Clause 49

Legal Services Bill [Lords] – in a Public Bill Committee at 6:00 pm on 19th June 2007.

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The board’s policy statements

Photo of Bridget Prentice Bridget Prentice Parliamentary Under-Secretary, Ministry of Justice

I beg to move amendment No. 6, in clause 49, page 27, line 1, leave out subsection (3) and insert—

‘( ) In preparing a statement of policy, the Board must have regard to the principle that its principal role is the oversight of approved regulators.

( ) The statement of policy prepared under subsection (1) must—

(a) take account of the desirability of resolving informally matters which arise between the Board and an approved regulator, and

(b) specify how, in exercising the functions mentioned in that subsection, the Board will comply with the requirements of section 3(3) (regulatory activities to be proportionate, consistent and targeted only at cases in which action is needed, etc).’.

I hope that the amendment will not be controversial. It tries to clarify the drafting of an amendment, which was made in the other place, about the board’s policy statements. I hope that the revision sets out more accurately the relationship between the board and the approved regulators. As I have said on many occasions, we have accepted Sir David Clementi’s recommendation of the B+ model for oversight regulation, which should be the basis of the new regulatory framework. That principle allows existing regulators to continue to authorise people in respect of certain legal activities and to regulate those persons. Overseeing that front-line regulation is the Legal Services Board, which will take over many of the functions currently undertaken by a number of the existing oversight regulators, including the Secretary of State, the Master of the Rolls, the immigration services commissioner and the Archbishop of Canterbury. The board may move to regulate authorised persons directly only where there is no other suitable or willing regulator to carry out that role.

It is my understanding that the amendment introduced in the other place in many respects sought to achieve the kind of thing that I have just described. In trying to get the B+ model in the Bill, it is vital that we should not inadvertently compromise the existing provisions. For example, the Lords amendment provided that policy statements must

“respect the principle that primary responsibility for regulation rests with the approved regulators”.

Except in those extreme cases where the board may have to regulate directly, it will have quite different responsibilities from those of the approved regulators.

However, different as those functions may be, I do not want to give the Committee the impression that they are not as important, or that the board should not have any primary responsibility for regulation. A strong and independent oversight regulator is what consumers have long been calling for. We owe it to them to deliver just that. I do not want to be part of anything that relegates the board to being a regulatory also ran. I want to ensure that the role of the approved regulators is concerned with direct regulation of authorised persons, whereas the role of the board is principally one of oversight. I hope that the amendment makes that clear.

The other aspect of the Lords amendment was the reasonableness test. I felt that that had the potential to restrict the board from taking the appropriate regulatory action in some circumstances. For example, an approved regulator may make a number of decisions that in themselves all appear to be reasonable, but the overall effect of those decisions may have an adverse impact on the regulatory objectives. That may mean that the board would have to take action. In such a case, the reasonableness test might not be satisfied, which would then leave the board unable to take appropriate action.

Finally, we have always maintained that issues should be resolved informally before resorting to more formal statutory powers, in line with best regulatory practice. The Bill already provides for that by requiring the board to have regard to the principles in clause 3, including proportionality and targeting activities only where action is needed. However, I understand the desire of regulators to ensure that the board should highlight how those principles are achieved when setting out its policy statements. I have tabled the amendment to set that out, albeit without affecting the thresholds already set out in clauses 31 to 45 and in clause 76.

Photo of Simon Hughes Simon Hughes Shadow Attorney General, Party Chair, Liberal Democrats 6:15 pm, 19th June 2007

The amendment is a Government amendment to a Lords amendment. Can the Minister say whether she, colleagues or civil servants have had an opportunity to talk to those who argued for the amendment that the Lords made? Can she report back on the view of stakeholders or interested parties on whether the amendment has the benefits that she has argued for, without the disbenefits that they might say exist?

Photo of Bridget Prentice Bridget Prentice Parliamentary Under-Secretary, Ministry of Justice

My noble Friend Baroness Ashton has had discussions with colleagues in the Lords. I cannot say for sure whether the discussions wentinto the detail of the difference between the two amendments, but it was accepted that they would be happy to see an amendment if it gave general force to the principle behind the original one. We have now worded things in a way that provides the components necessary for the board to be able to set out the policy statements on how much it takes into account its oversight role, and the principle that the issues that should be resolved informally are resolved informally, using proportionality as the test before exercising the other powers.

