Relevant documents: 9th, 10th, 11th, 12th and 14th Reports from the Delegated Powers Committee.
Moved by Lord Teverson
1: After Clause 1, insert the following new Clause—
“Interpretation of the green purposes: duty to assess impact on the Climate Change Act 2008
(1) In interpreting the purposes set out in section 1(1), it is the duty of the Board of the UK Green Investment Bank to assess whether the implementation of its investment strategy, or similar document outlining or amending the proposed investment portfolio, will as a whole, increase the likelihood of achieving carbon budgets and greenhouse reduction targets under the Climate Change Act 2008.
(2) In subsection (1), whether or not an investment strategy will increase the likelihood of achieving carbon budgets and greenhouse gas reduction targets shall be assessed compared to a scenario where the identified investments or investment categories did not proceed.
(3) In undertaking the assessment required under subsection (1), it is the duty of the Board of the UK Green Investment Bank to have regard to the advice and reports of the Committee on Climate Change as required under sections 34, 36 and 38 of the Climate Change Act 2008.
(4) The Board must not make a decision to adopt or amend its investment strategy or similar document as described in subsection (1), unless it is satisfied, as a result of the assessment conducted under that subsection, that the proposed investment portfolio will, as a whole, increase the likelihood of achieving carbon budgets and greenhouse gas reduction targets under the Climate Change Act 2008.”
My Lords, the purpose of my amendment, which I tabled early in the process, before any government amendments, was really to make sure that the Green Investment Bank does what it says on the tin. It should invest not only in the individual areas that are listed so comprehensively in Clause 1, the first of which is,
“the reduction of greenhouse gas emissions”,
which I shall pursue in a moment. It goes on to list,
“efficiency in the use of natural resources … natural environment … biodiversity … environmental sustainability”.
We could not have a better list of good things for this bank to invest in.
However, the difficulty is, as the Bill goes on to say, that any investment has to meet only one of those excellent purposes, but there can be conflict environmentally in certain areas over certain actions. For instance, an important coastal reclamation project to ensure biodiversity might produce a negative carbon outcome over the medium to longer term. It is a possibility, although clearly it will not happen all the time. My amendment seeks to ensure that the bank, looking at the position overall rather than at individual investment decisions, has to make sure that we bring down carbon emissions overall and that this is put within the context of the Climate Change Act. I see that as being absolutely essential and I am delighted that the Government have put down their own amendments with a similar requirement, so I look forward to the Minister explaining them in more detail. At this point, I beg to move.
My Lords, we also welcome the fact that the Government have listened to our debate in Committee and have tabled amendments to make more explicit the green purposes of the Green Investment Bank. As has been said many times, with no ability to borrow, the bank can scarcely be described as a bank, and with unclear purposes it might also cease to be green. We welcome the Government’s amendments, but there is a remaining concern. When we discussed this in Committee, we were looking for specific references to the meeting of the UK’s carbon budget under the Climate Change Act 2008. The amendments tabled for consideration today do not contain that explicit reference, which is a great shame, and we hope to reinstate it. References to “global greenhouse gas emissions” may be welcome, but which country, let alone which bank, can truly be expected to make a contribution to such an outcome? The factors influencing global emissions are complex and manifold, and where the UK could make a difference to global emissions is by showing leadership on policy and instruments to tackle climate change. The Climate Change Act was drafted not only with a view to contributing to solving the global problem but to demonstrating leadership at home. The Green Investment Bank has been created to contribute to the latter part as much as the former and therefore the legislation which shapes this decision should refer to our existing, world-leading climate change mitigation legislation. I hope that the Minister will accept these amendments, which seek to achieve this.
My Lords, I welcome the contributions from my noble friend Lord Teverson and the noble Baroness, Lady Worthington, to this debate, and indeed the cross-party support that there is for the UK Green Investment Bank. The bank will be a key driver of the transition to a green economy and is already making investments in green infrastructure projects. The bank has already committed more than £400 million to projects across a range of sectors, including waste, non-domestic energy efficiency and offshore wind. These investments are illustrative of the impact we expect the bank to have in the coming years.
In turning to the first amendment, I emphasise the large measure of agreement between the Government and noble Lords who have tabled this amendment. We agree that the reduction of greenhouse gas emissions is a key objective for the bank and accept that it would be right to give this objective statutory recognition. However, we want to do this in a way that best reflects the bank’s corporate governance framework and its position as a Companies Act company. Clause 1 sets out five statutory green purposes which, read together, set the parameters of the bank’s activity to ensure that it must always remain green. These green purposes provide an overarching framework for the bank’s green activity while preserving the necessary breadth to adapt to evolving green priorities over the long term. The Government consider that this breadth is essential as there are important activities which are clearly “green”, but may not reduce greenhouse gas emissions, including recycling and improving water quality. We would not want the Bill to be amended in such a way that put doubt on the bank’s ability to invest in these areas, and I welcome noble Lords’ support for this approach.
As I have said, the Government agree that the reduction of greenhouse gas emissions is an important objective for the bank. That is why we have included a statutory green purpose explicitly to this effect, and why we have tabled our own amendments, to which I will turn shortly. However, it is important that we focus on the key objectives for the bank and do not introduce additional requirements that might complicate its decision-making process. We need to ensure that under its constitution, the Bank can operate as a commercial company. This is important because the bank’s impact may be diluted if the board is concerned that the Government or the courts may seek to second-guess its commercial judgments. That is why the Secretary of State has given an operational independence undertaking to the board.
It is equally important that the legislation provides sufficient clarity for the board and does not expose its investment decisions to increased risk of challenge by bringing a clear public element to the Bank’s functions. Furthermore, by adding another test on which the board will have to be satisfied when making investment decisions, this amendment raises the prospect of the legislative framework conflicting with the bank’s own constitution, something we believe is avoided through the Government’s proposed amendments to the Bill.
At the same time, we do not believe that our ambition in this area is any less than that of noble Lords. The Government’s amendments do not refer to a significant reduction in greenhouse gas emissions because we do not believe that it would be possible to give sufficient clarity to the bank’s directors if we were to introduce such imprecise wording. Indeed Amendment 1 would not require the board to make a significant reduction to greenhouse gas emissions. The Government’s preferred approach of making the new obligation part of the company’s objects would, however, give the bank’s directors strong encouragement to maximise the reduction of greenhouse gas emissions, as that would be the most likely way to maximise the success of the company.
The noble Lord, Lord Smith of Kelvin, who is chairman of the UK Green Investment Bank, has said that he supports this approach, and I welcome his letter, which I received a couple of days ago. The noble Lord has been very clear that he welcomes a statutory obligation on the bank in respect of the reduction of greenhouse gas emissions, but has said that it is important that this is achieved in a way that is consistent with the bank’s internal constitution and with the directors’ general duties to the company.
We also agree with noble Lords that it is important that the bank contributes to a reduction in UK greenhouse gas emissions. As this Bill must make provision for the long-term future of the bank, we believe that the best approach would be to achieve this through an amendment to the company’s objects and we intend to make such an amendment shortly. Amendment of the objects after designation will of course require the affirmative resolution of both Houses of Parliament.
Finally, I will comment on two further aspects of this amendment. Amendment 1 would require the board to have regard to the advice and reports of the Committee on Climate Change. I am happy to give a commitment on behalf of the noble Lord, Lord Smith of Kelvin, and the other members of the bank’s board that they will do so. We would, however, much prefer not to impose a specific statutory obligation on the board which might cast doubt on the breadth of the general duty on all directors—under Section 172 of the Companies Act 2006—to have regard to the impact of the company’s operations on the environment.
Secondly this amendment, unlike the Government’s amendments, does not impose a corresponding disclosure requirement on the board. We believe it is important that there is a tailored disclosure obligation on the board in respect of this new requirement to ensure full transparency and accountability. This approach is of course in keeping with the best standards of corporate governance.
I will now turn in more detail to the Government’s own amendments in this area. Amendment 3 requires the Secretary of State to be satisfied that the bank’s objects are such that, in acting consistently with them, the bank’s investment activities—taken as a whole—would be such as the bank considers likely to contribute to a reduction of global greenhouse gas emissions. The new obligation on the board is therefore imposed through the company’s statement of objects in its articles of association. This reflects the approach we have taken in respect of the green purposes and ensures that the new obligation forms part of the directors’ general duties to the company, including the duty to promote the success of the company in line with its objects. We believe that this will be the most effective approach. It also eliminates the possibility of inconsistency with the company’s corporate governance framework and reduces the risk of legal challenge to the board’s investment decisions.
The new provision goes significantly beyond the assurances we have already given in this area and ensures that the bank will continue to focus its investments in areas that will deliver such reductions. As I have said, the noble Lord, Lord Smith of Kelvin, has indicated his support for the Government’s approach.
Amendment 8 would prevent any alteration to the bank’s objects which is not consistent with the requirement for the bank’s investment activities as a whole to deliver a reduction in greenhouse gas emissions. This will ensure that this new obligation will continue to apply even if there were to be a change in the company’s ownership.
The third substantive element is the imposition of a bespoke reporting requirement in respect of the new obligation on the directors to ensure that the bank’s overall investment portfolio reduces greenhouse gas emissions. Previous debates have touched on the bank’s commitment to transparency, and the bank’s board has already agreed that the bank will voluntarily report on the greenhouse gas impacts of its investments. This new reporting requirement will complement that commitment by requiring the bank’s directors to include in their directors’ report an explanation of the steps that they have taken to ensure that the bank’s investment activities would be likely to contribute to a reduction of global greenhouse gas emissions, together with a statement of their views on the likely effect of the bank’s activities on global greenhouse gas emissions. In addition, the bank will be required to report on the greenhouse gas emissions associated with its own activities under the forthcoming changes to the narrative reporting requirements on quoted companies.
Finally, turning to Amendments 4, 9 and 12, the Government strongly believe that any new obligations in this area should be imposed through the company’s constitution rather than through a separate public law requirement, which might not be wholly consistent with the directors’ duties under the company’s constitution. The amendments tabled by the noble Baroness, Lady Worthington, seek to combine the two approaches by imposing an obligation in respect of an Act of Parliament through the company’s constitution. The Government consider that this approach will not deliver the degree of clarity that is needed.
The Climate Change Act 2008 imposes obligations on the Government, not on the UK Green Investment Bank—there is a difference. Reference to this Act in the company’s constitution cannot therefore provide the clarity that the bank’s directors need for effective decision-making. At the same time, I do not believe that these amendments show greater ambition than the Government’s approach.
The Government are proposing that, under the bank’s constitution, the directors will have a general duty to ensure that the bank’s investment activities, taken as a whole, contribute to a reduction of greenhouse gas emissions, both globally and in the United Kingdom. This is not a stand-alone duty but must be read alongside the directors’ general duty to act in the way that they consider would be most likely to promote the success of the company, using the definition of success set out in the company’s objects. The directors would fail in this duty if they were to aim for a very small net reduction in greenhouse gas emissions even if, acting consistently with their other duties, they could achieve a much more significant reduction. We therefore do not believe that an additional obligation linked to Climate Change Act targets would in practice affect the board’s decision-making or the scope of its ambitions in this area.
In conclusion, we agree that the reduction of greenhouse gases will be a key objective for the bank but we wish to ensure that statutory intervention on this point reflects the bank’s position as a Companies Act company and its corporate governance framework. We believe that the Government’s amendments, which will create a requirement through the objects for the bank’s investment portfolio to deliver a carbon reduction and set out in statute the reporting mechanisms that sit behind this requirement, will address noble Lords’ concerns in the way that best reflects the bank’s corporate governance. I therefore ask my noble friend Lord Teverson to withdraw his amendment.
My Lords, I thank my noble friend the Minister for his explanation of the government amendments and how they relate to the others. I have to admit that bits of them are certainly better than my own amendment. I welcome very strongly the undertaking from the Dispatch Box that there will be regular reports from the board to the Committee on Climate Change. I also welcome the extra disclosures and the fact that alterations to the company’s objectives have to comply with reducing carbon emissions as well, which is an important point.
I have been trying to understand what difference would be made by the addition of the reference to the
Climate Change Act proposed by the noble Baroness, Lady Worthington. I like the reference to the Climate Change Act but it is difficult to see, if you are reducing carbon emissions—which is part of the overall objective of the Green Investment Bank—how you would then not be closer to complying with carbon budgets and those requirements.
I am happy with the Government’s response. I thank the Minister for having responded in that way and for making those commitments at the Dispatch Box. I beg leave to withdraw my amendment.
Amendment 1 withdrawn.
Moved by Viscount Younger of Leckie
2: Clause 2, page 2, line 2, leave out “two” and insert “three”
Amendment 2 agreed.
Amendment 4 (to Amendment 3) not moved.
Moved by Viscount Younger of Leckie
3: Clause 2, page 2, line 9, at end insert—
“(2A) The second condition is that the Secretary of State is satisfied that the Bank’s objects in its articles of association are such that, acting consistently with them, its activities in making, facilitating or encouraging investments in each relevant period would (taken as a whole) be such as the Bank considers likely to contribute to a reduction of global greenhouse gas emissions.
(2B) In subsection (2A), “relevant period” means each financial year of the Bank taken together with all of its preceding financial years.”
Amendment 3 agreed.
Moved by Viscount Younger of Leckie
5: Clause 35, page 18, line 44, after “in” insert “Part 1 of”
Amendment 5 agreed.
Clause 3 : Alteration of the objects of the UK Green Investment Bank
Amendments 6 and 7
Moved by Viscount Younger of Leckie
6: Clause 3, page 2, line 33, leave out “condition in subsection (3) is met” and insert “following two conditions are met”
7: Clause 3, page 2, line 34, after first “The” insert “first”
Amendments 6 and 7 agreed.
Amendment 9 (to Amendment 8) not moved.
Moved by Viscount Younger of Leckie
8: Clause 3, page 2, line 39, at end insert—
“( ) The second condition is that the Secretary of State is satisfied that, if the alteration were made, the Bank’s objects in its articles of association would remain such that, acting consistently with them, its activities in making, facilitating or encouraging investments in each relevant period (within the meaning of section 2) would (taken as a whole) be such as the Bank considers likely to contribute to a reduction of global greenhouse gas emissions.”
Amendment 8 agreed.
Moved by Lord Teverson
10: Clause 4, page 3, line 24, at end insert—
“(7) It is the duty of the Secretary of State to provide the European Commission with State aid notification concerning the intention to allow the Bank to borrow, including borrowing from the capital markets.
(8) The duty in subsection (7) must be fulfilled no later than
(9) In the event the European Commission approves the State aid notification concerning borrowing, it is the duty of the Treasury and of the Secretary of State to permit the Green Investment Bank to begin borrowing from the capital markets no later than
My Lord, this is perhaps a weightier issue. When I was looking at the background to this amendment, which is really about the Green Investment Bank’s financial muscle, I was looking for some inspiration on climate change and carbon emissions, and I came across this statement:
“We need to cut our carbon emissions to tackle the challenge of climate change. But the low carbon economy also provides exciting opportunities for British businesses. We will encourage private sector investment to put Britain at the forefront of the green technology revolution, creating jobs and new businesses across the country”.
More important is the next sentence, which says,
“we will create Britain’s first Green Investment Bank—which will draw together money currently divided across existing government initiatives, leveraging private sector capital to finance new green technology start-ups”.
Hallelujah. These statements are from the 2010 Conservative Party manifesto, which is intriguingly entitled Invitation to Join the Government of Britain. As Liberal Democrats, we actually did, so in many ways it was a successful manifesto. The serious point that comes from this is exactly the one that is in those manifesto statements. For a Green Investment Bank to be able to do what it says that it will do, it must be able to lever, not just now but into the future, sufficient funds to meet the vast requirement for green investment that this country needs. As we know, in the energy sector alone that is some £200 billion in generating capacity and in networks over the next 10 years, though we will hope to reduce that through demand-side reduction. But there is a great task to do.
I fully welcome the Government’s commitment to £3 billion of real money at a time when the national accounts are finding it difficult to find spare cash. I strongly welcome, as I have in the past, the availability of this £3 billion. I agree with the chairman of the Green Investment Bank, who said in this Chamber at Second Reading that this was sufficient money for them to get on with, and to start to create a track record for, the bank. It is very important that the Green Investment Bank starts to build up this track record. For a major financial institution, that will take considerable time and very careful investment. I also probably agree that the £3 billion will last until 2015 in terms of commitments, if not actual investment that will go beyond that.
The Government have still not responded to the fact that money is starting to be invested now—and we will arrive at 2015, or maybe 2016, when these commitments are used up, with an investment track record created on the way—but you cannot build up a reputation of trust in a bank, which, as we all know, is essential, unless you know that the doors are going to remain open for business, apart from just collecting the money that has been lent or the investments that have been made on the dividends, beyond three years from now. For anybody who wants to take the Green Investment Bank seriously as a long-term instrument for green regeneration in this country, as was so eloquently described in the Conservative Party manifesto, surely we need to have some reassurance, some positive sign, and some certainty that there will be resources to invest after that period. So far, the sounds that have come out of the Treasury, if not BIS, which sponsors this Bill, is that it is pretty reluctant to make that commitment. That undermines the chairman and the chief executive of the bank, whom I have met. Their appointments are excellent, and I congratulate the Government on them, but we pull the rug from under their feet if we do not assure them that there is a financial future, an investment future and a lending future beyond 2015.
