Commons Sitting of 1 February 2000

Preamble
The House met at half-past Two o'clock
PRAYERS
[MADAM SPEAKER in the Chair]
PRAYERS
  PRIVATE BUSINESS
    BAXI PARTNERSHIP LIMITED TRUSTS BILL [Lords]
    Read the Third time, and passed, without amendment.

    GREENHAM AND CROOKHAM COMMONS BG0
    Order for Second Reading read.
    To be read a Second time on Tuesday 8 February.

    MERSEY TUNNELS BILL
    Order for Second Reading read.
    To be read a Second time on Thursday.

Oral Answers to Questions
  HEALTH
  The Secretary of State was asked—
  HEALTH

    Nursing Homes
    Mr. Michael Colvin: What is his estimate of the percentages of costs of the nursing element in nursing homes paid by (a) the national health service, (b) local authority social services departments and (c) patients. [106238]
    The Minister of State, Department of Health (Mr. John Hutton): About 147,000 people are resident in nursing homes in England. About 9 per cent. are funded by the national health service, about 49 per cent. wholly or partly by local authorities, about 17 per cent. have their care funded from state benefits and about 25 per cent. pay for their own care.
    Mr. Colvin: I thank the Minister for his helpful reply. However, as we all know from our constituency casework, once it has been decided that a resident patient is entitled to state aid, the patient tends to become caught in crossfire between the NHS and local authority social services departments over who should pay how much of the nursing element. To avoid all that haggling, should we not lay down in statute what the breakdown should be? Will the Minister consider that?
    Mr. Hutton: My right hon. Friend the Secretary of State set out the Government's position in December, and explained that we intended to respond more fully to the royal commission's recommendations. In March, we will
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    organise a seminar involving all the key organisations and individuals who have a view, so that they can discuss with the Department issues involving the definition of nursing care in this context.
    I agree with the hon. Gentleman—as, I think, do all right hon. and hon. Members—that the present system of funding long-term residential care is not acceptable or fair; but it is only reasonable for me to point out to him and his colleagues that they created the system.

    NHS (Pay)
    Mr. Ernie Ross: What steps he is taking to reform the pay system in the NHS. [106239]
    The Secretary of State for Health (Mr. Alan Milburn): We are negotiating with the NHS trade unions on a new pay system for the health service. In the meantime, we have offered non-review body staff an innovative three-year pay package, and we are implementing the recommendations from the doctors' and dentists' review body and the nurses' review body in full.
    Mr. Ross: Does my right hon. Friend agree that the joint statement published by the health departments, management, the unions and NHS staff-side organisations offers a way forward for the NHS after at least 18 years of attack from the last Government? Does he further agree, however, that the real tests of the proposals are whether they are an improvement on what we have now, whether they are easy to understand, whether they are easy to implement, whether they are fair to all staff groups and whether they deliver a genuinely improved service to patients?
    Does my hon. Friend also agree that the proposals give all who are concerned with the health service an opportunity to move forward in a true spirit of partnership?
    Mr. Milburn: I certainly agree with my hon. Friend's sentiments. He is right in saying that too many of the employment and, indeed, pay structures of the NHS date back to its inception in 1948. Today's world is very different: different requirements are placed on the health service, and on NHS staff. It is important for us to combine fairness with flexibility in the way in which we employ doctors, nurses and other health care professionals, and that is precisely what our negotiations for a new pay system are designed to achieve.
    Mr. Nick Harvey: Given last week's report on NHS laboratories, which revealed that 60 per cent. were using unqualified staff, and given yesterday's news that two leukaemia patients in Wales had received each other's test results, what steps is the Secretary of State taking to address the problems and to reassure patients? Will he ensure that biomedical scientists are given a substantial pay increase, and bring them and all other professional and technical staff in the NHS under the remit of the review body? If he does that, will he address the fact that such staff have fallen 30 per cent.

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    behind the recommendations of the review body since it was formed, and will he submit evaluations to bring them up to a sensible level at the outset?
    Mr. Milburn: As the hon. Gentleman knows, part of the negotiation on the new pay system is designed to reconfigure the coverage of review bodies. Some have argued, I think reasonably, that the groups covered by the two review bodies do not necessarily reflect the fact that team working is now crucial to a modern national health service. We are considering that, and are negotiating with the NHS trade unions to establish a common position. I think it far better to achieve results through partnership and agreement.
    Extra money has been targeted at groups of staff such as medical laboratory scientific officers and cytology screeners who are not covered by the review bodies, where there was evidence of recruitment problems leading to a deterioration in services to patients. The high offers made to those staff for 1999–2000 still stand.
    Mr. Phil Sawford: Is my right hon. Friend aware that, partly owing to the recent pay settlement in the NHS, the Northamptonshire health authority currently projects a deficit of £8.7 million for next year? I know that Northamptonshire has received a great deal more money, but the chair of the health authority is due to retire in April, and the chief executive will shortly move to another post. We face the prospect in Northamptonshire of having no chief executive, no chair and no money. Will my right hon. Friend look into that serious matter, which is of great concern to my constituents?
    Mr. Milburn: I do not know about the position as regards the chair of Northamptonshire health authority, or, indeed, the chief executive. Clearly, those are matters that we will have to address. On the question of there being no money, I am slightly surprised by my hon. Friend's view as Northamptonshire health authority and other health authorities have received a substantial growth in the amount of money that they will have for the next financial year, compared with the current financial year.
    Mrs. Caroline Spelman: Does the Secretary of State accept that not only is the 3.6 per cent. increase in nurses' pay well below average wage increases of 4.6 per cent. in the economy as a whole, but that the Government's failure to fund it fully amounts to giving with one hand and taking with the other?
    Mr. Milburn: I do not agree with that view. That view will come as a great surprise to nurses and doctors in the NHS, who, year after year, suffered from their pay being staged, rather than being paid in full.
    Mr. Gordon Prentice: May I ask a question about the pay of dentists? Why is it that the review body that reported a couple of weeks ago found it impossible to compute the average earnings of dentists who are employed wholly or mainly on NHS work because, it said, the necessary information was not forthcoming from my right hon. Friend's Department, or from the British Dental Association? Will he give me an assurance that next year,
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    when we get the next report from the pay review bodies, it will be possible for them to compute the average earnings of NHS dentists?
    Mr. Milburn: We do have some figures available, as I think my hon. Friend is aware. He takes a great interest in dentists' salaries. We have some figures about the average earnings of dentists who have a reasonable commitment to the NHS. Those figures are widely available. As he is also aware, this year the Doctors and Dentists Remuneration Review Body recommended that we pay a further £20 million to dentists who have demonstrated a real commitment to the NHS. We will, of course, discuss with the profession how best to achieve that.

    Cleft Lip and Palate Units
    Mr. Robert Syms: If he will make a statement on the implementation of the review of cleft lip and palate units. [106240]
    The Parliamentary Under-Secretary of State for Health (Ms Gisela Stuart): Designated centres have so far been identified in three regions and discussions are continuing to identify the remaining centres.
    Mr. Syms: Today, there has been a luncheon for charter mark winners, one of which is the Poole cleft lip and palate unit. As the Minister wrote to me just before Christmas:
    "The charter mark is recognition for those public service organisations that listen and respond to their users and staff. It is the centre of the Government's programme to improve public services and modernise them for the 21st century."
    Apart from the inconvenient fact that the Government are trying to close the unit, does she not understand the real concern about the clinical standards advisory group proposals, and the concern that there seems to be no clear guidance about what is happening on implementation? If she cannot give me an answer today, will she please write to me and tell me when decisions will be made?
    Ms Stuart: Charter mark awards are made in recognition of public services. Discussions on the reconfiguration of Poole's provisions for cleft lip and palate are about clinical decisions. I have said that three areas have been identified for Poole and the whole of the south-east, including London. The four health authorities are still forming a stakeholder group. Reports are expected at the end of February, but it is important to recognise that although, nationally, some 865 newly born children need such surgery, in Dorset health authority alone, only 10 will need it. All the recommendations from CSAG say that, to deliver the best service, surgeons should deal with about 30 cases a year.
    Mr. Tony Clarke: My hon. Friend will be pleased to know that, although we might not have a chief executive or chair of the health authority, we have an excellent consultant in our cleft lip and palate unit at Northampton general hospital, but will she expand her answer to include the future for those that carry out the Delaire technique, such as Bill Smith, who works at the hospital? Parents are concerned that, with the forthcoming changes, that pioneering technique—which concentrates on natural growth and surgery rather than

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    plastic surgery—could be phased out. Will she give some hope to those parents that the Government will continue to allow the Delaire technique, and that, where it is being practised, it will continue to flourish?
    Ms Stuart: Different orthodontic and cleft palate surgeons use different techniques. Once the overall national reconfiguration system has been implemented, the posts will be advertised, and it will then be a matter of which types of surgeon are able to provide continuity. No decisions have been made on which techniques will be continued, but the decisions will be based on clinical considerations and on what is best for the treatment of those children.

    NICE
    Mr. Paul Burstow: When he expects the National Institute for Clinical Excellence to issue further recommendations. [106241]
    The Parliamentary Under-Secretary of State for Health (Yvette Cooper): The National Institute for Clinical Excellence will be disseminating its guidance at various times throughout the year. In December, the Secretary of State set out the timetable for this year's work programme, and we expect the next guidance to be issued in the spring.
    Mr. Burstow: I am grateful to the Minister for that answer. Will she assure the House that, when NICE's recommendations on targeting the drug beta interferon for multiple sclerosis sufferers are considered, MS sufferers will not be placed in a catch-22 situation, in which everyone is denied access to the drug because it is not possible to identify its principal beneficiaries?
    Yvette Cooper: Obviously, I cannot pre-empt the guidance that NICE will provide on beta interferon. However, we have referred beta interferon to NICE because there is such wide variation across the country in prescribing the drug. We think that that type of postcode lottery is unfair.
    Mr. Kevin Barron: Will my hon. Friend assure the House that any decisions that the national institute takes will be taken by clinicians, and that they will improve the clinical effectiveness of our health service?
    Yvette Cooper: Certainly the whole purpose of the National Institute for Clinical Excellence is to tackle the postcode lottery—in the biggest onslaught on the postcode lottery in the history of the NHS—and to ensure that decisions are taken on the basis of the latest clinical evidence about what works and what is best for patients.
    Mr. John Bercow: Will NICE's evaluation of the cost-effectiveness of beta interferon take account of the cost of domiciliary care or of the required domestic adaptations in the absence of its supply?
    Yvette Cooper: Certainly NICE will be able to take account of all the data that are submitted, and that includes the costs of care and of social services. NICE will be able
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    to take into account all those matters when it considers both the cost effectiveness and the clinical effectiveness of beta interferon.
    Mr. David Chaytor: May I tell my hon. Friend about the case of two of my constituents? They were advised by their consultant that beta interferon was the appropriate treatment; invited in for training in the use of beta interferon; but then, only at that point, were told that the budget would not allow them to be issued with the drug. Will she ensure that when NICE produces its guidelines, it will include some guidance to trusts on processes and the information that should be provided to patients well in advance, to avoid the type of disappointment that my constituents experienced?
    Yvette Cooper: I have been informed of the case that my hon. Friend mentions, and I have asked the regional office to provide me with a detailed report on the circumstances of the provision of beta interferon for those patients. I can also tell him that we shall be ensuring that NICE's guidance is available to be followed across the country, to tackle some of the problems that he mentions.

    Waiting Lists (Consultants)
    Mrs. Ann Winterton: How many patients are waiting more than 13 weeks for their first referral to see a consultant. [106242]
    The Minister of State, Department of Health (Mr. John Denham): At 30 September 1999, 512,000 patients were waiting for more than 13 weeks for a first out-patient appointment following general practitioner referral.
    Mrs. Winterton: Now that we know that there is a growing waiting list for the waiting list, will the Minister abandon the pledge to cut the waiting list by 100,000 and measure success instead in terms of waiting times? Would it not be better to break a pledge than to force the sickest patients to continue to wait the longest for their treatment?
    Mr. Denham: I am afraid that the hon. Lady is wrong on all of those points. We are not going to abandon our target of reducing in-patient waiting lists because as we have brought down in-patient waiting lists, we have brought down in-patient waiting times. Also, we will tackle the problem of out-patient waiting times—which were rising under the previous Government—into which we are investing an extra £30 million this year and an extra £90 million next year.
    There is a big difference between the Government and the Opposition. We are determined not just to invest more in tackling waiting times, but to modernise the system, so that it is not inconceivable—as it was under the Tories—that someone could be offered a convenient appointment or be seen in bright, modern surroundings. The Opposition have a different view. They say that hip and cataract operations will have no waiting times because they will not be available on the NHS. The choice is between the Government, who will invest in modernising

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    and tackling waiting times, and the Opposition, who want to remove those common but essential treatments from the NHS.
    Mr. John Austin: Does my hon. Friend recall a report by the Select Committee on Health in 1990-91 which commented on the time spent by NHS consultants in private practice? Will he conduct a review of the impact on waiting lists of private practice work by NHS consultants? Does he agree that if NHS consultants spent more time working in the NHS, waiting lists would be reduced considerably?
    Mr. Denham: Recently, we have reached a heads of agreement with the BMA on a new consultants' contract—the most significant change in that contract since 1948. My view is that we should concentrate on what consultants do in the time that they are paid to work in the NHS. The new contract offers the possibility of ensuring not just that NHS consultants' time is spent effectively in the NHS, but that consultants get professional and proper appraisals, in which their development needs can be met. We will concentrate on investing in consultants to make sure that we get the best deal for the NHS in the time that consultants are paid to work in it.
    Mr. John Burnett: The Minister will know that an inquiry has been set up at Derriford hospital in Plymouth to look into the way in which waiting lists there have been collated. A number of individuals at the hospital have complained to me of incidents of bullying, racism and failures properly to follow disciplinary procedures. Will the Minister extend the remit of the inquiry to cover those matters, and the culture of the trust generally?
    Mr. Denham: Allegations of that sort are serious and must be looked at carefully. If the hon. Gentleman writes to me, setting out the allegations made to him, I will look into them and make sure that they are dealt with appropriately. The Government have introduced legislation to protect whistle-blowers to ensure that, for the first time, people are able to bring such matters of concern to the attention of the proper authorities, or to the attention of the public if necessary.
    Ms Rosie Winterton: What can be done to overcome the problem of GPs referring patients constantly to one particular consultant, even though that consultant may have a longer waiting time than others within the same department? How can we ensure that patients have proper access to all the information about the waiting times and waiting lists of every consultant within a department, so that they can make an informed choice about which consultant they wish to be referred to?
    Mr. Denham: My hon. Friend makes an important point and we are tackling several issues that will help to address those problems. Clinicians have a responsibility to make the appropriate referrals to the right doctor, but there are examples of GPs referring out of habit or past practice, even though another consultant may be more specialised in an area of treatment and it would be more appropriate to refer the patient to them.
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    Much work is going on between health authorities, primary care groups, hospitals and individual doctors to ensure that doctors are fully aware of the waiting list position and the alternative referrals that are available. That work, backed up by the work that we have asked the National Institute for Clinical Excellence to do to produce referral guidelines for GPs, will help to tackle the problems that my hon. Friend rightly raises.

    Waiting Lists (Treatments)
    Mr. Owen Paterson: If he will make a statement on treatment waiting times. [106243]
    Mr. Nicholas Winterton: If he will make a statement on the role of clinical need within his waiting list initiative. [106244]
    The Secretary of State for Health (Mr. Alan Milburn): As waiting lists fall, waiting times are falling, too. The in-patient waiting list is now 87,000 below the level we inherited. We have made it clear throughout that patients should always be treated according to their clinical priority. Emergencies are always treated immediately and patients who need urgent treatment are given priority.
    Mr. Paterson: If so, why was cold surgery cancelled for weeks on end this winter in Shropshire?
    Mr. Milburn: The NHS did this winter what it does in normal winters.
    Mr. Paterson indicated dissent.
    Mr. Milburn: I would be astonished if the hon. Gentleman could produce a dossier of evidence that showed that in previous winters, when his party was in power, the NHS in Shropshire did not do what it always does, which is to prioritise emergency cases. I would eat my hat even though I am not wearing one.
    Mr. Winterton: As I was the Chairman of the Health Committee when it produced the report that the hon. Member for Erith and Thamesmead (Mr. Austin) mentioned in his question, I hope that the Secretary of State will take my question seriously. Does he accept that grave concern is felt that, in seeking to reduce the in-patient waiting list, clinical priority is—sadly—being ignored in many cases? He gave a forthright response to the question from my hon. Friend the Member for North Shropshire (Mr. Paterson), but will he assure me and the House that clinical priority will take precedence in all situations, even if that means that, for a time, the in-patient waiting list increases?
    Mr. Milburn: I have the greatest respect for the hon. Gentleman's views on health. He will know that from the outset we made it clear—by issuing guidance to trusts and to other parts of the NHS—that in tackling the waiting list problems that we inherited, priority should be given to conditions associated with the most severe clinical need. That must be right.

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    On the issue of rising waiting lists, the NHS has done this winter what it should always do—it has prioritised emergencies. There are always more pressures on the NHS from emergency admissions in the winter months. The hon. Gentleman knows that and I know that, and I know too that when the waiting list figures for December are published they will probably reflect the fact that the NHS did give priority to emergency cases. I hope that he and his party will welcome the figures when they are published.
    Mr. Peter L. Pike: Is not the reality that, with an increasing elderly population and the ability of the NHS to do ever more complex surgery, the demands on health service provision will continue to rise rapidly? The simple fact is that this Government are doing much better at meeting the public's demands than their predecessor did over 18 years.
    Mr. Milburn: I am grateful for my hon. Friend's views. He is right to say that demands on the NHS, from changes in the demography and the advent of new treatments and technologies, place additional stresses and pressures on the system. The debate in this country is about what form of health care can best deal with those pressures. The Conservatives' answer is that the future for our health care system should rely on more people being made to go private: we say that that is not the answer because it will not work and it is not fair. We say that the best means to secure health improvement for the majority of our citizens is through a modernised and expanded NHS.
    Mr. Bruce Grocott: Given that Opposition Front-Bench Members repeatedly describe our spending plans as reckless, can my right hon. Friend give me an idea of how many Tory Members have asked him to reduce expenditure on health?
    Mr. Milburn: None. [Laughter.]
    Madam Speaker: Order. Dr. Brand.
    Dr. Peter Brand: The Secretary of State will know that many patients languish in a sort of statistical purgatory while investigations are carried out and decisions to begin treatment are made. Is the right hon. Gentleman collecting information on the number of people who, having been seen by a consultant, are still waiting for a decision about treatment? Does not he consider it unacceptable that the number of patients who seem to be parked in a queue awaiting a decision is not measured at present?
    Mr. Milburn: The hon. Gentleman will know, from his political and clinical experience, that the Government are taking steps to tackle that problem. We are investing in one-stop diagnosis and testing, precisely to avoid the difficulty that he describes. In the modern age, at the beginning of a new century, it seems to me that it is not beyond the wit of the national health service to provide faster and more convenient care for patients, so that people going into hospital are not passed from pillar to post. We are striving to ensure that diagnosis, results and, where possible, treatment are dealt with in one day. It will take time to reach that objective, not least because we
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    have to reorganise how services are delivered. We also need to expand the number of staff available to deliver the new services.

    Health Spending
    Mr. Michael Portillo: What plans he has to increase the proportion of gross domestic product spent on health to the average EU level. [106245]
    Mr. Alan Simpson: What plans he has to raise NHS spending as a percentage of gross domestic product to the level of the United Kingdom's European partners. [106254]
    The Secretary of State for Health (Mr. Alan Milburn): As my right hon. Friend the Prime Minister made clear to the House on 19 January, we are entirely confident that we will be able to sustain increases in funding for the health service to reach the European Union average.
    Mr. Portillo: Do the Government accept that they have disappointed the public because they have promised too much and achieved too little? Did not the Prime Minister make another promise on "Breakfast with Frost", when he said that he would bring UK health spending up to the European Union average? Does the Secretary of State agree that we are now spending less than 6 per cent. of national income on the health service, and that the European average is 8.8 per cent? Will the right hon. Gentleman be specific about which average the Government are aiming for, and over what period of time they will achieve it?
    Mr. Milburn: Welcome to Health questions. If my memory serves me right, the right hon. Gentleman was Chief Secretary to the Treasury for a substantial period during the previous Government's time in office. If anyone is responsible for our funding lagging behind the European Union average, it is he and his cronies.
    Mr. Simpson: It would have been nice if the right hon. Member for Kensington and Chelsea (Mr. Portillo) had prefaced his question with an apology to the House. However, in the absence of that apology, will my right hon. Friend confirm that the £11 billion spending shortfall between the UK and our European partners is the real legacy of Tory tax transfers, from public health services to private wealth holders, which took place throughout the Tory Administration? Will he also confirm that the Department of Health has evidence to show that, irrespective of other reasons for admittance to hospital, about 40 per cent. of adults and 15 per cent. of children are admitted because they are classed as malnourished? Is not that a scandalous way to start the 21st century? Does not that fact alone justify my right hon. Friend the Prime Minister's commitment to restore UK health spending to the European average?
    Mr. Milburn: My hon. Friend is right. It is clear that we must do two things: we must expand the national health service to ensure that it is there when patients need it and, equally significantly, we must tackle the root causes of ill health. The Government have pledged to do

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    what no previous Government, Labour or Conservative, have ever pledged to do—to improve the overall health of the population, and to improve the health of the worst off at a faster rate.
    Mr. Nick St. Aubyn: Has the Secretary of State seen the report published last week by the National Institute of Economic and Social Research, which looked at the Prime Minister's pledge to raise health spending to the EU average? It predicted that such a rise would cause a 2 per cent. fall in manufacturing output, a permanent 1 per cent. increase in the inflation rate, and expose the economy to sudden and massive increases in taxation.
    Mr. Milburn: I was going to say that I am slightly confused, but it is the hon. Gentleman and his party who are confused. Just a few weeks ago, Conservative spokesmen were professing support for what my right hon. Friend the Prime Minister was saying. Our position on this matter is clear: we know that we need to expand resources for the national health service, and that is precisely what we are doing. The question is where the Conservatives stand on the issue. They stand for more private health insurance—more subsidies for the few rather than public services for the many.
    Mr. Paul Flynn: Does my right hon. Friend agree that the biggest increase in costs in the health budget has been the 35 per cent. increase in the cost of drugs over the past 10 years? Does he further agree that the Government, by setting up the National Institute for Clinical Excellence, have already established a great improvement because they have exposed the fact that the vastly overpriced drug Relenza not only has very little effect on the symptoms of influenza, but has a serious side effect on vulnerable patients? Is it not right that the Government look with new rigour at the greedy propaganda of the drug companies?
    Mr. Milburn: I do not want to comment on Relenza, because the drug company itself has done so and has issued what is, in my view, appropriate guidance to the national health service. Just a few weeks ago, Conservative Members were urging us to reverse the NICE decision on Relenza. Well, thank heavens we did not listen to them.
    I am sorry to disappoint my hon. Friend on some of the issues that he raised, but I am not one of those who believes that the national health service should be spending less on drugs. I believe that probably we should be spending more on drugs if we can prove that the new drugs coming on to the market are clinically effective, cost effective and will in very many cases replace more invasive and expensive forms of treatment. That is good for patients and, overall, it is probably a good deal for the taxpayer.
    Mr. Philip Hammond: As the Secretary of State was unable to give any firm commitments to my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) on European Union averages of gross domestic product spending, perhaps we can look closer to home.
    Will the right hon. Gentleman confirm that national health service spending in Scotland is approximately 7.5 per cent. of GDP, compared with 5.9 per cent.
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    in England and Wales? In other words, the Government spend more than £900 per head on the NHS in Scotland, compared with £746 per head in England and Wales. As the First Minister boasted last week to the Scottish Parliament in Edinburgh, in Scotland there are 51 consultants per 100,000 of the population, compared with 39 in England; there are 75 general practitioners per 100,000 of the population, compared with 56 in England; and there are 808 nurses per 100,000 of the population compared with 620 in England. Should the people of England and Wales be prepared to put up with that? Are the Government prepared to accept that? If not, why did the comprehensive spending review settlement widen rather than narrow the gap?
    Mr. Milburn: If the hon. Gentleman is so concerned about these apparent differentials between spending in England, Wales and Scotland, why did his Government not do something about them for 18 years?

    Meningitis
    Judy Mallaber: If he will make a statement on the progress of the meningitis vaccination programme. [106246]
    The Parliamentary Under-Secretary of State for Health (Yvette Cooper): The introduction of the new meningitis C vaccine is progressing very well—immunisation for 15 to 17-years-olds is largely completed, and babies have been receiving the vaccine since November. We are on target to offer the vaccine to everyone under 18 by the end of the year. We are the first country in the world to have introduced a national programme for the new meningitis C vaccine, and we are implementing it a year ahead of schedule.
    Judy Mallaber: I warmly thank the Department of Health and the former Secretary of State, my right hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson), for providing the new strain C vaccine, in advance of the full immunisation programme, to the village of Ironville in my constituency. It has, tragically, suffered a uniquely high incidence of meningitis, with a so far unexplained series of outbreaks over the past three years.
    Will my hon. Friend note that four of the five confirmed strain C cases in Ironville—including the last death, Colin Whitehead—could be confirmed only by the polymerase chain reaction test, and that that also applies to 53 per cent. of the cases in southern Derbyshire?
    I understand that only through using that test can the necessary evidence be found on which to base proper medical intervention, as has happened in Ironville. Will my hon. Friend undertake to consider the policies of the Public Health Laboratory Service on future charges for PCR tests and assess their potential impact on the control of this absolutely terrifying disease?
    Yvette Cooper: I welcome my hon. Friend's concern about this issue. She has worked extremely hard on the problems it has caused in her constituency. I am aware of the point she makes about the PCR test; we want to ensure that people working in the field have access to that

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    important test. I shall raise the issue with the PHLS. Officials have already held meetings with the service and I shall do so in March.
    Miss Anne McIntosh: Will the Minister assist in the cases of older young people—especially those in their late 20s? We heard of the tragic case of the young rugby player who went to hospital and was, regrettably, misdiagnosed, with fatal consequences. If there was sufficient evidence that those people would also benefit from the vaccine, would the Government consider extending the vaccination programme to that older group?
    Yvette Cooper: Certainly, we will take advice about other groups from the Joint Committee on Vaccination and Immunisation. At present, we are on target to immunise everyone aged under 18. The situation is unusual because we are rolling out a new vaccination programme as quickly as possible. In those circumstances, we are obviously prioritising those groups that are at the highest risk.

    Drugs (Funding)
    Dr. Ian Gibson: What plans he has to provide resources for drugs recommended by the National Institute for Clinical Excellence. [106247]
    The Minister of State, Department of Health (Mr. John Denham): New drugs and treatments are constantly being introduced to the NHS. The cost of those treatments—whether or not they have been referred to the National Institute for Clinical Excellence—is met from the rising resources allocated to health authorities. Those resources increased by 6.6 per cent. this year and will increase by 6.8 per cent. next year. NICE guidance will tackle the different local interpretations of evidence that have led to unacceptable variations in access to treatment and care.
    Dr. Gibson: Does my hon. Friend agree that drugs, such as Taxotere, which is extremely effective in advanced breast cancer, and Taxol for ovarian cancer, are not being spread throughout our population? Many women are not being given the right to be prescribed them. Does he agree that we need to allocate more resources to that matter? If NICE finally comes to its senses and realises that those drugs are effective, will my hon. Friend supplement the budgets of health authorities which want to use those drugs to treat everyone who would benefit from them?
    Mr. Denham: My hon. Friend will understand that it would be wrong for me to comment on topics that are under proper consideration by NICE. However, in general the problem is often one of different local priorities—different views of the evidence. The whole point of referring key drugs to NICE is to provide consistent guidance through the NHS to identify those drugs that are both clinically effective and cost effective, and which represent a good use of NHS resources. When NICE produces such approved guidelines, we expect NHS organisations systematically and consistently to take account of them. Clinical governance and the Commission for Health Improvement will help to ensure that.
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    We are keen that clinically effective and cost-effective treatments are spread more quickly throughout the NHS than they have been in the past. The issue of authoritative guidance from NICE will help to ensure that and will tackle the unacceptable variations to which my hon. Friend has drawn attention.
    Mr. Douglas Hogg: The hon. Gentleman will be aware that I have raised in the House and in correspondence the relative unavailability in Lincolnshire of beta interferon. He will understand that we all welcome the reference of beta interferon to NICE. However, does he realise that the problem is the lack of resources in Lincolnshire? Unless he is willing—in the event of a positive recommendation from NICE—to put more resources into the authority's budget, it will not be possible to give expression to the institute's recommendation.
    Mr. Denham: Again, it would be wrong for me to comment on a particular drug that is being considered by NICE, but I have two things to say to the right hon. and learned Gentleman. The system that has led to very uneven availability of this drug and others was introduced by the previous Government. The existing guidance on the use of beta interferon was introduced by the previous Government, and that is where the problem originated. It is precisely because we do not find such a situation acceptable that we have set up NICE, and we have referred several drugs to it.
    I believe that people locally are taking different views of the evidence, which leads to differences in the availability of different treatments. When we have guidance from NICE, that will be consistent and authoritative and we would expect people taking decisions to take full account of it.
    Mr. Denis MacShane: In welcoming NICE, which will put an end to the Tory racket of postcode prescribing, is my hon. Friend aware that there are a great many rising expectations of NICE, and that if NICE strikes a drug that many believe is of use off the list that is available on the NHS, that will greatly disappoint many people? Is he, in his discussions with NICE, drawing its attention to the need to make more drugs available, not fewer?
    Mr. Denham: NICE is aware of the resources that are available to the national health service. It is aware that those resources are rising and that spending on drugs has increased faster than the resources available to the national health service.
    The good news for my hon. Friend is that NICE is taking its decisions in the context of a Government who are committed to investing in the national health service and to increasing that investment, because we certainly want to ensure that clinically effective and cost-effective treatments which are a good use of those resources are made available in the national health service. That is so very different from the record of the Conservative Government, who introduced a system of postcode prescribing which determined what sort of treatment a person could obtain. The Conservatives now have a new

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    policy—they want to do away with the previous one and simply tell people that they can obtain treatment only if they can afford to pay for it.
    Rev. Martin Smyth: I understand the problem to which the Minister refers, but what answer would he give to the lady who wrote to me to say that she had taken part in randomised testing, at the end of which, after she had found benefit from the treatment, she was told by the doctor that she had been taking not a placebo but beta interferon, but that, because of the restrictions, it was unlikely that she would be able to get it in future? Surely the hon. Member for Norwich, North (Dr. Gibson) was emphasising an issue that needs to be addressed, namely, to provide effective treatment throughout the country.
    Mr. Denham: One of our problems is that the results of proper drug trials are sometimes interpreted differently by different clinicians and different health authorities, which can lead to a difference in the pattern of provision. The great advantage of NICE is that it brings together leading clinicians within an organisation that draws heavily on the expertise not just of clinicians, but of managers and of patients' groups, in order to make an authoritative assessment of the evidence emerging from those trials.
    I believe that that will be a great strength to the national health service, because it will mean that the advice that is available to decision makers is based on the best evidence about what works clinically, is cost-effective and is a good use of NHS resources. I hope that that will mean that those patients who may be in the position that the hon. Gentleman's constituent describes get treatment if that treatment is clinically effective and cost-effective for them.

    NHS (Acute Beds)
    Mr. Harry Cohen: If he will make a statement on the number of acute beds in NHS hospitals. [106248]
    The Parliamentary Under-Secretary of State for Health (Ms Gisela Stuart): Acute beds have remained broadly stable under this Government at around 108,000. Even so, there is a view that in some places hospital bed reductions may have gone too far or alternative services may not have been put in place. That is why the national beds inquiry was set up. It is now nearing completion and its findings will be published shortly.
    Mr. Cohen: Is the Minister aware that local NHS chiefs have said that more beds are needed in my health area, Redbridge and Waltham Forest, and that the Association of Community Health Councils has said that more beds are needed nationally? Under the previous Government, 40,000 NHS beds were cut. In September 1998, the present Government set up the national beds inquiry. Is it not time that it reported, and that the Government responded to it? Is it not the case that we need more beds—not only acute beds, but mental health and intensive care beds? I hope that the Government will not go to sleep on this issue.
    Ms Stuart: I can assure my hon. Friend that we have no intention of going to sleep on anything, unlike previous
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    Conservative Governments who, over 30 years, never conducted any systematic research into the use of beds. [Interruption.] We have done so, but the last systematic inquiry into the use of hospitals and beds happened under Enoch Powell.
    It is not just a question of beds and the use of beds—we needed to make sure that we considered the use of hospitals as a whole system and that we examined the use of day-care beds for elective surgery, the use of acute beds and the use of beds for critical care. The latest information arrived in December and we are processing and analysing the data. We shall publish the report shortly.
    Mrs. Marion Roe: Acute beds need nursing staff to care for the people in them. How does the Minister intend to tackle the problem of nurse recruitment, given that the Labour Government's campaign has been less than successful? The United Kingdom Central Council nursing register continues to fall. It shows that 12 per cent. of those on the register are over the age of 55 and that fewer than 20 per cent. are under the age of 30, thus creating an age timebomb. How does the Minister intend to tackle that problem?
    Ms Stuart: Unlike the previous Government, we responded to the need for nurses not by cutting nurse training places, but by increasing them. Since the Government came to power, 2,500 extra places for training have been created, 2,500 nurses have returned to the profession and we have also trained extra doctors. That is forward looking. We have not cut services and then tried to blame someone else for that.
    Mr. Bill Rammell: Does my hon. Friend agree that nobody with any credibility will listen to the criticisms made by Conservatives Members about acute bed numbers or the number of nurses in the system? Does she agree that the problem of acute beds is the result not only of the 40,000 beds that were cut under the previous Government, but of developing a belief in the health service that increased efficiency would always reduce the number of beds? Therefore, if the inquiry suggests that we have too few acute beds in the system, will the Government act on its findings as a matter of urgency?
    Ms Stuart: Of course, techniques change and the use of beds has to be assessed. That is why the national beds inquiry will consider the matter. There has been an increase in elective surgery and something like half of all elective surgery now takes place in day-care units. The important point is that we shall examine the system, modernise the NHS and respond to strategic needs. We will not say that the answer to long-term problems is the private sector and privatising the national health service.
    Dr. Liam Fox: During the past year, how many intensive care beds have been created?
    Ms Stuart: I am aware that on a previous occasion I told the House that some 100 critical care beds have been created. I am delighted to say that that figure is not correct.