As always, the amendment has gone before our consumer panel, which supported this wording rather than the one that appeared in the other place. As far as  I am aware, it has also gone some way to addressing the Law Society’s concerns. We have tried to ensure that people who had issues with the amendment have had sight of where we are moving.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Justice)

I am grateful to the Minister for her explanation as to why the Government have proposed the amendment. I admit that what they are proposing is better than what was originally in the Bill, but the amendment inserted by their lordships House was sensible. I take on board the Minister’s concern about the words “could reasonably have taken” in subsection (3)(b), but if one examines the overall impact of the Lords amendment, one sees that it explains things in more detail than the Government amendment.

The Minister mentioned that she believed thatthe Law Society was happy with the Government amendment. It has made its position clear, stating in writing to members of the Committee:

The Committee should therefore reject the Government’s amendment, and retain the provision passed by the House of Lords.”

I agree with the hon. Member for North Southwark and Bermondsey that Which? is an excellent organisation. All of us read Which? magazine from time to time. As the Minister rightly keeps telling us, the Bill is about giving consumers a better deal. It is worth pointing out that Which? told me that it does not oppose the inclusion of the Lords amendment in the Bill as a cosmetic reassurance to the legal professions. That might be a touch grudging, but it indicates that Which? does not see any need to remove the current wording.

It is worth having a close look at why the House of Lords made the changes. It did so because it wanted to incorporate in the Bill the statements about the relationship between the board and the approved regulators, which the Government had made in other contexts. We should consider what the Legal Services Board is all about and then examine what the Joint Committee said. It said:

“We believe it is important that the LSB has an effective range of powers, but it is also important that the Draft Bill ensures that they are only used where necessary, in order to avoid undue micro-managing of the approved regulators...The Draft Bill should ensure that—consistent with the Government’s policy that lead responsibility should rest with the approved regulators—the Legal Services Board acts in partnership”

—I like that word “partnership”—

“with the approved regulators, seeking to resolve differences by agreement wherever possible”.

It is also worth pointing out something that the Government said in response to the Joint Committee. My hon. Friend the Member for Enfield, Southgate served on it, as did the hon. Member for Wirral West. The hon. Member for Bassetlaw was not put on it, despite applying, and that was a pity, given his knowledge and experience. The Government’s response was that the LSB

“ in partnership with authorised regulators, leaving them with the responsibility for day to day regulation.”

Looking at the way in which the Government responded to the Joint Committee, , I find it strange that they are trying to remove the Lords amendment.

Let us look at the essence of Sir David Clementi’s recommendation. He could have gone for an all-singing, all-dancing unitary system of regulation,  rather like the Financial Services Authority. However, he decided not to do that for the simple reason that he took the view that regulation had to be independentof Government. He rightly took the view that the professional bodies were well established, so it would make no sense to build such bodies from scratch, and that it was important to get the professionals in the different parts of the legal services world to buy in to regulation and to secure the maximum good will and confidence in the new system from the word go.

Bearing that in mind, their lordships looked carefully at the measure, and came up with an amendment that I think is workable. It was discussed at great length and road-tested before a number of experts; it was not just put forward on the back of a fag packet. We should be aware that the Minister hinted that it might be possible for the Government to issue further guidance if need be. It is not on for the Government to give guidance to the board; any suggestion of that is a little disturbing. It might be appropriate in some cases for guidance to be given to bodies that undertake what are effectively Government functions, but that is manifestly not the case in relation to the approved regulators. Far from it.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Justice)

I am going to conclude my remarks, because I want to hear what the Minister has to say, and the Government Whip keeps looking at me.