Another area that I shall briefly bring up is that it concerns me to some degree that the £3 billion is going to be available to the Green Investment Bank beyond 2015-16, if that period is needed. To build up a track record in terms of investment, it has to make the right choices. I was very pleased that the Minister underlined the investment independence of the bank. That was a very strong and important message, not just to us but to investors and future users of this fund. It would be a tragedy if the board of the Green Investment Bank felt under pressure to spend that money because otherwise it would lose it. Those pressures will be much less if there is a route to further finance for the future. All this amendment does is to put in a simple way a simple mechanism by which that process starts now. In the finance sector, with extremely long gestation periods for investment in green industries, we need certainty now for the time when this £3 billion runs out. I will be very interested to hear the Minister’s assurances on those areas. I beg to move.
My Lords, during the debate in this House much has already been said about the absurdity of creating a bank and then effectively tying its hands behind its back by not allowing it to borrow. The Government’s statistics show that green industries in the UK are bucking the overall trend, showing healthy growth and contributing to the reduction in our balance of trade deficit. The bank could and should be helping to increase this welcome outcome but, apparently in ignorance of this fact, the Government have provided it with only a relatively limited amount of starting capital and have explicitly stated that it cannot borrow until an economy-wide criterion is met. Its ability to plan for the future and to help further strengthen growth in these particular green sectors is therefore severely limited, and it cannot contribute to getting the wider UK economy back on its feet at precisely the time when we need just that. This amendment seeks to ensure that there is a plan in place for the bank’s future development by setting a deadline by which borrowing will be allowed and creating a defined timeline that removes the uncertainty that currently hangs over the bank’s future, allowing it to plan for the future. Doing so helps to ensure that green growth can help to bring the UK’s economy back to good health even as it helps to restore the health of our environment. Denial of borrowing powers or setting a date for borrowing powers shows a lack of commitment, and the bank will be weakened and undermined as a result.
The arguments presented here and in previous discussions have been very persuasive. I hope the Government will accept this amendment. In the event that the noble Lord, Lord Teverson, does not feel able to test the opinion of the House, we will press the issue to a vote.
My Lords, the Government are fully committed to providing the UK Green Investment Bank with the funding it needs to become a successful and enduring green financial institution. In Budget 2011, the Government committed to providing the bank with £3 billion until 2015, and I appreciate the endorsement by my noble friend Lord Teverson of the sufficiency of the initial funding of the bank. This is a significant injection of capital, which would allow the bank to build market confidence and begin mobilising investment in green infrastructure projects. As the noble Lord, Lord Smith of Kelvin, explained in his excellent speech at Second Reading, the bank’s initial priority must be to show the Government and private capital markets that it is a well-run organisation with a good track record, worthy of the injection of more capital or borrowing money from capital markets. The noble Lord, Lord Smith, also made clear that, as chairman of the UK Green Investment Bank, he will approach the Government as a shareholder well before 2015 if he believes that it would be in the company’s long-term interests to borrow, either from Government or from the capital markets, from April 2015.
I believe this is the right approach. The bank will, of course, require additional funding in due course, but it is too early to make commitments about the level and type of funding for the bank from 2015-16 or the precise timing of an application to the Commission in respect of borrowing. We should instead take the necessary steps to ensure that the bank has the confidence of investors and other market players by 2015 and put in place a proper process by which the board can discuss its future funding needs, and how these can best be addressed with its shareholder.
As part of this process we have given a commitment that the Government will seek state aid approval in respect of borrowing from the European Commission before the end of this Parliament. Amendment 10 would go further by setting a statutory timetable for a notification to the European Commission and, subject to this, for permission for the bank to borrow from the capital markets. We do not believe that this is either warranted or wise. The Government should not be committed by statute to making a premature or ill-thought-through application, particularly as this would have cost and resource implications both for the Government and indeed the European Commission.
We should also be clear that the level of bank borrowing will need to be agreed by the Government as part of their future spending plans. We should not be apologetic about this. Any borrowing by the bank would score against the national debt targets and it is essential for sustained growth that the Government maintain tight fiscal discipline. I want to emphasise again, in response to the comments made by my noble friend Lord Teverson, that the Government will consider the full range of funding options for the bank from April 2015, but it is important that we do not run before we can walk. In the light of these points, I hope the noble Lord will agree to withdraw this amendment.
Can I draw the Minister’s attention to the fact that this is not a commitment to borrow? As he is well aware, perception is almost as important as reality in the matter of fundraising. This amendment would send a very clear message to the investment community that the Government are serious about backing this bank.
I thank the noble Lord for his intervention. However, it would put the opportunity to borrow in the Bill, and we do not believe that this is the right thing to do at this stage given that the Green Investment Bank is just starting up. As I said, it needs to be able to walk before it can run.
My Lords, I thank the Minister for going through that. I understand entirely the issues around public sector borrowing, commitments and national debt and all the areas that are key parts of the coalition’s programme for government. I understand what the Minister is saying about there being a way forward after this time, and welcome the fact that the Government will keep this under review and that it will start to be looked at in some of the future budget forecasting. On that basis, I will give him the benefit of the doubt. It is not an especially strong response to something that is genuinely needed, but I accept the good will of the Government and I beg leave to withdraw the amendment.
Clause 5 : Accounts, reports and payments to directors
Moved by Viscount Younger of Leckie
11: Clause 5, page 3, line 30, at end insert—
“( ) Where an order has been made under section 2, each report prepared by the directors of the Bank for a financial year under section 415 of the Companies Act 2006 must include—
(a) an explanation of the steps that the Bank took in that year to ensure that its activities in making, facilitating or encouraging investments in that year and in any previous financial years would (taken as a whole) be likely to contribute to a reduction of global greenhouse gas emissions, and
(b) a statement of the directors’ views on the likely effect of its activities in those years on global greenhouse gas emissions.”
Amendment 12 (to Amendment 11) not moved.
Amendment 11 agreed.
Clause 7 : Conciliation before institution of proceedings
Moved by Baroness Turner of Camden
13: Clause 7, page 4, line 33, at end insert—
“( ) In the case of alleged unfair dismissal, should the conciliation officer fail to secure a settlement, the claimant may proceed forthwith to an employment tribunal.”
My Lords, at Second Reading I expressed concern about the provisions of Clause 7 and subsequent clauses. They seemed to me to be designed to make it as difficult as possible for employees to access employment rights. Indeed, the Government made it clear that they wished to decrease the number of tribunal cases. I accept that many issues arising in the course of employment could be better dealt with through conciliation, such as alleged failure to pay a bonus or holiday pay, but alleged unfair dismissal is not one of those cases.
Loss of a job can be completely destructive to the individual concerned and to the employee’s family as well. It is already necessary for an employee to have at least two years in the employment concerned before being able to claim unfair dismissal. In many cases, the length of time in the employment can be much longer. Dismissal can result in illness, mental breakdown and marriage problems, particularly if alternative employment is hard to find, as it is at present. Many people who lose their jobs at the age of 50 or over are still unemployed a year later. I have known of cases where an individual who loses his job does not immediately tell his family but pretends to go to work at the usual time, spending time in the local library, if there is one, and then returning home at the normal time, pretending that the job still exists.
The loss of a job is life-destroying. For these reasons, the drawn-out procedures recommended in the Bill are quite inappropriate. The individual concerned should have easy access to a tribunal. Even if it does not result in a return to the job, if the individual wins the case there will at least be some compensation. Even if the case is not won, the individual will have had the opportunity to put his or her case to an independent body—a tribunal including lay people with knowledge of working procedures.
This is a human rights issue as well as an employment issue. Therefore I hope that the Government will consider my amendment and agree to adopt it, or something very similar. I beg to move.
My Lords, I have great respect for my noble friend Lady Turner because she brings not only sincerity but a wealth of experience to these issues. I will be interested to hear the Minister’s response to the amendment.
I want to raise with the Minister the question of funding for ACAS, on which we had an exchange prior to his inauguration in his current role. The noble Lord, Lord Marland, in his response in Committee in relation to funding for ACAS to support the work of the conciliation, said:
“We will produce in the new year a further impact assessment on how this process will work and whether the funding should be upfront, which the noble Baroness asked for. We are working to determine the extent of the funding and how best it is to be provided. I hope that by the time we get to the Report stage in the Chamber, quite a lot of the questions will have been answered”.—[Official Report, 5/12/12; col. GC 198.]
I do not know whether the Minister is in a position to respond, but I look forward to his response.
I thank the noble Lord, Lord Young of Norwood Green, for that question, which I will address in due course.
I recognise that the amendment tabled by the noble Baroness, Lady Turner, is prompted by her concerns that the purpose of this clause is to prevent those who feel that their employment rights have been breached from reaching an employment tribunal. I reassure her that it is not. While it is and will remain the case that those who wish to bring a claim to an employment tribunal should be able to do so, we recognise that, for many, this can be a costly and stressful process. We are therefore committed to providing parties with the opportunity to resolve their disputes without the need for judicial determination, and early conciliation will do just that. However, while it will be mandatory in most cases for prospective claimants to present the details of their case to ACAS in the first instance, the decision to engage in early conciliation will be entirely voluntary.
Where the claimant or, indeed, the respondent declines the offer of conciliation, or where conciliation has failed, there will be no alternative but for the conciliation officer to conclude that settlement is not possible. A certificate will be issued as soon as that point is reached, either within a few days or after one or two weeks, and the prospective claimant will then be able to proceed to tribunal should they wish. Those prospective claimants for whom determination at tribunal is the preferred or only solution will be able to lodge their claim once the certificate has been received. This will be the case for all prospective claimants, not just those with an unfair dismissal claim.
The second amendment proposed by the noble Baroness would have the effect of removing the requirement for the conciliation officer to try to promote the reinstatement or re-engagement of a prospective claimant by the employer or, if that is not what the prospective claimant wants or it is not practicable, to seek to agree an appropriate sum by way of compensation. This is the same requirement that currently rests on conciliation officers in fulfilling their post-claim functions. While I accept that reinstatement or re-engagement may not be an attractive solution to many prospective claimants, that will not be the case for all. It is right, therefore, that the conciliation officer should endeavour to promote such an outcome where it is right to do so, and, where it is not, then seeking to reach an agreed sum by way of compensation could mean that the dispute will not need to come before an employment tribunal.
I turn to the first of the government amendments in this group. Schedule 2 amends various pieces of primary legislation so that the relevant time limits for bringing a tribunal claim will be extended where necessary in order to provide sufficient time for early conciliation to take place so that the claimant is not disadvantaged. Currently, other than in a small number of jurisdictions, claimants have three months from the date of the matter giving rise to the claim in which to lodge the claim with the employment tribunal. The amendments made by Schedule 2 address concerns that the early conciliation process will disadvantage prospective claimants by consuming some of the limitation period and therefore the time in which they have to prepare any claim that they want to lodge with an employment tribunal, and thereby dissuade them from engaging fully with the conciliation offered by ACAS.
Schedule 2 effectively stops the clock for those jurisdictions where early conciliation applies so that the time during which a claim is subject to the early conciliation process will not count for the purposes of calculating the passage of the limitation period for that claim. In addition, where the limitation period would expire during the prescribed period for early conciliation, or within a month after the day on which the ACAS certificate is deemed to have been received, Schedule 2 automatically extends the limitation period for that claim so that the claimant has one calendar month from the deemed date of receipt of the certificate in which to lodge that claim at an employment tribunal.
This amendment changes none of that. It is no more than a technical amendment to correct one of the references in the schedule. Section 18 of the Employment Tribunals Act 1996 lists the claims for which ACAS conciliation is available and, as conciliation is not available for claims in respect of breaches of Section 188A of the Trade Union and Labour Relations (Consolidation) Act 1992, it is therefore inappropriate for the changes to the limitation period made by Schedule 2 to apply to such claims. It is, however, the Government’s intention to amend the list of proceedings in Section 18 by secondary legislation in due course. We will add Section 188A to that list and, when we do so, will ensure that the extension to the limitation period applies in such cases too. Amendment 15 will therefore ensure that the changes made to limitation periods by Schedule 2 apply to the right claims.
I now turn to Amendments 22, 36 and 91, which is our second set of government amendments. As many noble Lords will be aware, a recent judgment of the European Court of Human Rights in the case of Redfearn v UK found that the UK has an obligation to ensure that individuals who have been dismissed on the grounds of political opinion or affiliation are able to bring a claim before an employment tribunal in order that the tribunal can decide whether the dismissal was fair.
Mr Redfearn was dismissed from his job as a bus driver following his election as a British National Party councillor. His work involved transporting passengers, the majority of whom were Asian. There were no complaints about his performance. None the less, his employers took the decision to dismiss him on the grounds that his political affiliation would give rise to considerable anxiety among passengers and their carers, and jeopardise the reputation of his employer.
The European Court of Human Rights considered that it was both reasonable and appropriate for the UK to have a requirement for a qualifying period of service before an employee can bring an unfair dismissal claim. However, the court held that where the reason for the dismissal was the employee’s political opinion or affiliation, the qualifying period, which prevented employees such as Mr Redfearn who had not acquired the qualifying period of service from bringing claims for unfair dismissal, breached the Article 11 right to freedom of association. The court said that where the reason for dismissal was the employee’s political opinion or affiliation, the state should at least allow for an independent evaluation of the proportionality of such a dismissal in the light of all of the circumstances of the case.
Like the majority of people in this country, we in this House do not share Mr Redfearn’s political views, but the protections provided for in Article 11 also extend to those whose views offend, shock or, indeed, disturb. The Government have therefore decided to bring forward this amendment, which will mean that the two-year qualification period will not apply to claims where the dismissal was on the grounds of political opinion or affiliation. Importantly, employers will still be permitted to argue that they had a fair reason for dismissal and that it was reasonable to dismiss for that reason. Dismissals for political reasons will not be automatic unfair dismissals.
Amendment 36 provides that the provision will apply only to claims where the effective date of termination is after the date on which this section comes into force, while Amendment 91 provides that the clause will come into effect two months after the date of Royal Assent of this Bill.
I now turn to government Amendments 16, 35, and 87—the third set of government amendments. The purpose of Amendment 16 is simple: to ensure that the information held by ACAS in the course of performing its duties is properly protected. As noble Lords will know, particularly many of those on the Benches opposite, ACAS undertakes a range of functions in the course of pursuing its general duty of improving industrial relations, including not only the provision of conciliation in individual and collective disputes, but also advice and guidance via its helpline as well as mediation and training. As a consequence, ACAS holds large amounts of information about individuals and organisations that should not, quite rightly, be a matter of public record. The introduction of early conciliation will add further to this pool of information. While ACAS is able to rely on the provisions of the Data Protection Act 1998 and the Freedom of Information Act 2000 to ensure that certain sensitive information is not released, these provisions are not comprehensive enough to safeguard all the records held as part of the operation of early conciliation.
This and previous Governments have taken the view that information relating to respondents in employment tribunal claims should not be made publicly available until the matter is due to come before the tribunal—both to protect employers from unfounded claims that are subsequently struck out and to allow the parties the space to resolve the matter without the need for a hearing. To this end, the register of claims was closed in 2004, a decision that has been reviewed and affirmed by this Government following lobbying for it to be reopened.
There have been a number of requests to ACAS for the release of information relating to claims made to the employment tribunal since the register closed, but these have been refused on the grounds that the information held is a court record. Such a justification will not apply to records held as part of early conciliation and it is therefore necessary to provide ACAS with the protection to allow it to carry out its role with the confidence of those with whom it has contact. The amendment will introduce a prohibition preventing ACAS from releasing specified information, and this will cover information not otherwise protected. While breaching the prohibition carries a criminal penalty, the decision about whether or not to press charges will be a matter for the Director of Public Prosecutions.
Amendment 35 provides that the prohibition will apply only in respect of requests made after the clause comes into force, which, as provided for in Amendment 87, will be immediately on Royal Assent. I hope that noble Lords will agree that this is a necessary step to ensure that ACAS continues to have the trust and respect of all those it serves.
The final amendment in the group, Amendment 38, removes an unnecessary provision from the Bill. The amendment deletes a transitional provision relating to Clause 17 which is no longer required.
I turn to the question raised by the noble Lord, Lord Young of Norwood Green, about whether we can provide further information on additional resourcing required by ACAS. I promised to come back to him. The consultation on implementing early conciliation closed on
I hope that the noble Baroness, Lady Turner, is reassured by what I have said and will therefore withdraw her amendment.
I thank the Minister for that response. The issue is very complicated and one will need to look at the record in some detail. In particular, I noted that in response to my amendment he stated specifically that after certification by the conciliation officer it will be possible for a dismissed employee to make a direct appeal to a tribunal. That is a very thoughtful response to what I said and I am very pleased to have it on the record.
The Minister also seemed to be prepared to make certain other concessions to make it easier for an employee in a dismissal situation—which he seemed to appreciate is a pretty desperate one for many people— to have access to conciliation and to a way of sorting out their problems without necessarily having to sit and wait for a very long time for their case to come before a tribunal. That is all very useful and in those circumstances I am very willing to withdraw the amendment. I will look very carefully at what the Minister said today as I think there are some concessions that I very much welcome. I beg leave to withdraw the amendment.
Amendment 13 withdrawn.
Amendment 14 not moved.