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    When comparing March 1999 and 17 January 2000, the true figure is 122 critical care beds. Information on their precise location and other details has been placed in the Library.
    Dr. Fox: That was an interesting answer, but to a different question. I did not ask about critical care beds; I asked about intensive care beds. In the last health debate, the Secretary of State said that he had managed to identify eight; in his letter to me of 6 January he said that there were 100; on "Breakfast with Frost" the Prime Minister said that there were 60; and when my hon. Friend the Member for Daventry (Mr. Boswell) asked about the number of additional intensive care beds that had been created in each NHS trust in 1999 he was told:
    "Information is not available in the form requested."—[Official Report, 24 January 2000; Vol. 343, c. 103W.]
    Given that all those answers cannot be correct, which ones were untrue?
    Ms Stuart: My right hon. Friend the Secretary of State has written to the hon. Gentleman to clarify the position. However, if he is really interested in patient care, he will look at the figures published in the latest research, which was verified on 17 January. If he is interested in the truth, he will look at that rather than scoring cheap points that do not benefit any patients at all.
    Dr. Fox: Imagine the audacity of the House of Commons in wanting information from a Minister! These Ministers could not ask for water if they were thirsty. Is not the truth that information that the Government do not like is denied, distorted or withheld? Like the Home Secretary's numbers, the Health Secretary's intensive care beds are complete fantasy. Will the Minister guarantee that by this time next year there will be an increase in the number of intensive care beds as well as critical care beds, and that those figures will be published monthly by trusts throughout the country? We could all then know the truth—we certainly cannot take the Government's word for it.
    Ms Stuart: The hon. Gentleman has to make up his mind about what kind of backseat driver he wants to be. Does he want to keep saying, "Give us information faster and faster", or does he want reliable information that is analysed properly? Information, such as that produced by the national beds inquiry, is being analysed properly and will then be made available, and other information will be made available more quickly. Surely we should give out appropriate information at the right time and in the right place when it is most useful for management decisions.

    Primary Care Trusts
    Mrs. Diana Organ: What progress he is making with the development of primary care trusts. [106249]
    The Minister of State, Department of Health (Mr. John Denham): Excellent progress has been made towards primary care trust development, with 68 primary care groups proposing to make applications to become
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    63 primary care trusts this year. Of the 19 applying for an April 2000 start, 17 will become operational in April and the other two will start in October 2000.
    Mrs. Organ: Does my hon. Friend agree that the introduction of primary care trusts and groups has led to increased effectiveness and efficiency in the use of NHS resources? However, in Gloucestershire several primary care groups that want to develop into trusts face funding problems due to Gloucestershire health authority's funding difficulties last year. What reassurances can my hon. Friend give to the primary care group in the Forest of Dean that it will receive sufficient funding in future to be effective, efficient and successful and to consider being developed into a primary care trust?
    Mr. Denham: My hon. Friend is right about the advantages of primary care groups and trusts. From April, we shall devolve about £20 billion to those organisations, which is three times the amount devolved to front-line clinicians by the previous Government's fundholding plans. That will enable services to be developed more efficiently and effectively.
    On the question of Gloucestershire, my hon. Friend will know that following last year's increase of 5.5 per cent. in the health authority allocation, this year's allocation has gone up by 6.31 per cent., which is a significant increase. However, it is for local people to determine the size and shape of primary care trusts, taking into account the views of all the people in the local health system. That means that the right balance must be struck locally between the need for an organisation that can stay in touch with the communities that it serves, and the need to keep management costs well under control to make sure that money is spent on patients, not bureaucracy.
    Mr. Peter Lilley: Will the Minister confirm that the introduction of primary care groups has resulted in patients now having to go to the hospital selected for them by their primary care group? The last vestiges of patient choice have been abolished, and patients, with the agreement of their GP, are no longer allowed to be referred to another hospital with a shorter waiting time or with a better success rate for the operation concerned.
    Mr. Denham: No. The right hon. Gentleman needs to pay a little more attention to what is happening in the national health service. Nothing that we have done removes clinicians' right to make the appropriate referral for a patient. Indeed, a legal change in their position would be required to remove that right.
    The unplanned system introduced by the previous Government was bureaucratic, expensive, unfair and uneven, and we have got rid of it in the interests of patients, doctors and NHS resources, because it is better to make sure, through proper planning and commissioning of services, that patients can get the service that they want at the highest quality and at their closest local hospital. If we contrast our vision of making sure that services are of a high quality and provided as close to patients as possible, with the right hon. Gentleman's vision in which a few patients chase all over the country trying to get on the lists of a handful of doctors, we all know which one patients prefer.

Hearing Impairment
Mr. Malcolm Savidge: What plans he has to improve NHS services for people with a hearing impairment. [106251]
The Minister of State, Department of Health (Mr. John Hutton): We will start a project in England later this year to trial digital hearing aids for national health service patients. The project will form a key part of our plans to develop modern NHS hearing aid services.
Mr. Savidge: I welcome that reply as I am aware from my local health authority area of the urgent demand for
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hearing aids. I am certain that new technology can play a vital role in meeting that need. If the pilots are successful, do the Government intend to extend the availability of digital hearing aids throughout the NHS?
Mr. Hutton: I can certainly give my hon. Friend that assurance. There is no doubt that digital programmable hearing aids are successful—they work. We have to ensure that that technology is available to NHS patients who use audiology services in local trusts, and we intend to do so in a major development and major modernisation of hearing aid services. I am delighted that the Royal National Institute for Deaf People has given it such a warm welcome.

Harold Shipman
3.30 pm
The Secretary of State for Health (Mr. Alan Milburn): With permission, Madam Speaker I wish to make a statement about the Harold Shipman case. Harold Shipman is the general practitioner from Hyde, Greater Manchester, who, the House will know, was found guilty yesterday at Preston Crown court on 15 charges of murder, and of forging the will of one of his patients. I understand that the Crown Prosecution Service is considering further charges. The police have investigated a total of 136 cases.
The whole House and, indeed, the whole country will have been shocked to hear the detail of those dreadful crimes. I am sure that all right hon. and hon. Members will want to join me in offering our deepest condolences to all the relatives and friends of the people who died at the hands of Harold Shipman. Those relatives and friends have endured the ordeal of a lengthy public trial with quiet dignity. Our sympathies today are with those families.
We now know that Harold Shipman murdered at least 15 women patients. They had placed their trust in him as their local GP. He abused his position of trust in a way that was callous, systematic and determined. As Mr. Justice Forbes, the judge presiding in the trial, said yesterday, he murdered each and every one of his victims by a calculating and cold blooded perversion of his medical skills. It is almost beyond belief that a doctor could act in this way.
The relationship between individual doctor and individual patient is built upon trust. The Shipman case must not be allowed to erode the bond that rightly exists between our first-class family doctors and the families whom they serve. GPs in this country, almost without exception, are hard working, honest and trustworthy. It is almost universally agreed that we have one of the finest family doctor services in the world. In my view, it is imperative that we protect that reputation, even as we learn the lessons of the Shipman case.
It is of course true that a determined criminal can defeat the best-regulated organisation in pursuit of his purpose, but we must be confident that we do indeed have the best systems for regulation and self-regulation firmly in place. There is no doubt that those systems have to be strengthened and changed. Not only did Harold Shipman manage to perpetrate those appalling crimes, but he managed to get away with them for years without being discovered.
Members of Parliament and members of the public will want to be reassured about whether these awful events could have been foreseen and avoided, whether the early signs could have been detected sooner, and whether action to halt Harold Shipman could have been taken earlier. It is to answer those and other questions in a careful and considered way that I intend to establish an independent inquiry into the issues raised by the murder of patients by Harold Shipman.
I am establishing the inquiry using the powers that I have as Secretary of State as defined in section 2 of the National Health Service Act 1977, and with the support of my right hon. Friend the Home Secretary. The inquiry will be comprehensive and inclusive. The victims' relatives in particular will be able to present their views
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and experiences to the inquiry. The report of the inquiry will be made public. I am publishing the terms of reference for the inquiry today; a copy has been placed in the Library of the House. Given the issues of confidence raised by the Shipman case, the inquiry must act thoroughly and speedily. It will report in the autumn. It will be chaired by Lord Laming of Tewin, the former chief inspector of social services.
The inquiry's primary purpose will be to make recommendations on how best patients can be safeguarded in future. It will look at the role played by all the agencies involved in the Shipman case, including the coroner, the registrar, the police and health services. It will examine all relevant issues, including the measures needed to safeguard against the risks of isolated professional medical practice, GPs' access to controlled drugs and the role of the NHS tribunal.
We have received and noted the West Pennine health authority's internal report on the Shipman case. Last night, the health authority announced the suspension of its GP adviser. The health authority report will no doubt be considered by the inquiry but, equally, the inquiry will also be charged with properly scrutinising the role and conduct of the authority itself.
It will also be important that the General Medical Council's involvement in Harold Shipman's case is examined by the inquiry, that lessons are learned and that recommendations for reform are made. The GMC must genuinely exist to protect patients. It must be truly accountable and it must be guided at all times by the welfare and safety of patients.
The House will know that the Government and the medical profession are already taking action to modernise regulatory structures and to deal with poor performance wherever it occurs in medicine. The GMC is developing proposals for assessment and revalidation of all doctors' licences to practise at five-yearly intervals. To strengthen and underpin this, in November last year, the chief medical officer produced recommendations in his report, "Supporting Doctors, Protecting Patients", to identify and deal with the small minority of doctors whose performance or behaviour gives cause for concern.
The report proposes that there should be annual appraisal of all doctors, including family doctors. Until now, there has been no such system. It proposes that health authorities should have the power to suspend GPs when the circumstances indicate that patients may be at risk. They do not have that power at present. Finally, it proposes that participation of GPs in external clinical audit should in future be mandatory. It is not mandatory at present. The detail of the proposals is still being consulted on. We need to press ahead as quickly as possible with them.
In parallel, the Government intend that the system of clinical governance should apply to all doctors. It will promote high standards of care and introduce accountability in a way that has not existed in the past. Isolation in which an individual doctor's pattern of practice is hidden from view will become a thing of the past. The new system will in turn be monitored by the new independent Commission for Health Improvement.
Our proposals will provide safeguards against the rare doctor who poses a grave and immediate threat to patients' safety. In the process, they will improve GPs' accountability without preventing them from getting on with the job of treating, and caring for, their patients.

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To reinforce the steps that are already in train and those that the inquiry may recommend, I believe that there are certain immediate actions that the Government need to take in the light of the Shipman trial.
First, the way in which the NHS tribunal works means that the health service would continue to pay Harold Shipman for about another month following his convictions for murder. That is inconceivable. I am acting urgently to make sure that it does not happen. Similarly, the powers that I have as Secretary of State allow me to remove pension entitlements from those recipients who have seriously damaged public confidence in the NHS. I am today giving notice that I am considering removing Harold Shipman's pension entitlements.
Secondly, despite his convictions for murder, Harold Shipman today is still a registered doctor with the General Medical Council. The public will now expect the GMC to give its most urgent attention to removing Harold Shipman from the register of medical practitioners.
Thirdly, there is at present nothing to require a family doctor to disclose a past criminal conviction or a previous professional censure to prospective partners or to a health authority. In the 1970s, Harold Shipman had a conviction for obtaining and misusing a controlled drug. He had a record with the General Medical Council, yet that did not lead anyone to monitor him more closely than any other doctor. That, too, will now change.
I can tell the House that we shall be requiring doctors to disclose criminal convictions and action taken against them by a professional regulatory body, whether in the UK or abroad, before they can be appointed to medical lists.
Fourthly, we intend to make it compulsory for GPs to report deaths in their surgeries and other serious incidents to health authorities. At the same time, we are working with the Office for National Statistics to find new and better ways of monitoring deaths of GPs' patients.
Fifthly, I have asked the chief medical officer to commission and oversee a clinical audit of Harold Shipman's past practice. The audit will examine the pattern of deaths, certified causes of deaths, prescribing of restricted drugs, and the relevant medical records. Any concerns highlighted by the audit will be drawn to the attention of the relevant authorities.
Finally, my right hon. Friend the Home Secretary is setting up an urgent review to consider how to improve death certification and make more effective the checks undertaken before cremation and burial. The review will also consider whether there should be a role for coroners in monitoring the proper procedures after death. The consideration and findings of this review will, of course, be made available to the inquiry that I announced today.
We owe it to the relatives and friends of those murdered by Harold Shipman to identify and implement whatever steps are necessary to prevent a repetition of the terrible events witnessed in Hyde. Harold Shipman was a determined serial killer. He preyed on some of the most vulnerable members of our society. He broke the trust of his patients in the most dreadful way imaginable. Having betrayed the trust of his own patients, Harold Shipman should not be allowed to break the trust that exists between family doctors and their patients.
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The action that I have outlined today is intended to strengthen that bond of trust. It expresses the Government's determination to apply the lessons of the Shipman case to ensure that patients have the protection that they deserve.
Dr. Liam Fox: I am grateful to the Secretary of State for his statement and for his courtesy in making it available to the Opposition in advance.
As a former general practitioner, and as a current member of the Royal College of General Practitioners, I feel nothing but horror and disgust at the actions of Harold Shipman. I find it incomprehensible that any doctor who had the trust of his patients could behave in such a way. I am sure that that view is shared not only by the public but by the entire medical profession.
I extend the sympathy of all Opposition Members to the families of the victims. They are the ones who have to live most immediately with the results of Harold Shipman's wickedness. However, as a GP, may I say that it was Harold Shipman who was found guilty, not the medical profession or general practitioners? We need to keep a sense of proportion in this debate, and I am grateful that the Secretary of State made such a well-balanced statement.
We welcome the public inquiry. I hope that the Secretary of State will be able to give an undertaking that its findings will be debated in the House as soon as the House returns from the summer recess.
I welcome the statements on pay and pension in relation to Harold Shipman, which I am sure those outside the House will regard as sensible. I agree that there are lessons for the General Medical Council. Immediate removal from the register in cases such as this is simply common sense. I agree that there should be better reporting of deaths in GPs' surgeries and better monitoring of the deaths of GPs' patients. However, we should not expect too much of such figures because there would have to be a great difference between a GP's figures and the norm to reveal a substantial discrepancy.
I welcome the review of the coroner's role in monitoring procedures after death. I agree that doctors from home and abroad should be required to declare criminal convictions and any actions taken by a regulatory body. Will that require primary legislation? How will that be policed? Policing will be the most difficult aspect of such a measure.
I want to make one or two constructive suggestions. Should not the principle of requiring doctors to disclose criminal convictions be extended? Surely health authorities and other employing authorities should have a legal duty to check references for doctors from the United Kingdom and abroad.
Any doctor can sign part 2 of a cremation form for a colleague. There should be better controls; for example, doctors should be specifically trained to sign a part 2. Doctors who will do that in future should at least take a course. Perhaps someone other than a GP who has specialist knowledge should sign part 2 of cremation forms to ensure increased public confidence in that process.
The Secretary of State mentioned controlled drugs. Surely it should be an offence not to hand back drugs that are taken from the relatives of a patient after death. It is

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common for doctors to take them and throw them away, but we need to ensure that procedures are in place to maintain public confidence. Hoarding controlled drugs is not acceptable.
Questions must be asked about the future of single-handed practices. Many of us in the primary care system have not wanted to face up to that question previously. However dedicated the individual GPs, questions must be asked about single-handed practices' auditing and ability to provide modern health care. The Secretary of State would be supported by the Opposition in considering that matter constructively.
The Secretary of State said that our GPs, almost without exception, were hard working, honest and trustworthy. I am grateful for the fact that there has been no knee-jerk response about regulation, and that the responsibility for regulation will remain principally with the profession in line with the law.
The Secretary of State said that no system could prevent one evil individual from carrying out such acts as those of Harold Shipman. He asked whether they could have been stopped or foreseen. I am sure that the question that he, like the House, wants to ask is, "How can we ensure that it cannot happen again?"
Mr. Milburn: I am extremely grateful to the hon. Gentleman for his support and his constructive comments. I agree about the need to try to retain a sense of balance. It is important to learn and apply the lessons as rapidly as possible. All hon. Members, in partnership with the medical profession, should make the necessary changes to protect patients and the best interests of the overwhelming majority of doctors, who are hard working, trustworthy and honest. Many of the changes that I have described will have the support, and command the confidence, of the medical profession.
The hon. Gentleman asked about a debate on the findings of the inquiry. That is a matter for the business managers, but I am amenable to discussing the issues when the inquiry has reported in the autumn. I expect it to report at the end of September; its findings will be made public.
On figures and mortality statistics, the Shipman case has thrown into sharp relief the fact that our method of collecting, using and monitoring figures is susceptible to allowing a callous, evil and cunning individual to slip through the net. We must address that rapidly; we are in discussions with the ONS. It is not true to claim that the figures that were available in Hyde, and probably to the West Pennine health authority, were not susceptible to interpretation. Clearly, the mortality rate among Harold Shipman's patients was higher than average; it was excessive among his elderly women patients.
As to ensuring that criminal convictions and professional censures are made available to employers and health authorities, we have the basis of that in the criminal records bureau, which was established under the Police Act 1997. We shall consult the medical profession about how we can use that to achieve what we want to achieve. Controlled drugs and the training of doctors are both very important issues. Reform of the system for registering death and signing off burial and cremation certificates is long overdue. That is now crystal clear, but it is properly a matter for my right hon. Friend the Home Secretary and the review that he has established, which will report as
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quickly as possible. It, in turn, will be fed into the inquiry. If the inquiry decides to make further recommendations, so be it. We shall look on them favourably.
Finally, the hon. Gentleman referred to the future of single-handed practices. Like him, I think that that is an extremely difficult issue. There are about 3,000 single-handed GPs in this country and an awful lot of small practices—often in inner-city or isolated rural communities—provide a valuable service to tens of thousands of patients. Those patients, in my view, have the right to expect precisely the highest standards of care and no difference between the standards of care provided by a single-handed GP or a GP in a large practice. We must ensure in future that there are proper methods to enforce those standards, wherever a GP practises, and effective monitoring of them, too.
Mr. Tom Pendry: Will the Secretary of State accept from me that his statement goes a long way to give comfort to my constituents in Hyde and, in particular, to those whose lives have been shattered by the actions of that evil man? The whole House will join my right hon. Friend in expressing our sincere condolences to those who have been affected by a doctor whom they trusted, but who betrayed their trust. Does he agree that the bond between doctor and patient is very precious? I hope that the inquiry that he is setting up will go some way to restore that particular bond and the faith that we have in that relationship.
I am pleased that my right hon. Friend said that my constituents who have been affected by the case will have access to the inquiry. I believe that that will be well received in my constituency. He covered some of these points, but I hope that his inquiry will acknowledge the need to change the monitoring of death certificates and recommend tighter control of the dispensing and collecting of drugs by GPs; the introduction of new procedures to suspend and, if necessary, dismiss GPs; the placing of any criminal records of GPs in the hands of the health authorities; and the monitoring of registered deaths. Anything short of that will not satisfy my constituents or, I believe, the nation.
Mr. Milburn: I am extremely grateful to my hon. Friend, who has been very active in his support for the relatives of the victims of Harold Shipman. He has also been in regular touch with me about the case. I can confirm that the inquiry will be accessible to the relatives and friends of the victims, which is appropriate and right. We have to find the best way of achieving that access and of ensuring that change happens, as we all want and, I believe, as the relatives want. They want at least a tad of good to come from all this. We must make sure that the inquiry is open and accessible, and yet can get on with its job and report as quickly as possible. He referred to the suspension of GPs. As he is aware, we do not have such powers. I think that many will conclude that perhaps we should have them in the future.
Mr. Nick Harvey: I, too, express shock and horror at these dreadful crimes, and echo the sympathy already extended to the families—and, indeed, to the many other families of former patients of Harold Shipman who are now wondering anxiously whether the deaths of those patients were also suspicious.

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I welcome the statement, and thank the Secretary of State for giving notice of it. I also welcome his announcement of an inquiry, and of the Home Secretary's review of death certification procedures. Is it not the case that some of the welcome appraisal measures mentioned by the Secretary of State will identify incompetent doctors, but will not necessarily show up evil doctors?
Let me take up a point that has already been made. The requirement that a doctor should disclose convictions or professional censures is all very well, but what if the doctor does not do that? Would it not be better for the system to be the other way round, and for health authorities to be required to perform full checks and searches before appointments are made; and would it not be better for the checks and searches to be extra thorough in the case of those who are to practise as single-handed general practitioners?
On the question of controlled drugs, would it not be possible in this high-tech age for pharmacists' registers to be monitored, and to check for any anomalies in doctors' prescribing? The role of the General Medical Council has been mentioned. Is it not essential that the GMC not only does a good job for patients, but is seen to do so? Might it not be in the interest of public confidence for the issue of a lay majority on the GMC to be considered again?
Finally, in regard to death certification, may I echo the suggestion of many that the requirements and, indeed, the payments of signatories be reviewed? Is it not also clear that we now need a coroners service that is sufficiently professional, and resourced adequately enough to be able to collect and monitor data effectively, and spot any irregularities early?
Mr. Milburn: I am grateful to the hon. Gentleman for his support. Let me begin with his last point. Part of the review by my right hon. Friend the Home Secretary will involve examining the role and functions of the coroners service, and deciding what measures are needed to strengthen it. There are important lessons here for both the coroners service and the registrars service. Given the amount of information that comes their way, both coroners and registrars should be in a position to take an overview of what is happening in a particular locality—of, for instance, the rate and type of deaths, and the cluster of mortality statistics. That did not happen in this case, and I think the inquiry should consider why it did not happen, not necessarily in order to penalise anyone but to learn some lessons, and to ensure that we get the arrangements right for the future.
As for Harold Shipman's past practice, I said in my statement that the chief medical officer would undertake an audit. It will be an audit of all Harold Shipman's past practice, and the deaths that occurred during his time as a GP over two and a half decades. I think that that is the right thing to do: I think that the public, and former patients of Harold Shipman, deserve that reassurance. The chief medical officer will appoint expert clinicians to lead the process, and we will try to ensure that the audit is undertaken and completed as quickly as possible.
The hon. Gentleman mentioned pharmacists and controlled drugs. That is a terribly difficult area, and it is perhaps now clear that some of the practices, processes and procedures need to be examined again. The problem
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arises when a GP collects a controlled drug from the pharmacist, says that he is going to prescribe it to a patient and does not do so, or prescribes only part of it. We need a system that can deal with such potential problems, without denying the flexibility that GPs sometimes need. They may need access to controlled drugs if, for example, there has been a road traffic accident.
We must try to get the balance absolutely right. I do not pretend for a moment that it will be easy, but it is right for us to examine the issues now. As I said in my statement, I think that the inquiry will want to look very closely at the role and conduct of the General Medical Council, how it is constituted and its structures, processes and procedures.
Mr. David Hinchliffe: I welcome my right hon. Friend's statement. Those of us who know Lord Laming are well aware that he will do a thorough and sensitive job.
May I press my right hon. Friend on three key issues that I think should be included in the inquiry? He mentioned the role of the coroner. Will the inquiry examine the wider role of the coroners office in evaluating local trends in reported deaths? It seems astonishing that no one in the area where Shipman practised spotted what was going on. That is a key point, which we need to look at urgently.
Can we look not just at the role of the GMC, but at its wider relationships with other health bodies, which are crucial to understanding what went wrong in the 1970s? I remain to be convinced that the problems that occurred then could not reoccur. I support the comments by the hon. Member for North Devon (Mr. Harvey), the Liberal Democrat spokesman, on a lay majority on the GMC, which would bring increased public confidence.
As my right hon. Friend will probably be aware, in October, the Select Committee on Health produced a report of direct relevance to those issues. The Government have not responded to that yet. I hope that they will, bearing in mind some of the issues arising from the Shipman case.
As well as, obviously, addressing the issue of single-handed practices, will the inquiry look at the relevance of the independent contractor status of GPs, which has some direct connection to the issue of accountability and standards?
Mr. Milburn: I am grateful to my hon. Friend. I apologise for the delay in responding to the Select Committee's report. Clearly, we need to do that, and will respond in due course.
My hon. Friends's first question was about the coroners service. The answer to that question is yes. On the GMC's constitution and the way in which the GMC relates to the broader national health service, I am sure that that will be a matter for the inquiry and that it will look carefully at the GMC's role. As the Government have always made clear, professional self-regulation is under test. There is broad agreement now that professional self-regulation has to be more accountable, more open and more modern. The inquiry will look at how that can best be achieved in the light of the Shipman case.
I broadly take the view that independent contractor status has served the NHS pretty well over the past five or so decades. It is important that there are alternatives

915
for GPs, particularly newly qualifying younger GPs who sometimes might want not to go into a practice and become a partner, but opt for the salaried route. As a matter of policy, we have been determined to open that as an option, but it is important that GPs, as they come through, train and come into the NHS, have a real choice about their future career and about the employment structure that best suits them.
Sir Brian Mawhinney: Does the Secretary of State accept that his decision to put in place an inquiry is entirely welcome and that his choice of Lord Laming, with whom I have worked, will command support and confidence among Members on both sides of the House? Will he accept the thanks to him from Members on both sides of the House for his differentiation between one evil man and the broad mass of GPs who serve their constituents and their patients with dedication, professionalism and care? Perhaps he would consider using existing communication mechanisms to draw to the individual attention of GPs throughout the country his supportive words, those of my hon. Friend the Member for Woodspring (Dr. Fox) and other right hon. and hon. Members.
Will the Secretary of State confirm that the inquiry will look at the role of the police relative to Dr. Shipman? What police force will conduct that part of the investigation on behalf of Lord Laming?
Mr. Milburn: I am grateful to the right hon. Gentleman. I am particularly grateful for his support for Lord Laming, with whom I know that he worked closely during his period at the Department of Health. I am sure that he is right to say that GPs will be looking at, and listening carefully to, the comments in the House today. Rightly, they will want to feel that their interests are being protected alongside those of the patients. Although it is sometimes tempting to differentiate between the interests of patients and those of GPs, I prefer to think that, if we can make some changes, that will benefit both GPs and patients. I am sure that his sentiment—that the overwhelming majority of family doctors will be as appalled as hon. Members are about the activities of one evil GP—is absolutely right.
We have to ensure that it does not happen again, and that, together, we—the Government, the other parties in the House and the medical profession—take the appropriate action and get on with it. In my view, the worst thing that could happen would be to pretend that it can be business as usual; it cannot. We cannot stick our heads in the sand or pretend that this awful set of events has not happened, because it has. We must take whatever action is necessary to ensure that it does not happen again.
We have not contemplated bringing in an outside police force, which is more properly an issue for my right hon. Friend the Home Secretary. However, alongside Lord Laming, expert assessors—one from a medical background and one from a legal background—will be charged with examining the role played by the various statutory agencies, including police, in the investigation of the Shipman case.
Mr. Kevin Barron: Will my right hon. Friend confirm that the public inquiry will examine not
916
only the role of the General Medical Council in this dreadful affair, but its current responsibilities and whether there have to be any changes?
Mr. Milburn: Yes, the inquiry will. I am sure that the GMC itself will have heard, and I hope will respond positively to, the views that have been expressed today in the House, and I think that it will recognise that there are some important lessons to be learned about how it behaves in such situations. The Government stand ready to listen not only to the inquiry's recommendations, but to the views of the GMC on how its performance could be reshaped after the Shipman case.
Mr. Douglas Hogg: The right hon. Gentleman has spoken of the possibility of trying Dr. Shipman for other offences. Will he keep in mind the fact that, in view of everything that has been said in the past 24 hours, it will be very difficult to give him a fair trial?
Although it must be right to strip Dr. Shipman of his pension entitlements, will the right hon. Gentleman keep in mind the separate position of his wife? It must be fair to consider her separately.
It is obviously right to hold an inquiry, but will the right hon. Gentleman be cautious about scapegoating? The truth is that great evil, like great good, is not all that easy to recognise. Furthermore, a propensity to take drugs is not the same as a propensity to kill.
Mr. Milburn: I certainly agree with the right hon. and learned Gentleman on the issue of scapegoating. Obviously, there are questions to answer in the matter, and that is right and proper. The case has been an horrendous set of events and, with the great benefit of hindsight, it is crystal clear that something was going enormously wrong with Harold Shipman's practice. Ultimately, the agencies that are constituted in statute are accountable to the House, and it is right that they should account for how they performed and dealt with a set of very difficult and complex matters in Greater Manchester. That is part of the purpose of the inquiry.
I stress again, however, that I really do not want the inquiry simply to turn into an investigation of past events. We already have a public inquiry, we have had a lengthy and difficult court case and we have had a trial. It is right that the inquiry should investigate the failures that may well have occurred in the systems, but it should also look forward and make positive recommendations about how we can strengthen and change those systems for the future.
I have to bear in mind the issue of pension requirements and Harold Shipman's wife. I have a judicial role in pension forfeiture, and I shall perform my duties accordingly.
Ms Chris McCafferty: I commend my right hon. Friend on his statement and particularly welcome the inquiry. He will be aware that Harold Shipman practised medicine in Todmorden, in my constituency, for some years. It was thanks only to the efficient and effective checks and balances that his partners had in place that his drug misuse was discovered and that he was subsequently prosecuted.

917
Like many hon. Members, I am particularly concerned that the West Pennine health authority was not aware of Harold Shipman's convictions while he was a GP in Todmorden. I am sure that my right hon. Friend will agree that this case highlights the importance of robust systems to monitor not just the death rates of GPs, but the quality of care that they are giving to patients. Will my right hon. Friend place a statutory duty on the GMC to be proactive in informing health authorities of all relevant information that relates to medical personnel, and consider whether GPs should have salaried status within the NHS, and all the accountability that that brings?
The facts revealed by this case have caused grave concern to my constituents also. Although there are no immediate concerns or suggestions that Harold Shipman started his activities in Todmorden, some of my constituents have concerns about relatives who were his patients. Will my right hon. Friend urgently establish a helpline to help those who are concerned about those matters, to dispense and gather information and to help alleviate worries? That would be very welcome.
Mr. Milburn: I am extremely grateful to my hon. Friend, who makes an important point about the majority of GPs. In Todmorden and in Hyde, fellow GPs of Harold Shipman blew the whistle. We should not lose sight of that. A fellow GP in Hyde first raised suspicions about Dr. Shipman's practice and the excess levels of deaths among his largely elderly female patients. My hon. Friend is right to say that it was a fellow GP in her constituency who raised suspicions about the fact that Harold Shipman was forging prescription forms and had illegally obtained controlled drugs—in this case, pethidine. That is an important lesson to bear in mind as we consider the future of general practice and the role of individual GPs.
My hon. Friend is right to say that the crucial issue is not just better monitoring of mortality statistics, although that is needed. I was heartened to see the comments from Dr. John Chisholm, the chairman of the GPs' committee of the BMA. The BMA and the doctors themselves recognise that there must be greater accountability in terms of how GPs perform. That is a welcome recognition, and provides us with the basis to reach sensible agreements, to make progress and to ensure that we do not see a repetition of this sort of tragedy in future.
My hon. Friend referred to helplines. I will consider that issue. I know that, in Hyde, the health authority has worked closely with Victim Support, which has provided an absolutely sterling service to the relatives and friends of victims. They have that sort of help and support, and I will look into whether it is possible to extend that.
Mr. Peter Lilley: Will the right hon. Gentleman confirm that the inquiry, the establishment of which I greatly welcome, will not be limited to the narrow question of trying to prevent a recurrence of this incredibly wicked but, one hopes, incredibly rare occurrence of a medical practitioner deliberately killing healthy patients, but will be able to look more broadly at what may be a greater risk—of death through the incompetence, carelessness and negligence of doctors, both in hospitals and in general practice—
918
through improved monitoring of their performance and the success rates of their treatments, with possibly even the publication of data about those things?
Mr. Milburn: I think that the right hon. Gentleman is aware that we will publish mortality statistics for the first time. It is a contentious issue, as he will recall from his time in office when the previous Government published the statistics in Scotland. We have extended that to England and I believe that that is the right thing to do. The issue is complex but, in the final analysis, the patient has the right to know. The patient is the recipient of what is a public service. The public pay for it and use it, and it is right and proper that the public should know what level and standard of service they are receiving. We may even need to go further than we have in the publication of such information.
As to the scope of the inquiry, it is right and proper that it should concentrate on the implications of the Shipman case. I have no doubt that it will have wider repercussions that will be considered by the inquiry team and reflected in its recommendations.
Dr. Howard Stoate: As a GP, I have been horrified and appalled by the havoc wreaked by that callous and brutal murderer. Patients and doctors will welcome my right hon. Friend's statement, especially his affirmation that trust is the cornerstone of the doctor-patient consultation. Without that trust, it would be difficult for doctors to do their work. I would hate to see a knee-jerk reaction to what has happened, and I welcome the long-term inquiry that he mentioned and the fact that he will consider carefully and calmly any recommendations, especially on death certification and the availability of controlled drugs. As my right hon. Friend is aware, without drugs such as morphine, doctors would not be able to save as many lives as they do. Will he ensure that the report is considered carefully when it is published and that we do not rush into any premature decisions that might do more harm than good?
Mr. Milburn: My hon. Friend is right. We have tried to strike a balance today by taking action where appropriate and where there is an obvious gap in the processing systems. I hope that we have got the balance right. At the same time, I wish to empower the inquiry to examine the structures more broadly and to consider the specific lessons that can be learned. I have no doubt, given the chairmanship of Lord Laming, that the inquiry will undertake its proceedings carefully and sensitively, especially given the feelings of the relatives of the deceased. When it produces its recommendations, the Government will need some time to consider the implications and we will then report back to the House.
Dr. Julian Lewis: I congratulate the Secretary of State on the contents of his statement and on the sensitivity with which he delivered it and has answered questions. Does he agree that the peculiarity of this case, even compared with the cases of other serial murderers, is that there was no obvious financial, or apparent sexual, motivation for the crimes committed? Is it not to the credit of the police that, as soon as a financial motivation was drawn to their attention, they managed to investigate the case so thoroughly and unravel it so comprehensively? While I endorse what has been said

919
about the need to discover who has made mistakes in the past, does the Secretary of State agree that, on the surface at least, the police—once alerted—appear to have done a first-rate job?
Mr. Milburn: I am grateful to the hon. Gentleman for his support. He will be aware that in the judge's summing up yesterday in Preston he praised the performance of the local police in what was a difficult and lengthy investigation. Credit is of course due to the police, as it is to the relatives of the victims. In particular, I pay tribute—it is difficult to find the words to do so—to the daughter of Mrs. Grundy because, without her intervention and early investigation, I fear that Harold Shipman would have continued his killing ways.
Mr. Andrew F. Bennett: I echo the expressions of condolence to the families and friends of all those murdered, and I offer the sympathy of the House to all those in Tameside who are uncertain about what happened to their relatives or friends. I wish to press my right hon. Friend to consider carefully the appointment that he will shortly make to the chairmanship of the West Pennine health authority. Will he try to ensure that, through that appointment, he gives new direction to the health authority to try to restore confidence to all those people in Tameside and Oldham who use its services? Will he try to make sure that that new appointment gives a new direction to the health authority that will help to restore confidence to all those people in Tameside and Oldham who use its services?
Mr. Milburn: We will give proper and due consideration to that appointment when it comes up. Inevitably, the health authority is in the spotlight at the moment, and it has acted to suspend its GP adviser. The health authority has produced its own internal report, which we at the Department of Health have received and which the authority published at its press conference last night. However, it is also appropriate that the inquiry considers the role and conduct of the authority, alongside that of the other statutory agencies, such as the police, the coroners service, the registrars service, and others.