One has also to consider the costs. We do not want the LSB to be a primary regulator or to treat the approved regulators as its administrative outposts. We want it to have a working relationship with them that is based on confidence and trust, not on micro-managing and trying to second-guess everything that they try to do, or laying down detailed templates as to whatthey should do. That is why the Lords came upwith a pragmatic, imaginative, sensible and workable amendment, and the Government should not be trying to remove it at this stage. We will listen carefully tothe Minister, but our inclination is to reject the Government’s amendment.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

We are uncomfortable with the Government’s amendment. It does something that we will not oppose at this point, but might come back to later on the Floor of the House.

We always ask to what extent the principles, as defined in the Bill, are enforceable through judicial review. We have issues about the parameters established by subsection (3)(b), because any policy determined by the board can be used as a basis for judicial review under the principle of procedural legitimate expectation. Therefore, the measure has quite a substantial impact on the Bill.

Personally, I am not completely comfortable with subsection (3)(b) because it is a bit too wide. Although we are not happy with the Government amendment, we are not going to oppose it at this stage. We may come back to it on the Floor of the House. It is important to determine the relationship between the LSB and the regulators. This is an important engine house of that process because of the facility to take issues to judicial review under the principle of procedural legitimate  expectation. The board needs to have the ability to exercise powers other than in circumstances in which the individual regulators could not reasonably do so.

Photo of Kevan Jones Kevan Jones Labour, North Durham 6:30 pm, 19th June 2007

I support the amendment, and I do so for a practical reason that can be illustrated by the miners’ compensation cases. This legislation is taking away the legal services ombudsman. She has been the only person in the current system to have said to the regulatory authorities, “You have got this wrong,” or “You are dealing with cases too strongly.” If the Legal Services Board does not have the ultimate say, or some backstop, to enforce and say to regulators that they are too slow on cases or that they are dealing with them inappropriately, who will stand up for the consumer?

The Bill will take away the legal services ombudsman, but we need to retain that ombudsman’s powers in some form. That is why I support the amendment and the Government’s position. The Legal Services Board has to have that backstop position so that it can ultimately say, “I’m sorry, but you are not doing your regulatory job correctly—get on with it,” sometimes question regulators’ effectiveness and stand up for the consumer. At the end of the day, as the Minister has said on a number of occasions, the champion of the consumer in this Bill will be the Legal Services Board.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

I should like to add one other little point. If we maintained the current situation in respect of the Lord Chief Justice and the appointment of the Legal Services Board, I would not want the change at all.

Photo of Bridget Prentice Bridget Prentice Parliamentary Under-Secretary, Ministry of Justice

We have established that we all agree that Sir David’s B+ model is the appropriate system for regulating the legal profession, that the approved regulators should be able to get on withthe role of regulating authorised persons and that the board should oversee that. It is important that any provisions that set out those principles do not contradict or lead to confusion about existing principles already set out in the Bill. It is vital that we take care to ensure that amendments are compatible with the rest of the Bill. I think that this amendment is.

Throughout the debates in the House of Lords, peers pressed regularly for provisions that more clearly set out the relationship between the board and the approved regulators. Those threshold amendments were inserted following a vote, and the combination of restricting the board’s powers and the recognitionof the B+ model in policy statements developeda confusion. We have tabled the amendment understanding that it is important to show that the board is an oversight regulator, as opposed to the approved regulators that do the day-to-day work; as the hon. Member for North-West Norfolk rightly said, the board does not micro-manage what is going on.

The hon. Member for Birmingham, Yardley makes an important point about subsection (3)(b). That causes problems because it sets a threshold, a Wednesbury test, that is too difficult for the board to achieve. It also adds  further confusion. The test is difficult to meet and as a result, it could be difficult for the board to take appropriate action. It is important that we take that bit out.

I hope that the Committee feels able to support the amendment, which has been drafted in good faith. It tries to achieve what the other place was asking for, but in a way that is compatible with the rest of the Bill and clearly sets out the role of the oversight regulator, as opposed to that of the approved regulators doing their day-to-day work. On that basis, I ask the Committee to agree to the amendments.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 5.

Division number 18 Nimrod Review — Statement — Clause 49

Aye: 9 MPs

No: 5 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 49, as amended, ordered to stand part of the Bill.

Clause 50 ordered to stand part of the Bill.