Schedule 2 : Extension of limitation periods to allow for conciliation
Amendments 15 and 16
Moved by Viscount Younger of Leckie
15: Schedule 2, page 85, line 33, leave out “Section” and insert “Where the complaint concerns a failure to comply with a requirement of section 188, section”
16: After Clause 9, insert the following new Clause—
“ACAS: prohibition on disclosure of information
“251B Prohibition on disclosure of information
(1) Information held by ACAS shall not be disclosed if the information—
(a) relates to a worker, an employer of a worker or a trade union (a “relevant person”), and
(b) is held by ACAS in connection with the provision of a service by ACAS or its officers.
This is subject to subsection (2).
(2) Subsection (1) does not prohibit the disclosure of information if—
(a) the disclosure is made for the purpose of enabling or assisting ACAS to carry out any of its functions under this Act,
(b) the disclosure is made for the purpose of enabling or assisting an officer of ACAS to carry out the functions of a conciliation officer under any enactment,
(c) the disclosure is made for the purpose of enabling or assisting—
(i) a person appointed by ACAS under section 210(2), or
(ii) an arbitrator or arbiter appointed by ACAS under any enactment, to carry out functions specified in the appointment,
(d) the disclosure is made for the purposes of a criminal investigation or criminal proceedings (whether or not within the United Kingdom),
(e) the disclosure is made in order to comply with a court order,
(f) the disclosure is made in a manner that ensures that no relevant person to whom the information relates can be identified, or
(g) the disclosure is made with the consent of each relevant person to whom the information relates.
(3) Subsection (2) does not authorise the making of a disclosure which contravenes the Data Protection Act 1998.
(4) A person who discloses information in contravention of this section commits an offence and is liable on summary conviction to a fine not exceeding level 5 on the standard scale.
(6) For the purposes of this section information held by—
(a) a person appointed by ACAS under section 210(2) in connection with functions specified in the appointment, or
(b) an arbitrator or arbiter appointed by ACAS under any enactment in connection with functions specified in the appointment, is information that is held by ACAS in connection with the provision of a service by ACAS.””
Amendments 15 and 16 agreed.
Clause 10 : Decisions by legal officers
Amendment 17 not moved.
Clause 11 : Composition of Employment Appeal Tribunal
Moved by Viscount Younger of Leckie
18: Clause 11, page 7, leave out lines 35 to 38
My Lords, Clause 11 attracted a great deal of debate in Grand Committee. Much of it was concerned with the proposal that judges should sit alone in the Employment Appeal Tribunal as a matter of course, where there is a divergence of opinion between the Government and noble Lords opposite. The concerns expressed by noble Lords then were similar to those raised when the Government brought forward measures last year to allow judges to sit alone to hear unfair dismissal cases in the employment tribunal. Those concerns centred on the loss of the contribution that lay members would make to determining what was fair and reasonable conduct by parties, based on their knowledge of social relationships in the workplace.
This clause relates not to employment tribunals but to the Employment Appeal Tribunal. As noble Lords will know, the EAT differs from the employment tribunal in that, unlike the tribunal, where cases will often involve matters of fact and require an assessment of reasonableness, appeals before the EAT are taken solely on points of law. The current practice is for the EAT panel that is hearing proceedings to be constituted such that it mirrors the composition of the tribunal from which the appeal arises—so, if the matter is heard by a judge sitting with two lay members in the employment tribunal, the EAT will sit with a judge and two members.
It is the narrower focus of the EAT on points of law that persuades us that lay members have a much less valuable role to play here than in the employment tribunal itself. As the noble Lord, Lord Young of Norwood Green, said in the debate on changing the composition of the employment tribunals for unfair dismissal, lay members,
“bring real knowledge and understanding of industrial situations … real experience in a wide range of industries and occupations”.—[ Official Report , 28/3/12; cols. 1449-50.]
However, this is not a function or a requirement of the EAT.
I am sure that noble Lords will agree that it is incumbent on government to ensure that we use our resources—both judicial and lay member—wisely. The Government are committed to creating a tribunal system that not only is efficient for users but offers value for money for the taxpayer. Indeed, I remind noble Lords that the Equality Act covers a range of sectors, including service provision, property rights and education, and only one of these—work—is dealt with in the employment tribunal system. The remaining equality sectors are dealt with in the civil courts, where judges sit, and have always sat, alone.
There is, however, an issue on which we can agree, and that is in relation to the exercise of the Lord Chancellor’s order-making power. That will allow the Lord Chancellor to order that specified proceedings should be heard by a panel, rather than by a judge alone. However, as the noble Lord, Lord Young of Norwood Green, rightly observed in Grand Committee, the drafting of the Lord Chancellor’s power could allow an order to be made specifying the number zero. For example, the Lord Chancellor could by order provide that appeals in discrimination cases should be heard by a judge and zero employer-representative and zero worker-representative members. Such an order would therefore remove the judicial discretion that exists in the clause to direct that a panel should hear an appeal. While the Government currently have no plans to use the order-making power, we had never intended that any Lord Chancellor should be able to use the power in this way. Amendment 19 inserts into the clause a requirement for the Lord Chancellor to specify in any order whether the panel should consist of two or four appointed members.
The noble Lord, Lord Young of Norwood Green, also raised the further concern that the power as drafted does not specify that the panel should comprise an equal number of employer and worker representatives. Again, the Government have never intended that any Lord Chancellor should be able to constitute uneven panels. My noble friend Lord Marland recognised the genuine concerns raised by noble Lords and agreed to look again at the wording. Amendment 20 honours this commitment and amends Clause 11 to restrict the power so that any order made by the Lord Chancellor must provide for an equal number of employer-representative and worker-representative members. The provision in Amendment 20 would also apply where a judge gives a direction for a panel; the judge will need to direct an equal number of employer-representative and worker-representative members. As a result, lines 35 to 38 on page 7 of the Bill are no longer needed and Amendment 18 deletes that duplication. I beg to move.
My Lords, I listened with interest to the Minister; I was very much opposed to Clause 11 at Second Reading and I am still not at all happy about it. I have always believed that the involvement in procedures of lay members is a matter of much interest to us all. The workers who appear before tribunals have always been concerned that they should include lay members with some knowledge of working practices, particularly at appeal stage. The value of the involvement of lay members with knowledge of workplace procedures and conditions is widely respected. The individual claimant knows that the appeals tribunal contains people with a knowledge of employment relations and this gives the claimant confidence in the proceedings.
I do not know why the Government are proceeding along these lines, except that there is apparently an estimated saving. However, the saving is only between £120,000 and £130,000 a year, which is not all that much if it results in a loss of confidence in the proceedings. The value of lay members has been specifically recognised by the Court of Appeal. I have been approached by lay members who are very concerned that their services may be dispensed with. They referred me to the case of Balfour Beatty and Wilcox, where the contribution made by lay people has been directly acknowledged and congratulated.
As it stands, Clause 11 should not be part of the Bill; there is no real good reason to depart from present practice. I accept that the Minister has already offered some modification, but I still believe it is necessary to involve lay people. They make a contribution to the procedures and are widely respected, by employees appearing before them and by employer organisations. I can see no reason for dispensing with them in the present procedures. I do not think that the savings involved are worth what may result in a total abandonment of the existing procedures which have served us well and which have the respect of the people who appear before them. We need more concessions from the Minister about what Clause 11 actually means and how it will operate.
My Lords, I support many of the points made by the noble Baroness, Lady Turner. Indeed, I made some of them in Committee. One of my particular concerns was the issue of diversity and ensuring that lay members were able to inform a judge of their experience of employment practice and diversity than may be apparent to a judge sitting on his or her own.
I welcome the government amendments. In particular, it is extremely helpful to have spelt out the equality of employer and employee representatives, whether it is two or four. I am grateful for that.
I have a question based partly on the noble Viscount’s comments and on the concern of the noble Baroness, Lady Turner, about what the government guidelines will be for when a judge may not sit on their own. I reiterate my support for the government amendments—they go some way—but we still need some clarification.
My Lords, I thank the Minister for addressing the specific concerns that we raised in Committee. I wish to put that on record. Obviously, I share some of the concerns of my noble friend Lady Turner, which were echoed in part by the noble Baroness, Lady Brinton, who, in her usual forensic way, rightly drew to our attention not only the question of diversity but the guidance that should be issued. I, too, will be interested to hear the Minister’s response on those aspects.
I thank the noble Baroness, Lady Turner, supported by my noble friend Lady Brinton, for setting out some of her concerns about this clause. I have certainly listened very carefully to the noble Baroness, Lady Turner, who spoke so eloquently.
The Government have also listened to noble Lords’ concerns about the Lord Chancellor’s order-making powers. I have already spoken about the amendments that we have brought forward to address the points that noble Lords made in Grand Committee. In answer to the question raised by my noble friend Lady Brinton, we have no plans to steer the Lord Chancellor on the necessity to have a panel and to prescribe proceedings as such. However, we are working on that important point that she made and on the diversity point, which I also want to pick up on.
I should also make the point that there is no evidence to suggest that judges sitting alone—this is implicit in the noble Baroness’s question—will have a negative impact on the determination of discrimination appeals, which can be brought only on a point of law. This might address the question that was raised by the noble Lord, Lord Young. The Equality Act also covers a range of sectors, including service provision, property rights and education. Only one of these, work, is dealt with in the employment tribunal system. The remaining equality sectors are dealt with in the civil courts where judges sit, and have always sat, alone.
I hope that I have been able to reassure the noble Baroness, Lady Turner, to some extent—I am not sure that I have—and other noble Lords that this measure, which is a proposal that was supported by 60% of those responding to the Resolving Workplace Disputes consultation, is not intended to undermine the value that lay members bring to the tribunal system as a whole. Nor will it have the adverse consequences that they fear.
My Lords, I wonder whether the noble Viscount might write to those who have spoken in this debate to give us some inkling of where a judge would be expected not to sit on their own. I am struggling to see where the dividing line is. I apologise for raising this again, as I raised it in Committee. It just feels too far in the future to be able to be confident on the issue.
My Lords, I support what the noble Baroness has just said. It is very important that we should know what area of diversity, if we can call it that, or what issues would mean that it would be appropriate for a judge not to sit on his own but to have the support of lay people. I can think of a whole range of issues that it would be appropriate in such circumstances for lay people sitting on the appeal tribunal to deal with. Perhaps the Minister could indicate what those issues would be.
It may be helpful, in answering the question for my noble friend Lady Brinton, to say that the guidance for employment judges to consider when deciding to sit alone, which I agree is important, is set out in the Employment Tribunals Act 1996. That is unchanged. It requires them to consider the likelihood of a dispute arising on the facts that suggests lay member involvement could be beneficial. It is for them to decide. Indeed, the likelihood of issues of law arising that would suggest that a judge sitting alone is sensible is another factor. He would need to take account of the views of the parties and what other proceedings might be heard concurrently. However, to answer the noble Baroness’s question in depth, I think it is best that I write to her and other noble Lords concerned over this particular issue on guidance.
I thank the noble Viscount for that response. It was helpful. I look forward to receiving the letter.
Amendment 18 agreed.
Amendments 19 and 20
Moved by Viscount Younger of Leckie
19: Clause 11, page 8, line 2, leave out “a specified number of appointed members” and insert “either two or four appointed members”
20: Clause 11, page 8, leave out lines 4 to 6 and insert—
“(7) In proceedings heard by a judge and two or four appointed members, there shall be an equal number of—
(a) employer-representative members, and
(b) worker-representative members.”
Amendments 19 and 20 agreed.
Amendment 21 not moved.
Moved by Viscount Younger of Leckie
22: Before Clause 12, insert the following new Clause—
“Dismissal for political opinions: no qualifying period of employment
In section 108 of the Employment Rights Act 1996 (qualifying period of employment), after subsection (3) insert—
“(4) Subsection (1) does not apply if the reason (or, if more than one, the principal reason) for the dismissal is, or relates to, the employee’s political opinions or affiliation.””
Amendment 22 agreed.
Clause 12 : Confidentiality of negotiations before termination of employment
Moved by Lord Young of Norwood Green
23: Clause 12, leave out Clause 12
My Lords, in Committee a number of noble Lords expressed our concern about confidentiality in settlement agreements and the inability of these agreements to be raised at an employment tribunal in the future. We felt that this was a totally wrong direction for the Government to proceed in. The worst aspect of this would amount to what we consider to be a charter for bullies. As the legislation currently stands, despite the attempts to introduce a number of amendments, which were rejected by the Government, there is no protection. We believe that this is a thoroughly unsatisfactory approach that will be detrimental to basic employment rights in relation to potentially unfair dismissal. It is on those grounds that we seek to test the opinion of the House.
My Lords, I support my noble friend’s amendment to Clause 12. It would make it easier for employers to end employment by offering the individual a sum of money in return for a compromise agreement. The clause extends the “without prejudice” rule, which exists where a compromise agreement is offered as a means of ending an existing dispute. Any negotiations cannot then be considered by an employment tribunal. Clause 12 enables an employer to offer a sum of money and a compromise agreement in return for leaving employment when there is no pre-existing dispute. These negotiations will remain confidential and cannot be admitted as evidence before an industrial tribunal.
The TUC opposes these provisions as it believes that they will send a clear signal to employers that it is acceptable to sack employees without following a fair dismissal procedure. The provisions are also complex and can lead to legal wrangles, particularly where an employer has not acted properly in the negotiations and could be accused of discrimination. For these reasons, I support my noble friend.
My Lords, this clause has been the subject of substantial debate in both Houses, and the noble Lord, Lord Young, has given notice of his intention to oppose it. I hope that I will be able to answer the concerns that have been raised. The clause forms part of a package of measures to facilitate the appropriate use of settlement agreements, encouraging the resolution of workplace disputes outside tribunals. Settlement agreements, or compromise agreements as they are currently known, offer a consensual and mutually beneficial outcome for both parties as distinct from the “no fault dismissal” idea, which we have been clear the Government are not taking forward. The clause does not affect an individual’s right to bring an unfair dismissal claim using other evidence or to bring other types of claim.
This legislative change builds on an existing system that has been successfully used for many years by many employers. It aims to provide additional certainty to enable a wider range of employers, particularly smaller businesses without in-house HR functions, to use settlement agreements with more confidence and in an appropriate way. We are clear about the importance of guidance for employers and individuals, an issue that has been the subject of substantive debate in both Houses. We have recently published our response to the Ending the Employment Relationship consultation on the principles to underpin the use of settlement agreements, and this will inform the development of substantive guidance that we will publish in support of the clause.
In response to concerns raised by all groups, we will include in a new statutory code an explanation of “improper behaviour” to ensure that employees understand the protection and employers are confident that they are acting appropriately when negotiating settlement. A draft statutory code is currently out for public consultation and the Government are working closely with businesses, ACAS and other stakeholders to ensure that the system is understood and can be easily and successfully used by employers and employees. This clause is part of a package of measures to better enable employers and employees to understand and use the existing system of settlement agreements as a mutually beneficial way of resolving workplace issues without resorting to a costly and distressing tribunal process. I therefore commend this clause to the House.
My Lords, I have listened carefully to the Minister, but I have found little in his words to alter my opinion. He talked about small firms that do not have HR departments. That is part of the problem. This provision is somehow meant to be a remedy for that situation. It does not matter what size a company is. Small firms often fall down because they think that HR is something that they do not have to have any expertise in. I would submit that no matter what the size of the company, if it does not understand its obligations to an employee, eventually the situation is going to end in tears. I do not believe that what the Government are proposing is fair and balanced, and we do not believe that it will encourage employers to be more professional in the way they treat their employees. For these and the reasons we expressed at length in Committee, I wish to test the opinion of the House.
Clause 14 : Power of employment tribunal to impose financial penalty on employers etc
Moved by Viscount Younger of Leckie
24: Clause 14, page 10, line 16, at end insert—
“( ) The tribunal shall have regard to an employer’s ability to pay—
(a) in deciding whether to order the employer to pay a penalty under this section;
(b) (subject to subsections (2) to (4A)) in deciding the amount of a penalty.”
My Lords, I shall speak also to Amendments 25 to 28. I turn to these amendments as the provision for the employment tribunals to impose financial penalties on employers. This is a response to points raised in Grand Committee. Much of the debate on this clause related to amendments tabled by noble Lords opposite in Grand Committee, which were intended to probe the practical application of the new regime, including the reasons for setting the level of penalty at 50% of the value of the award, and to seek that failure to follow grievance or disciplinary procedures be prescribed as an aggravating feature for the purpose of attracting a penalty. Further amendments sought to address concerns, which we share, about the non-payment of tribunal awards.
As my noble friend Lord Marland explained at the time, the decision to make the penalty 50% of the value of the award was informed by the national minimum wage penalty regime introduced by the previous Government, where the level of the penalty is also set at 50%. While we sympathise with the intent behind the amendment to specify that a failure to follow grievance and disciplinary procedures should constitute an aggravating feature, the Government are clear that it should be for the tribunal to determine what constitutes aggravating features, based on the facts of the case before it.
We are at one, however, with the desire to improve the position on the non-payment of tribunal awards. Proposals put forward by noble Lords opposite in Committee attempted to use the financial penalty regime to address non-payment. While the intent was clear, the effect would have been limited, in that penalties would be imposed in fewer cases than those in which awards go unpaid. While non-payment is not a matter for this Bill, I can reassure noble Lords that we are taking action to address this through research into the root causes of the problem and changes to employment tribunal process.