Points of Order
4.21 pm
Mr. Nigel Waterson: On a point of order, Madam Speaker. I gave you advance notice of this point of order, which concerns an apparently well-sourced piece in today's edition of The Daily Telegraph. It is entitled "Prescott cuts housing quota", and it mentions a meeting today of the Fabian Society. Apparently, the Deputy Prime Minister intends to make some major pronouncements about his policy for new house building in the south-east, in the light of the report by Professor Crow and his team. The article states that the right hon. Gentleman apparently will increase very significantly the number of new houses to be built in the south-east, over and above the number already recommended by Serplan. Clearly, that will be of enormous concern to many people in the south-east, and to their elected representatives.
Have you had any request from the Deputy Prime Minister for an opportunity to make a statement in the House today? If not, do you agree that the right hon. Gentleman has shown a cavalier disrespect for the House?
Madam Speaker: I have not been informed by any Ministers that they are seeking to make a statement today on that issue. I certainly never make any comments on newspaper reports. I think that that is always wise, and a good line for any Speaker, Back Bencher or Minister to follow.
Mr. Owen Paterson: On a point of order—
Madam Speaker: Order. I have not finished yet. I very seldom get a chance to speak in the House and, when I do, I am certainly not going to be interrupted by a Back Bencher on what may well be a bogus point of order when it comes.
However, the serious point is that Ministers and the House know that I am strongly of the view that policy announcements should be made in the House in the first instance. I very much hope that my comments will be borne in mind when Ministers finally reach a conclusion on this matter.
Now, Mr. Paterson, I will hear your point of order—and it had be better a good one, too.
Mr. Paterson: May I refer back to Question 6 in Health questions, Madam Speaker? The Secretary of State said that he would eat his hat if I could provide documentary evidence to back up the question that I had put to him. Page 63 of 22nd edition of "Erskine May" clearly states that
"it is of paramount importance that Ministers give accurate and truthful information to Parliament, correcting any inadvertent error at the earliest opportunity."
I quote from a letter from the Shropshire local medical committee, which represents all the general practitioners in the county. The letter states:
"no bed was available in Shropshire to admit acutely ill patients",
s even though
"this was a fairly normal winter, with the sort of seasonable rise in activity that is predictable and which should be coped with as a matter of routine."

921
Would it be possible to call the Secretary of State back to the House, so that he can accurately answer my question, and possibly eat his hat at the same time?
Madam Speaker: I am not sure about any demonstration of hat eating, but the hon. Gentleman will know that I do not have the authority to call the Secretary of State back to the House. The hon. Gentleman asked the Secretary of State a question earlier, and I suggest that he tries to rephrase the matter and bring it to the attention of the House in general by means of questions or an early-day motion.

Retail Packaging Recycling
4.25 pm
Mr. Andrew Stunell: I beg to move,
That leave be given to bring in a Bill to require that certain retailers shall provide free of charge a collection point for any packaging materials sold or supplied by them; and to require them to recycle or safely dispose of such materials.
Six weeks ago, hon. Members were rushing around the shops, buying last-minute Christmas presents for their family, friends and relatives. Five weeks ago, hon. Members were busy opening their stockings and unwrapping the gifts and presents given them by their family, friends and relatives. And four weeks ago, the refuse collection services of various local councils were rushing around Britain collecting a huge volume of cellophane, polystyrene, cardboard, bubble pack, plastic bits and bobs, paper and bags from hon. Members. This week, hon. Members have the chance to support my Bill, which will help to stem the flood of the unwanted and unnecessary packaging that filled their living rooms on Christmas day and their dustbins on Boxing day.
The Bill has a simple aim, and it seeks to achieve it in a straightforward way. It uses a well-tried and effective mechanism—the market—which I hope will find favour on both sides of the House, to achieve a much desired result. The power to do this will be put in the hands of ordinary consumer—of shoppers. It does not require a regulatory body or special powers to be given to a statutory authority.
The Bill's aim is to reduce the unnecessary over-packaging of products bought by consumers. That excess packaging has a very short life. We take it home, rip it off and stick it in the bin. Much of the packaging defies recycling by conventional methods. There are a lot of mixed materials bonded together, cardboard and plastic bonded together and multiple plastic products that cannot be separated. Quite often, the resulting materials are bulky and uncompressible.
In short, excess packaging presents an environmental nightmare. So why does it happen, why is it getting worse and who wants this packaging mountain? Well, it is not the waste disposal authorities; it is not the bin men who collect it; it is not the customer, whose dustbin is overflowing, and it is not the retailer. The retailer does not telephone the manufacturer and say, "Please send more polystyrene and cellophane with your products." The marketing people are responsible. That is a term of abuse in many areas, and I have to say that this marketing blitz is a catastrophe for the environment.
I have mentioned some of the problems that arise when the packaging is used and goes into the formal waste stream. There is a further problem of when it is used and goes into the informal waste stream—or the ditch and the hedge, as we call it in professional circles. As far as packaging goes, the less of it there is, the better.
How does the Bill help? It will place an obligation on retailers—those trading from larger premises—to take back from their customers any packaging that they have supplied to them. Larger retailers will have to provide a point where packaging can be taken or handed in. The retailer will then recycle it or safely dispose of it, which is often not so easy.
The experience of Switzerland and Germany, where similar legislation is in place, is that retailers soon tell wholesalers to cut down on the junk that is being sent

923
with the products they are selling. The wholesalers tell the manufacturers, and the manufacturers soon get the message. Products in those countries tend to have less junk packaging than in the United Kingdom, and there is no reason why this Bill should not produce the same result.
The Bill will not cost anybody anything; it produces savings at every step. There is less cost for the manufacturer in providing the packaging and less cost for the wholesaler in transporting it; less hassle for retailers, less rubbish in the dustbins of hon. Members and of other consumers and, of course, less waste in landfill sites throughout the country.
It is my privilege to introduce a Bill that is benign in all respects—free of cost and supported on both sides of the House. I commend the Bill to the House.
Question put and agreed to.
Bill ordered to be brought in by Mr. Andrew Stunell, Mr. David Chaytor, Dr. Vincent Cable, Mr. Nicholas Winterton, Mrs. Linda Gilroy, Mr. Norman Baker and Mr. Alan Simpson.

RETAIL PACKAGING RECYCLING
Mr. Andrew Stunell accordingly presented a Bill to require that certain retailers shall provide free of charge a collection point for any packaging materials sold or supplied by them; and to require them to recycle or safely dispose of such materials: And the same was read the First time; and ordered to be read a Second time on Friday 10 March, and to be printed [Bill 56].
Orders of the Day
  Financial Services and Markets Bill
  As amended in the Standing Committee, further considered.
  Financial Services and Markets Bill
    New Clause 4

      AUTHORITY TO CONDUCT REVIEW OF RULES MADE UNDER PART IX
      ".—(1) Within three years of any rules (other than rules which impose fees) being made under this Part the Authority must carry out a review of such rules to determine whether they continue to be appropriate for the purpose for which they were made.
      (2) If, following such a review, the Authority concludes that the rules in question should be changed in a way which is, in the opinion of the Authority, significant the Authority must make new rules and the provisions of section 127 shall apply to them.
      (3) If, following a review, the Authority concludes that the rules in question should be approved in the form then in force, or in a form which does not differ from such rules in a way which is, in the opinion of the Authority, significant, it must publish a statement of its conclusions in the way appearing to be best calculated to bring it to the attention of the public.
      (4) The statement of the Authority's conclusions must be accompanied by—

      (a) a cost benefit analysis;

      (b) an explanation of the purpose of the rules;

      (c) a schedule of the changes (if any) proposed to be made to the rules;

      (d) a statement of the Authority's reasons for believing that the rules continue to be compatible with its general duties under section 2; and

      (e) a statement that representations about the rules may be made to the Authority within a specified time.

      (5) Before approving any rules to which subsection (3) applies, the Authority must have regard to any representations made to it in accordance with subsection (4)(e).
      (6) If the rules are approved by the Authority, it must make a statement as to the representations (if any) made to it and its response in general terms.
      (7) If the rules approved by the Authority differ from the rules under review (taking account of the changes referred to in subsection (4)(c)) in a way which is, in the opinion of the Authority, significant—

      (a) the Authority must publish a statement of the differences; and

      (b) the statement must be accompanied by a cost benefit analysis.

      (8) 'Cost benefit analysis' means an estimate of the costs together with an estimate of the benefits that will arise if the rules under review are approved.
      (9) Rules approved under this section shall be deemed to be made on the date on which the rules are approved.".—[Mr. Heathcoat-Amory.]
      Brought up, and read the First time.
      4.31 pm
      Mr. David Heathcoat-Amory (Wells): I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker (Mr. Michael Lord): With this it will be convenient to discuss the following: new clause 5—Relationship between guidance and rules issued by Authority—

      925
      "(1) If a person behaves in a way which complies with general guidance he shall not be regarded, for the purposes of this Act, as contravening any rule.
      (2) The Authority may give guidance (which is not general guidance) to the effect that compliance with the guidance by the person or persons to whom the guidance is expressed to be given shall not be regarded, for the purposes of this Act, as contravening any rule.
      (3) 'General guidance' has the same meaning as in section 130.".
      Amendment No. 35, in clause 110, page 50, line 20, at end insert—
      "(c) make provision prohibiting or restricting or otherwise regulating the carrying on by an authorised person of any regulated activity at or from an establishment maintained by him outside the United Kingdom unless:

      (i) he is carrying it on with or for a person in the United Kingdom, or

      (ii) both of the conditions set out in subsection (7) apply.

      (7) The conditions are that—

      (a) his registered office (or if he does not have a registered office, his head office) is in the United Kingdom; and

      (b) in the view of the Authority, the provision is desirable in order to—

      (i) protect the reputation of the financial system (as defined in section 3(2)) or of authorised persons or a class of authorised persons, or

      (ii) prevent authorised persons carrying on the activity in a way which is likely to jeopardise the integrity or the solvency of the firm.".

      Amendment No. 50, in clause 110, page 50, line 20, at end insert—
      "(6A) The Authority shall not make rules imposing requirements or restrictions on the conduct of business with, or on the marketing of investments or investment services to, persons outside the United Kingdom unless the scope of those rules has been prescribed in an order made by the Treasury.".
      Amendment No. 51, in clause 111, page 50, line 42, at end insert—
      "(6) The Authority may not make rules relating to any non-regulated activity unless the scope of those rules has been prescribed in an order made by the Treasury.".
      Amendment No. 8, in clause 112, page 50, line 43, after "person", insert—
      "who is authorised under this Act to accept deposits".
      Amendment No. 230, in clause 129, page 59, line 5, after "rules", insert—
      ", statements of principle or codes".
      Mr. Heathcoat-Amory: We are still considering the important principles underlying the Bill. Later, we shall discuss amendments that are more technical. However, this group of new clauses and amendments relate to the scope of the Bill and to the rule-making powers of the Financial Services Authority.
      The FSA derives its power largely from that ability to make rules. As we are aware from previous debates, those rules will not be approved by Parliament, so we are, in effect, devolving the law-making task to an outside body. That is why it is important that the Bill should limit such power. It is also right that the House should ensure that the rules made by the FSA are, as far as possible, appropriate for the objectives that we set it. The rules must not exceed those objectives and must constantly be tested against them.
      926
      New clause 4 would ensure that the authority reviews the rules within three years. Such a review would establish whether the rules were still appropriate. Many of the rules are new and comparatively untested. Indeed, many are still evolving—the authority is consulting on its rule-making task.
      Furthermore, the market is always changing, so it is right constantly to test whether rules are still appropriate, or have been rendered obsolete or unworkable by the passage of time. The new clause would require the authority to undertake a cost-benefit analysis for each rule. The authority is already required to do so for new rules, but not for the existing rules that have been grandfathered into the Bill and are continued. We need to subject new and existing rules to a cost benefit analysis, and to do so within three years.
      This matter is of great importance to the City and to the financial services industry generally, especially, perhaps, small firms and independent financial advisers, who are often on the receiving end of regulations that they may not always feel to be appropriate or necessary, and which are always expensive to apply. If we are worried about the intrinsic expansionary tendency in the regulatory system, we need to set up countervailing forces wherever we can, to try to restrict the regulatory authority to what is efficient and effective.
      Mr. John Bercow: Is not my right hon. Friend effectively advocating, via the authority, the operation of a form of sunset regulation, which, as we know from the empirical evidence, works very well at both state and federal level in the United States?
      Mr. Heathcoat-Amory: I am extremely attracted to the concept of sunset clauses. My hon. Friend mentioned America, where they are common. The rules that we are considering here are passed not by Parliament, but by the Financial Services Authority, so he may have it in mind to impose that concept on the authority. That concept is not in the Bill at the moment, but it may deserve further consideration by the authority.
      For my part, for the purpose of new clause 4, I am focusing perhaps more narrowly on trying to build into the Bill a countervailing pressure to ensure that the phenomenon known as regulatory creep meets its match in a requirement on the authority continually to examine its rules, with a view possibly to repealing them, along the lines suggested by my hon. Friend, or at least amending them, or, if it does not decide to do either of those things, to explain why not. That would achieve many of the desirable objectives of a sunset clause without introducing that concept.
      It is not just the health of the domestic industry that we are concerned about in this regard. We are also anxious to ensure the international competitiveness of the financial services industry in the United Kingdom. Higher regulatory burdens and excessive costs could drive a very successful United Kingdom industry overseas.
      For all those reasons, we want to subject the rules continually to the cost-benefit analysis procedure. That is not to say that we do not need rules; we certainly do, and they must be clear and must be enforced. We all want a regulatory system that is effective and efficient. A balance must be maintained. That is what a cost-benefit analysis does—it seeks to ensure that the benefit of a rule outweighs the cost.

      927
      The Government have accepted that such an analysis should be carried out for new rules, so I believe that they will be attracted to new clause 4, which would extend that requirement to the existing body of rules, and give the FSA some time to carry out a review, because that requirement must be met within three years.
      The new clause requires the authority to publish the information as part of a statement of conclusions, having carried out the work. That would be accompanied by a cost-benefit analysis, an explanation of the purpose of the rules under scrutiny and a schedule of any proposed changes. The authority would also have to supply a statement of its reasons for believing that the rules continue to be compatible with its general duties and—very importantly—it would have to provide a statement that representations about the rules in question could be made to the authority by market traders and firms in the industry generally. That would be a reasonable requirement to impose on the authority. As I said, it would be in line with what is already required for new rules.
      New clause 5 would make it clear that the general guidance given to the Financial Services Authority could be relied on. That is a separate and most important concept. It is designed to ensure that someone who believes that he has complied with published guidance and rules should be guilty of no offence. That seems perfectly obvious, but there is great nervousness in the industry about someone being caught unawares for breaking an FSA rule or unintentionally breaching a more general principle in the Bill. That is a particular risk that we run with the concept of market abuse, which does not build in sufficiently the concept of intent.
      Someone could be guilty of market abusive behaviour without intending to do so. That possibility has created severe misgivings not just within the regulated community, but more generally. The market abuse provisions apply to the public as well, so any member of the public could be guilty of market abuse even if he does not fall to be directly regulated under the Bill. When people and firms seek to protect themselves by seeking guidance from the authority or by complying with published guidance from the authority, they should be entitled to rely on that. In so far as they comply with the guidance, they should be certain that they are guilty of no offence.
      The general guidance concerned is defined in clause 130, so there is no difficulty with definitions. I believe that the Government are sympathetic to new clause 5 because it would provide a form of natural justice. It would make it clear that the guidance issued by the authority provided a safe harbour for market operators and the public.
      The amendments relate more to the scope of the Bill. Amendment No. 35 would restrict the authority's ability to make rules to regulate non-United Kingdom businesses—businesses that are carried out from an establishment outside the United Kingdom. The restriction would not apply if the business concerned carried out business on behalf of someone in the United Kingdom or if it had a registered office in the United Kingdom and it was necessary to regulate it to protect the financial system. There are limits and restrictions on our proposal.
      Without the safeguard in the amendment, the authority can impose rules on outside and overseas businesses just because they derive from the United Kingdom,
      928
      even though they are likely to be regulated abroad. That is a form of double regulation that will put our firms at a competitive disadvantage. It is objectionable in principle to subject firms or individuals to a form of dual regulation.
      Amendment No. 50 similarly addresses extraterritorial regulation by the authority over the marketing of investments to people outside the UK. It would require those rules to be prescribed in a Treasury order. Again, we would not put a complete block on such extraterritorial regulation; we would simply require it to be more explicit and to form part of a Treasury order that I should like to see approved under the positive resolution procedure.
      4.45 pm
      At the moment, there seems to be a dichotomy in the Treasury's approach. Powers are being given to the FSA to regulate products offered abroad; that is to say, products put on sale by UK businesses. That is a country-of-origin approach, which if generally accepted would be beneficial to this country.
      If there were a reciprocal arrangement, a product or service approved under this country's regulatory powers could be offered to other countries on the continent or to America without further regulation. Customers, consumers and authorities in those other countries would rely on the fact that the FSA was—at least, it should be—a world-class regulator, and they would have certainty about our products and services because they had been regulated in this country.
      That would be a good, desirable system, but the Government rather spoil their case by giving the authority powers to regulate here products and services offered from other countries. That is country-of-destination regulation. If other regulatory authorities take the same view, we will end up with dual regulation. Authorities in countries such as France are probably rather doubtful about the benefit to them of accepting financial products and services offered by the City of London without a further regulatory barrier. Their attitude will be reinforced by the knowledge that we insist, in the Bill, on regulating products offered to this country from abroad.
      The Government need to sort out exactly where they stand on that issue; otherwise, we shall put our industry at a competitive disadvantage by putting it in jeopardy of double regulation.
      Amendment No. 51 would limit the scope of the authority in relation to non-regulated activities. That, too, is an important issue of principle. The Bill is, or should be, about regulating commercial activities that fall within a definition. The Bill is widely drawn, so that definition is necessarily extremely wide; it encompasses banking, dealing in all kinds of investment and giving investment advice about a range of products and services. However, it should stop there.
      I am concerned that, in addition to those activities, the authority can extend its remit to unregulated activities, which could include every conceivable form of commercial activity. For example, clause 38 states that in giving permission to an authorised person to carry on his activity, the authority can impose requirements about activities that are not regulated. The FSA could therefore authorise a company to deal in investments or services that constitute regulated activities, but in addition it could regulate any of the company's other activities without any restriction.

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      While clause 38 is about giving permission to people or firms to engage in such activities, clause 111 concerns the FSA's rule-making duties. It allows the FSA to make rules not only on regulated activities, but on just about anything else. That could constitute a dangerous extension of the Bill's scope to pretty well anything.
      The explanatory notes, which the Government issued some time ago, described the way in which the Bill had been designed to set limits on the FSA and its duties, obligations and powers. Yet in the important matter of scope—what can be regulated and what sort of rules can be made—there are no limits; the FSA can stray into non-regulated activities of any sort. Amendment No. 51 requires that that be done only if it is prescribed by a Treasury order. It is a reasonable amendment that does not ban the activity altogether, but merely requires the Treasury to introduce an order for the House to pass by affirmative resolution, so ensuring that there is a genuine opportunity for debate.
      Clause 112 allows the authority to impose on firms what can only be described as ad hoc financial requirements, in addition to its rules. The FSA can do that without issuing a warning notice. Amendment No. 8 would restrict that power to deposit takers. That, too, is a reasonable amendment, because the powers to impose such financial requirements already exist: they have been held by the Bank of England, which has similar powers over deposit takers. Our amendment would bring the Bill into line with the pre-existing situation, which has worked perfectly well.
      The amendments are important because they deal with the rule-making powers of the authority and so go to the heart of the FSA's functions. Perhaps equally important is their effect on the scope of the Bill. If the amendments are made, we shall at least know the limits of the powers that we are granting to the authority.
      Mr. Howard Flight: As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has said, this debate is about many important issues of principle. We raised those issues in Committee; Ministers said that they would address some of them, but it seems to us that they have not done so.
      I have discussed the provisions of new clause 4 with the FSA, which has expressed the view that it would like to carry out a cost-benefit analysis of all its rules. However, because it is not practical to do that when the legislation is enacted, the FSA believes that it should be done over time, as laid down by the new clause.
      I echo the point made by my hon. Friend the Member for Buckingham (Mr. Bercow)—that our proposals contain an element of the sunset principle, in that the FSA would be required to phase out rules that had gone out of date or become uneconomic in cost-benefit terms. Hon. Members will have seen the FSA paper on risk management and its task of balancing the cost-effectiveness of rules, the importance of the territory they cover and their impact.
      The industry is concerned about the costs of regulation, but there is no easy formula whereby those costs can be controlled. The Opposition suggested an amendment to limit fee increases to increases in the retail prices index,
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      but I do not think that that is a practical approach. Instead, we propose an internal control mechanism, governed not by total costs, but by economic efficiency.
      New clause 5 deals with issues of safe harbour and guidance. The FSA has told everyone that the Bill provides a safe harbour through its approach to guidance, and that it will use guidance to put into practice the same arrangements as are found in the United States, in terms of no action letters. However, that is not what the Bill provides for. There is a gap between what the financial community, especially international groups operating in the UK, are being told and what the Bill prescribes.
      My right hon. Friend has focused on territoriality and on the FSA creeping into non-regulated territories. As for territoriality, I cannot understand why the Treasury has been peddling the line that it has adopted. It seems unacceptable that United Kingdom businesses that are operating overseas should be subject to double and different regulation when they are marketing their products in other countries. That is not current practice, and an argument may be advanced by other regulatory bodies in a European Union context that it is inappropriate. The logic that the amendment picks up is ultimately that of reputation. The impact of the Bill goes considerably too far.
      Amendment No. 230 reflects an amendment that we tabled in Committee. We wish to make it clear that guidance given by the FSA should relate not only to rules but to statements of principle and codes. The Government will recollect that they said that they would reconsider the matter. There are several areas where codes and statements of principle are likely to require guidance, yet they are not covered in the Bill.
      Mr. Tim Loughton: I support the comments made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and my hon. Friend the Member for Arundel and South Downs (Mr. Flight). New clause 4 is probably the most important component of the group of new clauses and amendments that we are discussing. It is about efficiency and cost control but, more than that, it is about self-discipline for the Financial Services Authority itself.
      There were problems with the Financial Services Act 1986—we have heard about them many times—because there was no obvious mechanism for an on-going review of the new rules that came out as a result of the Act. The measure came in for much criticism for being bogged down with many more rules. It was a matter not of taking old rules off the original book but of adding layer upon layer of rules, until we had a muddled and complicated rule book at the end of August.
      We must remember that none of us has seen the new rule book. All our deliberations over the best part of the past 12 months have been to produce a rule book, the details of which we have not seen. We have plenty of principles and ideas of what might go into the book, but in terms of chapter and verse we are still very much in the dark about what the rule book—the bible of the FSA—will contain.
      It is essential that the continuing appropriateness of the rules is held under review, and the mechanism proposed in new clause 3 seems to be a sensible way of proceeding. Any new rules that come along should be subject to cost-benefit analysis. After three years, there should be an

      931
      explanation of the continuing appropriateness of the rules. Markets, and the financial services industry generally, move quickly. What may be appropriate to regulate financial services today may be completely out of date in three years' time. New technology and new products will require new forms of regulation, which, hopefully, will be lighter-touch regulation. It is only right that we should have a mechanism of determining whether the rules that are put in place as a result of this legislation are still appropriate in three years' time, and that that mechanism should operate on a three-year rolling basis thereafter.
      Given that the industry made so many representations in the run-up to, and during deliberations on, the Bill, it would be useful and of reassurance to it if there were a clearly defined watershed three years hence. Institutions that find that rules are not working in the best interests of the financial services community that they serve would then have a clear opportunity to make fresh representations to the FSA and then to the Treasury about how the rules might be changed, and about the on-going problems of cost-benefit analysis.
      In Committee, we spent some time discussing the cumulative effect of the extra regulations and their cost, particularly when put into an international context. Many of us argued then that there should be detailed and specific requirements in the annual report, so that the FSA would have an opportunity—and, indeed, an obligation—to report in transparent terms all the regulations that had been added to the financial services industry during that year, on top of those that had been added in previous years. We could then see the sum total of regulations added—and, we hope, a few taken off as well.
      The additional checks and balances that many Opposition Members advocated were not taken on board by the Government. If such requirements will not to appear in the annual report, it is entirely sensible that the proposals in new clause 4 should be adopted, laying down clearly defined lines of scrutiny to be undertaken three years hence. The rule book is still at an experimental stage, because the FSA is a different beast from any previous body of that kind, and many mistakes will no doubt continue to be made, through no one's fault.
      A review in the cool light of three years' experience seems a sensible idea, and will reinforce the FSA's ability to do its job properly. More importantly, it will reassure the financial services community that matters are being properly kept in check.
      5 pm
      Mr. Andrew Tyrie: I strongly support the arguments of my right hon. and hon. Friends on the new clauses and amendments. We shall discuss reviews later, when we consider clause 10. Many of the same arguments apply to this group of amendments. I shall not elaborate on all the many points that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) made in his opening remarks. Instead, I shall reiterate one of the points that has been made, and add another.
      It is in the nature of regulation to ratchet up. Once regulations are in place, they tend to be built on. Unless there is a countervailing force to cut regulations back, it is difficult to get rid of them. That is why it is all too easy for so-called light-touch regulation to become burdensome.
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      There are many examples. One example that should be examined when, we hope, new clause 4 is accepted and the Bill is enacted, is the self-regulating organisation-derived rules on capital adequacy. I should be interested to hear the Minister's views.
      Mr. Nick Hawkins: I am grateful to my hon. Friend for giving way. He will recall that, as an officer of the all-party group on insurance and financial services, I have dealt extensively with the issue of regulation. Before entering the House, I also had to deal professionally with the capital adequacy rules of an SRO. I endorse what my hon. Friend said. Does he agree that there is an urgent need for Ministers to consider the issue, which is a matter of great concern to the industry?
      Mr. Tyrie: I agree with my hon. Friend. Ministers will have to deal with the issue anyway, but the incorporation of new clause 4 into the Bill will ensure that that is done in a timely manner.
      I support the suggestion that rules should be made subject to a rigorous cost-benefit analysis. The latest document produced by the FSA, "A new regulator for the new millennium", is full of new-millennial jargon, but presents a similar approach—a belief in the need for a cost-benefit analysis, reflecting the acceptance of a trade-off between economic performance and the degree of regulation, for which we have consistently argued throughout the proceedings on the Bill.
      I shall make one further point. A provision such as new clause 4 might initially appear to have been tabled primarily to help practitioners. It is a classic example of a provision that appears to help the City, but would ultimately help consumers. Regulations that build up and remain without serving a valid purpose, or which impose an unnecessary burden, result in increased costs. These are ultimately borne by consumers and, to the extent that the City performs less well and provides a lower tax yield, also by taxpayers. New clause 4 is a step in the right direction towards ensuring the continued competitiveness and good economic performance of the City.
      The Financial Secretary to the Treasury (Mr. Stephen Timms): I appreciate that the aim of new clause 4 is to ensure that the authority reviews its rules regularly and changes them when they are no longer appropriate. I agree that regular review should take place, and I expect the FSA to monitor the application and implications of its rules continuously, not only every three years. However, to require the FSA to undergo a public consultation exercise on each rule every three years is unnecessarily bureaucratic.
      Conservative Members implied that they intended the review to be a one-off exercise. However, that is not the implication of the new clause as drafted, and I do not believe that the Opposition intend that.
      Mr. Flight: It would be a rolling process.
      Mr. Timms: That is right. Every three years, each rule would be reviewed. That would lead to a cumbersome bureaucracy, and would not be an effective method of achieving the Opposition's objective. As well as the FSA's review process, the consumer and practitioner panels will play an important part in continuously monitoring the rules. That will allow effort to be focused

      933
      on problems rather than reviewing and consulting about each rule every three years. The process for which the new clause provides would be administratively onerous and potentially unworkable. It would put a strain on the authority, and divert time and money from its important tasks. It would be better to concentrate on solving the problems that have been identified.
      Let us consider new clause 5. If the authority issued guidance on a specific rule, and the guidance was followed to the letter, it is difficult to understand how the FSA could discipline someone for breaching that rule. That person would be in a strong position; the FSA made that point in the policy statement that it published last September. If the FSA behaved in a contrary manner, the tribunal would take a dim view, to say the least, unless the authority had extremely good reasons for its actions. The tribunal exists as a safeguard against capricious acts by the FSA, which new clause 5 aims to address.
      In Committee, we discussed the way in which attaching specific status to, for example, general guidance could lead the FSA to be unwilling or unable to give guidance informally and on request. New clause 5 would elevate guidance to law. We must maintain the important distinction between guidance and law. New clause 5 could lead to absurd results. For example, if it were accepted, would we need to issue guidance on guidance? It is important to maintain the clear distinction between law and guidance which new clause 5 would remove.
      Let us consider amendments Nos. 35 and 50. We are committed to light-touch regulation. We would generally try to avoid what the right hon. Member for Wells (Mr. Heathcoat-Amory) described as double regulation in the international arena. We are committed also to the home state regulatory principle in the context of Europe, but at the same time, and in advance of a move to a fuller home state regulatory basis in certain respects, we need to balance that against proper protection for consumers.
      Amendment No. 35 goes in part to what is often termed the "foreign business carve out" under the existing self-regulating organisations' rule books. Where business is conducted from an overseas branch of a UK-authorised firm, some of the self-regulating organisations' conduct of business rules are disapplied. That is clearly an important regulatory principle and although I would certainly expect an appropriately light touch to be maintained under the new regime so that unnecessary double regulation is avoided, making special provision in the Bill is another matter. That could prevent the FSA from applying rules to businesses in unusual cases in which it might be appropriate to apply them.
      For example, there may be merit in the FSA applying limited conduct of business rules to overseas branches of firms to make it clear to customers that, in conducting business through the overseas branch, the firm is not acting in accordance with the FSA's detailed UK rules and regulations, which they might otherwise think was the case. It is important that customers are not misled about the protection and regulation that they are receiving and there may be other good reasons for applying conduct of business rules to overseas branches.
      Amendment No. 35 could also cause difficulties, were conduct of business or marketing regulation to move to a fuller home-state approach in Europe. Currently, the home
      934
      state is responsible under the directives for prudential supervision, including capital adequacy systems, establishing the fitness and properness of workers and so on. To me, it looks as though there would be fairly immediate conflict between the requirements of the directives and the amendment.
      Amendment No. 50 proposes that the FSA should not apply conduct of business rules to UK offices of authorised firms carrying on business with overseas persons, except where the scope of the rules has been prescribed by the Treasury. Again, although I agree that double regulation should be avoided wherever possible, it is not clear, for example, how the amendment would fit in with any wider move, which may well come, to a fuller home state basis of regulation of the marketing of financial services.
      On amendment No. 51, when we debated clause 111 in Standing Committee, the hon. Member for Chichester (Mr. Tyrie) expressed concern. He said:
      "The Treasury is not the right policeman for much of the Bill."—[Official Report, Standing Committee A, 4 November 1999; c. 761.]
      In the narrow context of the amendment, which would give the Treasury a new policing role, he was right. The Bill provides for extensive consultation and cost-benefit analysis for rules made under clause 111 and we do not think it appropriate for that particular rule-making power to be limited in the way proposed.
      Clause 111 is essentially aimed at protecting consumers and gives the FSA power to make rules for those matters on which the regulators are able to make rules under current legislation. For example, rules can currently be made to require notification of certain events to be given in respect of a firm's non-regulated activities or non-regulated group members in certain circumstances. We think that that should continue.
      On amendment No. 8, it is quite right that the clause 112 power has been included, partly to enable the FSA to continue the banking supervisors' existing practice of setting individual capital ratios that reflect the overall nature and riskiness of a bank or building society. That is a long-standing and valuable tool for banking supervision, but the principle is not confined to banks. The rationale for the power to impose bespoke capital requirements is that a firm may have an unusual risk profile compared with other similar firms.
      That rationale applies equally to deposit takers and investment firms. Investment firms' need to impose bespoke requirements is more likely to be used in respect of companies with complex businesses—broadly speaking, former Securities and Futures Authority member firms—but may be relevant in other cases. That is reflected not only in section 49 of the Financial Services Act 1986, but in the capital adequacy directive and the existing rules. Chapter 10 of the SFA rules includes a power to impose a bespoke "secondary requirement" on an investment services directive firm to reflect its particular risk profile or operational risks.
      5.15 pm
      I was glad that the hon. Member for Arundel and South Downs (Mr. Flight) spoke to amendment No. 230, as the right hon. Member for Wells did not mention it. As the hon. Gentleman said, we dealt with the matter in Committee, and my hon. Friend the Economic Secretary said then that we wanted to consider it further.

