, since this word”

—the word “significant”—

“can be interpreted differently and is difficult to prove. Further, the Board should not have to wait until a significant event before taking action to protect consumer interests.”

As much as anything else, that is the purpose ofthe Bill, and I commend the NCC’s views andthose of my hon. Friend. For that reason, I hopethat the Committee will endorse the Government’s amendments and reverse the decisions made in another place.

David Burrowes (Enfield, Southgate, Conservative)

Is the Government’s main concern about the upping of the threshold because of the word “significant”, or is it that under the Bill one must apply the

“objectives taken as a whole”,

whereas the amendment mentions

“‘one or more of the...objectives’”?

Bridget Prentice (Parliamentary Under-Secretary, Ministry of Justice; Lewisham East, Labour)

It is both.

Henry Bellingham (Shadow Minister, Constitutional Affairs; North West Norfolk, Conservative)

I am not satisfied with what the Minister said, so we shall be voting against the amendments.

Henry Bellingham (Shadow Minister, Constitutional Affairs; North West Norfolk, Conservative)

On a point of order, Sir Nicholas. It is a request for information. Is there any possibility of Government amendments Nos. 2 to 5 being taken together? I know that they amend different clauses, but are we to vote on them only when we reach those clauses?

Nicholas Winterton (Macclesfield, Conservative)

I have to tell the hon. Gentleman, who I understand has considerable legal training and expertise, that they have to be taken in accordance with the Bill—as and when appropriate, and not together.