These government amendments are a further area where we share a common view. The noble Baroness, Lady Hayter, set out in Grand Committee her concerns about the unintended consequences that might arise in the event that a financial penalty was imposed on an insolvent business. She argued that for companies in insolvency the objective of the financial penalty regime, which is to encourage employers to have greater regard to their employment obligations, was not relevant and that there was a risk, without a specific exemption, that the tribunal may choose to levy a penalty. If that were the case, the Exchequer would then have a claim on the assets of the company, leaving less available for distribution to other creditors. The potential liability might also threaten a company rescue, as the penalty may rank as an expense of an administration.
As we have made clear, the Government do not want to fetter judicial discretion in the exercise of this power by tribunals. We agree with the noble Baroness that there may be no merit in imposing a penalty where the respondent is insolvent, but we do not believe that it is necessary to carve out an exemption in statute. Instead, Amendment 24 inserts a provision in the clause to require tribunals to have regard to the ability of the respondent to pay when deciding whether a penalty is appropriate.
Such a power, which already exists with regard to cost and deposit orders, will allow the tribunal to have regard to the circumstances of the business and the wider impacts of a decision to impose a penalty. It will also apply more widely than to just insolvent companies and so could be relevant to those on the brink of insolvency, for which the imposition of a penalty might well be the final straw.
My noble friend Lady Brinton also raised concerns in Grand Committee about the effect of the £100 floor where there is a multiple claim against a large employer, particularly in the event that the employer goes bust. We agree that there are real concerns here which the previous amendment does not wholly address in so far as it does not provide the flexibility for tribunals to impose any penalty when, in fact, one may be both appropriate and affordable. Amendment 25 therefore effectively removes the floor of £100 in respect of multiple cases only, and tribunals will be able to use their discretion both as to whether a penalty is appropriate and as to the level of that penalty, subject, of course, to the upper limit of £5,000. So, if a group of 400 employees brought a multiple equal pay claim against their employer and the tribunal found that there had been a breach, with aggravating features, the tribunal could decide impose a financial penalty. The change we are making through this amendment will mean that instead of the requirement to impose, in those circumstances, a penalty of at least £40,000, based on the original provision that set a minimum of £100 per claimant, the tribunal will have discretion to determine what level of penalty is appropriate. The upper limit of £5,000 per claimant will continue to apply.
Amendments 26, 27 and 28 make drafting and consequential changes to the clause, but they do not alter its effect. The principles of a minimum and maximum amount of financial penalty continue to apply, with penalties levied at 50% of the value of the award in single claims and up to 50% of the value of each award in multiple claims. I believe these amendments constitute a real improvement to the drafting and effect of the clause, and I beg to move Amendment 24.
My Lords, I rise briefly to thank the noble Viscount for the amendments that he has laid before the House today. I think they go a considerable way to allaying the concerns and fears I had.
My Lords, if it will not embarrass the Minister too much, this side must also add our thanks for these amendments which, to a certain extent, take account of the issues I raised about companies in formal insolvency which risked a penalty being made by a tribunal, given that companies in insolvency clearly have financial difficulties. This is partially dealt with by Amendment 24, and we are grateful for that.
However, there are two other issues on which I would like the Minister to respond because the amendment does not prevent a tribunal levying a penalty on a company in formal insolvency. One is that in formal insolvency, the old management is no longer there. It is not in charge; it is a new, quite separate, professional insolvency practitioner, who has been brought in to sort things out. Therefore, any penalty would not be levied on the people who had done wrong, if you like, and had caused the tribunal’s award. Nor could it act as a deterrent to repeating the breach because the company would now be in someone else’s hands. The only effect would be to deplete the assets available for the creditors, including the employees, as suggested by the Minister.
The other point concerns the need for certainty for any prospective purchaser of the business. Even the possibility of a penalty, of some indeterminate size, being outstanding against a company for the actions of the former directors, makes it that bit harder for an administrator to sell on the business, when the whole point of the insolvency process is to retain companies and maintain employment. Any additional liability could lead an insolvency practitioner to conclude that trading in administration is too risky.
We assume that the Government consider tribunal chairs best placed to make a decision on the facts in each case. However, with businesses in formal insolvency the impact of the penalty is not dependent on the circumstances of the case because the cost will never be borne by the perpetrators but by the creditors. The new clause, which we welcome, ensures that the tribunal must consider the company’s finances, but it does not lift the threat of a penalty against the wrong target and does not bring certainty to a potential buyer.
I therefore have two questions for the Minister. First, can he confirm that the Government intend to ensure that businesses in the formal insolvency process, where there is, by definition, an inability to pay, should not have to have these penalties applied to them? Secondly, given the professional time costs involved in attending and presenting evidence to a tribunal—again indicated in the Minister’s response—will the Minister confirm that written evidence that a business is in a formal insolvency process will be sufficient to demonstrate an inability to pay?
My Lords, I do not think that I am too easily embarrassed but I am pleased indeed that these amendments largely address the issues raised by noble Lords, particularly those opposite, in Grand Committee. I am pleased that we all, as a House, feel that there is an improvement to the provisions on the financial penalties, and I commend these to the House.
I would like to address, where I can, a number of questions raised by the noble Baroness, Lady Hayter. Where I cannot address the questions—some were a little technical—I will of course write to her and copy in other Peers who are involved. First, the noble Baroness raised the issue of the amendment failing to address the question of companies in formal insolvency. I think the gist of the question was that the levy would not be imposed on the persons who did wrong. The tribunals are well used to hearing arguments around the ability to pay and it is they, we believe, who are best placed to take a view on the whether the imposition of a financial penalty is appropriate in a particular set of circumstances. It will not always be the case that a penalty should not be imposed on an insolvent business—for example, a company that has been trading in administration for many months and yet has still failed to comply with its obligations. I also take the point that there needs to be certainty for purchasers, which was a further point the noble Baroness raised. I think it is best to reply to that very specific question in writing. On that note, I commend these amendments to the House.
Amendment 24 agreed.
Amendments 25 to 28
Moved by Viscount Younger of Leckie
25: Clause 14, page 10, leave out lines 20 to 34 and insert—
“This section does not apply where subsection (3) or (4A) applies.
(2A) Subsection (3) applies where an employment tribunal—
(a) makes a financial award against an employer on a claim, and
(b) also orders the employer to pay a penalty under this section in respect of the claim.
(3) In such a case, the amount of the penalty under this section shall be 50% of the amount of the award, except that—
(a) if the amount of the financial award is less than £200, the amount of the penalty shall be £100;
(b) if the amount of the financial award is more than £10,000, the amount of the penalty shall be £5,000.
(4) Subsection (4A) applies, instead of subsection (3), where an employment tribunal—
(a) considers together two or more claims involving different workers but the same employer, and
(b) orders the employer to pay a penalty under this section in respect of any of those claims.
(4A) In such a case—
(a) the amount of the penalties in total shall be at least £100;
(b) the amount of a penalty in respect of a particular claim shall be—
(i) no more than £5,000, and
(ii) where the tribunal makes a financial award against the employer on the claim, no more than 50% of the amount of the award.
But where the tribunal makes a financial award on any of the claims and the amount awarded is less than £200 in total, the amount of the penalties in total shall be £100 (and paragraphs (a) and (b) shall not apply).”
26: Clause 14, page 10, line 37, leave out “(4)” and insert “(4A)”
27: Clause 14, page 11, line 45, leave out from “(2)” to end of line 46 and insert “, (3) or (4A) by substituting a different amount”
28: Clause 14, page 11, line 47, leave out “(4)” and insert “(4A)”
Amendments 25 to 28 agreed.
Moved by Lord Low of Dalston
29: Before Clause 15, insert the following new Clause—
“Personal liability for victimisation on the ground that a worker has made a protected disclosure
After 47B of the Employment Rights Act 1996 (protected disclosure) insert—
“47BA Liability of employees and agents
(1) A worker has the right not to be subjected to any detriment by any act by an employee or agent of his employer, done on the ground that the worker has made a protected disclosure.
(2) It does not matter whether in any proceedings the employer is found not to have contravened this Act by virtue of section 47BB(4).
(3) A does not contravene this section if—
(a) A relies on a statement by the employer or principal that doing that thing is not a contravention of this Act, and
(b) it is reasonable for A to do so.
47BB Liability of employers and principals
(1) Anything done by person A in the course of A’s employment must be treated as also done by the employer.
(2) Anything done by an agent for a principal, with the authority of the principal, must be treated as also done by the principal.
(3) It does not matter whether that thing is done with the employer’s or principal’s knowledge or approval.
(4) In proceedings against A’s employer B in respect of anything alleged to have been done by A in the course of A’s employment, it is a defence for B to show that B took all reasonable steps to prevent A—
(a) from doing that thing, or
(b) from doing anything of that description.””
My Lords, Amendment 29 would add to the protection given to whistleblowers, or those who raise concerns about malpractice or wrongdoing at work by inserting into the Employment Rights Act 1996 provisions which make it clear that a worker has a right not to be subjected to a detriment by a co-worker for making a protected disclosure. It would create vicarious liability on the employer by providing that anything done by a co-worker in the course of his employment, or by an agent for a principal with a principal’s authority,
“must be treated as also done by the”,
employer or principal. The amendment also provides that it does not matter,
“whether that thing is done with the employer’s or principal’s knowledge or approval”.
However, it is a defence for the employer to show that he took all reasonable steps to prevent the co-worker behaving in that way.
It is not difficult to see the need for such provisions, which are modelled on provisions in the Equality Act 2010, given all that we had heard recently about the pressure brought to bear on whistleblowers in the NHS. I do not intend to beat the arguments to death, especially because I am delighted to be able to say that there have been constructive discussions since Committee stage, in which the Government have decided to accept the general thrust of my amendment and come forward with their Amendment 34, which we will no doubt hear about in a moment. This is very much to be welcomed. The Government having brought forward their own amendment, I am happy to withdraw my amendment in due course, provided that the Minister can give me some clarification on the following point.
A concern has been raised by some trade unions regarding the personal liability of workers as set out in proposed new subsection (1E) in government Amendment 34. This allows a defence to personal liability where the employer asked the worker to do a detrimental act against a co-worker—that is to say, where the co-worker relies on the statements of the employer and it is reasonable for them to do so. This, it is feared, impliedly creates personal liability in a way that no other part of the section does. There are some concerns that this will lead to individual workers being sued.
Perhaps it would be helpful to the House if the Minister were now to outline the purpose and scope of his amendment. I beg to move.
I thank the noble Lord, Lord Low, for suggesting that I intervene at this early stage in the debate and set out the effect of government Amendment 34. It would introduce the principle of vicarious liability into the whistleblowing protections. It has exactly the same purpose and effect as the noble Lord’s amendment. However, we feel that the drafting of the government amendment better achieves our shared objective and mirrors the provisions in the Equality Act on vicarious liability for discrimination. I look forward to further comments that the noble Lord, Lord Low, may make. I have noted some questions that he has raised, which I will attempt to address later in this debate.
My Lords, briefly, I have tabled Amendment 30 in this group because the TUC wrote to me and pointed out, among other things, that if you left the Bill as it stood, with the protected disclosure being limited to something in the public interest, that could well be construed to mean that a worker would not be protected if he or she made a disclosure affecting the provisions on health and safety at work. The TUC wanted to make sure that a worker would be protected if he made a disclosure in regard to the health and safety and general interests of the workforce; that is the intention of my amendment. However, when I looked at the amendment moved by the noble Lord, Lord Low, it seemed to me that it covered practically everything, including that which I was intending to cover in my amendment. Therefore, it had been my intention not to move my amendment and to say that, instead, I supported Amendment 29 absolutely and completely. That is still my position.
My Lords, I warmly welcome the Government’s approach on the prevention of detriment from co-workers as set out in Amendment 34. This seems to well support the amendment tabled in the names of the noble Lords, Lord Low of Dalston and Lord Young of Norwood Green, and myself. It is good that there has been some agreement that there should be protection from bullying and harassment by co-workers, and that our concerns have been listened to. Right at the beginning, I thank the Minister, the noble Viscount, Lord Younger of Leckie, his predecessor, the noble Lord, Lord Marland, and their officials, who have actually engaged in discussions with a number of people. We have made good progress as a result.
In Grand Committee, I referred to the evidence of staff nurse Helene Donnelly at the Mid Staffordshire NHS inquiry. She was a whistleblowing nurse who told the Francis inquiry of how she was physically threatened by colleagues after raising concerns about the standards in the accident and emergency department. Robert Francis, in his report, drew upon her case and said that Mrs Donnelly was offered no adequate support. She had to endure harassment from colleagues and eventually left for other employment. Clearly, such treatment was likely to deter others from following her example; she was aware of colleagues on whom her experience had this effect.
I do not intend to detain the House, but this lady suffered all sorts of threats; she was told by colleagues, “We know where you live”, and she became so nervous that her parents or husband had to meet her in the car park when she left the hospital at night so that she would not have to walk across the car park alone in the dark. On one occasion, another nurse followed her into the toilet in their locker room, locked the door, demanded to know if she had any problems with her and began threatening her if she did. I fear that this is an example that could be repeated in many parts of the country. It is important that we make sure that people are protected when they act in the public interest and blow the whistle.
This has come up again recently. Despite the progress that we have made over the years in supporting and protecting whistleblowers, the recent case of Gary Walker, a former National Health Service chief executive, highlights another area of the law that needs to be examined, and that is gagging clauses. Mr Walker was a former chief executive of the United Lincolnshire
Hospitals NHS Trust who raised a concern about patient safety, namely the pursuit of targets for non-urgent cases within the hospital to the detriment of urgent cases. The facts were similar to those of Mid Staffordshire, and following the publication of the Francis report, an inquiry was ordered into the United Lincolnshire Hospitals NHS Trust.
I am concerned about the use of public money, because I understand that Stephen Barclay MP, a member of the Public Accounts Committee in the other place, has received confirmation that £15 million of public money has been used to gag whistleblowers. I urge the Government to do more on this issue. An amendment on gagging clauses was laid in Committee, and I invite the Minister to look at it because, in my view—and I am sure that many in the House would agree—gagging people who work in the public service and have issues they need to bring to public attention, and using public funding to stop them from doing that, is quite improper. We should do everything we can to put a stop to it. This is not just a waste of public money: it is an abuse and a threat to our liberties.
My Lords, I, too, welcome government Amendment 34, which implements protections that we called for in Committee. The amendment took us a bit by surprise considering that in Committee the Government were so adamant that the amendment was not necessary and when we met the Minister just a fortnight ago, we had no indication that they had changed their mind. However, no matter when the epiphany occurred, we are delighted that the Government have now conceded that specific protection is needed. I was going to say that we should not look a gift horse in the mouth, but given the problem with horses and food standards perhaps that is not an appropriate metaphor.
As the noble Lord, Lord Low, has explained, Amendment 29 would place vicarious liability on employers for the actions of their employees where bullying or harassment of whistleblowers by their co-workers occurs. My noble friend Lord Touhig gave the details of the case involving nurse Helene Donnelly, so I will not reiterate them. However, one of the key findings of the Robert Francis inquiry into the Mid Staffordshire NHS Foundation Trust was around the culture of intimidation and lack of transparency which prevented more individuals speaking out and blowing the whistle on bad practice, which ultimately led to patient safety being put at risk.
Throughout the passage of this Bill, we have argued that the thrust of Clause 15 is to increase the barriers to protected disclosures just at the time when events from the Savile case to Mid Staffs show us that we should be making it easier, not harder, for individuals to feel able to blow the whistle on serious misconduct. We welcome the fact that on this area, as with the Government’s later amendment around good faith, and on blacklisting, the Government have listened to concerns raised across this House and in another place and have brought forward amendments to change the direction of travel. Nevertheless, as has been mentioned by other noble Lords during this debate, there is a need for the Government to clarify the extent to which liability attaches to the worker who perpetrated the harm. The judgment of Lord Justice Elias in the case of NHS Manchester v Fecitt makes apparent the need for clarity on this point, as the case turned on the fact that protection afforded under PIDA for whistleblowers was against retributive action by the employer and not co-workers. I would be grateful if the Minister would confirm that the lack of liability attached to the worker will in no way impact on the extent of the liability now placed on the employer for the actions of their employees.
My Lords, as I said earlier, we agree with the aims of this amendment and think that the noble Lords are right to seek to mirror the equivalent provisions in the Equality Act 2010. However, the first part of the amendment does not entirely reflect the relevant provision in the Equality Act and, as drafted, that part of the amendment would not enable a whistleblower to bring a claim against a co-worker if they cause them a detriment. The equivalent provision in the Equality Act does allow for claims against co-workers and we think that it is right that the legislation is the same here.
Before I conclude, let me explain this thinking, particularly in view of the comments made by the noble Lord, Lord Low of Dalston. Individuals have a personal responsibility to make sure that they act in the right way towards people with whom they interact. The law recognises this in many different ways. For example, the law of negligence makes you personally liable if you crash your car into someone and contract law makes you liable if you misrepresent an item that you are selling to somebody. If you are a taxi driver and you crash your car into someone, or a salesman and you misrepresent an item you are selling, the principle of vicarious liability means that your employer will be liable, too. We think that the same should be true in whistleblowing. If you cause a co-worker a detriment after they blow the whistle, perhaps by bullying them, you should be liable for that conduct and your employer should be liable, too. This amendment therefore will encourage workers to behave appropriately to each other and will encourage employers to have the right processes in place to protect whistleblowers. I hope that noble Lords will agree with this approach and I ask the noble Lord, Lord Low, to withdraw his amendment.