      935
      We want the FSA to be able to give guidance when that is desirable. We view the guidance power as an important tool enabling the authority to carry out its functions flexibly and with a light touch. Clause 129(1)(d) enables it to give guidance on
      "any other matters about which it appears to the Authority to be desirable to give information or advice."
      We want to look further at the points raised by amendment No. 230 in the light of that. We have not been able to do so yet because we have been resolving other issues, but I repeat my hon. Friend's commitment. I hope that, in the light of what I have said, the matter will not be pressed to a Division.
      May I take advantage of the conviviality that we are currently enjoying, and wish my right hon. Friend the Chief Secretary to the Treasury a very happy birthday? He is characteristically present, as we would all expect him to be.
      Mr. Heathcoat-Amory: In the same spirit, I too wish the Chief Secretary a very happy birthday. He has aged a little over the past year, but he retains much of his vigour.
      I am grateful to the Financial Secretary for responding to many of our concerns. We do not intend to press the new clause to a Division, so hon. Members can relax in that regard.
      I am aware that there may be technical deficiencies in some of the new clauses and amendments. They were tabled in probing mode: we wanted in particular to hear a little more about the Government's attitude to the rule book and how it might be reviewed, and to hear more about the question of extra-territorial regulation. Although the Financial Secretary mentioned those points, I do not think that we got to the bottom of the issue of origin-state regulation as against state-of-destination regulation. I fear that that will cause considerable problems in the future, especially in an era of e-commerce when many products can be offered, bought and sold electronically across national borders. I do not think that either the Treasury or the authority has really grappled with the whole question of who authorises the products or processes involved, and how consumers in different countries can obtain redress when things go wrong.
      It is very much in the country's interests for us to get this right. I believe that we have much to gain from an origin-state approach. It would enable the City and the British financial services industry generally to offer products abroad on a global basis, and enable others to rely on the strength of our regulatory system. That will not be accepted, however, if at the same time we retain powers to regulate and keep out other products. Other countries will latch on to that, and will use it as a pretext to block, or at least regulate to a different standard, products on sale from this country. I am putting a marker down, because we must all return to the issue in due course.
      I am grateful for what the Financial Secretary said about whether, and the extent to which, people could rely on guidance issued by the Treasury. I took him to mean that we have more to hear from the authority or the Treasury, and I think that that is probably a good thing.
      A number of question marks hang over these matters, but in many instances the Government and the authority, rather than the Opposition, will be vulnerable. The best that we can do is to flag up the issues and difficulties.
      936
      If they are not properly dealt with in the Bill, that will be a danger for the outside world and for the industry, but it could be an embarrassment to the Government in due course, so I urge the Minister to keep those matters at least under review.
      I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    New Clause 43

      JUDICIAL REVIEW
      "Nothing in the provisions of this Act shall restrict, impede, or prevent a judicial review of the exercise or non-exercise of any power or discretion vested in the Authority or the Treasury by or under this Act.".—[Mr. Heathcoat-Amory.]
      Brought up, and read the First time.
      Mr. Heathcoat-Amory: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker: With this it will be convenient to discuss the following amendments: No. 13, in clause 2, page 1, line 19, at end insert
      "and
      (c) which is reasonable, fair, open, accountable and proportionate".
      No. 397, in clause 264, page 134, line 41, after "Authority", insert "reasonably".
      No. 398, in clause 283, page 145, line 26, after "(c)", insert "in his view reasonably".
      No. 399, in page 145, line 29, after "information", insert
      "which in the Director's view reasonably relates to any matter relevant to the investigation".
      Mr. Heathcoat-Amory: The new clause concerns judicial review. The background is the substantial statutory immunity that the authority enjoys which, to put it bluntly, means that people will not be able to take legal action against the authority even when it behaves negligently, or recklessly.
      In the debate last week, we tried to alter that and to restrict and narrow the statutory immunity. We failed, but the authority must not be completely unaccountable at law. Given the Government's resistance to our earlier proposal, it is particularly important that we explore to what extent there are other ways in which the authority can be held accountable both to the House and through the existing legal system. This group of amendments explores how and to what extent there are provisions for legal challenge, or a review of the authority's actions. The picture is not encouraging.
      The authority's decisions as they affect the regulated community can be appealed to the tribunal that is set up and described in the Bill—although, again, we do not have many details about how the tribunal will operate. Those details will be introduced by regulation. The Lord Chancellor will deal with the issue. It is a subject of consultation, but the House will not be able to review the matter.
      The important point is that there can be an appeal on a tribunal decision to the ordinary courts only on a point of law. We should remember that the tribunal is not like an

      937
      ordinary court of law. The requirements and qualifications of those who will staff the tribunal will not be particularly onerous. It is a special legal body.
      Again, the FSA is making its own rules, which have the force of law and which are not subject to parliamentary review. People can be fined unlimited sums and can lose their livelihoods under a system that allows little appeal to the ordinary, familiar courts and where there is little parliamentary scrutiny.
      I think that fairly describes the system in the Bill. If I am at all accurate in my description, it will follow that the remaining aspects of legal accountability are precious and must not be weakened or removed. That brings me to the importance of judicial review. Even the Government are subject to judicial review. It is, to some extent, a blunt instrument, but it is an important safeguard none the less. It means that the Government are finally accountable at law; they are not above the law. The House makes a law. The Government are subject to it. The Financial Services Authority, too, should be subject to the law. We therefore need the long-stop safeguard of providing that the authority's decisions are open to judicial review.
      The picture painted in the Bill, and particularly in the detailed wording of the clauses, is not particularly encouraging. The authority is given enormous discretion in its use of powers—in how it may make rules and how it may enforce them. The drafting really seems to be designed to preclude the possibility of a court checking that the authority has acted "reasonably", to take only one example.
      We are always being assured by the Treasury and by Ministers that the authority will always act reasonably, and doubtless that is the intention. However, the Opposition would like to ensure that the courts can ensure that the authority acts reasonably and can review a decision by the authority if it is thought that an action is not reasonable. As I said, the wording makes it really very difficult for a court to conduct such a review.
      Clause 10, for example, allows for reviews of the authority by an "independent person". The independence of such an investigation would obviously be very important, as there might be allegations that the Treasury or Treasury Ministers were somehow implicated in or associated with the matter to be reviewed. The independence of anyone conducting such a review of the authority is therefore essential.
      Although the Bill provides that the inquiry should be independent, that is not an objective test to be applied. Clause 10(7) states:
      "'Independent' means appearing to the Treasury to be independent of the Authority."
      It will be very difficult for anyone to prove before a court that an inspector or investigator did not seem to the Treasury or to Ministers to be independent. Such a task is very much more difficult than simply requiring the inspector to be independent, a matter that would be capable of objective independent assessment. That is by no means the best example, however.
      A more important example is provided in clause 139, on the appointment of inspectors to examine the affairs of the "authorised" community, which is composed of those regulated in the Bill. I own that it is important that the
      938
      Treasury should have the power to appoint investigators to do that work, but it is a pretty draconian power. A firm on the receiving end of an investigation, even if subsequently cleared, could suffer great damage to its reputation—indeed, once it was known that a firm was being investigated, that in itself could drive customers away. It is a most important power.
      The Bill quite rightly uses the phrase "good reason" to place limits on how and in what circumstances investigators should be appointed; the catch is that all that has to be shown is that it appears to the authority or to the Secretary of State that there is a good reason for their appointment. It will be very difficult for anyone to prove that it did not appear to the authority or the Secretary of State that there was a good reason.
      It would have been much better to require a good reason. If there was such a requirement, outside bodies and courts might be able to show that there were no good reasons. To try to get inside the mind of the Secretary of State or the chairman of the authority and show that, at the time, they did not believe that they had good reason would be a very difficult hurdle to jump, and would effectively preclude the possibility of judicial review unless it was blatantly clear to everyone that the Secretary of State could not have had any good reason.
      5.30 pm
      I maintain that the wording throughout the Bill makes it very difficult for anyone to second-guess the judgments. I believe that it is right that we have tabled a new clause to ensure that nothing in the Bill makes it difficult to undertake such a judicial review. New clause 43 does exactly that, by requiring that nothing in the Act
      "shall restrict, impede or prevent a judicial review".
      That would provide a safeguard against the claim that judicial review would always fail because the detailed and rather cunning wording in some parts of the Bill would make it so difficult.
      Amendment No. 13 adds a general requirement that the authority acts in a way that is
      "reasonable, fair, open, accountable and proportionate".
      Again, the background is clear. We are dealing with a powerful body with a great many discretionary powers: it can make rules; it can authorise people—or decide not to; it can investigate; it can intervene in the market; and it can fine people.
      There is no absolute requirement because clause 2 says that that should be done only
      "so far as is reasonably possible".
      In the circumstances, the Government should find it difficult to oppose our proposal, as they have assured us throughout the Committee, and more recently, that the authority will always act in those ways. If that is the case, let us put it in the Bill.
      Amendment No. 397 again adds the "reasonably" requirement to the FSA powers to request information in relation to applications by recognised investment exchanges and clearing houses. On this, too, the Minister has assured us that the FSA will always act reasonably, and therefore he cannot object to our inserting the word in accordance with amendment No. 397.
      Amendment No. 398 relates to clause 283, which deals with the way in which the Director General of Fair Trading can investigate matters, and proposes that the

      939
      director general's power to require documents to be produced to him can be exercised only where he reasonably believes that the document relates to a matter relevant to his investigations. That is a useful check on the exercise of the director general's powers.
      Amendment No. 399 relates also to the information which the Director General of Fair Trading can require, as provided by clause 283. The amendment seeks to limit his power by providing that the information must in his view reasonably relate to a matter relevant to the investigation.
      This is a comparatively modest package of amendments, which go no further than the assurances that the Government have given us. We have heard warm words about the openness in which matters will be conducted, the accountability that exists and the reasonable way in which the authority will exercise its powers. We want to upgrade and emphasise those assurances, and safeguard our liberties by ensuring that if this powerful and independent authority exceeds its powers, there will at least be provision for judicial review.
      Sir Nicholas Lyell: I am glad to follow my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), who has given a comprehensive introduction to the new clause and amendments. I endorse and support what he said.
      The Government should not be afraid of judicial review in relation to the Bill, but I have a nasty feeling that they are unnecessarily so. I request Ministers to have the Bill examined, between the conclusion of our proceedings and its consideration in the other place, because judicial review is a safeguard for the citizen. Everybody accepts that the regulation of the City of London is a detailed and complex matter that requires great skill, and nobody would deny that the Bill will give immense powers to the Financial Services Authority and immense supervisory powers to the Treasury. The explanatory notes to the Bill make it clear that it seeks to provide for the accountability of the authority. However, those notes are slightly alarming when set against the detailed drafting of the Bill, which seems to be more concerned to make the Bill judicial review-proof than to make the authority accountable through the courts.
      When I was in government, I had responsibility for the questions of judicial review in relation to legislation, and I certainly do not want the FSA to be hamstrung by over-easy and unnecessary applications for judicial review. I do not believe that there is a serious risk that that will happen. I accept that those who are being regulated are often financially powerful and might seek to use the weapon of judicial review, but the way that the courts operate judicial review rightly gives a wide discretion to the regulator.
      The courts are reluctant to step in and second-guess a regulator when he decides that some piece of regulation is reasonable. However, the language of the Bill appears to be specifically designed to stop the courts doing that. It is to try to counter that that we have tabled new clause 43 and amendment No. 13. New clause 43 is designed more to flag up that serious issue than to provide perfect drafting. It would be much better to go through the Bill and insert the word "reasonably" where we suggest it is necessary, or to take out expressions such as "in the Authority's view", which seek to exclude the intervention of the courts and give an even wider discretion to the FSA than the courts would leave to it.
      940
      I commend the thought behind new clause 43:
      "Nothing in … this Act shall restrict, impede, or prevent a judicial review of the exercise or non-exercise of any power or discretion vested in the Authority or the Treasury".
      However, I ask the Government to consider the individual clauses in the light of that thought and not necessarily to agree to include the new clause as the perfect way to achieve that aim. In fact, the new clause would look a little stark set against the constant examples of restriction, of which my right hon. Friend gave several useful instances.
      I commend amendment No. 13 strongly on its own account. It is reasonable and sensibly drafted and states what we would wish to achieve. Clause 2 states:
      "In discharging its general functions the Authority must, so far as is reasonably possible, act in a way … which is compatible with the regulatory objectives; and … which the Authority considers most appropriate for the purpose of meeting those objectives."
      The amendment would add a new paragraph (c), stating that the above would be done in a way that was
      "reasonable, fair, open, accountable and proportionate."
      I cannot believe that any Minister would say that the Government intended to be anything other than reasonable, or that the authority intended to be anything other than fair. I think that it would intend to be open, as well as accountable and proportionate.
      Mr. Timms indicated assent.
      Sir Nicholas Lyell: The Minister nods sympathetically to those suggestions. I hope that he will respond in similar fashion to this valuable amendment. It would be nice to have the good intentions manifested on the Government Front Bench expressed in the Bill, rather than paving the way to hell.
      I shall go into more detail about the words "accountable" and "proportionate". I commend them to the Government with special confidence, as a new paper by Howard Davies, no less, has been sent by his director of public affairs, Mr. Christopher Boyce, to all stakeholders. I received it, although I am not sure how I am a stakeholder in the FSA.
      On page 10, paragraph 18, the document makes it clear that the authority intends to act with proportionality. It states:
      "The restrictions imposed on firms and markets should be in proportion to the expected benefits for consumers and the industry."
      Those wise words should be included in the Bill, as they embody what "proportionate" means.
      The reference to accountability on page 35 of the document is slightly less comforting, as it seems to confine accountability to the annual report. Although annual reports are nice, in this case the contents would be controlled by the authority. Moreover, accountability is to include what are described as "'clusters' of performance indicators"—a dangerous phrase, as one man's performance indicator is another man's nightmare. Clusters of performance indicators are not necessarily the ideal way for the FSA to be accountable, but the notion of accountability is clearly accepted in principle, and I commend its inclusion in the Bill.

      941
      Clause 2 sets out the authority's general duties, and specifies that
      "the Authority must, so far as is reasonably possible, act in a way … which the Authority considers most appropriate for the purpose of meeting those objectives."
      The slightly inelegant legal description of such wording is that it is a "self-reference" clause. I suggest that the words "which the Authority considers" have been expressly used to try to oust the jurisdiction of the courts in the exercise of judicial review.
      The Government cannot blame the Conservative Government and say that we took similarly extensive measures to fend off judicial review. About 10 years ago, we published a useful document for circulation in the civil service called "The Judge over your Shoulder". I hope that it is still in play. It was designed to explain that judicial review is not the enemy of good administration, but is a reasonable and proportionate monitor of good administration. I commend that approach, which I am sure in principle the Government would wish to accept and continue.
      5.45 pm
      Let me finish by saying a word about the European convention on human rights. I wish to encourage the Government to be up-front, in your face and open about their willingness to be fair, reasonable and proportionate. I believe that the Government have little to fear from unreasonable judicial review. However, if they keep using legal techniques such as the phrase "which the Authority considers" to oust judicial review, counsel, who are proliferating in the human rights field—I declare an interest here—will draw on the European convention on human rights to get round the anti-JR provisions. Incidentally, in this case JR does not wear a 10-gallon hat; it is usually a scratch-wig.
      Article 6 of the European convention provides for due process for a fair hearing in public. Article 7 provides for no punishment without law. Article 1 of protocol 1 deals with the right to own property and not to be deprived unfairly of property. All those articles are relevant to the areas in which the Financial Services Authority operates. Those articles—which are JR-proof, stand in an overarching position above our statutory legal frameworks and, according to the Chancellor of the Exchequer in the statement that he has to make, complied with in the Bill—will all be brought to bear. One does not quite know where they will stop.
      I think the Government would be better off with judicial review in accordance with United Kingdom law in the context in which our courts have thought it reasonable to proceed, and not with great extensions. The Government would be wiser to accept a reasonable measure of judicial review and not to exclude it. They cannot, of course, exclude the European convention on human rights, and I do not ask that they should. But the Government's reasonableness regarding the terms of the convention will cause Strasbourg to be less likely, rather than more likely, to intervene inappropriately.
      What I propose is in support of good legislation; it will improve the Bill.
      Mr. Hawkins: It is always a pleasure to follow my right hon. and learned Friend the Member for North-East
      942
      Bedfordshire (Sir N. Lyell), who has just spoken so well about the importance of the European convention as applied to the Bill and, in particular, the amendments, which I strongly support. I have not, until now, played much of a part in the deliberations on the Bill, but I particularly want to speak to these amendments, both as a lawyer and—as I mentioned in an earlier intervention—an officer of the all-party group on insurance and financial services. I am delighted to see the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) in his place. He and I have been actively involved in that group, and I know that he would agree that we try to have a positive effect on the consideration of all financial services and insurance issues in the House. It is one of the more active all-party groups and, as recently as last Thursday, we had a meeting with senior FSA officials.
      As a corporate lawyer, I specialised in this field for a number of years and dealt with all the problems arising from regulatory rule books. At that time, however, we did not have the additional problems of a Government trying to exclude new legislation from the supervision by judicial review, nor was there the overarching supervision of the European convention, to which my right hon. and learned Friend referred.
      I wholly agree with my right hon. and learned Friend that the Government are running a huge risk; they cannot exclude the operation of the convention. It is inevitable that at some stage the measure will be challenged, and if the Government do not accept the new clause and the amendments—if the concept of reasonableness and judicial review is not accepted—all the provisions will be struck down. The Government would be extremely wise to accept the importation into the measure of the concept of reasonableness. The amendments are essential because they would introduce the concept of what is reasonable, proportionate and open.
      I was one of the many lawyers of my generation who were influenced by the late great Lord Denning. I can still hear him saying, in his dulcet Hampshire burr:
      "Be you never so great, the law is above you."
      A generation of lawyers was brought up with that phrase ringing in their ears. Many of us were privileged to appear in the Court of Appeal when Lord Denning was presiding as Master of the Rolls; he ensured that the principles of natural justice were observed—especially in cases of judicial review.
      It is extraordinary that, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out, the Government propose to create a situation whereby a decision can be made that will not be subject to any scrutiny, appeal or review. They are setting out, specifically and in terms, to exclude the operation of judicial review. That is wrong. It runs contrary not only to the European convention but to all the principles of English law and all the principles of natural justice. My right hon. Friend did not exaggerate when he made that point.
      The Government's proposal should be anathema to all hon. Members. It is absolutely wrong in principle. I urge Ministers seriously to reconsider the matter. The new clause and the amendments are a vital improvement to the Bill. My right hon. and learned Friend the Member for North-East Bedfordshire referred to the words in amendment No. 13:
      "reasonable, fair, open, accountable and proportionate."
      How could anyone possibly object to that?

      943
      I am also reminded of the principles set out in one of the most notable post-war cases of Government abuse—about which all law students of my and subsequent generations were taught—the Crichel Down case. The case concerned an abuse of process—I think, by the Ministry of Agriculture, Fisheries and Food. After many years, it was declared that the Ministry had behaved wrongly and the then Government were severely embarrassed.
      If the Government persist with the measure unamended, they will face the same type of criticism. One day, a judge in Strasbourg will refer to the fact that—as Pepper v. Hart decrees—Ministers' words can be taken into consideration in the courts' interpretation of statute. If Ministers do not accept the new clause and the amendments, they may face severe embarrassment when some judge in Strasbourg asks, "How can it be that an Administration who believed in open government and reasonableness suggested the exclusion of judicial review and scrutiny?"
      The proposal is outrageous. I am sure that even those who are running the FSA would be embarrassed at the suggestion that it should not be open to scrutiny by judicial review. I earnestly urge Ministers to think again—even if they do not do so today—and, in due course, to accept the proposals tabled by my right hon. and hon. Friends. The new clause and the amendments are vital. No one could possibly object to the concept of reasonableness and challenge by judicial review; authorities should not act above the law. If the Government do not accept our amendments, Lord Denning will turn in his grave.
      Mr. Jim Cousins: On a point of order, Mr. Deputy Speaker. Some hon. Members have been advised that the right hon. Member for Horsham (Mr. Maude), who served as the shadow Chancellor, has been swept away and replaced by the right hon. Member for Kensington and Chelsea (Mr. Portillo)—
      Mr. Deputy Speaker: Order. That is not a matter for the Chair or for this debate.
      Mr. Tyrie: I begin with the perhaps slightly unusual comment that I am extremely wary of the growth of the power of the courts and of the intrusion of the judiciary into what has traditionally been the prerogative of this place—to make and frame laws. I do not instinctively want the courts to exercise judicial review over everything that they can lay their hands on.
      However, the pass has largely been sold. Through judicial review, the courts intrude increasingly into many matters that were traditionally considered to be the concern of legislators. Furthermore, as it is now clear that the European Court of Human Rights will become closely involved, the Government have no choice but to examine the matter—whether they want to or not—in regard to the Bill.
      I will not reiterate the many good points that have been made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and by my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell). I have one or two minor comments. I strongly agree with my right hon. and learned Friend—
      Mr. Nigel Beard: The hon. Gentleman is following the same line that was
      944
      pursued by many of his hon. Friends—to open up legislation to progressive legal interference; to lower the point at which there is the possibility of such interference; and to pile on consultation and review. The danger is that such proposals seem to be a wrecking tactic—to sink the Bill because there will be no possibility that the FSA can operate.
      As the head of the shadow Treasury team has changed, would it not be sensible for Opposition Members to confer with their new authority to find out whether they are pursuing the true line?
      Mr. Tyrie: I hardly think that that question is worthy of reply.
      It is obvious that we want to find a balance, so as to enable the courts to examine egregious poor performance by the FSA in certain cases. I agree with my right hon. and learned Friend the Member for North-East Bedfordshire that the last thing that we want to do is to hamstring the regulator. We want some recognition of the need for judicial review over part of the FSA's activities, because that is lacking.
      It is beholden on the Government to justify why immunity should be granted in a case where, for example, the FSA has behaved unreasonably. When such bad behaviour is clear, why should the authority be immune from judicial review? Why should it be immune if it acts recklessly? We must remember that, at the other end of that unreasonable or reckless behaviour are individuals or firms, who are unable to obtain redress in the courts. The Bill as drafted does not offer us the right way to proceed. In any case, the European Court of Human Rights will not permit that lack of immunity in the long run, and the Government will have to return to it. They will either be dragged to accept it or they will choose to show some flexibility in their response to our proposals.
      In Standing Committee, it was pointed out that the existing bodies had much immunity and some hon. Members asked why that immunity could not be passed on to the new body. I noted that Tim Herrington, a partner at Clifford Chance, made the important point that
      "Accountability under the law is vitally important for any public authority and we do not believe that the case for the continuation of the immunity"—
      for existing institutions—
      "has been clearly made in the light of the increased powers of the FSA.—[Official Report, Standing Committee A, 13 July 1999; c. 143.]
      He was right.
      That is the nub of the matter. The FSA is a new, extremely powerful institution, unprecedented in Britain in many ways. It has a quasi-legal role, being able to make law, and a quasi-judicial role, being able to judge on it, and even powers of investigation and powers effectively to pass sentence. It is an extremely powerful institution, and the Government really should think twice before they give it the level of statutory immunity that they currently intend to.
      6 pm
      Mr. Timms: We have had an interesting discussion, in which Conservative Members have presented some well-formed arguments. However, we are in a little difficulty in taking this debate forward, in the light of the

      945
      report that my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) brought to the attention of the House a few moments ago, informing us that the shadow Chancellor had been sacked and replaced by the right hon. Member for Kensington and Chelsea (Mr. Portillo). Presumably, that change reflects, in no small measure, dissatisfaction on the part of the Leader of the Opposition with the policies being advanced by the—
      Mr. Deputy Speaker: Order. I am loath to stop the Minister in full flow, but I have already ruled on that and I do not think that it is pertinent to the debate. He should address the new clause before the House.
      Mr. Timms: I am grateful for that guidance, Mr. Deputy Speaker.
      It is of course the case that any body exercising public functions is subject to judicial review when it behaves in a way that no reasonable comparable body would have behaved, and there is no provision in the Bill restricting anyone's right to seek judicial review of the FSA's decisions in appropriate circumstances. Some of the speeches by Conservative Members implied that there is. There is not. The High Court will of course always take into account such matters as whether there is an alternative remedy that should be exhausted before resorting to judicial review. Where an appropriate remedy is provided under the Bill—before the tribunal, say—it is plainly right to use it rather than wasting the High Court's time on something that has its own special remedy.
      New clause 43 is unnecessary. One or two Conservative Members have fastened on particular clauses whose wording, they believe, would make it difficult for judicial review to be pursued. That matter should be dealt with in the debate on those clauses. New clause 43 does not advance the cause that they seek to make. It is unnecessary. Worse, it is unclear what the effect would be of including such a provision in the Bill. I understand that no other legislation contains such provision. Its absence does not impede judicial review elsewhere, and it would not in this case. Moreover, it would cause people to ask themselves whether judicial review could not be resorted to in connection with other legislation that did not contain such wording.
      Sir Nicholas Lyell: I am very glad that the Minister recognises that, on Treasury matters, the lead should come from the shadow Treasury team, but the purpose of my intervention is to ask a question. Are we to understand that he is accepting that there should be the power of judicial review, that it should not be inhibited by the detailed wording of the Bill, and that he will look sympathetically at the individual points, many of which we have flagged up in the debate, to ascertain whether they could be improved?
      Mr. Timms: No. I am saying that any body, including the FSA, exercising public functions is subject to judicial review, that nothing in the Bill impedes that, and that new clause 43 is not necessary and would have a damaging effect.
      Sir Nicholas Lyell: I would agree with the Minister if he said that nothing ousts the jurisdiction of the court. However, does he accept that self-reference clauses,
      946
      such as those that I referred to, definitely impede judicial review? They do not ultimately prevent it and, if the authority were to act in a way in which no reasonable authority could act, they would not oust it, but they certainly impede and restrict it.
      Mr. Timms: In a debate on new clause 43, it is difficult to respond to a variety of points that relate to various parts of the Bill. I have said that, if we were to have a debate on those matters, we would need to do so in relation to amendments when we debate the parts of the Bill to which they relate. I am arguing that the new clause is unnecessary, and I do not believe that it helps with the case that Conservative Members have presented.
      The amendments on reasonableness give me a further opportunity, beyond the opportunities that we had in Committee, to rehearse how the Bill already ensures that the FSA will act in a way that is reasonable, fair, open, accountable and proportionate—all of which I gladly sign up to, as invited to by the right hon. and learned Gentleman.
      I have said that any body that exercises public functions is subject to judicial review where it behaves in a way that no reasonable comparable body would have behaved, but we have not relied on that alone. The FSA will also be subject to review, as appropriate, by the independent tribunal, the independent investigator, the competition regulators and the Government, and to public scrutiny through independent inquiries and reviews, or the appropriate parliamentary Committee.
      However, the Bill does not impose abstract subjective requirements in the way envisaged by amendment No. 13. It makes clear, practical provisions to ensure that the authority acts in the way that one would expect of a responsible regulator.
      First, the Bill gives the FSA clear objectives and principles which do not impose petty or bureaucratic requirements but provide practical guidance in the discharge of its functions. Secondly, the Bill requires the FSA to adopt key procedures, which will ensure that it acts fairly. Those procedures are backed up by an independent tribunal, an independent investigator and the requirements of the Human Rights Act 1998, which has brought the European convention on human rights into English law.
      Thirdly, the Bill imposes clear disclosure and consultation requirements, which would require the FSA to consult on its regulating provisions and practices, to have regard to the representations that it receives and to provide feedback. Fourthly, the Bill imposes unprecedented accountability requirements on the FSA. Fifthly, the FSA will be required to have regard to the principle of proportionality. It will have to justify any costs that it imposes through its regulating provisions by publishing a cost-benefit analysis, and that analysis will now take into account the wider economic costs of its proposals.
      That framework is not just an accident. It is the result of an unprecedented level of consultation and scrutiny by the Select Committee on the Treasury and the Treasury Joint Committee on Financial Services and Markets, and detailed consideration in Standing Committee, precisely in order to achieve the result that is intended by amendment No. 13. I willingly acknowledge the contribution that Conservative Members have made to

      947
      that process. On the basis of that exercise and of the resulting improvements that have been made to the Bill, I hope that the Opposition will not feel it necessary to press their new clause.
      Amendments Nos. 397 to 399 would also require the FSA and the Director General of Fair Trading to act reasonably in specifying particular information requirements. In the case of the FSA, that is information that it may require from an applicant for recognition under clause 264. In the case of the Director General of Fair Trading, it is information that he may require as part of his competition scrutiny function under clause 283.
      As I have said several times, any body exercising public functions is subject to judicial review where it behaves in a way that no reasonable comparable body would have behaved. That applies just as much to the way that a body sets its information requirements as to any other exercise of its public functions.
      There is, of course, a separate defence to default proceedings for anyone who has a reasonable excuse for refusing, or failing, to comply with the director general's requirements. However, on the issue of "relevance" in amendment No. 399, we have already said that we will consider further the need to include a relevance provision for the director general's information requirements. We also said in Committee that we would look again at the need to make reasonableness explicit in the way that duties and tasks must be carried out. That assurance stands. On the basis of that, and the additional look that we shall take at the matter, I hope that the Opposition will not feel it necessary to press amendments Nos. 397 to 399.
      Mr. Flight: As the Minister just reminded us, we raised these issues extensively in Committee and we discussed the self-reference clauses that were specifically designed to limit the scope for judicial review. The FSA is constitutionally in a sense a totalitarian government of a particular economic sector in our economy. It is right and proper that there should be appropriate checks and balances of power.
      I thank my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) for his comments about amendment No. 13. Our lawyer friends gave us a tremendous amount of help on the Bill, but I drafted the amendment myself. It is key and right up-front. It would qualify how the authority should act in relation to discharging its duties. The Minister continues to undertake that he will consider the issue of reasonableness, but why has that not been done already? The amendment would cover the matter in one fell swoop.
      New clause 43 raises the issue of judicial review. I am afraid that it is an issue that we wish to put to a vote. The new clause is fundamental to having the right checks and balances in the Bill.
      Question put, That the clause be read a Second time:—
      The House divided: Ayes 142, Noes 336.