Amendment 30 relates to the Government’s introduction of a public interest test to the whistleblowing protections. As noble Lords will be aware, the Government have introduced the test to rectify the loophole which has occurred as a result of the decision in the Parkins v Sodexho case. This decision widened the scope of the protection to include disclosures concerning breaches of personal contracts rather then being restricted to matters of public interest. This amendment would amend the test the Government have introduced. It would mean that a qualifying disclosure would have to be in the health, safety and general interest of the workforce, and this is somewhat narrower than the test which currently exists in Section 43B of the Employment Rights Act 1996. This would impose a stricter qualifying criteria than the test which will exist in Section 43B after the Government’s amendment introducing a public interest test comes into effect. The result would be less protection for whistleblowers and this means that many may choose not to make disclosures, despite the fact that the disclosures would be in the public interest. The Government’s introduction of a public interest test is simply to amend the legislation in light of the Parkins v Sodexho ruling and return it to operating within its original remit.
Before I conclude, I want to respond to some comments that the noble Lord, Lord Touhig, made relating to the Mid Staffordshire fiasco. The Government had intended to call for evidence on vicarious liability and other whistleblowing areas following the completion of the Bill. However, the Mid Staffs inquiry has provided evidence which was previously lacking in relation to vicarious liability. It is therefore prudent to make a change now through the Enterprise and Regulatory Reform Bill to introduce protections into the whistle- blowing framework. I hope that that answers the point about the timing of our amendment alluded to by the noble Lord, Lord Young of Norwood Green.
The noble Lord, Lord Touhig, also raised the use of taxpayers’ money to gag whistleblowers. I think that he mentioned the sum of £15 million. As I am sure he is aware, the use of settlement agreements to resolve a dispute is a common practice in both the public and the private sectors as a means of avoiding the cost and stress of employment tribunals. They often involve a sum of money. However, in the cases to which he refers, they cannot buy silence as such clauses are null and void in the whistleblowing context. Therefore, I hope that the noble Lord will not press the amendment.
I thank the noble Lord for that reminder. Although I do not have anything to say about it, I will most certainly write to him to clarify the points that he raised.
That would be extremely helpful. I am very grateful for the Minister’s suggestion in that regard. I echo the words of the noble Lord, Lord Touhig, in thanking the Minister and his officials for the constructive approach that they have adopted to these amendments. I am sure that the Francis report and the revelations about bullying and intimidation and a culture hostile to disclosure in the NHS have weighed with the Government. I am glad that they have taken what I think is a wise political decision to recognise the force of the arguments for importing the vicarious liability provisions of the Equality Act into the whistleblowing legislation. Indeed, I think the Minister has made the point that the Government’s amendment is a little stronger than mine. On that basis, I am very happy to withdraw the amendment.
Amendment 29 withdrawn.
Clause 15 : Protected disclosures
Amendment 30 not moved.
Moved by Lord Young of Norwood Green
31: Clause 15, page 12, line 28, at end insert—
“(4A) The Secretary of State shall make amendments to this section under the powers of subsection (4) to provide for the definition of “workers” to include applicants.”
Opposition Amendment 31 would use the new power introduced in Committee by the Government to amend the definition of “worker” in Section 43K of the Employment Rights Act in order to extend protections to job applicants.
The purpose of this amendment is to make clear within the Public Interest Disclosure Act, the legislation which establishes specific protection for whistleblowers, that individuals should not face discrimination from consideration for future employment because they have made a protected disclosure in the past. The blacklisting of so-called troublemakers by companies is an issue that is particularly important at the moment. Evidence of blacklisting on a vast scale, including allegations in relation to major public projects such as Crossrail and the Olympic Park, is incredibly serious. We now know of the existence of secret files on thousands of workers in the construction sector, including by the construction firm Balfour Beatty, which has confirmed that it conducted blacklisting checks on individuals seeking work on the construction of Olympic venues. Many of those affected still have no idea that they were included on the secret construction blacklist, only uncovered by the Information Commissioner’s Office in a raid in 2009. This action will have resulted in many people—possibly thousands—being denied employment and their livelihoods, many of them on the basis that they have raised concerns over issues of misconduct or health and safety in previous workplaces, where it is absolutely in the public interest and the interest of the surrounding workforce that these concerns be raised. This is a national scandal and the Government must do everything in their power now to ensure that, first, if blacklisting is proven, adequate sanctions are taken against the perpetrators and, secondly, the law is strengthened to provide greater protection for workers in the future.
The amendment would use the new power that the Government have introduced to extend protection to job applicants from discrimination by an employer on the ground that they have been a whistleblower in the past. At present, if a prospective employer accesses a blacklist or becomes aware of a job applicant’s whistleblowing history and decides on that basis not to give them a job, the applicant has no cause for legal action, a point highlighted by Mr Justice Langstaff in the case of BP v Elstone in 2010, when he stated:
“It is true that the statute does not prohibit action against a whistleblower should he be recognised as one when an applicant for employment, as it might have done”.
The Equality Act 2010 provides protection at the point of recruitment, but, just as is the case for harassment of whistleblowers by co-workers, it is crucial that PIDA—the legislation providing specific protection for whistleblowers—is brought into line with these provisions.
Since Committee stage, we have had a very fruitful discussion with the Minister on this specific point, during which the Minister indicated that the Government would be willing to look at the inclusion of job applicants within the definition of “worker” for the purposes of PIDA. This was followed up in a letter from the Minister, in which he stated that, in relation to the new power in the Bill to expand this definition, before exercising this power, the Government are planning a call for evidence on these and other issues,
“such as the need to protect job applicants who have suffered because they were blacklisted for blowing the whistle”.
I thank the Minister for listening on this important issue. I ask him to confirm to the House that this is still the Government’s intention, that the Government are minded to include job applicants within this definition, and that this review will be carried out soon after the enactment. I beg to move.
My Lords, the issue of whistleblowers finding it hard to find a new job once they have blown the whistle against an employer was discussed in Grand Committee, and the Government agreed to take the issue away, as the noble Lord, Lord Young of Norwood Green, has said, and consider the problem that had been presented.
The Government very much understand the concerns here and, in considering this issue and looking at the provisions we are putting in place, are confident that if there is evidence showing that this problem exists, it can be addressed through secondary legislation. By taking a power to amend the definition of “worker” in Section 43K of the Employment Rights Act by secondary legislation, the Government have allowed themselves time to consider the scope of the definition of “worker” and to determine who needs to be covered. If changes, such as the inclusion of job applicants or other groups, are then necessary, these can be achieved in a relatively short time by making an order to amend Section 43K. With that in mind, I hope noble Lords will agree that there is no reason to make this decision at this point without first considering any evidence to confirm the existence of a problem. Once this Bill has completed its passage, the Government will launch a call for evidence to establish whether there is a case for reviewing the legislation, including its scope. The Government have agreed to meet the chair of the PCaW whistleblowing commission, Sir Anthony Hooper QC, and look forward to discussing whether and how we might work together.
I hope that this goes some way towards reassuring the noble Lord, Lord Young, that the Government are taking action in this area. With that in mind, I hope that he can agree to withdraw his amendment.
I have listened carefully to the Minister’s remarks, which I welcome broadly. I trust that the secondary legislation will be affirmative legislation. I hope that he regards this issue as time critical. From listening to the tenor of his remarks, I feel that he does. We believe that the evidence is out there. Having heard the Minister’s comments and hoping that he will take into account the points I have made, I beg leave to withdraw the amendment.
Amendment 31 withdrawn.
Moved by Viscount Younger of Leckie
32: Clause 15, Divide Clause 15 into two clauses, the first (Disclosures not protected unless believed to be made in the public interest) to consist of subsection (1) and the second (Extension of meaning of “worker”) to consist of subsections (2) to (11).
My Lords, government Amendment 32 is simply a matter of drafting. It divides into two clauses Clause 15, which, after the amendment made in Grand Committee, is rather long. This will make the provisions easier for people to read.
Amendment 33 is the government amendment on the good faith test in whistleblowing claims. Amendment 33 amends Part 4A of the Employment Rights Act 1996 to remove the requirement that certain disclosures be made in good faith. As a result, a claim will not fail as a result of an absence of good faith. Instead, the employment tribunal will have the power to reduce the compensation awarded to the claimant where it concludes that a disclosure was not made in good faith. This is an issue that my noble friend Lord Marland indicated we should return to at Report.
I note the argument that by introducing a public interest test, the Government have inadvertently created a double hurdle for potential whistleblowers to navigate. To succeed, a claimant would need to show that they reasonably believed that the disclosure was in the public interest and that it was made in good faith. It is not the Government’s intention to make it harder for whistleblowers to speak out. It remains a government commitment that they have the right protection in law. However, I can see that by fixing the legal loophole created by Parkins v Sodexho in the way that the Government propose, there is a risk that some individuals may be concerned that it is too hard to benefit from whistleblowing protection, and therefore they will decide not to blow the whistle. We have listened to the arguments made by noble Lords on this point, but the Government remain unconvinced that the good faith test should be removed in its entirety. There are instances where it is important that the tribunal is able to assess the motives of a disclosure, even where it was in the public interest.
The judiciary tells us that the good faith test is well understood and utilised. As such, the Government have not sought to alter the substance of the test, but have reconsidered how it should affect the outcome of a claim. Currently, the good faith test can affect the success of a claim. This amendment moves the test so it will be relevant only when considering remedy. Instead of a claim failing, the judge will have the discretion to reduce a compensation award by up to 25% in the event that they find the disclosure was not made in good faith. We believe this to be an acceptable compromise, and my conversations with the noble Lord, Lord Stevenson, the noble Lord, Lord Mitchell, who is in his place, and the noble Lord, Lord Young, have assured me that this goes a good way to addressing their concerns.
Amendment 37 sets out the relevant transitional provisions for the whistleblowing provisions of the Bill. The changes apply only where the qualifying disclosure is made after the date on which this section comes into force. Amendment 92 provides for the commencement of most of the whistleblowing clauses of the Bill. I beg to move.
My Lords, on the good faith test, I certainly welcome Amendment 33, as I think it does mitigate the effects of the introduction of a public interest test as set out in Clause 15. The removal of the good faith test at the initial stages of a whistleblowing claim cuts down the number of hurdles that a whistleblower has to satisfy in order to establish a prima facie case. Having worked closely with the charity Public Concern at Work from the very first time I introduced a whistleblowing Bill when I was a Member of the other place, I know that it, too, welcomes the Government’s response here, as it certainly attempts to strengthen the protection of whistleblowers.
The publication of the Francis report, about which I spoke a moment ago, and the recent revelations about the NHS chief executive, show, in my view, that there is a compelling case for reviewing whistleblowing. We had attempted to persuade the Government in the past that the Public Interest Disclosure Act should be reviewed. I certainly welcome the Minister’s remarks. If I understood him correctly, he said that the Government will work very closely with Sir Anthony Hooper, who is to chair the commission that Public Concern at Work has now set up to look at these matters. I am very pleased that the Government will be co-operating with the commission. It will start taking evidence in March. It is in the interest of all of us that we make sure that as much information as possible goes to this commission so that if a strong case is made for further review, revision or amendment of the Public Interest Disclosure Act, we can do that together in the interest of protecting people who blow the whistle to protect us.
My Lords, I welcome government Amendment 33, which implements an amendment tabled by my noble friend Lord Wills in Committee. This amendment addresses concerns that were raised across all sides of the House that the Government’s decision to introduce a public interest test to the Public Interest Disclosure Act would discourage whistleblowers from coming forward by placing an additional legal test on individuals in order for them to be assured of protection from retributive action by their employer.
It was already the case that in order for whistleblowers to qualify for protection under PIDA it had to be shown that the individual had made such a disclosure in good faith. Throughout the passage of the Bill, we have argued, alongside Public Concern at Work, the organisation that first lobbied for the protection of PIDA, that the combination of a public interest test with the existing good faith test will create legal uncertainty over how these two conditions should interact and potentially dissuade many more individuals from coming forward with concerns. As I and many other noble Lords have repeatedly said, now is not the time to be putting up more barriers to individuals who may blow the whistle but are scared of the consequences, as the Francis report highlighted.
The Government need to be doing all they can to foster a culture of greater openness and transparency within institutions such as the NHS in order to ensure that people feel supported and listened to when raising concerns. We welcome the move by the Government to remove the good faith test from PIDA, leaving just public interest as the primary test for any disclosure made in relation to protections under that Act. It implements what we have been calling for throughout, which is greater clarity and certainty around the Act, and we thank the Government for listening and responding to those concerns. I also endorse the points made by my noble friend Lord Touhig about the forthcoming commission and examining the need to review PIDA. Once again, I thank the noble Viscount and we will support the amendment.
I thank noble Lords for all the discussions we have had on this important issue. We are all agreed that it is important that the legislation supports whistleblowers when making the very difficult decision to blow the whistle. The Government have outlined their reasons for this provision and I hope that it meets the concerns that noble Lords had in this area. I thank them for flagging this issue to the Government and, in particular, I thank the noble Lord, Lord Wills, who I see in his place, for his help and advice on this matter. I hope that noble Lords agree with this approach.
Amendment 32 agreed.
Amendments 33 and 34
Moved by Viscount Younger of Leckie
33: After Clause 15, insert the following new Clause—
“Power to reduce compensation where disclosure not made in good faith
(1) Omit the words “in good faith” in the following provisions of Part 4A of the Employment Rights Act 1996 (protected disclosures)—
(a) subsection (1) of section 43C (disclosure to employer or other responsible person);
(b) paragraph (b) of section 43E (disclosure to Minister of the Crown);
(c) subsection (1)(a) of section 43F (disclosure to prescribed person).
(2) In section 43G of that Act (disclosure in other cases), in subsection (1)—
(a) omit paragraph (a);
(b) in paragraph (b), for “he” substitute “the worker”.
(3) In section 43H of that Act (disclosure of exceptionally serious failure), in subsection (1)—
(a) omit paragraph (a);
(b) in paragraph (b), for “he” substitute “the worker”.
(4) In section 49 of that Act (remedies for detriment suffered in employment), after subsection (6) insert—
(a) the complaint is made under section 48(1A), and
(b) it appears to the tribunal that the protected disclosure was not made in good faith, the tribunal may, if it considers it just and equitable in all the circumstances to do so, reduce any award it makes to the worker by no more than 25%.”
(5) In section 123 of that Act (compensatory award for unfair dismissal), after subsection (6) insert—
(a) the reason (or principal reason) for the dismissal is that the complainant made a protected disclosure, and
(b) it appears to the tribunal that the disclosure was not made in good faith, the tribunal may, if it considers it just and equitable in all the circumstances to do so, reduce any award it makes to the complainant by no more than 25%.””
34: After Clause 15, insert the following new Clause—
“Worker subjected to detriment by co-worker or agent of employer
(1) In section 47B of the Employment Rights Act 1996 (protected disclosures), after subsection (1) insert—
“(1A) A worker (“W”) has the right not to be subjected to any detriment by any act, or any deliberate failure to act, done—
(a) by another worker of W’s employer in the course of that other worker’s employment, or
(b) by an agent of W’s employer with the employer’s authority, on the ground that W has made a protected disclosure.
(1B) Where a worker is subjected to detriment by anything done as mentioned in subsection (1A), that thing is treated as also done by the worker’s employer.
(1C) For the purposes of subsection (1B), it is immaterial whether the thing is done with the knowledge or approval of the worker’s employer.
(1D) In proceedings against W’s employer in respect of anything alleged to have been done as mentioned in subsection (1A)(a), it is a defence for the employer to show that the employer took all reasonable steps to prevent the other worker—
(a) from doing that thing, or
(b) from doing anything of that description.
(1E) A worker or agent of W’s employer is not liable by reason of subsection (1A) for doing something that subjects W to detriment if—
(a) the worker or agent does that thing in reliance on a statement by the employer that doing it does not contravene this Act, and
(b) it is reasonable for the worker or agent to rely on the statement.
But this does not prevent the employer from being liable by reason of subsection (1B).”
(2) In section 48 of that Act (complaints to employment tribunals), in subsection (5)—
(a) for “includes, where” substitute “includes—
(b) at the end insert—
“(b) in the case of proceedings against a worker or agent under section 47B(1A), the worker or agent.””
Amendments 33 and 34 agreed.
Clause 19 : Transitional provision
Amendments 35 to 38
Moved by Viscount Younger of Leckie
35: Clause 19, page 14, line 29, at end insert—
“( ) Section (ACAS: prohibition on disclosure of information) does not apply in relation to a disclosure, or a request for information, made before that section comes into force.”
36: Clause 19, page 14, line 32, at end insert—
“( ) Section (Dismissal for political opinions: no qualifying period of employment) does not apply where the effective date of termination of the contract of employment in question is earlier than the date on which that section comes into force.
“Effective date of termination” here has the meaning given by section 97(1) of the Employment Rights Act 1996.”
37: Clause 19, page 14, line 37, at end insert—
“( ) Section (Disclosures not protected unless believed to be made in the public interest), (Power to reduce compensation where disclosure not made in good faith), (Worker subjected to detriment by co-worker or agent of employer) or (Extension of meaning of “worker”) does not apply to a qualifying disclosure made before the section comes into force.
“Qualifying disclosure” here has the meaning given by section 43B of the Employment Rights Act 1996.”
38: Clause 19, page 14, line 38, leave out subsection (4)
Amendments 35 to 38 agreed.
Moved by Lord Lea of Crondall
39: After Clause 19, insert the following new Clause—
(1) Regulation 11 of the Information and Consultation of Employees Regulations 2004 (S.I. 2004 No. 3426) is amended as follows.
(2) After paragraph (1) insert—
“(1A) In any event an employer shall start the negotiation process set out in regulation 14(1)—
(a) not later than
(b) not later than
(c) not later than
My Lords, the amendment has a great deal to do with enterprise. Perhaps I may begin with an anecdote. A British company recently wanted to take over a Swedish company, and when the MD went to Gothenburg there was a meeting over lunch with the works council. The workers’ chief representative on this body asked him the following question: “Mr Struthers, if you take over this company, do you think it will help us to increase our world market share?”. Mr Struthers reported when he got home that he had been flabbergasted; no such question had ever been put to him in such circumstances in a lifetime of working in British industry and commerce.
We in this country have reached a crisis of non-representation of employees in most of British industry and commerce. I am talking here about a lack not of co-determination, as in Holland, Germany and Scandinavia—we will no doubt have time to talk about that next month—but of the most rudimentary processes for meaningful information and consultation, IC, with the workforce generally. By that I mean, as the rubric on the IC default mechanism states,
“consultation with a view to reaching agreement”.
The conclusion is that the CBI pays lip service to this principle only on odd days of the week. Local team briefings and so forth are the most that is generally provided; and the research shows that the local manager often knows as little about what is happening in the company as a whole as the workers on the shop floor—and he or she is certainly in no position to engage in authoritative consultation about such questions as restructuring, which could lead, for example, to collective redundancies that are simply handed down as a fait accompli, thereby shutting the proverbial stable door.
This is the American business model of accountability exclusively to the shareholders—one might say to the share price—side by side, in case I overlook it, with rocketing increases in inequality of pay from top to bottom, with contempt for any notion that the enterprise is “one happy family”, as used to be said, or even that, “we are all in this together”.
Years ago, there used to be interest in these matters in the Department of Employment and Productivity, but now we have an ideology in the Department of Business, Innovation and Skills—I should make it clear that I am not suggesting that it is open to individual civil servants to change that ideology—that is totally orientated to the notion not only that should we remove the concept of two sides of industry but that one side of it is now without a voice or role in any sort of decision-making. Therefore, in practice, BIS does as little as possible to make progress on joint consultation. Indeed, it puts huge resources, side by side with the CBI, into killing off any real advance, particularly if it arises from EU legislation. All this is in the supposed interests of a competitive economy. What a blinkered view it is that is reflected in this ideology on what makes a modern competitive enterprise.
One model is of autocracy, with the interests of the few far outvoting the interests of the many. This ideology is more or less universal in BIS, with the notable exception of the Secretary of State Vince Cable, who, in the light of the current debate on the scandals in top remuneration and tax avoidance, has described the IC regulations as “a potentially powerful mechanism” that,
“has been underutilised to date”.
Let me therefore try to do Mr Cable a favour, otherwise he will have to await the return of a Labour Government in two years’ time. In that broader context, it is now clear Labour Party policy, to give one instance, that there will be worker representation on the remuneration committees of boards. You do not need to be Einstein to figure out that for that to be meaningful it is necessary for there to be a substructure for two-way communication.
One reason why the debate has got stuck is the ideology of what is called, “the British voluntary system of industrial relations”. It is true that the so-called voluntary system meant that it was not laid down by the state. However, that did not mean that there was no general system. On the contrary, it was a very substantial system, both through collective bargaining and other types of collective representation, depending on the subject, on such matters as are identified in the default list in the IC regulations. The fashionable point being made is, “Well, what have the unions been doing about it?”. Let me be very frank and ask the Minister a direct question. Is he aware that so far as triggering the IC regulations are concerned, to which I shall refer in more detail in a moment, in the vast majority of cases union representatives cannot even get through the gate, never mind to the canteen at lunchtime? Some senior figures in the central arbitration committee have even been heard to say that this is the intention—that is, that this is a “non-union” channel, meaning that union reps should not set foot in the place unless they are recognised. Unions are therefore damned if they do, and damned if they do not.
Research by Professors John Purcell and Mark Hall from Warwick Business School is particularly telling. If one wants effective consultation of employees as a group, documentation and pre-meetings of the employed representatives must be organised. For the CBI to imply that one is needed, but not the other, is illogical, to say the least. The CBI is in danger of grossly overplaying its hand, as it deemed the TUC to have done some 30 years ago. It is now the best part of 10 years since the TUC and the CBI were asked by the Labour Government to try to reach some agreed formula for the implementation—or transposition, in the jargon—of the regulations in this country. Experience has shown that that policy formula does not work. I doubt that the TUC or the CBI would contest that statement. The need now, at the minimum, is to provide that firms above a certain size should have a consultative body with a serious purpose. I strongly contest the notion that this obligation can ever be met by unilateral management e-mails, which are patently not the same thing at all.
Our UK regulations at present require 10% of the employees to sign a request for the body to be established. This is often referred to as the trigger. However, this entails a Catch-22 of classic proportions. The very people who might be able to help with the logistics of getting this off the ground are not allowed through the door. We know anecdotally that the whole process is an obstacle course which may have a stooge body at its end. For the individuals concerned, at a personal level there are certainly strong discouragements. These are people who, with no benefit to themselves, stick their head above the parapet for a proposition which is ridiculed by management and is very complicated to explain, out of the blue, to the average worker.
What is the immediate priority? It is to remove the trigger gradually from large companies, starting with 1,000 or more employees in 2014; 500 in 2015; and 250 or more in 2016. Removing the trigger whereby one has to gather 10% of employees’ signatures would remove the likelihood that it would be left to the employer to organise the employees. These numbers would within a couple of years take us to about half the private sector of the economy. The Office for National Statistics defines the other half of the economy—below 250 employees—as small and medium enterprises. Above that level, we have half the value added in the private sector and approaching half the employed. There are only some 6,500 firms involved in this group—the bigger firms—out of 9 million firms in the country as a whole, but they constitute half of the private sector of the economy, employing some 10 million workers.
Finally, for the avoidance of any doubt whatever, I want to be very clear that a trigger of a smaller number—for example, 5%—would be no more satisfactory than 10%. No: the system is broke, caput, dead duck. For the larger companies it simply encourages them to make mischief; removing it would be the first step in putting some substance into what is currently an empty shell.
This reform is pellucidly in the national interest. It would, over time, materially widen the scope and horizons of many millions of workers who at present are in no way recognised as being more than a cog in the wheel of industry and commerce. It will, in 10 or 20 years’ time, be seen as an absurdity that we so undervalued our fellow citizens that their citizenship had to be left outside the door of their workplace. This is not the 19th century; it is the 21st. This is a reform whose time has come.
My Lords, I rise to support the amendment moved by my noble friend Lord Lea. The amendment concerns the information and consultation arrangements with which I have long been associated, first at the TUC and then at the European TUC. Its origins lie in some unexpected and sudden plant closures in the early 1990s, in particular a Renault plant over in Brussels. As a result, the European TUC pressed the European authorities to introduce a directive requiring advance information to be provided about imminent changes to representatives of the workforce, and then for consultation to take place with a view to reaching agreement. A directive was drafted to that effect.
It was a battle to persuade the then Labour Government to agree to this directive, but they did so in 2001 and the directive was enacted at European level. It is fair to say that they remained unenthusiastic about it. The TUC and the CBI were asked to come up with an agreement, and from the start it was clear that both the Government and the CBI wanted to qualify the universal right to information and consultation by introducing this minimum threshold of support. I acknowledge that it was also clear that some union leaders were apprehensive that the directive might be used to undermine the collective bargaining process, either by groups of workers using the consultation channel competitively with the negotiated channel, or by employers wishing to withdraw or to marginalise trade union recognition. This influenced the TUC to accede to the 10% threshold which is now UK law in these regulations. In view of the subsequent history, this agreement was a mistake. The law has had little effect—my noble friend referred to the recent book by Professors Purcell and Hall of Warwick Business School.
Since the law was introduced, we have had the crash of 2007-08, and of course the economy remains very fragile. Not only have the banks experienced corporate governance failures on a very large scale, but there have been more general failures too. The most spectacular has been the way that executive pay and bonuses have continued to surge upwards at double-digit rates every year. All this has been occurring at a time when recession has been very marked for nearly everybody else; real pay levels generally have been in decline; and British performance levels on nearly all measures have been poor.
I acknowledge that Ministers in the Government have struggled to find a way to stop top executives helping themselves, and to break this culture of conspicuous excess. They have not succeeded. The Business Secretary has said that the regulations could be used to influence executive pay and bonuses. However, here lies the reason behind this amendment. Most of the companies in the UK, large and small, do not have any arrangements comparable to a German works council or a French comité d’entreprise: bodies which can hold top executives to account. Many UK companies have hidden behind the 10% threshold which, as has been explained, is a number very hard to achieve for worker representatives. It is true that unions, too, with conspicuous exceptions, have not been very active in this area, finding the 10% threshold just too arduous to jump over.
It is therefore time to revisit these provisions. The noble Lord, Lord Heseltine, has made a persuasive case to this House for the UK economy to become more like Germany’s. A hallmark of the German model is the system of works councils and collective bargaining, widely used to keep managements and workforces in close step, and to keep companies on the path of long-term, sustainable success, not simply focusing on short-term shareholder value and lavish, self-rewarding systems. The amendment aims to help the UK on to a better path than is currently the case. It is time to make this law work, to align ourselves with the most successful European economies and to change our law—and for all concerned to make that change effective.
My Lords, I rise briefly to say that the noble Lord, Lord Lea of Crondall, has exposed a problem with the practical arrangements that have come up through the 10% trigger. I, too, studied the Warwick Business School research, which makes a valuable point—which perhaps the CBI missed—about the combination of having documentation available and also having pre-meetings so that employees can get together to discuss issues and to be well informed. This is a particular problem for very large companies on split sites. I would be grateful if the Minister would explain the response that there might be in order to overcome this problem. Even if it is not helpful to enact it in legislation, perhaps the Government might encourage the members of the CBI to relax the trigger or make the facility such that it is not such a barrier, because clearly this is an issue.
My Lords, I will be brief because my noble friends Lord Lea and Lord Monks covered the territory very well. I was glad to see that they received some support from the noble Baroness, Lady Brinton. I doubt that the Minister will rush to fully embrace the suggestion that the 10% trigger should be changed. However, one thing that the previous Government did and that this Government have maintained is employee engagement. Many statistics demonstrate that the more companies engage with their employees, the more they will improve their productivity. That was demonstrated in 2007-08 when companies were in serious trouble and there was a very positive response from trade unions. Therefore, there is a justification for the proposal made by my noble friend Lord Lea and supported by my noble friend Lord Monks, and I await with interest the Minister’s response.
My Lords, I thank noble Lords for their interventions in this short debate. I will start by clarifying a point about the 10% hurdle. It does not need to be 10% of employees at a single point in time. Cumulative requests over a six-month period totalling 10% would trigger the requirement. It may be helpful for noble Lords to understand that.
I share the view of the noble Lord that employees can make an important contribution to the commercial decision-making process—an issue brought up by the noble Lord, Lord Lea of Crondall. They have a shared interest in the long-term success of the organisation, as well as having experience and knowledge that can increase operational effectiveness. The noble Lord, Lord Young, made a strong case for the inclusion of employees to this extent.
There are many ways in which employees can be consulted by their employer—formally or informally, voluntarily or as a result of statutory requirements. The Information and Consultation of Employees Regulations 2004 are one such formal mechanism. They implement a European directive and were developed through a landmark framework agreement between the CBI and the TUC. If 10% of employees request formal information and consultation arrangements, the employer is required to introduce such arrangements in accordance with the regulations. Employees can make the request direct to the employer, but, if they are concerned about raising their heads above the parapet, they can make the request to the Central Arbitration Committee and their names will be kept confidential from the employer.
It is true that the take-up of the right to formal information and consultation has been low, but I do not believe this means that we should remove the 10% trigger. If there is no demonstrable interest from employees, it is surely unreasonable to require employers to introduce information and consultation machinery. Employees are unlikely to be committed to engagement and discussions risk becoming desultory, wasting the time of all concerned. Nor should it be difficult for a workforce to secure the necessary number of signatures if formal information-sharing and consultation is of genuine value. Unions can play a role by ensuring that employees are aware of their rights and by helping them make the case more widely to colleagues. As the Parliamentary Under-Secretary of State for Trade and Industry, the noble Lord, Lord Sainsbury of Turville, said at the time, the regulations,
“balance the rights and responsibilities of employees and employers”.—[ Official Report , 21/12/04; col. 1712.]
I will answer some questions raised by noble Lords in this short debate. The noble Lord, Lord Lea, raised the issue of the involvement of unions. I noted that he thought that there might be occasions when union leaders were shut out at the door—I think that was his phrase. However, as I explained, the ICE regulations apply whether or not a workplace is unionised. They provide a voluntary mechanism that empowers employees.
The noble Lord, Lord Monks, referred to the role that works councils could play in delivering restraint in directors’ pay. The Government believe that the measures for dealing with directors’ pay that are set out elsewhere in the Bill are the most appropriate way to change the current landscape in this area.
Finally, the noble Lord, Lord Lea, mentioned the findings of the 2004 Workplace Employment Relations Survey. The first findings from 2011 show that there has been growth in methods of communication that focus on the communication of information. Such communication includes meetings, staff surveys and the like. Many of these will be informal mechanisms as opposed to the formal structures provided by ICE, to which I alluded earlier. Clearly, communication is happening and has increased from 2004, when the previous WERS survey reported. Therefore, I ask the noble Lord to withdraw his amendment.
I am afraid I can describe the dialogue between this side of the House and the Government only as a dialogue of the deaf. I referred to people having no voice. The Minister referred to people getting e-mails or this, that and the other, but he did not say that they would have a voice. He said that there was progress in this field. Does he not accept the figure that I read out, which showed that there had been a 10% increase from the mid-1970s in the proportion of enterprises with zilch consultation and no machinery—no works councils and no joint consultative committees at all? The noble Lord implied that I had inaccurately said that unions were locked out at the gate, and purported to correct me.
I did not imply that the figures were inaccurate; I just noted that the noble Lord had mentioned them. I am sure that what the noble Lord said about unions being shut out at the door was accurate, but I would be interested to hear examples of this.
That is very interesting. The impression given was that there was another route via the Central Arbitration Committee for workers who had the same obstacle to which I referred. However, the organising of workers across an enterprise is no straightforward matter for a union; you cannot just ring up one person.
The picture that HMG seem to have is quite incompatible with what the workplace employment relations survey describes. When it comes to a so-called voluntary model, it will not have escaped the Minister’s attention that in Scandinavia, the Netherlands and Germany, the works council is part of the machinery and does not require this complicated obstacle course. All I am saying is that the Minister should go away and reflect on the fact that 10 years of experience has produced progress backwards and that it is about time the Government revisited this issue, not wait for the progress that will be made in two years’ time under the Labour Government. I beg leave to withdraw the amendment.
Amendment 39 withdrawn.
Moved by Lord Whitty
40: Clause 20, page 15, line 8, at end insert—
“( ) In all its operations the issue of benefit or detriment to consumers shall be paramount, and where appropriate consumers shall be held to include small businesses.”
My Lords, we now move to the competition and consumer part of this Bill. I move Amendment 40 and speak to the other amendments in this group, all of which are in my name. I have been briefly promoted to the Front Bench for this section and I should declare my past and present interests. I am a former chair of Consumer Focus and of the National Consumer Council, and I am very pleased to see one of my distinguished predecessors, the noble Baroness, Lady Oppenheim-Barnes, here for this section. I am also currently an honorary vice-president of the Trading Standards Institute.
Most of this group of amendments are designed to ensure that consumer interest runs through the whole of this part of the Bill and the whole of the operations of the new Competition and Markets Authority. The Bill starts out very well. Clause 20 states commendably and unequivocally:
“The CMA must seek to promote competition”— here and abroad—
“for the benefit of consumers”.
It is clear in this part of the Bill that competition is not an end in itself or an ideological description of what the capitalist system should look like; it is about the benefit of consumers and avoiding detriment to them. There may be wider public interest issues in relation to mergers, cartels and anti-trust issues, but this part of the Bill deals with the competition dimension, and the definition right at the beginning relates to the benefit of consumers.
I regret, however, that once that declaration is past, the operational requirements placed on the CMA hardly mention consumers. They are not mentioned in Clause 23 on mergers, not in Clause 24 on interim measures, not in Clause 27 on cross-market issues, not in Clause 31 on anti-trust, and so on. After Clause 23, no clause mentions consumers in the main part of the Bill. There is an amendment from the Minister that does, but there is no formulation here.