      Division No. 56]

      [6.11 pm

      AYES

      Ainsworth, Peter (E Surrey)

      Beresford, Sir Paul

      Arbuthnot, Rt Hon James

      Blunt, Crispin

      Atkinson, David (Bour'mth E)

      Body, Sir Richard

      Atkinson, Peter (Hexham)

      Boswell, Tim

      Baldry, Tony

      Bottomley, Peter (Worthing W)

      Bercow, John

      Bottomley, Rt Hon Mrs Virginia

      948

      Brady, Graham

      Lyell, Rt Hon Sir Nicholas

      Brazier, Julian

      MacGregor, Rt Hon John

      Brooke, Rt Hon Peter

      McIntosh, Miss Anne

      Browning, Mrs Angela

      MacKay, Rt Hon Andrew

      Burns, Simon

      Maclean, Rt Hon David

      Butterflll, John

      McLoughlin, Patrick

      Cash, William

      Madel, Sir David

      Chope, Christopher

      Major, Rt Hon John

      Clappison, James

      Maude, Rt Hon Francis

      Clark, Dr Michael (Rayleigh)

      Mawhinney, Rt Hon Sir Brian

      Clarke, Rt Hon Kenneth (Rushcliffe)

      May, Mrs Theresa

      Moss, Malcolm

      Collins, Tim

      Nicholls, Patrick

      Colvin, Michael

      Norman, Archie

      Cormack, Sir Patrick

      O'Brien, Stephen (Eddisbury)

      Cran, James

      Ottaway, Richard

      Curry, Rt Hon David

      Page, Richard

      Davies, Quentin (Grantham)

      Paice, James

      Davis, Rt Hon David (Haltemprice)

      Paterson, Owen

      Day, Stephen

      Pickles, Eric

      Dorrell, Rt Hon Stephen

      Portillo, Rt Hon Michael

      Duncan, Alan

      Randall, John

      Duncan Smith, Iain

      Robertson, Laurence

      Emery, Rt Hon Sir Peter

      Roe, Mrs Marion (Broxbourne)

      Faber, David

      Rowe, Andrew (Faversham)

      Fabricant, Michael

      Ruffley, David

      Fallon, Michael

      St Aubyn, Nick

      Flight, Howard

      Sayeed, Jonathan

      Forsythe, Clifford

      Shephard, Rt Hon Mrs Gillian

      Forth, Rt Hon Eric

      Shepherd, Richard

      Fowler, Rt Hon Sir Norman

      Smyth, Rev Martin (Belfast S)

      Fox, Dr Liam

      Soames, Nicholas

      Fraser, Christopher

      Spelman, Mrs Caroline

      Gibb, Nick

      Spicer, Sir Michael

      Gill, Christopher

      Spring, Richard

      Gillan, Mrs Cheryl

      Stanley, Rt Hon Sir John

      Gorman, Mrs Teresa

      Steen, Anthony

      Green, Damian

      Streeter, Gary

      Greenway, John

      Swayne, Desmond

      Grieve, Dominic

      Syms, Robert

      Gummer, Rt Hon John

      Tapsell, Sir Peter

      Hague, Rt Hon William

      Taylor, Ian (Esher & Walton)

      Hamilton, Rt Hon Sir Archie

      Taylor, John M (Solihull)

      Hammond, Philip

      Taylor, Sir Teddy

      Hawkins, Nick

      Thompson, William

      Heald, Oliver

      Townend, John

      Heathcoat-Amory, Rt Hon David

      Tredinnick, David

      Hogg, Rt Hon Douglas

      Trend, Michael

      Horam, John

      Tyrie, Andrew

      Howard, Rt Hon Michael

      Viggers, Peter

      Howarth, Gerald (Aldershot)

      Walter, Robert

      Hunter, Andrew

      Wardle, Charles

      Jack, Rt Hon Michael

      Waterson, Nigel

      Jackson, Robert (Wantage)

      Whitney, Sir Raymond

      Jenkin, Bernard

      Whittingdale, John

      Key, Robert

      Widdecombe, Rt Hon Miss Ann

      Kirkbride, Miss Julie

      Wilkinson, John

      Laing, Mrs Eleanor

      Willetts, David

      Lait, Mrs Jacqui

      Wilshire, David

      Lansley, Andrew

      Winterton, Mrs Ann (Congleton)

      Leigh, Edward

      Winterton, Nicholas (Macclesfield)

      Letwin, Oliver

      Yeo, Tim

      Lewis, Dr Julian (New Forest E)

      Young, Rt Hon Sir George

      Lidington, David

      Lilley, Rt Hon Peter

      Tellers for the Ayes:

      Lloyd, Rt Hon Sir Peter (Fareham)

      Mr. Geoffrey Clifton-Brown

      Loughton, Tim

      and

      Luff, Peter

      Mr. Keith Simpson.

      NOES

      Abbott, Ms Diane

      Anderson, Donald (Swansea E)

      Adams, Mrs Irene (Paisley N)

      Anderson, Janet (Rossendale)

      Ainger, Nick

      Armstrong, Rt Hon Ms Hilary

      Ainsworth, Robert (Cov'try NE)

      Ashdown, Rt Hon Paddy

      Allan, Richard

      Ashton, Joe

      Allen, Graham

      Atkins, Charlotte

      949

      Baker, Norman

      Donohoe, Brian H

      Ballard, Jackie

      Doran, Frank

      Barnes, Harry

      Dowd, Jim

      Barron, Kevin

      Drew, David

      Bayley, Hugh

      Eagle, Angela (Wallasey)

      Beard, Nigel

      Eagle, Maria (L'pool Garston)

      Beckett, Rt Hon Mrs Margaret

      Edwards, Huw

      Bell, Martin (Tatton)

      Efford, Clive

      Bell, Stuart (Middlesbrough)

      Ellman, Mrs Louise

      Benn, Hilary (Leeds C)

      Etherington, Bill

      Benton, Joe

      Fearn, Ronnie

      Berry, Roger

      Field, Rt Hon Frank

      Best, Harold

      Fisher, Mark

      Betts, Clive

      Fitzpatrick, Jim

      Blackman, Liz

      Fitzsimons, Lorna

      Blears, Ms Hazel

      Flint, Caroline

      Blizzard, Bob

      Flynn, Paul

      Borrow, David

      Foster, Rt Hon Derek

      Bradley, Keith (Withington)

      Foster, Don (Bath)

      Bradley, Peter (The Wrekin)

      Foster, Michael Jabez (Hastings)

      Bradshaw, Ben

      Foster, Michael J (Worcester)

      Brake, Tom

      Foulkes, George

      Brinton, Mrs Helen

      Gapes, Mike

      Brown, Russell (Dumfries)

      Gardiner, Barry

      Burden, Richard

      George, Andrew (St Ives)

      Burgon, Colin

      George, Bruce (Walsall S)

      Burnett, John

      Gerrard, Neil

      Burstow, Paul

      Gibson, Dr Ian

      Butler, Mrs Christine

      Gilroy, Mrs Linda

      Cable, Dr Vincent

      Godsiff, Roger

      Caborn, Rt Hon Richard

      Goggins, Paul

      Campbell, Alan (Tynemouth)

      Golding, Mrs Llin

      Campbell, Ronnie (Blyth V)

      Gordon, Mrs Eileen

      Cann, Jamie

      Grant, Bernie

      Caplin, Ivor

      Griffiths, Jane (Reading E)

      Casale, Roger

      Griffiths, Nigel (Edinburgh S)

      Cawsey, Ian

      Grocott, Bruce

      Chapman, Ben (Wirral S)

      Grogan, John

      Chaytor, David

      Gunnell, John

      Chidgey, David

      Hall, Mike (Weaver Vale)

      Clark, Rt Hon Dr David (S Shields)

      Hall, Patrick (Bedford)

      Clark, Paul (Gillingham)

      Hamilton, Fabian (Leeds NE)

      Clarke, Charles (Norwich S)

      Hancock, Mike

      Clarke, Eric (Midlothian)

      Harris, Dr Evan

      Clarke, Rt Hon Tom (Coatbridge)

      Heal, Mrs Sylvia

      Clarke, Tony (Northampton S)

      Healey, John

      Clelland, David

      Heath, David (Somerton & Frome)

      Coaker, Vernon

      Henderson, Doug (Newcastle N)

      Coffey, Ms Ann

      Henderson, Ivan (Harwich)

      Cohen, Harry

      Heppell, John

      Colman, Tony

      Hesford, Stephen

      Cotter, Brian

      Hill, Keith

      Cousins, Jim

      Hinchliffe, David

      Cox, Tom

      Hodge, Ms Margaret

      Cranston, Ross

      Home Robertson, John

      Crausby, David

      Hope, Phil

      Cryer, Mrs Ann (Keighley)

      Hopkins, Kelvin

      Cryer, John (Hornchurch)

      Howarth, Alan (Newport E)

      Cummings, John

      Howells, Dr Kim

      Cunningham, Rt Hon Dr Jack (Copeland)

      Hoyle, Lindsay

      Hughes, Ms Beverley (Stretford)

      Cunningham, Jim (Cov'try S)

      Hughes, Kevin (Doncaster N)

      Curtis-Thomas, Mrs Claire

      Hughes, Simon (Southwark N)

      Dalyell, Tam

      Humble, Mrs Joan

      Darling, Rt Hon Alistair

      Hurst, Alan

      Darvill, Keith

      Hutton, John

      Davey, Edward (Kingston)

      Iddon, Dr Brian

      Davey, Valerie (Bristol W)

      Illsley, Eric

      Davidson, Ian

      Ingram, Rt Hon Adam

      Davies, Rt Hon Denzil (Llanelli)

      Jackson, Helen (Hillsborough)

      Davies, Geraint (Croydon C)

      Jenkins, Brian

      Davis, Rt Hon Terry (B'ham Hodge H)

      Johnson, Alan (Hull W & Hessle)

      Johnson, Miss Melanie (Welwyn Hatfield)

      Dawson, Hilton

      Dismore, Andrew

      Jones, Rt Hon Barry (Alyn)

      Dobbin, Jim

      Jones, Helen (Warrington N)

      950

      Jones, Ms Jenny (Wolverh'ton SW)

      Perham, Ms Linda

      Pickthall, Colin

      Jones, Jon Owen (Cardiff C)

      Pike, Peter L

      Jones, Dr Lynne (Selly Oak)

      Plaskitt, James

      Jones, Martyn (Clwyd S)

      Pollard, Kerry

      Keeble, Ms Sally

      Pound, Stephen

      Keen, Alan (Feltham & Heston)

      Powell, Sir Raymond

      Keetch, Paul

      Prentice, Ms Bridget (Lewisham E)

      Kelly, Ms Ruth

      Prentice, Gordon (Pendle)

      Kemp, Fraser

      Prescott, Rt Hon John

      Kennedy, Rt Hon Charles (Ross Skye & Inverness W)

      Prosser, Gwyn

      Quinn Lawrie

      Kennedy, Jane (Wavertree)

      Kidney, David

      Radice, Rt Hon Giles

      King, Andy (Rugby & Kenilworth)

      Rammell, Bill

      King, Ms Oona (Bethnal Green)

      Rapson, Syd

      Kirkwood, Archy

      Raynsford, Nick

      Kumar, Dr Ashok

      Reed, Andrew (Loughborough)

      Ladyman, Dr Stephen

      Reid, Rt Hon Dr John (Hamilton N)

      Laxton, Bob

      Rendel, David

      Leslie, Christopher

      Roche, Mrs Barbara

      Levitt, Tom

      Rooker, Rt Hon Jeff

      Lewis, Ivan (Bury S)

      Rooney, Terry

      Lewis, Terry (Worsley)

      Roy, Frank

      Linton, Martin

      Ruane, Chris

      Lloyd, Tony (Manchester C)

      Ruddock, Joan

      Llwyd, Elfyn

      Russell, Bob (Colchester)

      Lock, David

      Russell, Ms Christine (Chester)

      Love, Andrew

      Ryan, Ms Joan

      McAvoy, Thomas

      Salter, Martin

      McCabe, Steve

      Sanders, Adrian

      McCafferty, Ms Chris

      Savidge, Malcolm

      McCartney, Rt Hon Ian (Makerfield)

      Sawford, Phil

      Sedgemore, Brian

      McDonagh, Siobhain

      Shaw, Jonathan

      Macdonald, Calum

      Sheerman, Barry

      McFall, John

      Sheldon, Rt Hon Robert

      McGuire Mrs Anne

      McIsaac, Shona

      Shipley, Ms Debra

      McKenna, Mrs Rosemary

      Short, Rt Hon Clare

      Mackinlay, Andrew

      Simpson, Alan (Nottingham S)

      McNulty, Tony

      Singh, Marsha

      MacShane, Denis

      Skinner, Dennis

      McWalter, Tony

      Smith, Rt Hon Andrew (Oxford E)

      Mahon, Mrs Alice

      Smith, Angela (Basildon)

      Mallaber, Judy

      Smith, Miss Geraldine (Morecambe & Lunesdale)

      Marsden, Gordon (Blackpool S)

      Marshall, Jim (Leicester S)

      Smith, Jacqui (Redditch)

      Marshall-Andrews, Robert

      Smith, Llew (Blaenau Gwent)

      Martlew, Eric

      Snape, Peter

      Maxton, John

      Soley, Clive

      Meacher, Rt Hon Michael

      Southworth, Ms Helen

      Meale, Alan

      Squire, Ms Rachel

      Michie, Bill (Shef'ld Heeley)

      Steinberg, Gerry

      Miller, Andrew

      Stevenson, George

      Mitchell, Austin

      Stewart, David (Inverness E)

      Moffatt, Laura

      Stinchcombe, Paul

      Moonie, Dr Lewis

      Stoate, Dr Howard

      Moore, Michael

      Strang, Rt Hon Dr Gavin

      Moran, Ms Margaret

      Straw, Rt Hon Jack

      Morley, Elliot

      Stringer, Graham

      Mountford, Kali

      Stunell, Andrew

      Mudie, George

      Mullin, Chris

      Sutcliffe, Gerry

      Murphy, Denis (Wansbeck)

      Swinney, John

      Murphy, Jim (Eastwood)

      Taylor, Rt Hon Mrs Ann (Dewsbury)

      Naysmith, Dr Doug

      Norris, Dan

      Taylor, David (NW Leics)

      Oaten, Mark

      Taylor, Matthew (Truro)

      O'Hara, Eddie

      Temple-Morris, Peter

      Olner, Bill

      Thomas, Gareth R (Harrow W)

      O'Neill, Martin

      Timms, Stephen

      Organ, Mrs Diana

      Tipping, Paddy

      Palmer, Dr Nick

      Todd, Mark

      Pearson, Ian

      Tonge, Dr Jenny

      Pendry, Tom

      Touhig, Don

      951

      Trickett, Jon

      Williams, Rt Hon Alan (Swansea W)

      Truswell, Paul

      Turner, Dr Desmond (Kemptown)

      Williams, Mrs Betty (Conwy)

      Turner, Dr George (NW Norfolk)

      Willis, Phil

      Turner, Neil (Wigan)

      Winnick, David

      Twigg, Derek (Halton)

      Winterton, Ms Rosie (Doncaster C)

      Twigg, Stephen (Enfield)

      Wise, Audrey

      Tyler, Paul

      Wood, Mike

      Tynan, Bill

      Woolas, Phil

      Vis, Dr Rudi

      Worthington, Tony

      Walley, Ms Joan

      Wray, James

      Ward, Ms Claire

      Wright, Anthony D (Gt Yarmouth)

      Wareing, Robert N

      Wright, Dr Tony (Cannock)

      Watts, David

      Wyatt, Derek

      Webb, Steve

      White, Brian

      Tellers for the Noes:

      Whitehead, Dr Alan

      Mr. Greg Pope and

      Wicks, Malcolm

      Mr. David Jamieson.

      Question accordingly negatived.

    Clause 52

      REFERENCES TO THE TRIBUNAL
      Mr. Timms: I beg to move amendment No. 115, in page 24, line 15, leave out from beginning to "may" in line 16 and insert
      "An applicant who is aggrieved by the determination of an application made under this Part".
      Mr. Deputy Speaker: With this it will be convenient to discuss the following amendments: No. 222, in page 24, line 16, at end insert—
      "(1A) The Authority shall give notice of its decision to refuse an application to the applicant and the provisions of sections 350 and 351 shall apply as if the notice was a decision notice.".
      No. 223, in page 24, line 17, leave out from "person" to end of line 18 and insert—
      "who is or may be affected may refer to the Tribunal any decision of the Authority to use its own-initiative power.".
      No. 56, in schedule 11, page 227, leave out lines 14 to 21 and insert—
      "(a) is a judge of the High Court; or
      (b) is a judge of the Court of Session.".
      No. 57, in page 227, line 34, leave out "seven" and insert "ten".
      No. 58, in page 227, line 36, leave out "seven" and insert "ten".
      No. 59, in page 227, line 38, leave out "seven" and insert "ten".
      No. 60, in page 227, line 41, leave out "seven" and insert "ten".
      No. 61, in page 227, line 41, at end insert—
      "(d) he is a judge of the High Court or of the Court of Session.".
      No. 62, in page 227, line 42, after "is", insert
      "a judge of the Court of Session or".
      No. 63, in page 228, line 11, leave out from "The" to "determine" in line 15 and insert—
      "Secretary of State shall pay—

      (a) the members of the panel of chairmen who are not judges of the High Court or Court of Session;

      (b) the members of the lay panel; and

      (c) any person appointed under paragraph 7(4),

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      such remuneration and such travelling and other allowances as he may, with the approval of the Treasury,".
      No. 64, in page 230, line 21, after "unreasonable", insert—
      "or based on an ill founded view".
      Mr. Timms: We shall be debating procedures more generally when we come to a later group of amendments, but we agree that there is a need to rationalise the procedures for FSA decisions in the same way as we have aligned its consultation procedures. That is why we have tabled amendment No. 115, which will extend the right to refer matters to the tribunal in clause 52 to any applicant who is aggrieved by the determination of his application, such as in cases in which the FSA has granted an application but imposed a limitation or requirement.
      At the same time, it is important to distinguish between the essentially prudential and protective nature of the provisions in part IV and the different nature of other provisions in the Bill, such as those relating to market abuse, discipline and restitution. On amendment No. 223, therefore, it is not necessarily correct to extend the right to go to the tribunal to anyone who is merely affected—perhaps positively—or who may be affected by the FSA's use of its own initiative power.
      We do, however, accept the need to consider further the procedures that should apply, and to align them as far as we can, and the Government will table further amendments when the Bill is considered in another place. On that basis, I hope that Opposition Members will not feel the need to press amendments Nos. 222 and 223.
      Amendment No. 56 would require the Lord Chancellor to appoint a president or deputy president who is a judge of the High Court or Court of Session. Amendment No. 61 would enable the Lord Chancellor to appoint judges of the High Court or Court of Session to be members of the panel of chairmen for the tribunal, in addition to appointing lawyers of suitable standing. Amendment No. 62 is consequential to that, and expands the present requirement for the panel of chairmen to include at least one Scottish lawyer, so that that member could be a judge of the Court of Session.
      As hon. Members are aware, the Lord Chancellor must appoint the members of the panel of chairmen, and from that panel, the president and deputy president of the tribunal. The current provisions for those appointments, in paragraphs 2(5) and 3(2) of schedule 11, are sufficient for the proposed new tribunal and are in line with appointments for other tribunals. The president of the tribunal must have a 10-year legal qualification.
      Of course we want the tribunal to have a high level of expertise and authority. The Bill leaves it open to the Lord Chancellor to make appointments with greater seniority if a case is made out for doing so. However, the expected character and volume of the tribunal's work load does not, at present, warrant taking the unusual step of making such an appointment.
      The amendment would impose too much inflexibility on the appointment of the president. It would, for example, appear to prevent at a future date the appointment of a retired High Court judge or even a more senior judge, should it be found that the work load justified such an appointment. The Bill provides an appropriate framework for appointments to the tribunal, which allows common sense and practice to inform the appointment process.

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      Amendment No. 57 would require the members of the panel of chairmen to have a 10-year legal qualification as opposed to a seven-year qualification. The Bill's provisions for appointing the panel of chairmen will ensure that suitable people are appointed to the tribunal and have the necessary qualifications to deal with the cases that will arise. Those provisions do not need to be changed as the amendment suggests. It is normal practice for other tribunals to appoint people with a seven-year legal qualification to the panel of chairmen. Examples include the VAT and duties tribunal, employment tribunals and transport tribunals.
      If there is a case that raises particularly complex or ground-breaking legal issues, the tribunal may appoint one or more experts to provide assistance. It can also bring in additional members of the panel of chairmen with expertise relevant to the case in question. I suggest that the current arrangements for appointing the members of the panel of chairmen are sufficient for the purposes of the tribunal.
      The tribunal's independence is certainly important. Amendment No. 63, which would give the Secretary of State and the Treasury responsibility for paying tribunal members' expenses, could be seen as undermining that independence. As the Lord Chancellor's Department will be running the tribunal, it makes sense for the Lord Chancellor to pay its expenses, thus reinforcing its independence.
      6.30 pm
      Amendment No. 64 is designed to widen the circumstances in which the FSA may be liable to pay the costs of the other party. Currently, the Bill allows the tribunal to award costs if it considers that the FSA decision giving rise to the reference was "unreasonable". Inserting the words
      "or based on an ill founded view"
      after "unreasonable" adds nothing, but might instead muddy the waters. Were the FSA, based on the facts available, to reach a decision that subsequently proved to be incorrect, would its position be
      "based on an ill founded view",
      even though it had taken all reasonable steps to establish the correct facts? The wording of the amendment reflects no other statutory provision of which I am aware; its meaning is unclear. The Council on Tribunals agrees that the "unreasonable" test is appropriate for the purposes of the tribunal. Given that explanation, and on the basis that the current drafting provides a practical consequence for any unreasonable exercise of powers by the FSA, I hope that the Opposition will not press amendment No. 64.
      Mr. Flight: The Government will be aware that, under the current regime, the issue of applications being turned down in whole or in part is troublesome. We welcome Government amendment No. 115, which enables an appeal to the tribunal where an application is turned down in part. We remain of the view that amendment No. 222, which would require the decision notice procedure to apply in the case of a refusal of permission, and amendment No. 223, which would extend to an authorized
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      person who is or may be affected the right to refer matters to the tribunal, are desirable and would solve current practical problems.
      The amendments relating to the tribunal would make provisions that are not as demanding as those covering the employment appeals tribunal. Requiring the Secretary of State to be responsible for pay and rations is a practical step. If the Financial Secretary had consulted candidates for appointment to the tribunal, he might have heard many express the view that they would not receive reasonable remuneration were the Lord Chancellor's Department responsible. In our view, it is crucial that the tribunal be staffed with top calibre people. Our amendments both provide for top calibre appointments to be made and solve a practical problem. The Government would be advised to give their attention to such problems before the Bill is considered in the other place.
      Amendment No. 64 is, to some extent, a probing amendment. As the Financial Secretary said, the tribunal can award costs against the FSA when it regards the FSA as having acted unreasonably. The amendment addresses the complex question of how people can defend themselves. A positive step has been taken in allowing costs to be awarded against the FSA in certain circumstances, and in ensuring that the tribunal will not award costs against those who have brought cases to it, unless they have acted vexatiously, frivolously or unreasonably. However, we regard the term "unreasonable" as slightly vague.
      What if the FSA is wrong, or brings a case that the tribunal finds does not stand up? The FSA might have acted perfectly reasonably in such circumstances; it might have thought that it was right. However, if someone has been prosecuted wrongly, it strikes us as fair in law that that person should get his or her costs paid. It is also necessary under the provisions of the European convention on human rights relating to people's ability adequately to defend themselves.
      We have therefore tabled what I acknowledge to be a not especially well worded amendment, the intent of which is to ensure that the Government consider whether the word "unreasonable" is sufficient, or whether costs should be able to be awarded against the FSA if the authority loses in a case that it has referred to the tribunal.
      Mr. Loughton: I rise to support my hon. Friend the Member for Arundel and South Downs (Mr. Flight). We do not dispute Government amendment No. 115, which enhances the rights of the applicant.
      My concern focuses on the practical workings of the tribunal. Having spent so much effort during the sittings of the Burns committee on the key proposal that there should be an independent tribunal, we think it essential that the tribunal's workings be absolutely right and that it be seen to do its job properly and efficiently. We believe that further improvements are possible—hence our amendments on the appointments to be made to the tribunal.
      A submission has been received from the law reform committee of the General Council of the Bar, in which the learned people who produced a report on the Bill express the view that the qualification requirements for those who preside over the tribunal are "not very demanding". On that basis, we tabled our amendments to give the tribunal greater status by beefing up the standards and the service requirements of those who are to be

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      members of it. My hon. Friend is right to say that, even with those additional provisions, the requirements do not equal those of the employment appeals tribunal. On that tribunal, all the permanent legal appointees must be High Court judges or judges of the Court of Session.
      If the tribunal is to work properly, those who serve on it should be properly remunerated—hence our tabling of amendment No. 63. Putting the matter in the hands of the Secretary of State would provide a better guarantee of funding, to ensure that the tribunal works properly.
      With amendment No. 64, we come again to our old friend "reasonableness"—a term that featured heavily in the Committee debates. This time, the Opposition argue that reasonableness is not enough and that we must improve on it if we are to preserve the checks and balances surrounding submissions to the tribunal—a complex matter, as my hon. Friend rightly said.
      Our amendment is designed to respond to criticism that those who are prosecuted by the FSA would be put off appealing to the tribunal for fear of costs being awarded against them. If the tribunal is to be a proper adjudicator of the workings of the FSA and if those who have had action taken against them by the FSA are to be given equality of arms, individuals must not be deterred from taking a case to the tribunal for fear of excessive costs being awarded against them.
      That is why we wanted to add to the conditions of action taken "vexatiously, frivolously or unreasonably" that of action taken without justification. My hon. Friend has acknowledged that we have phrased it slightly awkwardly, by referring to cases
      "based on an ill founded view".
      It is essential that we make it clear when the intent of the FSA in prosecuting someone is a wrong intent. I support the amendments and hope that they will find sympathy with the Minister.
      Mr. David Ruffley (Bury St. Edmunds): I rise to support my colleagues' remarks about the amendments. I shall focus on amendment No. 56.
      The schedule as drafted provides that the Lord Chancellor shall appoint as president or deputy president of the tribunal only persons who are qualified lawyers of 10 years' standing in one of the jurisdictions of Northern Ireland, England and Wales and Scotland.
      We have tabled amendment No. 56 because we do not believe that someone with the great responsibility of being president or deputy president should merely be a lawyer of 10 years' standing. That is why the amendment suggests that the individual should be a High Court judge or a judge of the Court of Session.
      I have a particular reason for considering this matter important, and it turns on the nature of the appeal process. Decisions on points of law that are taken by the tribunal are appealable. That is not on interlocutory matters that the tribunal may decide, but a final decision on points of law is appealable to the Court of Appeal. Leave is given either by the tribunal or by the Court of Appeal. That is fair enough.
      We run a real risk in saying, "Well, points of law can be appealed." We do not want mistakes to be made in the first place by possibly under-qualified members of the tribunal. If we are to stop unnecessary litigation and unnecessary time-consuming appeals on points of law to
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      the Court of Appeal, and perhaps upwards to the House of Lords, we need the very best legally qualified individuals on the panel following the most rigorous legal strictures. For that to happen, we need a High Court judge or a judge of the Court of Session to be the top man who runs the tribunal.
      As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) has observed, it is not enough to be a lawyer of 10 years' standing to run the employment appeals tribunal. If the Bill is designed to make the tribunal independent and efficient and to reduce the necessity for appeals on points of law to the Court of Appeal, we need to ensure that it gets things right the first time. The purpose behind amendment No. 56 is to achieve that.
      I understand that the president or deputy president will not be deciding points of law. A chairman in any particular case will be doing that. However, a High Court judge or a judge of the Court of Session would be of such eminence and of such legal stature that he or she would be able to set the tone for the way in which the tribunal carried out its business, especially in cases where points of law were disputed or potentially appealable. Chairmen would not be particularly well qualified. They would have to be lawyers of only seven years' standing. Amendments Nos. 59 and 60 address that point; we suggest that they should be of 10 years' standing.
      The chairmen may need to be instructed that they can adjourn proceedings of the tribunal, perhaps to seek guidance from the deputy president or president. Who better to do that and to decide points of law so that they do not become justiciable and the subject of litigation further down the road?
      If our amendments are not taken on board, we can see individuals and authorised persons mired in the Royal Courts of Justice on the Strand. There will be great expense incurred by businesses and big pay days for lawyers. As a former solicitor, I realise how onerous the burdens that law firms place on clients can be. Such a situation is not one that an efficient and competitive financial services industry needs. For these reasons I urge Ministers to take seriously the points of principle that are raised by the amendments.
      6.45 pm
      Sir Nicholas Lyell: I support the thrust of what my hon. Friends have said, but the situation is more serious and more dangerous than I realised until very recently. It has come to my notice that the tribunal may be created on the cheap. There is a nasty rumour that the Lord Chancellor's Department, which does not have much money, hopes to roll in the tribunal with the VAT and duties tribunals. That would be a terrible mistake. If anyone in or around government is thinking in that direction, I hope that he will think again.
      The tribunal requires a president, whether he be a judge or someone of considerable legal and financial experience, who is of the highest calibre and who can be relied upon to lead a team that will do justice to the enormous powers that are being given to, and that will be exercised by, the Financial Services Authority.
      The amendments focus on the requirements for the tribunal. I do not have particular difficulty with the concept of a lawyer of 10 years' standing. I think that that is the same requirement for a High Court judge. Of course

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      it is not adequate in itself. There are many lawyers of 10 years' standing who would be entirely unfitted, but it is a long-standing test. So long as it is 10 years' standing and so long as the individual who is chosen has the necessary acumen, background and status, fine. The vital feature is that we set up a tribunal that will command respect nationally and internationally and will do justice in the cases that come forward, which may be very sensitive and difficult.
      It would not be fair to load this responsibility on to quasi-judicial and judicial figures in other administrative areas who sit on other tribunals, with the great technicalities with which they have to deal. We should not lump on to them the huge responsibilities that we are creating. I hope to have an assurance from the Minister that that will not happen. If he cannot give such an assurance because thinking is at too embryonic a stage, I hope that he will take to heart the points that have been raised.
      Mr. Timms: I welcome the support that has been expressed by Opposition Members for amendment No. 115. There is a consensus that it is a good step forward.
      I hope that I can reassure right hon. and hon. Members about the importance that we attach to the tribunal. I entirely agree with what has been said about the importance of its commanding the widest possible respect. That is an objective that we can all share. I think that the steps that we have in hand will lead to it doing so.
      There are about 70 tribunals, and tribunal appointments do not normally include judges from the High Court Bench or from the Court of Session. There are a few instances where senior judges sit on tribunals. A tribunal may have a High Court judge when particularly sensitive information is involved or when the cases that come before it are especially sensitive in nature. For example, there are the special immigration appeals commissions. There is also a batch of security tribunals, each of which is headed by a High Court judge or another senior judge.
      The employment appeals tribunal has been referred to, as has the Immigration Appeal Tribunal. Both have a High Court judge as president because of their particular circumstances. I think that we are all aware that the Immigration Appeal Tribunal has faced acute work-load pressures. A High Court judge was appointed as president to strengthen its operation.
      It is normal practice for other tribunals to appoint people with a seven-year legal qualification to the panel of chairmen—for example, the VAT and duties tribunals and the transport tribunals. The provisions will ensure that the tribunal will command the widest possible respect, as the House rightly seeks.
      The hon. Member for Arundel and South Downs (Mr. Flight) suggested that the FSA should pay costs if a case is overturned by the tribunal. Costs are not usually awarded in cases brought before tribunals. There will be scope to award costs, but only if either party has acted unreasonably, vexatiously or frivolously. That is the test supported by the independent Council on Tribunals, and it is in line with the thinking of the Burns committee, which specifically recommended that we should give consideration to the council's views. Those views are reflected in the provision.
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      We can certainly agree about the importance of the tribunal and the need to make sure that it commands the widest possible respect. I am confident that our proposals will deliver—
      Sir Nicholas Lyell: I am grateful to the Minister for giving way. Does he accept that the Government must put up some money in connection with the tribunals? The industry has been required to put up the legal aid money and it covers most costs, but the Government's contribution must come out of the public purse. Can the Minister give an assurance that the exigencies of the public purse will not short-change what is properly required for the status and efficiency of the tribunal?
      Mr. Timms: I can give the right hon. and learned Gentleman an assurance that it is the Government's objective to meet the expenditure necessary to deliver a tribunal with the stature that he described earlier. I am satisfied that we will be able to provide that.
      Mr. Flight: Our amendments focus on three practical issues. They will need to be discussed further when the Bill reaches its Committee stage in the other place. Although the amendments do not relate to matters of high principle on which we would want to vote—and we shall therefore withdraw them—they all deal with practical issues on which our investigations and conversations with those concerned lead us to the conclusion that the Bill is not entirely satisfactory.
      The issue of costs is in a different category, and I take note of the Minister's comments regarding the Burns committee. There is a wider issue still to be addressed—the ability of individuals fully to defend themselves, lest the legislation be undone as the result of a ruling by the European Court of Human Rights.
      The crucial point is that the tribunal should be of top quality and adequately remunerated. Notwithstanding the Minister's comforting remarks, we have a genuine practical concern that the present arrangements may not provide for that. In anticipation of these matters being considered further in another place, I beg to ask leave to withdraw the amendments.
      Mr. Deputy Speaker (Mr. Michael J. Martin): The question of withdrawing amendments does not arise. The only amendment that has been moved is Government amendment No. 115. The other amendments have been grouped with it for the purposes of debate.
      Amendment agreed to.

    Clause 10

      REVIEWS
      Mr. Flight: I beg to move amendment No. 16, in page 4, line 35, leave out "may" and insert "shall".
      Mr. Deputy Speaker: With this it will be convenient to discuss the following amendments: No. 17, in page 4, line 35, after "conduct", insert
      ", in 2002 and every five years thereafter,".