Moreover, there are in this Bill 50 pages of detailed prescriptions as to how the CMA should carry out its task. I find that very odd in the first instance. Indeed, I think it was to the noble Lord, Lord Marland, that I suggested that Schedules 4 and 5 be scrapped entirely except for one paragraph, which says in effect that the CMA board should conduct its own procedures. The detailed laying down of procedures is perhaps slightly tangential, as it offers a target to the very litigious oligopolists who have to deal with regulators. I am sure that the sector regulators, the OFT and the Competition Commission have experience of people picking up tiny bits of the regulations and catching the regulators out on these competition and cartel issues. By extension, it is also important for legal reasons that there is a reference to consumers throughout these clauses and schedules, if indeed we are maintaining them.
There is one reference to consumers, in Schedule 5, paragraph 63, which simply says “Omit section 8” of the Enterprise Act 2002, which it states promotes good consumer practice. This is very odd, and it is clear that the way the people who have designed how the CMA will operate have not ensured that consumer interest runs through the whole DNA of the new CMA. These amendments attempt to change that.
Amendment 40, the key amendment in this group, says that benefit or detriment to consumers is paramount in all operations. This is my basic theme for this evening. Incidentally, my amendment also includes a reference to small businesses. Much of the trading and some of the detriment of oligopolistic and monopolistic practices affects small businesses as much as it affects individual consumers. I have therefore explicitly put that point in. Indeed, I received a letter today from the Federation of Small Businesses very much supporting that reference.
Amendments 42 and 43 would make it explicit that the chair of the CMA is subject to the appropriate Select Committee of another place. This is partly so that it can judge whether the putative chair has consumer interest at heart in his or her approach to the job. Amendment 44 would require the CMA’s annual plan to include an assessment of the benefits to consumers of its actions and investigations. Amendment 47 would require CMA panel members to have experience or knowledge of consumer affairs. Amendment 48 takes it slightly further and would require that three members of the panel have direct experience of consumer representation or of consumer law.
It is particularly important to state this here about the panel operations, because although Schedule 4 does not prescribe any consumer experience, it prescribes a lot of other experience that people on the panel should have. It says that some should have experience of newspapers, an interesting point to which I may return at a later stage. It says that some should also have experience of communications, utilities, other business, and Northern Ireland specifically, but there is no reference to experience in the consumer world.
Amendment 51 deals with the deletion which I just mentioned: that of Section 8 in the OFT’s responsibility for promoting good consumer practice. That general requirement on the new body to inherit the OFT’s responsibilities for promoting good consumer practice surely should be located somewhere in the remit of the new body.
We need to rectify the omission of consumer references. My Amendments 41 to 44, 47, 48 and 51 need to be treated as a batch, because they all attempt to do so and to put the consumer first.
Two other amendments in this group deal with a slightly different issue. Amendment 52 deals with the issue, which I have raised with the Minister before, of how some of the other functions that are currently with the OFT are devolved to other organisations. Clause 22 allows the OFT to hand on and transfer functions to the CMA or Ministers, but in practice a lot of what the OFT currently does is going elsewhere: to trading standards, to Citizens Advice, to the National Trading Standards Board, which has no clear corporate identity let alone a statutory identity. The Minister has written to me, this issue has been addressed in papers on the consumer landscape, and I am not necessarily against it, but surely if we are looking at what is happening to the end of the OFT and the rise of the CMA, we ought to be clear in this Bill where those current issues are going.
Some have already happened; Consumer Direct has already gone to Citizens Advice. Some are being talked about; scams procedures are being dealt with by trading standards. But some are going to bodies that are themselves under serious pressure. According to UNISON members in trading standards—I have no reason to dispute this—trading standards across England and Wales have suffered a 13% cut in funding and a 15% cut in staff, which has led to a 26% cut in inspections and a 29% cut in prosecutions. If we are loading further functions on to trading standards, we need to ensure the resources are there to do so.
The Minister is likely to say—indeed, it may even be scheduled in our forward business—that some of this is going to be dealt with by orders under the Public Bodies Act. However, for a complete picture of what is happening to the OFT’s responsibilities, surely we need some reference in this Bill. We need to be clear where those responsibilities are going and that the new CMA, wherever it is devolved to, will ensure that those responsibilities have a national focus as well. While the day to day operation may go down to trading standards or to Citizens Advice, there needs to be a statutory body that is responsible for the effective overall delivery of consumer education, consumer information and inspection and for dealing with widespread consumer scams.
Amendment 54 is more straightforward in the sense that it deals with the staff of the OFT and the Competition Commission. There is a reference to them being treated under TUPE or similar arrangements. My previous understanding—this was a bone of contention during the Public Bodies Bill—was that the staff would be treated with the equivalent of TUPE through Cabinet Office orders. If “similar” raises certain anxieties, I do not see why the Government are not prepared to put “equivalent” into the text of the Bill. That is a slightly separate point, which can be dealt with easily by the Minister accepting that amendment, or at least producing a form of words which means the same thing.
The bulk of these amendments are to ensure that consumer interest, including the consumer dimension of small businesses, runs through the whole of the CMA in the way that “Blackpool” runs through the stick of rock. At present, frankly, the Bill does not look like that. It is mentioned at the front but it is not followed through. The amendments would lead to some improvement and go some way towards rectifying that. I beg to move.
My Lords, I have to start my remarks with the words, “Oh dear”. We have reached a disappointing spot in the advance of the protection of consumers, with the part of the Bill to which the noble Lord, Lord Whitty, referred leaving out, as it does, all the references that he wants to add about consumer protection. One reason is that the CMA and the consumer body are very different from what exists today. There is direct access for consumers to the Office of Fair Trading. If that is not enough and can be improved, why not improve it? The same applies to all the competition clauses throughout the Bill. They may be good—some of them probably are—but I do not see that what exists today warranted such a total and revolutionary change in the way that these matters have been discussed, enacted and valued by those consumers, consumer organisations and others who have benefitted from it in the past.
The noble Lord, Lord Whitty, spoke in particular about the phrase “promoting competition”. I am not quite sure how you promote competition—I have no idea—but what is important is to ensure that there is protection against anti-competitive practices that are directly harmful to the interests of consumers. It is as simple as that. I do not see the proposed amorphous body getting to the kernel of the problems that will affect consumers.
The noble Lord, Lord Whitty, rightly said that the trading standards departments will need a great deal more financial support than they are likely to get. They are respected by consumers and others alike. They have dealt successfully over the years and most people have thought of them as among our most trustworthy and available resources. They are being given a much more important role, which I am content about, and I am confident that they will, given the right resources, be able to carry it out. They have had the experience and, as long as they are given the opportunity to digest the role, they will know what they will be required to do in borderline cases.
Once again I come to the point about access for consumers. This will now go because the Office of Fair Trading is going. Apparently, collections will be made from the experiences of citizens advice bureaux and of the trading standards officers themselves. They will receive information about the big consumer concerns that will confront them but, once again, there is no clear process in the Bill—and certainly not the funding—for the citizens advice bureaux, which are all staffed by voluntary and diverse workers, to go to their top echelons. They will have to collate the information and carry out research on it, which they have not yet had to do to such an extent, and then pass it on to the trading standards officers. They will discuss it with them and then decide whether the matter—it could be a competition matter—should go to whichever of the respective bodies. That will be their responsibility.
As I pointed out in Grand Committee—I apologise for raising this matter again—the funding of the National Association of Citizens Advice Bureaux, which was announced by the noble Lord, Lord Marland, at Second Reading, was going to be £1.7 million. I was able to look up the figures for 1979, when we were closing some citizens advice bureaux. The National Association of Citizens Advice Bureaux said that it needed more money, and I gave another £1.7 million then, making the amount up to £3 million altogether. In today’s money, goodness knows what that would be. Since Grand Committee, I have looked even further and have found that in 1981, while the process was still going on, I increased funding to £4 million for the citizens advice bureaux alone. If it cannot do its job properly because it has not got enough money, then the whole chain of information going down through trading standards, to the CMA, to whoever will be receiving it, will not have strong enough links. I hope that my noble friend will be able to tell us something encouraging about that.
I do not propose to say anything about the Monopolies Commission replacement part of the CMA at this stage. That may be more appropriate later.
My Lords, Amendments 40, 41, 47 and 48 recognise the importance of consumer protection and consumer interests and I thank the noble Lord, Lord Whitty, for the opportunity to debate this important issue. I also know that the noble Baroness, Lady Hayter, has spoken strongly in favour of consumer rights and I note and acknowledge her interest in this area.
As we said in Grand Committee and in the other place, empowering and protecting consumers is a vital element of our approach to promoting growth in the UK economy. Indeed, in the coalition agreement, the Government committed to take action to protect consumers, particularly the most vulnerable, and to promote greater competition across the economy. That is why we have put consumer interests at the heart of the CMA, and in particular, by the following: first, by giving the CMA a single general duty to seek to promote competition for the benefit of consumers; secondly, to retain the OFT and Competition Commission’s markets powers that aim to make markets work better for consumers; thirdly, by giving the CMA primary expertise on unfair contract terms legislation and additional consumer enforcement powers to address business practices that distort competition or impact on consumer choice in otherwise competitive markets; and lastly, by transferring the OFT’s super-complaint function, which provides a fast track process for complaints by consumer bodies.
Given the vital role the CMA will play in protecting and promoting consumer interests, and this vast range of consumer functions, we do not consider that these amendments are required. Further, in some respects the amendments could produce the wrong result. Amendment 40 cuts across existing legislation where the CMA is required to consider a range of objectives. For example, in carrying out its regulatory appeals functions, the CMA must take into account the objectives of the sector regulators, which may include media plurality or energy security. A requirement for consumer benefit or detriment to be paramount in all its operations might therefore cast doubt on the ability of the CMA to carry out its regulatory appeals functions fairly.
Amendment 40 would also provide that “consumers” include SMEs where appropriate. While I agree with the sentiment, I do not believe that it is actually necessary to deal with SMEs in this way. The existing legislation has not to date constrained the OFT from considering business to business markets, because if there are competition issues in these markets they will usually ultimately affect end consumers as well.
With regards to Amendments 41, 47 and 48, as a core function of the CMA, I expect the board and panel members to have great expertise in consumer issues. However, it would be inappropriate to establish a legislative criterion of this kind for appointments to the CMA board and CMA panel. We should not impose unnecessary constraints on the sort of people who can be appointed to these. As is currently the case for the Competition Commission panel, we expect the CMA panel to be made up of a range of experts, such as lawyers, economists, accountants and business people. Between them, they have the range and depth of expertise to deliver on inquiries across the economy, including on consumer issues and different markets.
I now turn to Amendment 44. In the current regime, the OFT is not subject to a statutory requirement to estimate impact on consumers in relation to its work. At present the OFT and Competition Commission estimate the impact of their past work on consumers over a rolling three-year period, using a common approach. Looking backwards helps to make the impact estimates more precise, and looking over three years helps level out peaks and troughs in impact. Requiring the CMA to estimate impact of its future work would be significantly less precise and in many cases difficult to forecast. Merger cases, for example, are responsive to market developments, and the CMA cannot pre-empt the outcome of independent market inquiries. This amendment could also leave the CMA at risk of judicial review if forecasted consumer benefits were not realised, and it could incentivise CMA to underestimate, and underachieve.
On Amendment 51 we do not consider that the OFT’s function to promote “good consumer practice” needs to be transferred to the CMA. As we said during our debate in Committee, in the current regime, Section 8 of the Enterprise Act 2002 gives the OFT a general function of promoting good consumer practice, which recognises its leading role in providing consumer education, its function in relation to approving consumer codes and its international consumer advocacy work.
In the new consumer landscape, the Citizens Advice service will take the lead role in providing consumer-facing education from the OFT as well as taking over responsibility for consumer advocacy from Consumer Focus; the Trading Standards Institute will have the role of approving consumer codes. The CMA will continue to have an international consumer role—for example, to represent the UK at the OECD’s Committee on Consumer Policy. A specific provision has been made for this in paragraph 19 of Schedule 4 to the Bill.
Equally, we do not consider that Amendment 53 is required. The amendment enables the Secretary of State to make a scheme in relation to the transfer of the rights, properties or liabilities of local authorities, Trading Standards and the Citizens Advice service, to a Minister or the CMA. It does not allow for the transfer of consumer functions. Therefore, in effect the amendment would allow the Secretary of State to transfer, for example, staff or property from local authorities, Trading Standards and Citizens Advice to the CMA or a Minister without transferring the relevant consumer functions. We do not believe that this is desirable or workable.
I take note of the comments that were made by my noble friend Lady Oppenheim-Barnes. It may be an opportunity to reiterate again the aims of the Government combining the competition and consumer landscape in the reforms that they are delivering, to provide a better deal overall for consumers. The objective is to set out clearer responsibilities and to have better co-ordination between the enforcers and the consumer advisory bodies. For clarity, I should say that the Citizens Advice service will be the home for consumer advocacy, education, advice and guidance. Consumer enforcement will largely be the responsibility of Trading Standards, with the new National Trading Standards Board being responsible for prioritising national and cross-local authority boundary enforcement. The CMA will work with Trading Standards to ensure that there are no gaps in enforcement. As mentioned above, it will have primary expertise on unfair contracts terms legislation. Business education will be shared by the CMA and Trading Standards.
As was mentioned by the noble Lord, Lord Whitty, these changes will be made using two orders under the Public Bodies Act, and it is proposed that the first order laid in the House on
My noble friend Lady Oppenheim-Barnes also raised the issue of funding for the Citizens Advice service. I recognise my noble friend’s long experience in this particular area. The Citizens Advice service will be the home of consumer advocacy, as mentioned earlier, including education, advice and guidance. It will allocate an additional £3.72 million to carry out general consumer advocacy work, which was previously carried out by Consumer Focus. The Citizens Advice service will receive the appropriate budgets for energy and postal services advocacy, currently provided to Consumer Focus, once the regulated industries unit transfers to them in 2014.
I now turn to Amendments 42 and 43. There is already a system in place, introduced by the previous administration, for agreeing between Parliament and the Executive that the public appointments of government will be subject to a pre-appointment scrutiny hearing. Under this system, the Secretary of State discusses and agrees with the chair of the relevant Select Committee which appointments will have such a hearing. The Government in their response to the Liaison Committee’s report of Select Committees and public appointments encouraged Ministers to engage with Select Committee chairs to ensure that the right appointments are receiving Select Committee scrutiny prior to appointment. The current system works well and the Government do not believe that there is any advantage in formalising this process in legislation in respect of individual roles such as the chair of the CMA. For this reason, we do not think it necessary for there to be a statutory requirement for this process.
Finally, I turn to Amendment 54. Ensuring that the new Competition and Markets Authority has the right expertise and experienced staff is essential. Clause 22 gives the Government the power to provide protection to staff in circumstances where TUPE is not engaged, and to make schemes to transfer staff to the new authority. I hope that this helps to answer the question raised by the noble Lord earlier. It would be inappropriate to accept Amendment 54 because applying the exact provisions of TUPE may not be appropriate in these circumstances. For example, the Secretary of State may wish to incorporate within any transfer scheme a provision that allows for greater flexibility in relation to post-transfer contractual variations so as to enable the CMA to seek to harmonise staff terms and conditions through agreement. This can assist the process of harmonising disparate reward packages and thus may reduce the risk of unlawful discrimination, particularly on equal pay claims, and avoid unnecessary barriers to reform.
I hope that noble Lords will forgive me for giving rather a lengthy answer to these amendments and I hope that the noble Lord will be reassured to some extent by my explanation of how the CMA will operate its consumer role. I hope that he will not press his amendment.
At the beginning of his response, my noble friend said that the fast track would be a helpful element in the Bill. I have looked everywhere but I cannot see anything about a fast track. It would be helpful if he could tell us a little more about it. Who is at the beginning of it and who is at the end, and where is the information coming from?
I thank my noble friend for that point. Given that it is a very specific question, I will most certainly write to her.
My Lords, I thank the Minister for that reply and the noble Baroness, Lady Oppenheim-Barnes, for her interventions. I am afraid that I am not hugely reassured. If the Minister is correct in saying that the issue of the consumer interest or the protection against consumer detriment runs through the Bill, it is important that that is reflected in it at various points. I did not expect him to accept all my amendments, but I thought that he might be a little more benignly disposed towards one or two of them than he appears to be. Part of the problem is that the detailed prescriptions as to how the CMA will work, running to 50 pages with no mention of consumers at all, will be seized upon by corporate lawyers and people representing those who wish to continue anti-competitive and anti-consumer activities. They will say, “You have to abide by this and never mind about the general broad principles. That is what it says here, and it does not mention consumer detriment or protection at all”.
There is a lack of specific reference in the procedural aspects to consumer experience in terms of the membership of the board and the panels. I would not mind so much if other expertise was not mentioned, but consumer expertise is not mentioned. As the noble Baroness, Lady Oppenheim-Barnes, has said, early on there were reassuring noises that the access that consumers have to OFT services will not be diminished, but nothing in what the Minister said actually explained how that would be the case when everything else is shifting things away from the OFT down the line to trading standards offices, citizens’ advice bureaux and so forth. They may well be able to do a decent job. I hope that they will, and that they have the resources, funding and staffing needed to do so, but there must be some responsibility centrally to make sure that that happens. That is not reflected in this Bill and it is not reflected in the terms of the new CMA. I think that the Minister really ought to accept at least some of my amendments. Amendment 40 summarises all of this, and therefore I shall seek the opinion of the House.