      959
      No. 18, in page 4, line 38, leave out
      "A review may be limited by the Treasury to"
      and insert—
      "The Treasury may also require separate limited and independent reviews of".
      No. 477, in page 4, line 41, leave out subsection (3).
      No. 478, in page 5, line 10, leave out—
      "appearing to the Treasury to be'.
      Mr. Flight: This group of amendments covers particularly important territory. As the House knows, we tabled new clause 3 to address the matter in detail, but the amendments to clause 10 have the same effect.
      As clause 10 stands, the Treasury may appoint an independent person to conduct a review of the economy, efficiency and effectiveness with which the FSA has used its resources in discharging its functions, but clause 10(3) qualifies that power by providing that the review may not deal with the merits of the FSA's general policy or principles in pursuing its regulatory objectives.
      Our amendments require the Treasury to appoint an independent person in 2002 and every five years thereafter. The Treasury may also require separate, limited and independent reviews of such matters as it may specify. In essence, that is already covered in clause 10. The limitation in subsection (3) would be deleted. Finally, the definition of "independent" would be amended by deleting the subjective words
      "appearing to the Treasury to be".
      We have already touched on that in relation to attempts to reduce scope for judicial review.
      It is important that there should be an automatic process of review of regulation. Had the Financial Services Act 1986 provided for that, there would have been a lot less hassle than we have had. Fewer amendments and less parliamentary time would have been needed, and there would have been fewer delays in bringing regulation up to date. For this undemocratic Government and for the industry, a review of regulation is an appropriate part of the process of checks and balances.
      There is the pretence of a process of review under clause 10, but it will occur only at the behest of the Treasury and will not cover the most important territory. We feel strongly about the issue, which we discussed at length in Committee.
      Mr. Beard: Does the hon. Gentleman agree that the greatest threat to the economy, efficiency and effectiveness of the FSA is the number of reviews that the Opposition would impose on it?
      Mr. Flight: That sounds like an argument that totalitarian Governments have used. The review would be independent. The FSA would clearly have to participate in it, but it is more important that regulation should require proper accountability. The FSA spends an enormous amount of time doing the same thing vis-a-vis those that it regulates. I do not believe that that was a serious intervention. We view the matter as an important principle to be included in the Bill.
      Mr. Tyrie: Clause 10 is important. As has been said repeatedly, the FSA is an unprecedentedly powerful institution. Clearly, we need to take a look at it after a few years, to see whether it is working properly.
      960
      In the Government's draft Bill, there was no provision for any kind of review. After consultation, they introduced clause 10. However, the provision is nothing more than a mouse. Given last week's events, "mouse" is an appropriate description—
      Mr. Flight: Or even rat.
      7 pm
      Mr. Tyrie: Worse still, the clause is a rat. Clause 10 is not worth having, and therefore we have to amend it.
      Subsection (1) provides for an independent person
      "to conduct a review of the economy, efficiency and effectiveness with which the Authority has used its resources in discharging its functions."
      In other words, the independent person will consider only how the authority spends its money.
      Subsection (2) is equally limiting. It grants the Treasury the power to specify the functions that the independent investigator may examine. He may wish to consider a particular function, but the Treasury may prevent him from doing so.
      Subsection (3) expressly forbids the independent investigator from considering several broader issues. It states:
      "A review is not to be concerned with the merits of the Authority's general policy or principles in pursuing regulatory objectives."
      As if that is not enough, the independent reviewer will not necessarily be independent. As has already been said, subsection (7) states:
      "'Independent' means appearing to the Treasury to be independent".
      That means as independent as the Treasury wishes the reviewer to be.
      That does not constitute a serious commitment to review the Bill. We have therefore tabled amendments to try to provide for that.
      The clause does not even guarantee that a review will take place at all, because subsection (1) states:
      "The Treasury may appoint an independent person".
      It does not say that the Treasury "must" appoint someone to undertake a review. The Opposition believe that a Bill that could so dramatically affect the biggest, most important and most successful industry in Britain in recent decades should be subject to independent review. That is the gravamen of the amendments.
      In Committee, we presented proposals for defining "independent". We suggested that the Comptroller and Auditor General of the National Audit Office should conduct the review. Some technical problems with that suggestion were mentioned in Committee, but I shall not rehearse them now. Many representative bodies support the idea of appointing him, as do the Opposition. The Government did not explain clearly why that was not a sensible approach. It would give those who are being regulated confidence in the appointment of a genuinely independent reviewer.
      Mr. David Kidney: The Burns committee did not recommend that the Comptroller and Auditor General should undertake the reviews.
      Mr. Tyrie: I do not want to go through all the arguments that the Burns committee presented. The hon. Gentleman is right, and the point was made in Committee. However, the Burns committee said that that was its position provided that its recommendations on the compensation scheme were implemented. The Bill does not provide for implementation of such a scheme. Any reasonable person who reads the Burns committee report will conclude that it would now recommend amendments to clause 10.
      Mr. Beard: Will the hon. Gentleman give way?
      Mr. Tyrie: I shall not give way again. The hon. Gentleman's previous two interventions have been somewhat lacking in substance and I do not want his comments to detain the House.
      Mr. Kidney: Will the hon. Gentleman give way?
      Mr. Tyrie: I shall give way to the hon. Gentleman because he has such a happy smile on his face.
      Mr. Kidney: I remind the hon. Gentleman of how well he spoke earlier in favour of the need for regular cost-benefit analyses of, for example, new rules. What is his view of the Opposition's proposal that the reviews should be undertaken regularly, irrespective of cost or benefit?
      Mr. Tyrie: That is an extraordinary intervention. The object of any review is to undertake cost-benefit analyses of regulations to ascertain whether they are intelligent or cost the industry more than they save it. We would expect the Treasury to use its intelligence to ensure that the review did not become an excessive and irredeemably burdensome examination of the FSA's activity.
      The Opposition have consistently argued for at least one thoroughgoing review of the fundamental change in legislation. The Government consistently refuse to say whether we can have such a review—[Interruption.] The Minister nods; perhaps that is because he has read a pleasant note, which he has stuffed into his pocket, but perhaps he was agreeing with me that the Government have consistently refused to accept the need for at least one thoroughgoing review of the measure.
      The arguments were well presented in Committee, and people can read them in Hansard.
      Liz Blackman: Will the hon. Gentleman give way?
      Mr. Tyrie: If the hon. Lady will forgive me, I am about to conclude my remarks.
      The City would be greatly reassured by the prospect of a review. There is much uncertainty about this Bill in the City, and the knowledge that a review will take place will help allay it. We must not underestimate that point.
      A second crucial reason for having a review is that the Bill alters the structure of the regulatory system. We have
      962
      not simply transferred existing legislation; we have fundamentally altered it. In addition, rapid change is occurring, and an on-going review should probably take place, even if there were no Bill.
      A third reason for supporting the spirit of the amendments, which do not cover the point about the Comptroller and Auditor General, is that granting him power to review will increase accountability to Parliament because he will be able to report to the Public Accounts Committee. The accountability to Parliament of the extremely powerful body that we are creating should be important to all hon. Members.
      I cannot understand why the Government are afraid of reviews. Why do they consider it unreasonable to undertake, after three or four years, a fundamental review of the leviathan Bill that we are considering?
      Mr. Timms: Our new review proposals have received a rather grudging welcome. I should have thought that Opposition Members would show a little more enthusiasm for the new arrangements.
      Clause 10 gives the Treasury the power to appoint an independent person to review the efficiency, economy and effectiveness with which the FSA has used its resources in discharging some or all of its functions. We are considering value-for-money audits. Under the clause, an audit can be carried out at any time, but the amendment seeks to alter that so that the first audit would take place in 2002, with subsequent further audits at five-year intervals. The Treasury would have the power to require further audits to be undertaken outside that timetable, if that appeared necessary.
      The amendment is unnecessary. The purpose of the clause is to allow the Treasury to commission a review when it believes that that would be helpful. That is a matter of judgment and it is impossible to specify the right time in advance, because that may depend mainly on events outside the FSA. Let us suppose, for example, that a crisis suddenly occurred in a sector of the financial services industry and the FSA had to step in and put matters right. In those circumstances, the Treasury might want to ask for a review to see how the FSA's systems stood up to the crisis. The amendment would not prevent that, but we could be in the absurd position of having to begin another review—on the regular timetable—immediately after the first review had concluded and when it was apparent to everybody that there was nothing new to report.
      Unlike the hon. Member for Chichester (Mr. Tyrie), I suggest to the House that my hon. Friends the Members for Bexleyheath and Crayford (Mr. Beard) and for Stafford (Mr. Kidney) were absolutely right. He should have taken much greater note of their remarks because there is a serious issue here of forcing on to people unwanted and unwarranted reviews and procedures that do not merit the costs associated with them. There is no advantage in having fixed periods for external reviews; they should take place when they are needed.
      Mr. Tyrie: Will the Minister commit the Government to at least one thoroughgoing review of the legislation?
      Mr. Timms: Many people will look at how the legislation works, not least the Treasury Committee. The timing of the value-for-money audits should depend on

      963
      circumstances—for example, the non-executive directors might draw to our attention in the annual report the FSA's efficient and economic use of resources. Schedule 1 requires that to be included in the FSA's annual report.
      Sir Nicholas Lyell: I am most grateful to the Minister for giving way and hope that I have not cut him off at a vital moment, but one of my worries is that the reviews appear to be confined to the
      "economy, efficiency and effectiveness with which the Authority has used its resources".
      Would that cover circumstances of growing and perhaps widespread concern in the City that the authority was using its powers in an overbearing and tyrannical way?
      Mr. Timms: I suppose that that would depend on the particular circumstances, but the right hon. and learned Gentleman's intervention brings us on to the points that were made about amendments Nos. 477 and 478. Let me respond to those.
      There is no doubt that the FSA's performance in terms of making policy—the type of area to which he referred—and establishing principles in pursuit of its regulatory objectives should be open to scrutiny, but amendment No. 477 is not the right way to achieve that. The Bill already provides a number of mechanisms that will achieve that outcome, which I think we all seek.
      Schedule 1 requires the FSA to report on the extent to which its objectives have been met in its annual reports. Clause 7 requires it to consult with practitioners and consumers, including the statutory practitioner and consumer panels, on
      "the extent to which its general policies and practices are consistent with its general duties",
      which are set by clause 2. The FSA will be under a duty under clauses 8 and 9 to have regard to any representations made to it by the consumer and practitioner panels.
      Mr. Hawkins: Does the Minister accept that even as authoritative a trade association as the Association of British Insurers still does not feel that the Bill provides for enough scrutiny? With such important trade bodies saying that more needs to be done, our amendments are necessary to satisfy the needs of those with a legitimate interest in the legislation being reviewed properly when it is in force.
      7.15 pm
      Mr. Timms: There will be ample scrutiny through the mechanisms that I have set out—for example, the work of the Treasury Committee and the role of the Treasury—and I disagree with the hon. Gentleman. Arrangements will be in place to meet that concern.
      Mr. Cousins: Virtually all the points made by Conservative Members have been designed, perfectly properly, to protect the position of people in the trade. My hon. Friend has said that the review clause will take account of the points made by consumer panels. Will he make it clear that the review procedure will be symmetrical in order to protect the interests of consumers
      964
      as much as those of the trade? The point is that "effectiveness" also covers effectiveness on behalf of consumers.
      Mr. Timms: My hon. Friend's important point provides a helpful corrective to the balance in the debate. He is absolutely right that the position of consumers and the protection of their interests is at the heart of the Bill. That is only right.
      Mr. Loughton rose—
      Mr. Tyrie rose—
      Liz Blackman rose—
      Mr. Timms: I give way to my hon. Friend the Member for Erewash (Liz Blackman).
      Liz Blackman: Does my hon. Friend also accept that consumers and practitioners alike will be far more reassured by a review that results from a trigger rather than a meaningless regular mechanism?
      Mr. Timms: My hon. Friend is absolutely right. Unnecessary regular reviews, with all the costs that they entail, are not a feature of the system that anybody wants, least of all consumers.
      Mr. Tyrie: Will the Minister give way?
      Mr. Timms: I shall give way for the last time; then I shall conclude.
      Mr. Tyrie: I am concerned that the Minister seemed to agree with the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) and appeared to suggest that there is a trade-off between the interests of consumers and of producers. I had hoped that we had moved on and that, somehow or other, Labour—which talks of the third way—had managed to shed such language, but it seems that we are back to where we were and the Minister accepts the trade-off. Will he acknowledge that the interests of consumers and producers are the same with respect to reviews and that a review that makes a producer more efficient will give greater benefit to the consumer?
      Mr. Timms: My hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) would have been comforted if Conservative Members had paid more attention to the interests of consumers. He made a telling point on that subject.
      On amendment No. 478, clause 10 provides that any person appointed by the Treasury to carry out a review of the FSA must be independent of the FSA. Subsection (7) defines what that means. The problem with the proposed change is that it is not necessarily self-evident whether a particular person is at any time independent of the FSA. In practice, somebody will need to take a view and, as it is the Treasury's responsibility to appoint any reviewer, it follows that the Treasury should make the judgment. For that reason, I cannot accept the amendment and hope that it will be withdrawn.
      Sir Nicholas Lyell: I shall be brief. I am disturbed that the Minister has not been more forthcoming. He should

      965
      at least accept an amendment providing for a full-scale review within a reasonable period of the establishment of the structures in the Bill.
      These amendments, like the previous group, concern the authority's accountability. I confess that I am becoming significantly alarmed. The Minister was silent on this, but unless the Government recognise that the appeal tribunal structure must be headed by somebody of the permanence and calibre of a High Court judge and that the authority's activities should be regularly and independently reviewed, the checks and balances that we require will not be adequate.
      Mr. Flight: We thought that the Government were a great supporter of reviews, but it appears that they do not support reviews of certain matters. Much as we appreciate the Financial Secretary's courtesy, we feel—I certainly feel—that his response was somewhat weak. His refusal to commit the Government at least to a review of this highly complicated new legislation, bringing in the whole industry and changing the position constitutionally after a sensible period, suggest to us that the Government are not very interested in the review process.
      The hon. Gentleman seemed to argue that it was necessary to wait for a Barings or a pension-selling problem to break before conducting a review, but the whole point of a regular review is that it is designed to throw up problems and ensure that they are dealt with. The problems with the regulation of the retail industry date back 10 years. Everyone has known about the—the FSA has admitted that. Had there been a statutory regular review, something might have been done.
      Such reviews are an important part of efficiency, good regulation and protecting the consumer, as well as ensuring that regulation has not become excessive in the other direction. The review, as clause 10 provides, would be laid before Parliament. According to our thinking, it would provide a document on which the Select Committee on the Treasury could do a great deal of the homework.
      It should be borne in mind that the financial services industry changes at a rapid pace. Let us consider what has happened in the last five years, let alone the last 10. Change is needed to update and adjust as the industry changes, and we feel that a statutory five-year review is appropriate to the needs of the situation. We have not specified the Comptroller and Auditor General as the person who should conduct the review, as particular issues may arise; we have merely specified that it should be someone who is truly independent. I felt that the Financial Secretary's response was rather strange, as we see no real problem in determining who is independent of the Treasury.
      The amendment is highly important to the interests of all to whom regulation relates. The machinery that we propose would avoid a number of the problems that have been experienced with regulation since the Financial Services Act 1986 came into force, and we therefore wish to press the amendment to a Division.
      966
      Question put, That the amendment be made:—
      The House divided: Ayes 161, Noes 309.

      Division No. 57]

      [7.23 pm

      AYES

      Ainsworth, Peter (E Surrey)

      Heathcoat-Amory, Rt Hon David

      Allan, Richard

      Hogg, Rt Hon Douglas

      Arbuthnot, Rt Hon James

      Horam, John

      Ashdown, Rt Hon Paddy

      Howard, Rt Hon Michael

      Atkinson, David (Bour'mth E)

      Howarth, Gerald (Aldershot)

      Baker, Norman

      Hughes, Simon (Southwark N)

      Baldry, Tony

      Hunter, Andrew

      Beith, Rt Hon A J

      Jack, Rt Hon Michael

      Bercow, John

      Jackson, Robert (Wantage)

      Beresford, Sir Paul

      Jenkin, Bernard

      Blunt, Crispin

      Keetch, Paul

      Boswell, Tim

      Kennedy, Rt Hon Charles (Ross Skye & Inverness W)

      Bottomley, Peter (Worthing W)

      Bottomley, Rt Hon Mrs Virginia

      Key, Robert

      Brady, Graham

      Kirkbride, Miss Julie

      Brake, Tom

      Kirkwood, Archy

      Brazier, Julian

      Laing, Mrs Eleanor

      Brooke, Rt Hon Peter

      Lait, Mrs Jacqui

      Browning, Mrs Angela

      Lansley, Andrew

      Burnett, John

      Letwin, Oliver

      Burns, Simon

      Lewis, Dr Julian (New Forest E)

      Burstow, Paul

      Lidington, David

      Butterfill, John

      Lilley, Rt Hon Peter

      Cable, Dr Vincent

      Lloyd, Rt Hon Sir Peter (Fareham)

      Cash, William

      Llwyd, Elfyn

      Chidgey, David

      Loughton, Tim

      Chope, Christopher

      Luff, Peter

      Clappison, James

      Lyell, Rt Hon Sir Nicholas

      Clark, Dr Michael (Rayleigh)

      MacGregor, Rt Hon John

      Clarke, Rt Hon Kenneth (Rushcliffe)

      McIntosh, Miss Anne

      Maclean, Rt Hon David

      Collins, Tim

      McLoughlin, Patrick

      Colvin, Michael

      Madel, Sir David

      Cormack, Sir Patrick

      Major, Rt Hon John

      Cran, James

      Maude, Rt Hon Francis

      Curry, Rt Hon David

      Mawhinney, Rt Hon Sir Brian

      Davey, Edward (Kingston)

      May, Mrs Theresa

      Davis, Rt Hon David (Haltemprice)

      Moore, Michael

      Day, Stephen

      Moss, Malcolm

      Dorrell, Rt Hon Stephen

      Nicholls, Patrick

      Duncan Smith, Iain

      Norman, Archie

      Emery, Rt Hon Sir Peter

      Oaten, Mark

      Faber, David

      O'Brien, Stephen (Eddisbury)

      Fabricant, Michael

      Ottaway, Richard

      Fallon, Michael

      Page, Richard

      Fearn, Ronnie

      Paice, James

      Flight, Howard

      Paterson, Owen

      Forth, Rt Hon Eric

      Pickles, Eric

      Foster, Don (Bath)

      Portillo, Rt Hon Michael

      Fowler, Rt Hon Sir Norman

      Prior, David

      Fox, Dr Liam

      Randall, John

      Fraser, Christopher

      Redwood, Rt Hon John

      George, Andrew (St Ives)

      Robathan, Andrew

      Gibb, Nick

      Robertson, Laurence

      Gill, Christopher

      Roe, Mrs Marion (Broxbourne)

      Gillan, Mrs Cheryl

      Ruffley, David

      Gorman, Mrs Teresa

      Russell, Bob (Colchester)

      Green, Damian

      St Aubyn, Nick

      Greenway, John

      Sanders, Adrian

      Grieve, Dominic

      Sayeed, Jonathan

      Gummer, Rt Hon John

      Shepherd, Richard

      Hague, Rt Hon William

      Soames, Nicholas

      Hamilton, Rt Hon Sir Archie

      Spelman, Mrs Caroline

      Hammond, Philip

      Spicer, Sir Michael

      Hancock, Mike

      Spring, Richard

      Harris, Dr Evan

      Stanley, Rt Hon Sir John

      Hawkins, Nick

      Steen, Anthony

      Hayes, John

      Streeter, Gary

      Heald, Oliver

      Swayne, Desmond

      967

      Syms, Robert

      Wells, Bowen

      Tapsell, Sir Peter

      Whitney, Sir Raymond

      Taylor, Ian (Esher amp; Walton)

      Whittingdale, John

      Taylor, John M (Solihull)

      Widdecombe, Rt Hon Miss Ann

      Taylor, Sir Teddy

      Willetts, David

      Townend, John

      Willis, Phil

      Wilshire, David

      Tredinnick, David

      Winterton Mrs Ann (Congleton)

      Trend, Michael

      Winterton, Nicholas (Macclesfield)

      Tyrie, Andrew

      Yeo, Tim

      Viggers, Peter

      Young, Rt Hon Sir George

      Walter, Robert

      Wardle, Charles

      Tellers for the Ayes:

      Waterson, Nigel

      Mr. Keith Simpson and

      Webb, Steve

      Mr. Geoffrey Clifton-Brown.

      NOES

      Adams, Mrs Irene (Paisley N)

      Colman, Tony

      Ainger, Nick

      Connarty, Michael

      Ainsworth, Robert (Cov'try NE)

      Corbett, Robin

      Alexander, Douglas

      Cousins, Jim

      Allen, Graham

      Cox, Tom

      Anderson, Donald (Swansea E)

      Cranston, Ross

      Anderson, Janet (Rossendale)

      Crausby, David

      Armstrong, Rt Hon Ms Hilary

      Cryer, Mrs Ann (Keighley)

      Ashton, Joe

      Cryer, John (Hornchurch)

      Atkins, Charlotte

      Cummings, John

      Banks, Tony

      Cunningham, Rt Hon Dr Jack (Copeland)

      Barnes, Harry

      Barron, Kevin

      Cunningham, Jim (Cov'try S)

      Bayley, Hugh

      Curtis—Thomas, Mrs Claire

      Beard, Nigel

      Dalyell, Tam

      Beckett, Rt Hon Mrs Margaret

      Darling, Rt Hon Alistair

      Bell, Martin (Tatton)

      Darvill, Keith

      Bell, Stuart (Middlesbrough)

      Davey, Valerie (Bristol W)

      Benn, Hilary (Leeds C)

      Davidson, Ian

      Benn, Rt Hon Tony (Chesterfield)

      Davies, Rt Hon Denzil (Llanelli)

      Benton, Joe

      Davies, Geraint (Croydon C)

      Bermingham, Gerald

      Davis, Rt Hon Terry (B'ham Hodge H)

      Berry, Roger

      Best, Harold

      Dawson, Hilton

      Betts, Clive

      Dean, Mrs Janet

      Blackman, Liz

      Dismore, Andrew

      Blears, Ms Hazel

      Dobbin, Jim

      Blizzard, Bob

      Doran, Frank

      Blunkett, Rt Hon David

      Dowd, Jim

      Borrow, David

      Eagle, Angela (Wallasey)

      Bradley, Keith (Withington)

      Eagle, Maria (L'pool Garston)

      Bradley, Peter (The Wrekin)

      Edwards, Huw

      Bradshaw, Ben

      Efford, Clive

      Brinton, Mrs Helen

      Ellman, Mrs Louise

      Brown, Rt Hon Gordon (Dunfermline E)

      Etherington, Bill

      Field, Rt Hon Frank

      Brown, Russell (Dumfries)

      Fisher, Mark

      Browne, Desmond

      Fitzpatrick, Jim

      Burden, Richard

      Fitzsimons, Lorna

      Burgon, Colin

      Flint, Caroline

      Butler, Mrs Christine

      Flynn, Paul

      Campbell, Alan (Tynemouth)

      Foster, Rt Hon Derek

      Campbell, Mrs Anne (C'bridge)

      Foster, Michael Jabez (Hastings)

      Campbell, Ronnie (Blyth V)

      Foster, Michael J (Worcester)

      Cann, Jamie

      Foulkes, George

      Caplin, Ivor

      Gapes, Mike

      Cawsey, Ian

      Gardiner, Barry

      Chapman, Ben (Wirral S)

      George, Bruce (Walsall S)

      Chaytor, David

      Gerrard, Neil

      Clark, Rt Hon Dr David (S Shields)

      Gibson, Dr Ian

      Clark, Paul (Gillingham)

      Gilroy, Mrs Linda

      Clarke, Charles (Norwich S)

      Godsiff, Roger

      Clarke, Eric (Midlothian)

      Goggins, Paul

      Clarke, Rt Hon Tom (Coatbridge)

      Golding, Mrs Llin

      Clarke, Tony (Northampton S)

      Gordon, Mrs Eileen

      Clelland, David

      Griffiths, Jane (Reading E)

      Clwyd, Ann

      Griffiths, Nigel (Edinburgh S)

      Coaker, Vernon

      Grocott, Bruce

      Coffey, Ms Ann

      Grogan, John

      968

      Gunnell, John

      Marshall, Jim (Leicester S)

      Hall, Mike (Weaver Vale)

      Marshall-Andrews, Robert

      Hall, Patrick (Bedford)

      Martlew, Eric

      Hamilton, Fabian (Leeds NE)

      Maxton, John

      Heal, Mrs Sylvia

      Meale, Alan

      Healey, John

      Merron, Gillian

      Henderson, Doug (Newcastle N)

      Michie, Bill (Shef'ld Heeley)

      Henderson, Ivan (Harwich)

      Miller, Andrew

      Heppell, John

      Mitchell, Austin

      Hesford, Stephen

      Moffatt, Laura

      Hill, Keith

      Moonie, Dr Lewis

      Hinchliffe, David

      Moran, Ms Margaret

      Hodge, Ms Margaret

      Morley, Elliot

      Home Robertson, John

      Mountford, Kali

      Hood, Jimmy

      Mowlam, Rt Hon Marjorie

      Hope, Phil

      Mudie, George

      Hopkins, Kelvin

      Mullin, Chris

      Howells, Dr Kim

      Murphy, Denis (Wansbeck)

      Hoyle, Lindsay

      Murphy, Jim (Eastwood)

      Hughes, Ms Beverley (Stretford)

      Naysmith, Dr Doug

      Hughes, Kevin (Doncaster N)

      Norris, Dan

      Humble, Mrs Joan

      O'Hara, Eddie

      Hurst, Alan

      O'Neill, Martin

      Hutton, John

      Organ, Mrs Diana

      Iddon, Dr Brian

      Palmer, Dr Nick

      Illsley, Eric

      Pearson, Ian

      Ingram, Rt Hon Adam

      Pendry, Tom

      Jackson, Helen (Hillsborough)

      Perham, Ms Linda

      Jenkins, Brian

      Pickthall, Colin

      Johnson, Miss Melanie (Welwyn Hatfield)

      Pike, Peter L

      Plaskitt, James

      Jones, Rt Hon Barry (Alyn)

      Pollard, Kerry

      Jones, Helen (Warrington N)

      Pond, Chris

      Jones, Ms Jenny (Wolverh'ton SW)

      Pound, Stephen

      Powell, Sir Raymond

      Jones, Jon Owen (Cardiff C)

      Prentice, Ms Bridget (Lewisham E)

      Jones, Dr Lynne (Selly Oak)

      Prentice, Gordon (Pendle)

      Jones, Martyn (Clwyd S)

      Prescott, Rt Hon John

      Keeble, Ms Sally

      Prosser, Gwyn

      Keen, Alan (Feltham amp; Heston)

      Purchase, Ken

      Kennedy, Jane (Wavertree)

      Quinn, Lawrie

      Khabra, Piara S

      Radice, Rt Hon Giles

      Kidney, David

      Rammell, Bill

      Kilfoyle, Peter

      Rapson, Syd

      King, Andy (Rugby amp; Kenilworth)

      Raynsford, Nick

      King, Ms Oona (Bethnal Green)

      Reed, Andrew (Loughborough)

      Kumar, Dr Ashok

      Reid, Rt Hon Dr John (Hamilton N)

      Laxton, Bob

      Roche, Mrs Barbara

      Leslie, Christopher

      Rooker, Rt Hon Jeff

      Levitt, Tom

      Rooney, Terry

      Lewis, Ivan (Bury S)

      Ross, Ernie (Dundee W)

      Lewis, Terry (Worsley)

      Roy, Frank

      Linton, Martin

      Ruane, Chris

      Lloyd, Tony (Manchester C)

      Ruddock, Joan

      Lock, David

      Russell, Ms Christine (Chester)

      Love, Andrew

      Ryan, Ms Joan

      McAvoy, Thomas

      Salter, Martin

      McCabe, Steve

      Sarwar, Mohammad

      McCafferty, Ms Chris

      Savidge, Malcolm

      McCartney, Rt Hon Ian (Makerfield)

      Sawford, Phil

      Sedgemore, Brian

      McDonagh, Siobhain

      Shaw, Jonathan

      Macdonald, Calum

      Sheerman, Barry

      McDonnell, John

      Sheldon, Rt Hon Robert

      McFall, John

      Shipley, Ms Debra

      McGuire, Mrs Anne

      Short, Rt Hon Clare

      McIsaac, Shona

      Simpson, Alan (Nottingham S)

      McKenna, Mrs Rosemary

      Singh, Marsha

      Mackinlay, Andrew

      Skinner, Dennis

      McNulty, Tony

      Smith, Rt Hon Andrew (Oxford E)

      MacShane, Denis

      Smith, Angela (Basildon)

      Mactaggart, Fiona

      Smith, Miss Geraldine (Morecambe amp; Lunesdale)

      McWalter, Tony

      Mahon, Mrs Alice

      Smith, Jacqui (Redditch)

      Mallaber, Judy

      Smith, Llew (Blaenau Gwent)

      Marsden, Gordon (Blackpool S)

      Snape, Peter

      969

      Soley, Clive

      Tynan, Bill

      Southworth, Ms Helen

      Vis, Dr Rudi

      Squire, Ms Rachel

      Walley, Ms Joan

      Steinberg, Gerry

      Ward, Ms Claire

      Stewart, David (Inverness E)

      Wareing, Robert N

      Stinchcombe, Paul

      Watts, David

      Stoate, Dr Howard

      White, Brian

      Strang, Rt Hon Dr Gavin

      Whitehead, DrAlan

      Stringer, Graham

      Wicks, Malcolm

      Sutcliffe, Gerry

      Williams, Rt Hon Alan (Swansea W)

      Swinney, John

      Taylor, Rt Hon Mrs Ann (Dewsbury)

      Williams, Mrs Betty (Conwy)

      Winnick, David

      Taylor, David (NW Leics)

      Winterton, Ms Rosie (DoncasterC)

      Temple-Morris, Peter

      Wise, Audrey

      Thomas, Gareth R (Harrow W)

      Wood, Mike

      Timms, Stephen

      Woolas, Phil

      Tipping, Paddy

      Worthington, Tony

      Todd, Mark

      Wray, James

      Touhig, Don

      Wright, Anthony D (Gt Yarmouth)

      Trickett, Jon

      Wright, Dr Tony (Cannock)

      Truswell, Paul

      Wyatt, Derek

      Turner, Dr Desmond (Kemptown)

      Turner, Dr George (NW Norfolk)

      Tellers for the Noes:

      Turner, Neil (Wigan)

      Mr. David Jamieson and

      Twigg, Derek (Halton)

      Mr. Greg Pope.

      Question accordingly negatived.

    New Clause 6

      EXERCISE OF EEA RIGHTS BY UK FIRMS
      '. Part III of Schedule 3 makes provision in relation to the exercise outside the United Kingdom of EEA rights by UK firms.'.—[Mr. Timms.]
      Brought up, and read the First time.
      7.30 pm
      Mr. Timms: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government amendments Nos. 70 to 72, 83, 113, 114 and 158.
      Amendment No. 39, in schedule 3, page 208, line 34, after "Kingdom", insert—
      "for the purpose of carrying on the activities in question".
      Amendment No. 40, in page 209, line 20, after "Kingdom", insert—
      "by carrying on the activities in question".
      Amendment No. 41, in page 209, line 22, after "notice", insert—
      "of the firm's intention to provide services in the United Kingdom by carrying on the activities in question.".
      Amendment No. 42, in page 209, line 28, after "Kingdom", insert—
      "by carrying on the activities in question."
      Government amendments Nos. 159 to 170.
      Amendment No. 43, in schedule 4, page 212, line 41, at end insert—
      ""EEA credit institution" means an EEA firm falling within paragraph 5(b) of Schedule 3 whose authorisation under the first and second Banking Co—ordination Directives covers one or more investment services (within the meaning of the Investment Services Directive):".
      Amendment No. 44, in page 213, line 13, at beginning insert—
      "except where the firm is an EEA credit institution.".
      970
      Amendment No. 47, in page 213, line 19, after "right", insert—
      "or, where carrying on the activity constitutes the provision of services in the United Kingdom, cannot use an EEA right,".
      Amendment No. 48, in page 213, line 19, after "activity", insert—
      "or, where carrying on the activity constitutes the provision of services in the United Kingdom, the firm is carrying on that activity from outside the United Kingdom.".
      Amendment No. 45, in page 213, line 30, after "activity", insert—
      "which is a regulated activity".
      Amendment No. 46, in page 213, line 36, after "on", insert—
      "a permitted activity which is".
      Mr. Timms: The Government amendments clarify the distinction in schedule 3 between European firms that use the single market directives to exercise passport rights under the directives in the United Kingdom, and UK firms that exercise passport rights in other European states. Part II of schedule 3 deals with incoming firms, while part III deals with outgoing UK firms. Clause 31 deals with incoming firms, but does not distinguish between incoming and outgoing firms. Amendments Nos. 70 to 72 would limit its scope to incoming firms. New clause 6 would then introduce part III of schedule 3, to deal with outgoing UK firms.
      Amendments Nos. 158 to 163 make further drafting changes to the arrangements for incoming firms under part II of schedule 3. Amendments Nos. 164 to 170 do the same for outgoing firms under part III of schedule 3.
      Amendments Nos. 39 to 42 make some interesting drafting suggestions in relation to the exercise of passport rights by European Economic Area firms. Part II of schedule 3 sets out two sets of conditions for EEA firms seeking to exercise their single market passport rights in the United Kingdom. Firms seeking to establish a UK branch in the exercise of those rights will qualify for authorisation if they satisfy the establishment conditions, which involve the receipt by the FSA of a consent notice from the firm's home-systate regulator.
      The purpose of the amendments appears to be to make it clear that the activities identified in the notices—the permitted activities—must be activities that the EEA firm proposes to carry on through its branch, or by way of provision of services. It seems clear that the notices will relate to the carrying on of the activities identified in them, but, if there is any doubt in the minds of Opposition Members—I imagine that there must be because of the amendments that they have tabled—I will be happy to put on the record an assurance that that is the intended effect of the provisions. I hope that hon. Members will derive some comfort from that.
      Amendments Nos. 43 and 44 would disapply the requirement that the home-state laws afforded equivalent protection if the firm seeking to exercise a treaty right was an EEA credit institution carrying on investment services under a banking authorisation. The need to be satisfied as to the protection offered by home-state law where there is no Community instrument setting minimum standards is an important condition for recognising rights under the treaty. I see no reason to suspend that requirement.

      971
      Amendments Nos. 45 and 46 deal with drafting points. It is clear from schedule 4(3)(1)(a) of the schedule that a "permitted activity" must be a regulated activity, so it is not necessary to specify in either paragraph 4(1) or paragraph 5(1)
      "a permitted activity which is a regulated activity".
      Opposition Members may want to comment on that.
      I appreciate Opposition Members' thinking on amendments Nos. 47 and 48, which seem to provide alternative solutions to the same problem. The problem stems from the possible difference between what would fall to be regulated business carried on in the UK—the general perimeter test—and what would be carried on within the UK: the test that applies in the directives.
      The Opposition have a point there, but although they have proposed two ways of dealing with the question, we do not think that either of them is entirely satisfactory. We are, however, pursuing the point—which is entirely valid, and dealt with in both amendments—with the draftsman. We intend to return to it in another place as soon as we can.
      I am grateful to the Opposition for drawing the matter to our attention and hope that, on the basis of that assurance, they feel that they do not need to press amendments Nos. 47 and 48.
      Mr. Flight: There is a nice irony in the fact that, in Committee, it was the official Opposition who pressed hard to get these parts of the Bill right. If I were impolite, I might point out that the Government—who are so keen to join the euro quickly—were running the risk of not getting them right, thereby causing substantial problems in achieving their objective.
      The Opposition's objectives are twofold. First, it is crucial to British interests, and to the interests of the rest of Europe, to realise that, if Britain damages passporting, reciprocal action will be taken against us elsewhere.
      Secondly—in the spirit of healthy free trade—we want the single market to work. We want European Union passporting to be as streamlined and efficient as possible for European Union businesses and for elements of the financial services industry that come to the United Kingdom.
      We are reasonably happy with the Government's new clause and amendments in this group, although we still do not think—as I shall explain in some detail—that they completely deal with the points at issue. As the Minister will be aware, there have been discussions between learned lawyers—the details of which I confess I do not always understand. I appreciated the hon. Gentleman's comment that the discussions are not necessarily complete but will be finalised when the Bill is considered in Committee in another place.
      The Opposition note and are pleased that Government amendment No. 112 has not been selected, as it was the one Government amendment in this group that we felt was not at all satisfactory.
      Our amendments Nos. 39 to 42 are intended to limit the notices that are required as part of the procedures used in exercising the passport to notices relating to activities covered by the passport. As the Minister said, such an effect is obviously intended, but is not expressly stated in the relevant paragraphs.
      972
      Our amendments Nos. 43 and 44 would amend schedule 4 and are aimed at providing an investment services directive passport to incoming EEA banks entitled to use the second banking directive passport—which, although it may sound strange, is currently allowed by European Union law. Unless the two amendments are agreed to, however, it will no longer allow it—consequently worsening the current position of incoming EEA banks. The Opposition cannot imagine that the Government desire such an outcome.
      If we want to allow United Kingdom banks to have the same "extra" ISD passport, we would surely be shooting ourselves in the foot by stopping non-United Kingdom EEA banks enjoying a passport to which they are currently entitled—albeit not under the ISD as such but because of the current United Kingdom concession.
      As Ministers will be aware, schedule 4 gives treaty rights to all EEA nationals. The treaty right is a right to establish a branch in another member state or to provide cross-border services into it, provided that the conditions in paragraph 3 are satisfied. The treaty of Rome gives those rights, and schedule 4 implements them subject only to the satisfaction of the conditions stated in paragraph (3).
      7.45 pm
      Banks that are to be given the United Kingdom ISD passport are authorised in the home member state, and the second banking directive—2BCD——does not cover all of the ISD passported activities, which means that there is no EEA right covering them. Consequently, that satisfies the two other conditions in paragraph 3, and means that, in principle, EEA credit institutions are automatically given the ISD passport for those activities that are outside the 2BCD passport. The key examples are the receipt and transmission of customer orders and the arranging of transactions in existing securities, neither of which is covered in the 2BCD passport.
      Our amendments Nos. 43 and 44 ensure that the freedoms that the United Kingdom currently gives will be continued. We also hope that the provisions will persuade other EEA member states to allow an equivalent ISD passport to United Kingdom banks.
      Do the Government plan to remove that which is already enjoyed in the United Kingdom, or were the omissions simply an oversight?
      Our amendments Nos. 47 and 48 relate to paragraph 3(1) of schedule 4, which sets out a key condition for the exercise of treaty rights. In July 1997, the Commission gave guidance to the effect that the 2BCD passport cannot be used when the bank is carrying on the relevant passported activity from outside the client state, typically by telephone, fax or screen. In this case, the "host" member state is the member state in which the branch is located and not the client state. Accordingly, a bank entitled to the 2BCD passport cannot use its passport. If paragraph 3(1)(c) is not amended as we are suggesting, the bank will also be excluded from the treaty rights, because it has an EEA right to carry on the activity, albeit that it cannot use it in those circumstances.
      Surely it would be foolish if the schedule 4 treaty rights could be used by all firms authorised by their home member state to carry on the regulated activity except when the firm has an ISD or 2BCD passport. We are sure

      973
      that that is not the Government's intention, and our two amendments will allow 2BCD firms to use the treaty right.
      Our amendment No. 45 is designed to make it clear that the permission given by schedule 4 is only for passported activities, which will require authorisation under the Bill.
      Amendment No. 46 is vital. Unless it is accepted, paragraph 5 will prohibit the treaty firm from carrying on any regulated activity until seven days after it gives notice, even if the regulated activity has absolutely nothing to do with the passport. That is neither acceptable, nor, I think, intended.
      As I said, the amendments deal with a highly technical subject. A few moments ago, the Minister said that the Government want to continue examining the matter and to ensure that they have the provisions right. I apologise to the House for explaining in detail what we regard as the key issues, but—after all the effort that has gone into examining the issues in the past six months—please, may we ensure that we get it right?
      Mr. Timms: I will gladly reflect on the points that the hon. Gentleman has made, but what I said at the beginning of this short debate stands. I was not entirely clear whether the hon. Gentleman wished to press the amendments. I hope that he does not.
      Sir Nicholas Lyell: I am grateful for the opportunity to make a short and entirely technical speech on these extremely important amendments. This has been a fascinating occasion, in which it would be correct to say that Flight has been speaking to Timms, but that Abrams and Slater probably have been communicating with Stokes. I think that all those involved should be congratulated.
      Question put and agreed to.
      Clause read a Second Time, and added to the Bill.

    New Clause 7

      THE THRESHOLD CONDITIONS
      '.—(1) "The threshold conditions", in relation to a regulated activity, means the conditions set out in Schedule 6.
      (2) In giving or varying permission, or imposing or varying any requirement, under this Part the Authority must ensure that the person concerned will satisfy, and continue to satisfy, the threshold conditions in relation to all of the regulated activities for which he has or will have permission.
      (3) But the duty imposed by subsection (2) does not prevent the Authority, having due regard to that duty, from taking such steps as it considers are necessary, in relation to a particular authorised person, in order to secure its regulatory objective of the protection of consumers.'.—[Mr. Timms.]
      Brought up, and read the First time.
      Mr. Timms: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 85 to 88, 92, 93, 96, 105, 122 to 124, 157, 178 and 179.
      Mr. Timms: This group of amendments rationalises the current references in clauses 37(3), 38(2), 39(2), 40(2) and case A, 157(2) and 158(2)(c) to the qualifying conditions in schedule 6.
      974
      The amendments are intended to make it clear that the requirement for the FSA to be satisfied that an authorised person meets the conditions for authorisation in schedule 6 applies at all times. This was a point that the hon. Member for East Worthing and Shoreham (Mr. Loughton) sought to clarify through amendments in Committee, and the Government undertook to make the position clearer. This is our response to the hon. Gentleman's point.
      New clause 7 requires the FSA to satisfy itself, in giving or varying permission or imposing or varying any requirement, that the person will satisfy the threshold conditions—formerly the qualifying conditions—set out in schedule 6 in relation to all the regulated activities covered by his permission. However, the amendments also make it clear that this does not prevent the FSA from taking such steps in relation to an authorised person as it considers necessary to secure its regulatory objective of the protection of consumers.
      The threshold conditions are conditions which should be met at all times, and they are constant points of reference for the FSA. Important though meeting the conditions always is, however, maintaining constant strict adherence may be temporarily subordinated in the interest of consumers.
      For instance, the FSA could permit an authorised insurance company which no longer met the conditions to continue to carry on some limited insurance activities in order to protect the position of existing policyholders, but at the same time might prevent it from engaging in new business. The end result would still need to be either that the company met the conditions again for the activity it had permission to carry on, or that the permission was withdrawn and authorisation ended.
      The remaining Government amendments are consequential. Amendment No. 86 also simplifies the provision for requirements under clause 38(1) so that the FSA may impose such requirements as it considers appropriate without making a firm's permission conditional on compliance with those requirements.
      Amendment No. 179 amends the legal status condition in schedule 6 to ensure that registered friendly societies, which are not incorporated bodies, may nevertheless carry on insurance activities. It also ensures that if insurance intermediaries were to be brought within the scope of regulation, they would not be required to be bodies corporate. However, I should make it clear that we have no such plans.
      Mr. Heathcoat-Amory: This group of amendments is reasonably innocuous, and I will not challenge the Minister too profoundly about what he is attempting to do. However, I have some definitional questions, particularly about what he means by consumers.
      New clause 7 refers to the need to protect consumers, and the Bill could deny someone the application to have an authorisation removed in the interest of consumers—the thinking being presumably that if someone is in business and dealing with consumers, those consumers need protection even after the person concerned wishes to end the business. One can understand that the FSA must make a judgment about whether an authorisation must continue in order to protect consumers.
      My question to the Minister is this: how are those consumers defined? There are a number of definitions in the Bill as it stands. For instance, clause 9(7) has one

      975
      definition, and a slightly different definition appears in clause 3(3). They are fairly minor differences, but they are significant because they appear in one or two cases to restrict the definition of consumers. That may well be desirable.
      In Committee, the Economic Secretary agreed to look at this matter again after it was raised by myself and by my hon. Friend the Member for Chichester (Mr. Tyrie). The hon. Lady said:
      "We intend to consider the definition of 'consumer' in the Bill at a later stage, and that is the best way forward."—[Official Report, Standing Committee A, 21 October 1999; c. 483.]
      On that basis, we have left the matter. The Minister owes us an explanation because, as he will appreciate, when one hears remarks like that in Committee, it is really code for saying that the Government will table amendments on Report.
      Throughout our proceedings, we have been trying to achieve certainty for the outside world. Sometimes Ministers suppose that people will be able to look at a raft of secondary legislation, consultation documents, rules and regulations to find out exactly what their rights and responsibilities are. In fact, most people—even many lawyers—rely on an Act of Parliament. This is a source document, and if things are not properly set out and defined in primary legislation, it will go against what the Government have said at other times—that the Bill is aimed at giving clarity to the outside world.
      The Government want to make financial regulation not simply a specialist matter, but a matter that is understandable to customers and consumers. We know that it is a specialist area of law, but if we are trying to create a system that is comprehensible and has aims that ordinary customers and participants in the industry can understand, we must set out the definitions in the Bill—and preferably only one definition per Bill. It is confusing to have several. Perhaps the Minister could state what he would settle on to give clarity in the question of who he is talking about when he refers loosely to consumers.
      Mr. Timms: The definition that is appropriate here is the definition in clause 5, to which the new clause refers indirectly in subsection (3). The right hon. Member for Wells (Mr. Heathcoat-Amory) is right to draw our attention to the exchange on this issue in Committee, during which the Economic Secretary made the point that the definition of the consumer panel in clause 9 was narrower than those elsewhere. The right hon. Gentleman is also right to point out that we undertook to consider further the definitions of the term "consumer" in the Bill. The commitment given in Committee stands, and we will come back to the issue in the other place.
      Question put and agreed to.
      Clause read a Second time, and added to the Bill.
      8 pm

    New Clause 12

      DEPOSIT-TAKING IN BREACH OF GENERAL PROHIBITION
      ".—(1) This section applies to an agreement between a person ("the depositor") and another person ("the deposit-taker") in the course of carrying on by the deposit taker of deposit-taking in contravention of the general prohibition.
      976
      (2) If the depositor is not entitled under the agreement to recover without delay any money deposited by him, he may apply to the court for an order directing the deposit-taker to return the money to him.
      (3) The court need not make such an order if it is satisfied that—

      (a) it would not be just and equitable for the money deposited to be returned; and

      (b) the deposit-taker reasonably believed that he was not contravening the general prohibition by making the agreement.

      (4) "Agreement" means an agreement—

      (a) made after this section comes into force; and

      (b) the making or performance of which constitutes, or is part of, deposit-taking.

      (5) "Court" means

      (a) the High Court, or

      (b) in Scotland, the Court of Session.".—[Miss Melanie Johnson.]

      Brought up, and read the First time.
      Miss Melanie Johnson: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 245 to 248.
      Miss Johnson: The central objective behind the unenforceability provisions in clauses 24 to 27 is not to find an additional way to penalise wrong-doers, but to assist the financial markets by removing uncertainty. The clauses start from the same presumption of unenforceability that exists under the general law and section 5 of the Financial Services Act 1986.
      The underlying principle is that agreements entered into in the course of, or as a consequence of, illegal activity cannot generally be enforced in the courts. In other words, people should not be able to profit from crime. These provisions confirm that presumption, and also establish clear conditions which, if met, give the courts discretion to enforce agreements if that would be just and equitable. It was thought necessary to include provision along those lines in the 1986 Act. We think that it is equally right and necessary to provide the same level of clarity and certainty in this Bill.
      In Committee, the hon. Member for Arundel and South Downs (Mr. Flight) agreed with us that it is a reasonable principle to apply that an authorised person should not be able to enforce an agreement if it was made through an intermediary who should have been authorised but was not. However, the hon. Gentleman argued that it was unfair to penalise the authorised person if they did not know that the agreement resulted from unauthorised activity by some third party. We accepted that argument.
      Clause 26 goes beyond the existing test in that it makes an agreement unenforceable if the court considered that, although the authorised person did not know, he had grounds for suspecting. That is not the intention behind these provisions. Government amendment No. 245 will therefore align the test with the 1986 Act, so that the courts can exercise their discretion to enforce when they are satisfied that the service provider did not know that the agreement resulted from illegal activity.
      We also undertook in Committee to amend the test for enforcing agreements resulting from illegal financial promotion. As it stands, the tests in clause 27 are

      977
      concerned with the effect of the promotion, rather than the belief or knowledge of the service provider. On reflection, we think that that is inappropriate. The effect of the promotion on the customer can be taken into account as necessary by the court in deciding whether enforcement is just and equitable, but the prior test should be as it is for agreements entered into as a result of unauthorised regulated activity.
      If the service provider is also the promoter, the question should be whether he reasonably believed that he was not contravening the prohibition. If the promoter is a third party, the question should be whether the service provider knew that the agreement was a result of an illegal promotion.
      Sir Nicholas Lyell: I am mostly encouraged by the Minister's remarks, but I am not entirely happy with part of them. If it is just and equitable that the deposit should not be returned, why is it necessary for the person who will suffer—contrary to justice and equity—to prove that he reasonably believed something?
      Miss Johnson: I shall think about that point for a moment, because it is a difficult question. The right hon. and learned Gentleman was one of the main instigators of some of the improvements made in the new clause, as a result of issues that he raised about deposit taking and unenforceability in correspondence with me. Sadly, he was not present when we discussed it in Committee, but I hope that the new clause addresses the point that he made, as well as those raised by the hon. Member for Arundel and South Downs, who rued the absence of the right hon. and learned Gentleman at that point in the Committee's proceedings.
      The hon. Gentleman also argued in Committee that clauses 24 and 25 should not exclude illegal deposit taking from the effect of these provisions. In support of that, he put forward the possibility of a person locked into a fixed-term deposit arrangement with an illegal deposit taker. In such a case, he argued that the depositor should be able to demand the return of their deposit immediately. Again, we accept the point.
      It would be unsatisfactory if the victims of an illegal deposit taker were disadvantaged, so new clause 12 tackles the point directly. Unless the courts are satisfied both that the deposit taker reasonably believed that he was not breaching the prohibition and that it would be just and equitable to uphold the agreement, the depositor will be able to obtain immediate repayment. I do not know whether that answers the right hon. and learned Gentleman's question. [Interruption.]—I think that he is indicating that he is satisfied by that.
      Sir Nicholas Lyell: I was indicating that I would seek to catch your eye, Mr. Deputy Speaker.
      Miss Johnson: I have nothing further to say at this point, except to commend the new clause to the House.
      Mr. Heathcoat-Amory: The new clause addresses the enforceability of contracts or agreements made by regulated persons in contravention of the rules. As we have heard, and as we discussed in Committee, those are
      978
      generally unenforceable except in certain circumstances. The changes that the Government have brought forward are generally helpful, so we do not complain about them.
      I have a slight problem in understanding the distinction between someone who sells and someone who purchases. The authorised person, it is assumed in the Bill, is normally the person who is selling something to a member of the public and is then found to have done so in contravention of the rules. However, the Government now appear to recognise that the authorised person could be buying something because, in Government amendment No. 244, the word "provider" is replaced with the phrase
      "person carrying on the regulated activity".
      Following discussion with those who have advised us, we recommended the word "counter-party" as preferable to "provider". It is neutral, and the person thus referred to could be receiving or providing services. That suggestion has not been taken up, although the Government have mostly tried to avoid the word "provider". However, clause 26 will still contain the word "provider", which is now an anomaly. I do not know whether it is an oversight—perhaps the late corrections to the Bill have not picked up all the instances of the use of "provider"—or deliberate. Perhaps the Minister could clarify that point.
      Sir Nicholas Lyell: I welcome what the Minister said, as far as it went. However, it did not go far enough and, although the new clause looks innocuous on paper, I fear that it could lead to injustice. If the deposit taker has to have "reasonably believed" that he was not contravening the general prohibition when making the agreement, he may suffer a loss that, but for those words, the court would regard as unjust.
      I shall make up an example of what I mean. Let us say that a person gives money to another person who makes investments on his behalf. Normally, the money is given simply to pay for the investments but, in the case that I am describing, some proportion of it is deemed to be held on deposit. If the person doing business fails to pay other debts to the business that makes investments on his behalf, he may claim back the money that is being held on deposit.
      In those circumstances, it may be very unfair not to allow the illegal deposit taker to hold on to the money. Indeed, he may be relying on that money so that he can continue to invest on his client's behalf. The Minister's advisers may recall that all my thoughts go back to the case of SCF v. Masri, in which that rule, which is part of the Banking Act 1979, very nearly caused serious injustice. In that case, the investment business was not held to have been an illegal deposit taker, but making that determination can often involve many technical questions.
      8.15 pm
      The technical circumstances may mean that the business held to be an illegal deposit taker did reasonably believe that it was not contravening the law. To that extent, new clause 12 would be satisfactory. However, it could easily transpire that that belief was not reasonable, and that a silly mistake had been made. Such a mistake could have highly disproportionate consequences if provisions such as those in the new clause were accepted.
      I entirely understand where the Government are coming from, and accept that they are thinking about the matter sensibly. However, they have not gone far enough.

      979
      Depositors' automatic entitlement to getting their money back—unless the illegal deposit taker can demonstrate that repayment would not be just and equitable—is sufficient protection for them, but it is not absolute. It means that justice can be done when people have acted in good faith, but not necessarily reasonably.
      The structure of the new clause shows that the Government are anxious that the courts should be able to do justice. Proposed new subsection (3)(a) states that the court need not make such an order if it is satisfied that
      "it would not be just and equitable for the money to be returned".
      I think that that is enough, and that there is no need for the provision involving reasonable belief. The same arguments apply to Government amendments No. 245 to 248.
      The Economic Secretary may argue that, to some extent, this business of unenforceability is a discipline on providers in the market. However, it can be so unjust that most of the time it would not be necessary: in cases where it was necessary, the court would order the money to be paid, because obviously it would be just to do so.
      I hope that I have explained myself adequately, and that the Government will agree to think again on the matter. I am grateful for the distance that they have covered already, but it is not quite far enough.
      Miss Melanie Johnson: First, I shall tackle the question from the right hon. Member for Wells (Mr. Heathcoat-Amory) about terminology, which rehearses a debate that we had in Standing Committee. Indeed, I recall that Opposition Members tabled an amendment about the term "counter-party" in Committee.
      We have studied the question, which is largely a matter of drafting. There is a risk that the terminology of the "purchaser" is confusing, given that that person could also be selling investments, which is the point just made by the right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell).
      The word "purchaser" is a drafting device, and needs to be seen in that context. However, we shall continue to examine the problem, with a view to bringing forward another suggestion about the wording in another place.
      Mr. Tyrie: I hope that the Minister will be able to dispel some confusion for me. As I understand it, clause 24 deals with agreements made by unauthorised persons, and clause 25 with agreements made through such persons. New clause 12 addresses the problem in clause 24, but it does not extend the same treatment to clause 25, which deals with agreements entered into with an authorised person
      "in consequence of something said or done by"
      an authorised person
      "in contravention of the general prohibition".
      Why have the Government excluded clause 25 from the treatment meted out to clause 24?
      Miss Johnson: In essence, that was the point raised earlier by the right hon. and learned Member for North-East Bedfordshire. The new clause does not cover third-party deposit taking. There is no intention to make giving advice on deposits a regulated activity.
      980
      In Committee, Opposition Members found it very difficult, in their amendments, to change terminology across the board. An example that we discussed earlier was the difficulty with the definition of the word "consumer". It is not always easy to produce a single term that fits well in all the circumstances in the Bill. We do our best to ensure that all the terminology is consistent and that, wherever possible, the same words are used. As I said, we will continue to consider this and will come back to it in another place if that seems appropriate.
      The right hon. and learned Member for North-East Bedfordshire asked why, if it was just and equitable that a deposit should not be returned, it was necessary for the person to prove that he reasonably believed that he was breaching the prohibition. My understanding of the way that this works may be different from that of the right hon. and learned Gentleman. It is important to remember that we are talking about illegal activity. The first question is whether the provider reasonably believed that he was not acting illegally. Only then does the second question kick in—whether the enforcement is just and equitable. It is a staged process. I think that the right hon. and learned Gentleman was suggesting that only the second phase was necessary, but the first stage is supposed to be followed by the just and equitable consideration as the second element.
      Sir Nicholas Lyell: Will the Minister clarify this point? She is concentrating on the illegality of the activity. While it is true that the idea of not being able to profit from one's own wrong is deeply embedded in the common law, does the hon. Lady recognise that the illegality in these circumstances is, in a sense, artificially—although rightly—created by statute? Buying and selling shares, for example, is a perfectly legitimate activity. Therefore, there is a high degree of technicality about the illegality. Hence, does the hon. Lady agree that, if it is just and equitable in a commercial situation for money to be returned or not, that should be the end of the question, and that what someone did or did not reasonably believe is a step too far?
      Miss Johnson: I do not think that I agree with the right hon. and learned Gentleman. My view is that, if the illegal behaviour resulted from an obscure technicality of the kind that he sketched out, the court may be satisfied that the person reasonably believed that he was not breaking the law. That is a distinct possibility. But, if the belief was not reasonable, why should the courts enforce the illegal contract?
      Sir Nicholas Lyell: We are talking about activities that are contrary to the general prohibition. Those are not obscure technicalities, but the circumstances in which a breach of the general prohibition may have arisen but be entirely innocent, albeit the person was slightly negligent. If that was the case, does the Minister recognise that unreasonableness would creep in and injustice could be done because the money could not then be returned by the court even though it had been decided at the first stage that it would be just and equitable to do so?
      Miss Johnson: I believe that, if what was done in the first place was straightforward and not a matter of obscure technicality, the issues may not be the same, but the measure must address the point that it may not be clear whether there is an obscure technicality. The right

      981
      hon. and learned Gentleman does not wish to entertain that possibility, but it is an eventuality that must be entertained. I recognise that that will sometimes cause difficulty for those carrying out unlawful activities, but there is a balance to be struck and the Bill strikes it properly. I do not think that I have anything further to add.
      Sir Nicholas Lyell: Would the Minister just answer this question? If there is a small mistake—a negligent mistake, as most mistakes are—but, considering the issue as a whole, it would be unjust to the deposit taker to have to return the money, why should the court's hands be tied from doing justice?
      Miss Johnson: I do not believe that we are tying the court's hands and preventing justice from being done. It is the business of the courts to do justice and I do not believe that anything that we are doing has or will have that effect.
      Question put and agreed to.
      Clause read a Second time and added to the Bill.

    New Clause 13

      STATEMENTS OF POLICY: PROCEDURE
      ".—(1) Before issuing a statement under section 67, the Authority must publish a draft of the proposed statement in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
      (2) The draft must be accompanied by notice that representations about the proposal may be made to the Authority within a specified time.
      (3) Before issuing the proposed statement, the Authority must have regard to any representations made to it in accordance with subsection (2).
      (4) If the Authority issues the proposed statement it must publish an account, in general terms, of—

      (a) the representations made to it in accordance with subsection (2); and

      (b) its response to them.

      (5) If the statement differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant, the Authority must (in addition to complying with subsection (4)) publish details of the difference.
      (6) The Authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1).
      (7) This section also applies to a proposal to alter or replace a statement.".—[Mr. Timms.]
      Brought up, and read the First time.
      Mr. Timms: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government new clause 14—Statements of policy: procedure.
      Government new clause 25—Codes: procedure.
      Government new clause 26—Statements of policy: procedure.
      Government new clause 30—Statements of policy: procedure.
      Government new clause 31—Statements under section 351: consultation.
      982
      Government new clause 40—Consultation.
      Government new clause 41—Procedure on making or varying orders under section (Orders in relation to the general prohibition).
      Amendment No. 236, in clause 8, page 4, line 15,, at end insert—
      "(6) Before appointing any person to the Practitioner Panel the Authority must consult persons representing the interests of practitioners, as it considers appropriate, with a view to identifying candidates for appointment to the Practitioner Panel.".
      Government amendment No. 407.
      Amendment No. 216, in clause 49, page 23, line 5, after "Part", insert—
      "or to impose a requirement under section 38".
      Amendment No. 217, in page 23, line 7, after "application", insert—
      "or imposes a requirement under section 38".
      Amendment No. 218, in clause 50, page 23, line 17, leave out "written" and insert "a warning".
      Amendment No. 219, in page 23, line 19, leave out subsection (3).
      Amendment No. 220, in page 23, line 27, leave out "written" and insert "a decision".
      Amendment No. 221, in page 23, leave out lines 28 to 30.
      Amendment No. 224, in clause 59, page 27, line 35, at end insert—
      "(2A) If no warning notice is given before the end of the period for consideration the application shall be treated as granted.".
      Government amendments Nos. 249 to 255.
      Amendment No. 225, in clause 62, page 29, line 1, after "issue", insert "or alter".
      Amendment No. 226, in page 29, line 2, after "it", insert—
      "or, as the case may be a draft of it as proposed to be altered".
      Government amendments Nos. 256 to 270, 272 to 277 and 279.
      Amendment No. 227, in clause 85, page 39, line 26, at end insert—
      "and the procedure on such an appeal".
      Amendment No. 228, in page 39, line 30, at end insert—
      "(4) The provisions of sections 349(3) to 349(5) shall apply in relation to the warning notices as if the competent authority was the Authority.
      (5) If, notwithstanding the representations made to the competent authority before the end of the period specified in the warning notice, the competent authority decides to impose a penalty on a person under section 84, the competent authority must give the person concerned written notice of the decision it takes and must inform him of the right of appeal available to him and the procedure on such an appeal.
      (6) The provisions of sections 350(1)(c), 350(6) and 351 shall apply to any such notice under subsection (5) as if it were a decision notice and the competent authority was the Authority.".
      Government amendments Nos. 280 to 284.
      Amendment No. 229, in clause 87, page 40, line 10, at end insert—
      "(2) The competent authority may not give a notice for payment under section 88(1) while the decision to give that notice is open to review.

      983
      (3) "Open to review" bears the meaning set out in section 350(7) as if references to the Tribunal were to the person or body to which appeal may be made under the arrangements to be established under subsection (1).".
      Government amendments Nos. 285 to 315.
      Amendment No. 365, in clause 142, page 68, line 30, at end insert—
      "and if any proceedings are commenced against any person in reliance on the report the investigating authority shall provide a copy of the report to such person prior to the commencement of proceedings".
      Amendment No. 375, in clause 183, page 91, line 3, at end insert—
      "(5) The Authority shall not give a notice for payment while the decision to give that notice is open to review within the meaning of section 350(7).".
      Amendment No. 376, in clause 184, page 91, line 12, at end insert—
      "(4) The Authority shall not publish a statement under section 179 while the decision to publish that statement is open to review within the meaning of section 350(7).".
      Government amendments Nos. 320 to 325.
      Amendment No. 377, in page 91, line 32, leave out "authorised persons" and insert "the public".
      Government amendment No. 326.
      Amendment No. 378, in clause 185, page 91, line 37, leave out—
      "consult such persons as it considers appropriate"
      and insert—
      "include in the material a statement that representations about the material may be made to the Authority within a specified time".
      Amendment No. 379, in page 91, line 37, at end insert—
      "(7A) Before publishing the material under this section the Authority must have regard to any representations made to it in accordance with subsection (7) and must make a statement as to the representations (if any) made to it and its response, in general terms, to them.".
      Government amendments Nos. 327 to 329.
      Amendment No. 392, in clause 235, page 118, line 32, leave out from "give" to end of line and insert—
      "separate written notice of its decision to the manager and trustee of the scheme".
      Amendment No. 394, in clause 236, page 119, line 38, after "must", insert—
      "without prejudice to its other powers under section 108".
      Government amendments Nos. 140 and 331 to 344.
      Amendment No. 11, in clause 351, page 181, line 39, after "case", insert—
      "if the failure does not materially prejudice the person to whom the warning notice or decision notice is given".
      Government amendments Nos. 345 to 363.
      Mr. Timms: The Government gave an undertaking in Committee to standardise the FSA's procedures, including for when the FSA consults on its making and amending of rules and codes, and of policy statements. New clauses 13, 14, 25, 26, 30, 31 and a number of amendments are intended to achieve that consistency, and I hope that they will be widely welcomed.
      New clauses 40 and 41 relate to the new provisions on professionals. New clause 40 deals with the procedures to apply to directions by the FSA to cut back the scope of
      984
      the exemption in relation to classes of person or activity. It sets out the procedure for consulting on a direction in line with similar procedures throughout the Bill. New clause 41 deals with individual orders made by the FSA to ban persons from carrying on regulated activities under the professionals' exemption. It sets out the procedure that will apply to a banning order under new clause 39. Essentially, the warning and decision notice procedures applied throughout the Bill should be adhered to, and the subject of the order can refer the matter to the tribunal.
      Clause 48 provides that an authorised person should have a certificate setting out the terms of their permission and that the certificate is to have particular evidential weight. At present, the certificate takes precedence over the register that the FSA must maintain under clause 311, or over the notice to be issued under clause 47(4), in determining a person's position.
      Our intention was to provide some certainty for authorised persons. However, we have become aware that some difficult practical issues would result from giving precedence to certificates in that way. It would be imperative for the FSA always to repossess a certificate when a permission is altered or cancelled. For example, what would happen if the authorised person declined to return the certificate or claimed to have lost it?
      We are persuaded that it would not be right to place such reliance on certificates. By deleting clause 48 and the related provisions in schedule 5, we are deliberately leaving it open to the courts to place weight on a variety of forms of documentation—including the public register to be maintained by the FSA under clause 311—as they consider appropriate.
      Amendment No. 269 makes a simple drafting change to clause 63. Amendment No. 140 makes a consequential change to clause 274, following the introduction in Committee of provisions as to recognised nominees. It provides that the FSA must have regard to representations from a recognised nominee before using its power of direction in respect of such a body.
      I shall defer my comments on the amendments tabled by the Opposition until Opposition Members have had a chance to speak. I shall then try to catch your eye, Mr. Deputy Speaker.
      8.30 pm
      Mr. Flight: As the Minister pointed out, the Government's new clauses and the related amendments would standardise various procedural requirements relating to the making by the FSA of rules and codes and to the issue of policy statements. As far as we have been able to digest them, the amendments are welcome improvements; they appear to work.
      However, the Opposition have some qualifications or questions. First, although in some cases the consultation procedures apply to proposals to alter or replace statements or policies, it is not clear what the position would be if the FSA proposed to alter rules made under part IX. If the rules were revoked and replaced by new ones, the consultation procedure would apply; however, the provisions do not cover alterations to rules.
      Secondly, it seems to be assumed that many existing rules will be continued under the measure. As we have pointed out, those rules are intended to be grandfathered so as to avoid the need for the consultation procedure, and will not be subject to cost-benefit analysis. We are not clear how that grandfathering will be put into effect.