My Lords, Amendment 45 is a more straightforward amendment in which I am trying to save the Government from themselves. I hope they will see the sense of that.
The meaning of this amendment may be a bit obscure from reading it on paper because it simply says “leave out paragraph (g)”. It would actually delete the reference to Monitor which, as noble Lords will know, is the expanded economic regulator for the National Health Service. The Government would really be very wise not to allow the terms of this Bill and the role of the Competition and Markets Authority to get entangled in the issues of the health service. It is therefore quite strange to me that the Government have kept the reference to Monitor. Paragraph 16 gives the CMA responsibility for writing a report every year on the other regulators as to how they have conducted their concurrent competition regulations and enforcement, and how they have been using their competition powers. Given that we are constructing a new organisation it is understandable that it is going to do that.
We have had some serious issues in relation to some of the sector regulators using other powers rather than their competition powers. For example, Ofgem has tended to use its licence powers rather than competition powers and has been very resistant to a referral to the Competition Commission; one could argue that Ofwat has managed to introduce hardly any competition into the sector at all, and so on. But those are very different from the issues that are going to confront Monitor, and to ask the CMA, in looking at these other regulators, to have a periodic assessment that applies the same terms as the utilities and transport regulators to the health service seems extremely foolish.
In part, the Government recognise this because their amendment in Committee also included Monitor, in terms of the ability of the Secretary of State to instruct the CMA to take over the competition responsibilities of the sector regulators, and they dropped that. That was extremely wise. This is a lesser issue but it is important, because during all the debates on the Health and Social Care Bill, Ministers here and in another place said that while they were introducing a degree of competition into the health service, competition would not outweigh other considerations.
Competition has a place in the National Health Service. One can argue about how much but it is never paramount. I do not think that even the most ardent advocates of a change in the National Health Service would regard competition as being more important to patients and the delivery of the National Health Service than the integration of services and the assurance that the quality of services in physical and social terms was important, and the degree to which competition existed was very much a secondary or tertiary issue. To give the CMA powers of supervision of a complex regulator such as Monitor, the prime consideration of which is to deliver a National Health Service that is integrated, available and flexible for the patient, and to try to override that with competition assessments that are equivalent to those used in the gas or electricity industries or the railways is not a sensible move.
Regrettably, this is also part of a wider picture. Orders are being produced under the Health and Social Care Act that also give rise to anxieties about the assurances given to us during the passage of the Act—I am looking particularly to the Liberal Democrat part of the coalition because the assurances were primarily directed at them—that competition would not outweigh other considerations in the regulation of the health service and that in particular the health service would not be open to the introduction of general competition policy, particularly EU competition law. That was a clear reassurance given us by the noble Earl, Lord Howe, and Ministers in another place throughout the difficult period when we were dealing with the Bill. It may be that the Government have changed their mind but certainly the combination of Monitor appearing in this Bill, supervised by the CMA, and the pushing of the boundaries of competition in some of the draft orders that are coming under the Health and Social Care Act seems to be a worrying tendency.
Tonight we are dealing with only this Bill. There is no reason at all why the effectiveness of the CMA is affected one way or another by whether it judges and marks Monitor, but the anxieties of having Monitor in that list are considerable. Any debate on the National Health Service is always highly emotive and not always entirely rational, but it would be wise for those who are promoting the role of the CMA in this respect to keep out of that area. I hope that the Minister and his colleagues will see the sense of doing just that. I beg to move.
Yet, yes. I will not predict the future. I do think that the duties of the general competition authorities and the duty of Monitor are fairly different in their character. I look forward with interest to what my noble friend has to say because I am sure he will have a very full answer to this. Until I have heard that, at the moment I am doubtful about the wisdom of putting Monitor under the authority of the general competition authorities.
My Lords, the Bill strengthens the regime for the competition powers that will be held concurrently by the Competition and Markets Authority and sector regulators. The CMA will have stronger powers to co-ordinate Competition Act enforcement work and sector regulators will have explicit duties to consider using the Competition Act.
As part of these arrangements, and to ensure appropriate transparency and accountability, the CMA will be obliged to publish an annual report on the operation of the concurrency arrangements and the use of concurrent competition powers by the CMA and the sector regulators with concurrent powers. Amendment 45, moved by the noble Lord, Lord Whitty, would exclude Monitor from the scope of this report.
After lengthy debate on the Health and Social Care Act, Parliament decided that Monitor should have concurrent competition powers. Under the reforms being implemented through that Act, competition will not be pursued as an end in itself. We have said that competition will be used to drive up quality and will not be based on price. Nothing in this Bill affects this—certainly not the requirement to publish a report on how the concurrency arrangements have worked and the use of concurrent powers—or the Government’s commitment that Monitor will have concurrent competition powers so that a sector-specific regulator with healthcare expertise can apply competition rules.
However, Monitor’s concurrent competition powers in relation to the provision of healthcare services in England need to be co-ordinated with the CMA’s, which can apply competition law in wider markets than Monitor; for example, in cases affecting the whole of the UK and in markets for pharmaceutical products or mobility aids. It is therefore quite right that Monitor be included within the concurrency regime and the CMA’s report on concurrency in particular.
I will address the question raised by my noble and learned friend Lord Mackay of Clashfern. I hope I can go some way towards allaying his fears, particularly regarding the application of competition law in health services, which was also alluded to strongly by the noble Lord, Lord Whitty. Competition law will not apply to the NHS Commissioning Board or clinical commissioning groups in their roles as commissioners of services because the case law is clear that, where public bodies carry out an activity of an exclusively social nature, neither that activity nor the bodies’ purchase of goods or services for the purpose of that activity will generally be treated as an economic activity. Also, a significant proportion of services delivered by foundation trusts would not be subject to competition law, as these NHS services are not provided in a market. They include accident and emergency, trauma, maternity, obstetrics, critical care and many others, particularly in remote rural areas.
A foundation trust will typically deliver some services to which competition law potentially applies and some to which it will not. If the intention or effect of an agreement was to prevent, restrict or distort competition, Monitor will, in considering a case, look at the benefits to patients alongside the detrimental effects to competition. When deciding on a remedy or penalty, Monitor will take into account the beneficial deterrent effect of a formal decision and possible fine against the impact that its payment might have on the public body and ultimately the taxpayer. Therefore, I ask the noble Lord, Lord Whitty, to withdraw Amendment 45.
My Lords, I thank the Minister and I thank the noble and learned Lord, Lord Mackay, for his intervention, which posed the question more succinctly than I did. The Minister has not effectively answered it. He has underlined that the situation in the health service is complex, but saying that the commissioning groups and others are exempt in their monopsonic dimension as buyers does not mean that other entities in the health service are exempt as providers. The aim of the health service is to look after the interests of patients, whereas consumers in most markets are served, with some exceptions, by greater competition. In the vast majority of situations the default position must be that consumers are better off if there is more competition. That is not the case when you need integrated and specialist services, and a whole chain of different services for different conditions in the health service. This is not equivalent to railway companies competing through franchises, or to gas and electricity companies, or even banks, competing; they are covered by the other concurrent regulators.
This situation is different and the report would have to be different. I am not against the CMA and Monitor co-operating but you should not have the CMA, with the kind of approach that it has to competition policy, being a sort of prefect, marking Monitor’s extremely complex task in relation to its competition powers. I know that I shall not persuade the Minister tonight but I ask him to reflect on this, and on how this could look to the public and to the professions in the health service. The Government are adopting an unnecessary rod for their own back and they would be wise to reconsider. However, for the moment, I withdraw my amendment.
Amendment 45 withdrawn.
Moved by Lord Whitty
46: Schedule 4, page 96, line 27, at end insert—
“( ) the Financial Conduct Authority”
My Lords, I beg to move Amendment 46, which also deals with concurrent regulators. There are two aspects to my amendments. Amendments 46 and 64 deal with the opposite issue to the one that I was discussing with Monitor. Amendment 69 deals with general relations between the CMA and concurrent regulators. The Government have also introduced a raft of amendments in this area and, broadly speaking, they are welcome. As they deal to a large extent with Amendment 69, I shall leave that to the end.
The first two amendments deal with the issue of the Financial Conduct Authority, which has just been established by the Financial Services Act. Strictly speaking, this is not quite about concurrent powers, but if we establish a new competition and marketing authority with wide-ranging powers across markets in different sectors, it is odd that the financial sector is not mentioned in this Bill. Some of the biggest consumer, competition and quasi-cartel issues that have arisen in the financial sector, particularly over the past few years, are among the most important issues of market structure and consumer protection. Somehow, the CMA does not seem to have a relationship with that new authority. Indeed, there are two authorities here. There is the Prudential Regulation Authority, which has some impact on the consumer side as well, but let us focus on the FCA.
If they are not to be put together at the end of a list of other concurrent regulators, there ought to be a reference somewhere in the Bill to the role that the CMA plays in relation to the FCA and the financial sector. Its omission is very odd. Maybe the Treasury has seen off BIS in a way that bodies such as DECC, Defra, the DCMS and the Department for Transport cannot in relation to their regulators, but it is wrong. If you talk to the average consumer at the moment, the markets, consumer interests and consumer protection issues are primarily about the financial sector—from the failure of the banks through to debt and insurance issues. To exclude mention of that sector from the Bill is very odd. Simply adding it to this list may not be the correct solution, but I hope that the Minister can tell me why it is not there and how it could be included.
Amendment 69 deals with general relations between the CMA and the sector regulators. That is important because, as it stands, prior to the Government’s new amendments, Clause 46 suggests a relationship rather like that between the hammer and the nail. It actually provides for the Secretary of State to take all the competition powers from the sector regulators and hand them over to the CMA. Stated starkly in that way, it seems wrong. My amendment began from the point that the relationship should be based on co-operation and perhaps reporting systems, and should move only in extremis to the possibility of the CMA taking over those powers. As I read the noble Lord’s Amendment 70 and some other amendments, it goes a long way towards that. I shall listen to what the Minister says but I will withdraw my amendment in favour of his. I beg to move.
My Lords, the Bill will strengthen the concurrency regime. I have already noted that the CMA will have stronger powers to co-ordinate Competition Act enforcement work and sector regulators will have explicit duties to consider using the Competition Act before taking regulatory enforcement action. We also expect that the CMA will work in close co-operation with the sector regulators in applying their concurrent powers.
Consistent with this approach, the Government also want to send a further signal about the need for strong and effective use of competition powers across the regulated sectors. They have proposed that, if the new concurrency arrangements do not work and if a regulator, other than Monitor, which the Government have excluded from the scope of the power, fails to produce better outcomes, the Secretary of State will have a power to ensure that the OFT and then the CMA take sole responsibility for applying concurrent competition powers in that regulated sector.
There was a debate in Grand Committee about providing a more explicit focus on co-operation between the CMA and regulators, and ensuring that the power is not used without early warning to the regulator. We have considered these points carefully and have therefore proposed Amendments 62, 63, 65, 66, 67, 68 and 70. These amendments require that regulators, the CMA and relevant devolved Administrations be consulted on the potential use of the power prior to the launch of a more public consultation on a proposal to use it. This ensures that there will be early discussions with regulators on any concerns giving rise to a proposed use of the power and allows them an opportunity to respond.
The amendments will also set out a purpose for the power: the promotion of competition within any market or markets in the United Kingdom for the benefit of consumers. This prevents the use of the power for any purpose other than improving the competition regime and ensures the focus of the competition regime remains benefitting consumers.
Within this group are some technical amendments. Government Amendment 52 also touches on the sector regulators. It makes a consequential change to the Civil Aviation Act 2012 to refer to the CMA instead of the Competition Commission. Government Amendment 89 is a minor and technical amendment on the commencement of the reserve power, and Amendment 90 is a further minor and technical amendment on commencement.
I will now make a few points about the amendments tabled by the noble Lord, Lord Whitty, on the sector regulators. Amendment 46 would include the Financial Conduct Authority within the scope of the CMA’s concurrency report. After lengthy debate on the Financial Services Bill, Parliament decided that the FCA should have a competition remit and mandate to use its powers to promote competition, but it will not have concurrent competition powers under the Competition Act or the Enterprise Act. Instead, there are special arrangements to enable the FCA to pass issues to the CMA and for the CMA to be able to scrutinise the competition effects of the financial services regulators’ actions.
As it will not have concurrent competition powers, it would not make sense to include the FCA within the scope of the CMA’s specific report on concurrency as this would do nothing to improve transparency or accountability. We fully expect, however, that the CMA and the FCA will have a memorandum of understanding on how they work together and may well report on how they have worked together to improve competition in financial services.
Amendments 64 and 69 relate to the power to remove concurrent powers. I am pleased to see that the noble Lord agrees that such a power should exist, but I cannot agree with the form of the power he proposes. He proposes a general provision that the CMA and sector regulators work together on the basis of co-operation. The CMA, however, will have powers to carry out market investigations in the regulated sectors and can act as a second pair of eyes to the conclusions of a regulator. It will also determine regulatory appeals and references from the decisions of regulators. It therefore needs to be free to disagree with their conclusions and, as such, it would be inappropriate for it to be generally required to co-operate with them. In any case, the Bill and existing legislation already include a number of provisions on co-ordination of the CMA’s and the regulators’ functions and the OFT has a memorandum of understanding with a number of regulators.
The amendments proposed by the noble Lord, Lord Whitty, also link the use of the power to the CMA’s report on concurrency. This report, however, will be limited in scope. It ensures there is transparency around the use of concurrent powers and requires the
CMA to provide an assessment of how the concurrency arrangements have operated. While the CMA’s concurrency reports may therefore provide some relevant analysis, they are not intended to provide a full assessment of sector regulators’ performance or of whether the distribution of powers across the CMA and the regulators remains appropriate. It is therefore not right to link the use by the Secretary of State of the power to remove concurrency to this report.
Finally, these amendments would include the FCA within the list of regulators whose concurrent powers could be withdrawn by the Secretary of State. As the FCA does not have concurrent competition powers under the Competition Act and the Enterprise Act, it would not make sense to include it within the scope of the Secretary of State’s powers.
The noble Lord, Lord Whitty, raised an issue concerning the Financial Services Act 2012 introducing a new competition scrutiny regime for financial services. The Financial Conduct Authority and the CMA will have an important role to play in promoting effective competition in financial services. The FCA needs a mechanism to engage the CMA if it is to make sure that the CMA’s powers and expertise are effectively brought to bear in the financial services sector. The FCA will therefore have the power of referral to the CMA with the OFT, and then the CMA when it becomes fully operational, under a corresponding duty to respond within 90 days. The availability of the power will not prevent the FCA taking the lead in addressing competition issues where it is better placed to do so. When it receives a referral from the FCA, the CMA may have the information and analysis it needs to take action almost immediately, for example, launching a market investigation reference or bringing Competition Act enforcement proceedings.
The noble Lord, Lord Whitty, raised an issue concerning the OFT/CMA powers under the Financial Services Act. The scrutiny regime exists now for the Financial Services Authority, but this regime is now duplicative and inconsistent with how scrutiny works in other sectors. Therefore, under the Financial Services Act there will be a first tier of scrutiny under the CMA’s powers to conduct market studies which may consider the impact of regulation on the market. The OFT and the CMA will be able to rely on existing powers to give advice to the regulators.
I hope I have gone some way to answering the questions raised by the noble Lord, Lord Whitty, and I ask him to withdraw Amendment 46.
My Lords, I thank the Minister for that very full reply. As I indicated, as far as the general issue of co-operation between the CMA and the sector regulators is concerned, while his amendments do not go quite all the way and omit one or two things from my amendments, they represent a major advance and a clear requirement on the CMA, so when we come to them I certainly will not press my amendments dealing with that area. The one oddity about his reply was that, in terms of assessing whether there was a need for the Secretary of State to intervene, the concurrency report which is required under the earlier section would not be relevant or detailed enough. I would have thought that the whole power to produce a concurrency report was so that it would identify where there were some serious failings that needed to be addressed and might need to be addressed in a fairly draconian way by the Secretary of State handing the power over the CMA, so I find that lack of linkage a bit odd. On the other hand, the totality of what the Minister said about co-operation and the process that you have to go through before you use the powers in Clause 46 is a very positive move, and I think him for it.
As far as relations with the FCA are concerned, the Minister referred to a memorandum of understanding between the two. My recollection and, I think, that of my noble friend Lady Hayter is that during the passage of the Financial Services Bill the Government, in the form of the Treasury rather than BIS, were deeply resistant to us putting in the requirement that there should be some co-operation between the new FCA and the then competition authorities. There is no reference in this Bill to a memorandum of understanding. The Minister referred to existing powers, but with effect in both directions in terms of handing things from the FCA to the CMA and the CMA coming back to double-check the way in which the FCA is carrying out its powers in relation to the financial sector. I think this omission is significant. I am worried about it, and if anybody out there knew about it, they also would be worried. Whereas this new super-duper competition authority has clear powers and clear relationships with all sorts of markets, the one market where it is not clear that it has a relationship, a power and an ability to second-guess is the financial services area, the one area which everybody has been worried about for at least the past five years. That I find odd. While there may be the odd reference here or in preceding legislation that helps, I think the Government probably need to have another look at this, but tonight I beg leave to withdraw the amendment.
Amendment 46 withdrawn.
Consideration on Report adjourned until not before 8.39 pm.