      985
      Thirdly, the consultation procedures do not apply to the Treasury's powers to make orders or to prescribe other matters under the measure. We think that the procedures should apply.
      Finally, various Opposition amendments buried within the group cover many different territories. I shall not address each one, but shall discuss them in groups.
      Amendment No. 236 is especially important. It would require the FSA to consult persons representing the interests of practitioners before making appointments to the practitioner panel. We had tabled alternative amendments on that. However, such a panel must be properly representative of practitioners and consultation is a sensible way to achieve that.
      Amendments Nos. 216 and 217 would amend clause 49 to bring within the warning notice, decision notice procedures proposals by the FSA to impose conditions on applicants for permission to carry on regulated activities. Amendments Nos. 218 to 221 would amend clause 50 to bring within those procedures proposals by the FSA to use its own-initiative power, for example in non-urgent cases.
      In the case of any application for approval, amendment No. 224 would provide that, if no warning notice were given before the end of the period for consideration of the application—the three-month period—the application would be treated as granted. We proposed that amendment in Committee and I thought that it had received a sympathetic response.
      Amendments Nos. 227 and 228 would introduce to clause 85 the provisions of clauses 349 and 350—the warning notice, decision notice procedures—in the case of the proposed imposition of penalties for contravention of listing rules.
      Amendment No. 365 would require a copy of an investigator's report made under the provisions of clauses 139 and 140 to be provided to the person under investigation before proceedings are commenced against him. We consider that to be of some import.
      Amendments Nos. 375 and 376 amend clauses 183 and 184 to make it clear that the FSA cannot give notices for penalties, or publish statements, while the decision is open to review.
      Clause 351(7) provides that if the FSA fails to follow its warning notice, decision notice procedure, it will not affect the validity of the relevant warning notice or decision notice. Amendment No. 11 provides that that is the case only
      "if the failure does not materially prejudice the person to whom the warning notice or decision notice is given".
      We shall not press our amendment No. 377; we debated that subject pretty fully in Committee. Similarly, we shall not press amendment No. 378, to which it relates.
      Amendment No. 379 is of some import. It provides that, before the FSA publishes a disciplinary notice, it must have regard to any representations and make a statement as to whether representations were made and what its response to them was.
      Amendment No. 392 relates to powers on intervention. It would require the FSA, when revoking a power, to give separate written notice to the manager and trustee, not only to the applicant.
      986
      Amendment No. 394 provides that, in cases of urgency, decision notices should be without prejudice to the powers under clause 108 relating to hearings and appeals.
      The amendments bracket together a strange hotchpotch of different territories. We view the most important as the practitioner panel point and the territory of not being able to publish statements while decision notices are open to review.
      Mr. Loughton: My hon. Friend has probably said it all on this great hotchpotch, but I want to echo some of his words regarding the practitioner panel and amendment No. 236.
      I fear that I may incur the wrath of the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) because the amendment does not deal with the body of consumers. We have addressed that subject many times in the Bill's passage. Many of us would contend that if we get the practitioners right, we are acting in the interests of consumers, but I shall not re-open that argument. No doubt he will intervene on me if he chooses to take us down that lane.
      We had a good debate in Committee about the status and effectiveness of the practitioner panel. Many Conservative members of the Committee would have preferred the panel to be given much greater independence, to the extent that panel members could be nominated by practitioners from their own body instead of being appointed entirely by the authority; because it is essential that the practitioner panel has clout and is not just a form of tokenism, supposedly to give respectability to some of the greater excesses that the FSA rule-makers may wish to impose on the financial community. If the latter were the case, it would inevitably lead to prejudice to the consumer.
      I have another worry. I have no qualms about the qualifications and standard of the people who have been proposed for the practitioner panel—indeed, some are highly qualified—but many are what I would term compliance and regulator people rather than practitioners. There seems to be a difficulty in filling the practitioner panel with practitioners, the people who are at the sharp end of the financial services business and conduct business day to day. Someone who regulates individual firms as a compliance officer does not constitute a practitioner.
      In Committee, we also had problems when we contended that the practitioner panel should have first sight—and before the consultation was launched—of any consultation exercises that the authority recommended should go out to the general membership. It appears eminently sensible to suggest that the practitioners, who might have a sensible and pragmatic input to make to the consultation exercise, should be able to make it at the beginning. It would then be a rather more meaningful exercise, but, unfortunately, the Government did not accept our amendment. As we failed on those scores, it is essential that amendment No. 236 is taken on board. It would be absurd for the authority to appoint the people that it saw fit to serve on the practitioner panel without it consulting widely with the very people that the panel supposedly represents.
      The Bill must contain a mechanism whereby the FSA is obliged to consult the practitioners properly before it names the people who it wants to appoint to the panel.

      987
      That is plain common sense if the panel is to be effective, independent and is to have an input into the workings of the FSA. It will be one of the worst cases of tokenism if it is made up of yes-men and women.
      Mr. Timms: The hon. Member for Arundel and South Downs (Mr. Flight) asked me three questions about the Government amendments and I shall deal with them first.
      First, the hon. Gentleman asked me about altering and replacing the rules under part IX. That is a drafting matter. It is not right to talk about rules being altered or replaced; they are revoked and new rules are made. In that sense, part IX is no different from other parts of the Bill.
      The hon. Gentleman also asked me about grandfathering. Our intention is to lay transitional provisions in another place to deal with that. To some extent, it is a matter for the FSA. For example, in the case of prudential rules, it is consulting on a proposal to make interim rules. The aim is to allow it to take account of procedural steps, including consultation, before the Act comes into force.
      Finally, the hon. Gentleman asked me about the need for consultation on the Treasury powers to prescribe. There are a number of powers in the Bill for the Treasury to make regulations. It would be unduly rigid to include in the Bill a requirement to consult on the regulations. However, we shall of course consult when it is appropriate to do so.
      Mr. Tyrie: The Minister has just mentioned the transitional arrangements. As he has touched on them, will he explain why the Government have not yet taken the opportunity to table them? A huge number will be required with the ending of 18 separate sets of regulatory schemes and their replacement by the omnibus scheme. What has been the obstacle to tabling those arrangements for consideration in this House rather than waiting for them to be considered in the other place?
      Mr. Timms: We referred to several matters earlier today and in the debate last week that we shall return to in another place. As a result of all our deliberations and the close attention that we have paid to all the points made to us, we have many matters to resolve, and those are among them. It has not been possible to table amendments on that in time for debate today, but I have no doubt that those matters will be properly scrutinised in the other place.
      8.45 pm
      I shall deal with the Opposition amendments in the order in which they were explained by the hon. Member for Arundel and South Downs. Amendment No. 236 would require the FSA to consult practitioners about possible candidates. The hon. Member for East Worthing and Shoreham (Mr. Loughton) referred to that. The FSA is under a duty to establish a panel of practitioners able to represent the views of practitioners. Clause 8 specifies categories of person who should be represented on the panel, and places the FSA under a duty to have regard to representations made to it.
      I have no objection to the FSA consulting in the way proposed so that it can identify suitable people, but it is unnecessary and undesirable to specify so precisely the steps that it should take. Consultation with the industry
      988
      may well be a good approach, but other methods may be suitable; for example, it may he appropriate to advertise. I would not want to tie the FSA's hands on that matter.
      Mr. Flight: Will the Minister be a little more specific? He is saying that the Bill covers the spirit of what we seek to achieve, but what is the FSA likely to do? There are many trade bodies that represent different parts of the financial services industry. Is it envisaged that the FSA will discuss suitable candidates with them? Is it envisaged that the FSA will talk directly to any leaders or sections of the industry? We are concerned because it seems to us that the boards of comparable existing bodies could have been improved.
      Mr. Timms: That will be a matter for the FSA. Its obligations in that respect are pretty clear, and they cover the points about which Opposition Members are concerned. Categories of person are specified; the panel has to be able to represent the views of practitioners, and the FSA is placed under a duty to have regard to representations made to it. Precisely how the FSA fulfils those obligations is a matter that we can leave to it, although I imagine that it will do much of what the hon. Gentleman suggested.
      Amendments Nos. 216 to 223 are interesting. They would extend full warning notice, decision notice and tribunal procedures to all FSA decisions under part IV. There is a need to rationalise the procedures for FSA decisions, in the same way that we have aligned consultation procedures. For example, we tabled amendment No. 115, which will extend the right to refer matters to the tribunal in clause 52 to any applicant who is aggrieved by the determination of his application, such as in cases in which the FSA has granted an application but imposed a limitation or requirement.
      At the same time, however, it is important to distinguish between the essentially prudential and protective nature of the provisions in part IV and the different nature of other provisions in the Bill, such as those on market abuse, discipline and restitution.
      The interests of third parties will vary according to whether one is considering permission given to an authorised person or his wrongdoing. That will have a bearing on the urgency of the case and the amount of material that it will be appropriate for the FSA to disclose in a particular case.
      We do not think that it is right that all consequences should flow in exactly the same way from all FSA decisions, which would be the result of the Opposition amendments. However, we accept the need to consider further the procedures that should apply and to align them as far as possible. We shall want to return to that matter in another place. I shall take on board the central thrust of the hon. Gentleman's case, but more detailed work is needed.
      That brings me to amendment No. 224. In Committee, I made it clear that the Government had decided to allow the FSA up to three months in which to consider applications, in case it needs—as it will, from time to time—to carry out investigations into those making applications. However, the FSA has made it clear that it expects, in normal circumstances, to be able to grant approvals within a matter of days or weeks; it is consulting with firms as to the levels of service that they would like to apply to the processing of applications.

      989
      I hope that I did not inadvertently mislead the Committee about the Government's intentions. We believe that it is essential that the FSA satisfies itself that the candidate is a fit and proper person to carry out the controlled function in question. It must be absolutely clear that an application cannot be granted by default and that no benefit can accrue from delay or other such tactics. Therefore, I cannot accept the amendment.
      Mr. Flight: I could cite difficult cases in which an existing self-regulating organisation left a matter in no man's land for anything up to one or two years because no one wanted to take responsibility for a difficult decision. Ultimately, decisions have been forced, usually by a potential employer being brave enough to address the issue. Some such cases have given rise to considerable injustice. The Minister appears to be saying that the three months is not really three months: what happens if a decision is not reached within three months? We do not want a regime that allows people to be left in limbo.
      Mr. Timms: That, too, will be a matter of concern to the FSA. However, the problem can be seen the other way around: making the amendment could result in the unhappy outcome of a person assuming that he had approval and taking up a position with an authorised firm, only to find that the FSA sought to withdraw that approval a matter of days later. The Government's approach is correct, but the hon. Gentleman is right to say that care must be taken throughout the process, so that such cases are not repeated.
      Amendments Nos. 225 and 226 have been overtaken by some of the Government amendments, so I shall not speak about them. The hon. Gentleman did not focus on them.
      That brings me to amendments Nos. 227 to 229. In Committee, my hon. Friend the Economic Secretary set out the changes that we would make to the clauses dealing with official listing, following the decision to transfer the competent authority function from the London stock exchange to the FSA. We have not tabled amendments to part VI consequential on that decision; we shall do so in another place.
      We shall in another place also propose changes to the warning notice and decision notice procedures. Those changes will rationalise the provisions, for example, by ensuring that a notice for payment is something that is given and takes effect only after the end of the review process.
      As the hon. Gentleman said, amendment No. 365 is identical to one that we discussed in Committee. We agree that a person must know of what he or she is accused; that basic requirement is recognised in the Bill in several ways. In disciplinary and market abuse cases, clause 349 requires the FSA to disclose the reasons for proposing the action in the warning notice that it must give to the person concerned. Subsection (5) of that clause requires the FSA to make available the evidence on which it proposes to rely in any proceedings before the tribunal. We are working on proposals to extend this right of access to include additional information. In most cases these disclosure requirements and rights of access will cover most, if not all, of the contents of any report prepared
      990
      following an investigation. We cannot agree to automatic disclosure of the full report of an investigation regardless of its content or the use that it might be put to. For example, it might reveal the source of a tip-off within a company under investigation. We think that that would be going too far. We are providing a great deal of transparency in this process. It is right that we should do so, but there are limits to what is appropriate.
      I am grateful to Opposition Members for tabling amendments Nos. 375 and 376. They would prevent the FSA from imposing disciplinary measures under part XIII while the decision is still open to review. Clause 356 already prevents the FSA from publishing any information about a matter to which the decision relates while the decision is still open for review. The main provision that prevents such abuse is clause 108(5), which provides that a
      "decision referred to the Tribunal does not have effect until the reference, and any appeal against the Tribunal's decision, has been … disposed of."
      Any notice of payment that the FSA purported to issue before the matter was referred to the tribunal would also be rendered ineffective if the matter was then referred to the tribunal. I understand that there could be some ambiguity about the status of such a notice and the passage of time under clause 108 if the firm decided not to refer the matter to the tribunal. It would be useful to consider whether the provision could be reworded as part of the amendments that we are proposing to put forward when the Bill is considered in another place. I hope that that will be of some reassurance to Opposition Members.
      Amendments Nos. 377 to 379 aim to specify consultation procedures on statements of policy on the imposition of penalties. As we undertook in Committee, we have introduced a series of new clauses and amendments to standardise procedures. New clause 30 addresses the Opposition's concerns on this issue, I hope to their satisfaction.
      The purpose of amendment No. 392 is to amend clause 235, which deals with the procedural aspects of revoking directions that are given under clause 231, so that both the manager and trustee of a scheme receive a written decision notice when an application for revocation has been made. I recall that the matter was raised in Committee. Procedural issues in this part of the Bill are still being broadly assessed, and this is a point that we shall consider further, as we said in Committee.
      Amendment No. 394 concerns the role of the tribunal in the urgent intervention procedure for authorised unit trusts under clause 236. Again, the matter was debated in Committee. We said then that we would review the urgent intervention powers set out in the Bill at a later date, and we still intend to do so.
      Amendment No. 11 is similar to an amendment tabled in Committee. As we explained then, we think that our amendments achieve the required effect. As it stands, clause 351(7) gives the FSA flexibility in carrying out its published procedures. That is necessary because there is a risk that any minor error or departure from the standard procedure would result in the entire procedure becoming a nullity.
      In practice, the question whether there has been a procedural error that has materially prejudiced the other party would be resolved by the tribunal, whose proceedings would provide a completely fresh look at the

      991
      case and a decision unprejudiced by any procedural errors by the FSA. The problem with a prejudice test is that it suggests that the tribunal should strike down a decision of the FSA wherever it has materially disadvantaged the other party. That would in effect lead to long arguments about the minutiae of the procedures adopted by the FSA. The tribunal's own fair procedures should effectively rectify any procedural failures as it provides a full opportunity for a fair hearing before a judicial body. The tribunal's ability to balance any material disadvantage was welcomed by the right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) in Committee.
      Amendment No. 392 deals with the procedural aspects of revoking directions given under clause 231. We are looking into the matter.
      Amendment No. 394 concerns the role of the tribunal in the urgent intervention procedure for authorised unit trusts under clause 236, to which we will give further consideration.
      I hope that I have responded to the long list of amendments to the satisfaction of Opposition Members.
      Question put and agreed to.
      Clause read a Second time, and added to the Bill.

    New Clause 14

      STATEMENTS OF POLICY: PROCEDURE
      ".—(1) Before issuing a statement under section 86, the competent authority must publish a draft of the proposed statement in the way appearing to the competent authority to be best calculated to bring it to the attention of the public.
      (2) The draft must be accompanied by notice that representations about the proposal may be made to the competent authority within a specified time.
      (3) Before issuing the proposed statement, the competent authority must have regard to any representations made to it in accordance with subsection (2).
      (4) If the competent authority issues the proposed statement it must publish an account, in general terms, of—

      (a) the representations made to it in accordance with subsection (2); and

      (b) its response to them.

      (5) If the statement differs from the draft published under subsection (1) in a way which is, in the opinion of the competent authority, significant, the competent authority must (in addition to complying with subsection (4)) publish details of the difference.
      (6) The competent authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1).
      (7) This section also applies to a proposal to alter or replace a statement.".—[Mr. Timms.]
      Brought up, read the First and Second time, and added to the Bill.

    New Clause 15
    CONTROL OF BUSINESS TRANSFERS
    New Clause 15
      PART VIA

        CONTROL OF BUSINESS TRANSFERS
        . No insurance business transfer scheme or banking business transfer scheme is to have effect unless an order has been made in relation to it under section (Sanction of the court for transfer schemes)(1).".—[Mr. Timms.]
        Brought up, and read the First time.
        9 pm
        Mr. Timms: I beg to move, That the clause be read a Second time.
        Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following: Government new clause 16—Insurance business transfer schemes.
        Government new clause 17—Banking business transfer scheme.
        Government new clause 18—Application for order sanctioning transfer scheme.
        Government new clause 19—Requirements on applicants.
        Government new clause 20—Scheme reports.
        Government new clause 21—Right to participate in proceedings.
        Government new clause 22—Sanction of the court for business transfer schemes.
        Government new clause 23—Effect of order sanctioning business transfer scheme.
        Government new clause 24—Rights of certain policy holders.
        Government new schedule 1—Insurance and banking business transfer schemes: certificates.
        Mr. Timms: In Committee, the hon. Member for Arundel and South Downs (Mr. Flight) said:
        "There is also a lot of old law on banks, including the frequent requirement that banks get a private Act of Parliament when merging businesses. Will amendments be tabled to tidy that up in relation to the Bill?—[Official Report, Standing Committee A, 7 December 1999; c. 1185.]
        I gave the hon. Gentleman a slightly circuitous answer, but I can now come clean and say yes.
        New clauses 15 to 24 and new schedule 1 provide a new mechanism for sanctioning and giving effect to schemes to transfer business by certain kinds of authorised persons, specifically insurance companies and banks. The matter with which we are dealing is not takeovers and mergers in the usual sense. From a regulatory perspective, the relevant powers for takeovers are already in place in part XI. No other special arrangements apply to takeovers.
        Instead, what is at issue is the merger of two distinct businesses into a single legal entity. That normally follows a takeover. For example, Lloyds Bank plc bought TSB plc some years ago, but it was only last year that a single company, Lloyds TSB plc, was formed and the transfer of the business took place.
        In addition to transfers following takeovers, other cases might involve a situation in which a business—for example, a composite insurer—wanted to sell off its life business and concentrate on general insurance. In such cases, it would seek another insurer to which it would transfer its life business. That might be an essential part of a rescue of a failing firm.
        I hope that the provisions, foreshadowed as they were by the hon. Gentleman's question to me in Committee,

        993
        will meet with the approval of the House. I hope that the House will welcome the rationalisation of the existing arrangements and their extension to banks, so that all deposit taking and insurance undertakings will be able to take advantage of an effective and efficient mechanism to transfer their business.
        This is a positive development, which we believe will be welcomed by the industry. It should also be welcomed by customers of relevant firms—as I am sure my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) will acknowledge—and others affected by qualifying transfers whose rights will be protected by the procedures in the new clauses and new schedule 1.
        Question put and agreed to.
        Clause read a Second time, and added to the Bill.

    New Clause 16

      INSURANCE BUSINESS TRANSFER SCHEMES
      ".—(1) A scheme is an insurance business transfer scheme if it—

      (a) satisfies one of the conditions set out in subsection (2);

      (b) results in the business transferred being carried on from an establishment of the transferee in an EEA State; and

      (c) is not an excluded scheme.

      (2) The conditions are that—

      (a) the whole or part of the business carried on in one or more member States by a UK authorised person who has permission to deal in contracts of insurance ("the authorised person concerned") is to be transferred to another body ("the transferee");

      (b) the whole or part of the business, so far as it consists of reinsurance, carried on in the United Kingdom through an establishment there by an EEA firm qualifying for authorisation under Schedule 3 which has permission to deal in contracts of insurance ("the authorised person concerned") is to be transferred to another body ("the transferee");

      (c) the whole or part of the business carried on in the United Kingdom by an authorised person who is neither a UK authorised person nor an EEA firm but who has permission to deal in contracts of insurance ("the authorised person concerned") is to be transferred to another body ("the transferee").

      (3) A scheme is an excluded scheme for the purposes of this section if it falls within any of the following cases:

      INSURANCE BUSINESS TRANSFER SCHEMES
        CASE 1
        Where the authorised person concerned is a friendly society.

        CASE 2
        Where—

        (a) the authorised person concerned is a UK authorised person;

        (b) the business to be transferred under the scheme is reinsurance business carried on in one or more EEA States other than the United Kingdom; and

        (c) the scheme has been approved by a court in an EEA State other than the United Kingdom or by the host state regulator.

        CASE 3
        Where—

        (a) the authorised person concerned is a UK authorised person;

        994

        (b) the business to be transferred under the scheme is carried on in one or more countries or territories (none of which is an EEA State) and does not include policies of insurance (other than reinsurance) against risks arising in an EEA State; and

        (c) the scheme has been approved by a court in a country or territory other than an EEA State or by the authority responsible for the supervision of that business in a country or territory in which it is carried on.

        CASE 4
        Where the business to be transferred under the scheme is the whole of the business of the authorised person concerned and—

        (a) consists solely of reinsurance business, or

        (b) all the policyholders are controllers of the firm or of firms within the same group as the firm which is the transferee,

        and, in either case, all of the policyholders who will be affected by the transfer have consented to it.
        (4) The parties to a scheme which falls within Case 2, 3 or 4 may apply to the court for an order sanctioning the scheme as if it were an insurance business transfer scheme.
        (5) Subsection (6) applies if the scheme involves a compromise or arrangement falling within section 427A of the Companies Act 1985 (or Article 420A of the Companies (Northern Ireland) Order 1986).
        (6) Sections 425 to 427 of that Act (or Articles 418 to 420 of that Order) have effect as modified by section 427A of that Act (or Article 420A of that Order) in relation to that compromise or arrangement.
        (7) But subsection (6) does not affect the operation of this Part in relation to the scheme.
        (8) "UK authorised person" means a body which is an authorised person and which is incorporated in, or an unincorporated association formed under the law of, any part of the United Kingdom.
        (9) "Establishment" means, in relation to a person, his head office or a branch of his.".—[Miss Melanie Johnson.]
        Brought up, read the First and Second time, and added to the Bill.

    New Clause 17

      BANKING BUSINESS TRANSFER SCHEME
      ".—(1) A scheme is a banking business transfer scheme if it—

      (a) satisfies one of the conditions set out in subsection (2);

      (b).is one under which the whole or part of the business to be transferred includes the accepting of deposits; and

      (c) is not an excluded scheme.

      (2) The conditions are that—

      (a) the whole or part of the business carried on by a UK authorised person who has permission to accept deposits ("the authorised person concerned") is to be transferred to another body ("the transferee"),

      (b) the whole or part of the business carried on in the United Kingdom by an authorised person who is not a UK authorised person but who has permission to accept deposits ("the authorised person concerned") is to be transferred to another body which will carry it on in the United Kingdom ("the transferee").

      (3) A scheme is an excluded scheme for the purposes of this section if—

      (a) the authorised person concerned is a building society or a credit union; or

      (b) the scheme is a compromise or arrangement to which section 427A(1) of the Companies Act 1985 or Article 420A of the Companies (Northern Ireland) Order 1986 (mergers and divisions of public companies) applies.

      995
      (4) For the purposes of subsection (2)(a) it is immaterial whether or not the business to be transferred is carried on in the United Kingdom.
      (5) "UK authorised person" has the same meaning as in section (Insurance business transfer schemes).
      (6) "Building society" has the meaning given in the Building Societies Act 1986.
      (7) "Credit union" means a credit union within the meaning of—

      (a) the Credit Unions Act 1979;

      (b) the Credit Unions (Northern Ireland) Order 1985.".— [Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 18

      APPLICATION FOR ORDER SANCTIONING TRANSFER SCHEME
      ".—(1) An application may be made to the court for an order sanctioning an insurance business transfer scheme or a banking business transfer scheme.
      (2) An application may be made by—

      (a) the authorised person concerned;

      (b) the transferee; or

      (c) both.

      (3) The application must be made—

      (a) if the authorised person concerned and the transferee are registered or have their head offices in the same jurisdiction, to the court in that jurisdiction;

      (b) if the authorised person concerned and the transferee are registered or have their head offices in different jurisdictions, to the court in either jurisdiction;

      (c) if the transferee is not registered in the United Kingdom and does not have his head office there, to the court which has jurisdiction in relation to the authorised person concerned.

      (4) "Court" means—

      (a) the High Court; or

      (b) in Scotland, the Court of Session.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 19

      REQUIREMENTS ON APPLICANTS
      ".—(1) The Treasury may by regulations impose requirements on applicants under section (Application for order sanctioning transfer scheme).
      (2) The court may not determine an application under that section if the applicant has failed to comply with a prescribed requirement.
      (3) The regulations may, in particular, include provision—

      (a) as to the persons to whom, and periods within which, notice of an application must be given;

      (b) enabling the court to waive a requirement of the regulations in prescribed circumstances.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 20

      SCHEME REPORTS
      ".—(1) An application under section (Application for order sanctioning transfer scheme) in respect of an insurance business transfer scheme must be accompanied by a report on the terms of the scheme ("a scheme report")
      996
      (2) A scheme report may be made only by a person—

      (a) appearing to the Authority to have the skills necessary to enable him to make a proper report; and

      (b) nominated or approved for the purpose by the Authority.

      (3) A scheme report must be made in a form approved by the Authority.".—[Miss Melanie Johnson.]
      Brought up, read the First and Second time, and added to the Bill.

    New Clause 21

      RIGHT TO PARTICIPATE IN PR0
      ". On an application under section (Application for order sanctioning transfer scheme), the following are also entitled to be heard—

      (a) the Authority, and

      (b) any person (including an employee of the authorised person concerned or of the transferee) who alleges that he would be adversely affected by the carrying out of the scheme.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 22

      SANCTION OF THE COURT FOR BUSINESS TRANSFER SCHEMES
      ".—(1) This section sets out the conditions which must be satisfied before the court may make an order under this section sanctioning an insurance business transfer scheme or a banking business transfer scheme.
      (2) The court must be satisfied that—

      (a) the appropriate certificates have been obtained (as to which see Schedule (Insurance and banking business transfer schemes: certificates));

      (b) the transferee has the authorisation required (if any) to enable the business, or part, which is to be transferred to be carried on in the place to which it is to be transferred (or will have it before the scheme takes effect).

      (3) The court must consider that, in all the circumstances of the case, it is appropriate to sanction the scheme.".—[Miss Melanie Johnson.]
      Brought up, read the First and Second time, and added to the Bill.

    New Clause 23

      EFFECT OF ORDER SANCTIONING BUSINESS TRANSFER SCHEME
      ".—(1) If the court makes an order under section (Sanction of the court for business transfer schemes)(1), it may by that or any subsequent order make such provision (if any) as it thinks fit—

      (a) for the transfer to the transferee of the whole or any part of the undertaking concerned and of any property or liabilities of the authorised person concerned;

      (b) for the allotment or appropriation by the transferee of any shares, debentures, policies or other similar interests in the transferee which under the scheme are to be allotted or appropriated to or for any other person;

      (c) for the continuation by (or against) the transferee of any pending legal proceedings by (or against) the authorised person concerned;

      (d) with respect to such incidental, consequential and supplementary matters as are, in its opinion, necessary to secure that the scheme is fully and effectively carried out.

      997
      (2) An order under subsection (1)(a) may—

      (a) transfer property or liabilities whether or not the authorised person concerned otherwise has the capacity to effect the transfer in question;

      (b) make provision in relation to property which was held by the authorised person concerned as trustee;

      (c) make provision as to future or contingent rights or liabilities of the authorised person concerned, including provision as to the construction of instruments (including wills) under which such rights or liabilities may arise;

      (d) make provision as to the consequences of the transfer in relation to any retirement benefits scheme (within the meaning of section 611 of the Income and Corporation Taxes Act 1988) operated by or on behalf of the authorised person concerned.

      (3) If an order under subsection (1) makes provision for the transfer of property or liabilities—

      (a) the property is transferred to and vests in, and

      (b) the liabilities are transferred to and become liabilities of, the transferee as a result of the order.

      (4) But if any property or liability included in the order is governed by the law of any country or territory outside the United Kingdom, the order may require the authorised person concerned, if the transferee so requires, to take all necessary steps for securing that the transfer to the transferee of the property or liability is fully effective under the law of that country or territory.
      (5) Property transferred as the result of an order under subsection (1) may, if the court so directs, vest in the transferee free from any mortgage or charge which is (as a result of the scheme) to cease to have effect.
      (6) An order under subsection (1) which makes provision for the transfer of property is to be treated as an instrument of transfer for the purposes of the provisions mentioned in subsection (7) and any other enactment requiring the delivery of an instrument of transfer for the registration of property.
      (7) The provisions are—

      (a) section 183(1) of the Companies Act 1985;

      (b) Article 193(1) and (2) of the Companies (Northern Ireland) Order 1986.

      (8) If the court makes an order under section (Sanction of the court for business transfer schemes)(1) in relation to an insurance business transfer scheme, it may by that or any subsequent order make such provision (if any) as it thinks fit—

      (a) for dealing with the interests of any person who, within such time and in such manner as the court may direct, objects to the scheme;

      (b) for the dissolution, without winding up, of the authorised person concerned;

      (c) for the reduction, on such terms and subject to such conditions (if any) as it thinks fit, of the benefits payable under—

      (i) any description of policy, or

      (ii) policies generally,

      entered into by the authorised person concerned and transferred as a result of the scheme.
      (9) If, in the case of an insurance business transfer scheme, the authorised person concerned is not an EEA firm, it is immaterial for the purposes of subsection (1)(a), (c) or (e) or subsection (2), (3) or (4) that the law applicable to any of the contracts of insurance included in the transfer is the law of an EEA State other than the United Kingdom.
      (10) The transferee must, if an insurance or banking business transfer scheme is sanctioned by the court, deposit two office copies of the order made under subsection (1) with the Authority within 10 days of the making of the order.
      (11) But the Authority may extend that period.
      998
      (12) "Property" includes property, rights and powers of any description.
      (13) "Liabilities" includes duties.
      (14) "Shares" and "debentures" have the same meaning as in—

      (a) the Companies Act 1985; or

      (b) in Northern Ireland, the Companies (Northern Ireland) Order 1986.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 24

      RIGHTS OF CERTAIN POLICY HR0
      ".—(1) This section applies in relation to an insurance business transfer scheme if—

      (a) the authorised person concerned is an authorised person other than an EEA firm qualifying for authorisation under Schedule 3;

      (b) the court has made an order under section (Sanction of the court for business transfer schemes) in relation to the scheme; and

      (c) an EEA State other than the United Kingdom is, as regards any policy included in the transfer which evidences a contract of insurance, the State of the commitment or the EEA State in which the risk is situated ("the EEA State concerned").

      (2) The court must direct that notice of the making of the order, or the execution of any instrument, giving effect to the transfer must be published by the transferee in the EEA State concerned.
      (3) A notice under subsection (2) must specify such period as the court may direct as the period during which the policyholder may exercise any right which he has to cancel the policy.
      (4) The order or instrument mentioned in subsection (2) does not bind the policyholder if—

      (a) the notice required under that subsection is not published; or

      (b) the policyholder cancels the policy during the period specified in the notice given under that subsection.

      (5) The law of the EEA State concerned governs—

      (a) whether the policyholder has a right to cancel the policy; and

      (b) the conditions, if any, subject to which any such right may be exercised.

      (6) Paragraph 6 of Schedule (Business transfer schemes: certificates) applies for the purposes of this section as it applies for the purposes of that Schedule.".—[Miss Melanie Johnson.]
      Brought up, read the First and Second time, and added to the Bill.

    New Clause 25

      CODES: PROCEDURE
      ".—(1) Before issuing a code under section 96, the Authority must publish a draft of the proposed code in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
      (2) The draft must be accompanied by—

      (a) a cost benefit analysis; and

      (b) notice that representations about the proposal may be made to the Authority within a specified time.

      (3) Before issuing the proposed code, the Authority must have regard to any representations made to it in accordance with subsection (2)(b).

      999
      (4) If the Authority issues the proposed code it must publish an account, in general terms, of—

      (a) the representations made to it in accordance with subsection (2)(b); and

      (b) its response to them.

      (5) If the code differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant—

      (a) the Authority must (in addition to complying with subsection (4)) publish details of the difference; and

      (b) those details must be accompanied by a cost benefit analysis.

      (6) Subsections (1) to (5) do not apply if the Authority considers that there is an urgent need to publish the code.
      (7) Neither subsection (2)(a) nor subsection (5)(b) applies if the Authority considers—

      (a) that, making the appropriate comparison, there will be no increase in costs; or

      (b) that, making that comparison, there will be an increase in costs but the increase will be of minimal significance.

      (8) The Authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1).
      (9) This section also applies to a proposal to alter or replace a code.
      (10) "Cost benefit analysis" means an estimate of the costs together with an analysis of the benefits that will arise—

      (a) if the proposed code is issued; or

      (b) if subsection (5)(b) applies, from the code that has been issued.

      (11) "The appropriate comparison" means—

      (a) in relation to subsection (2)(a), a comparison between the overall position if the code is issued and the overall position if it is not issued;

      (b) in relation to subsection (5)(b), a comparison between the overall position after the issuing of the code and the overall position before it was issued.".—[Miss Melanie
      Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 26

      STATEMENTS OF POLICY: PROCEDURE
      ".—(1) Before issuing a statement of policy under section 99, the Authority must publish a draft of the proposed statement in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
      (2) The draft must be accompanied by notice that representations about the proposal may be made to the Authority within a specified time.
      (3) Before issuing the proposed statement, the Authority must have regard to any representations made to it in accordance with subsection (2).
      (4) If the Authority issues the proposed statement it must publish an account, in general terms, of—

      (a) the representations made to it in accordance with subsection (2); and

      (b) its response to them.

      (5) If the statement differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant, the Authority must (in addition to complying with subsection (4)) publish details of the difference.
      (6) The Authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1).
      (7) This section also applies to a proposal to alter or replace a statement.".—[Miss Melanie Johnson.]
      Brought up, read the First and Second time, and added to the Bill.

    New Clause 30

      STATEMENTS OF POLICY: PROCEDURE
      ".—(1) Before issuing a statement under section 185, the Authority must publish a draft of the proposed statement in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
      (2) The draft must be accompanied by notice that representations about the proposal may be made to the Authority within a specified time.
      (3) Before issuing the proposed statement, the Authority must have regard to any representations made to it in accordance with subsection (2).
      (4) If the Authority issues the proposed statement it must publish an account, in general terms, of—

      (a) the representations made to it in accordance with subsection (2); and

      (b) its response to them.

      (5) If the statement differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant, the Authority must (in addition to complying with subsection (4)) publish details of the difference.
      (6) The Authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1).
      (7) This section also applies to a proposal to alter or replace a statement.".—[Miss Melanie Johnson.]
      Brought up, read the First and Second time, and added to the Bill.

    New Clause 31

      STATEMENTS UNDER SECTION 351: CONSULTATION
      ".—(1) Before issuing a statement of procedure under section 351, the Authority must publish a draft of the proposed statement in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
      (2) The draft must be accompanied by notice that representations about the proposal may be made to the Authority within a specified time.
      (3) Before issuing the proposed statement of procedure, the Authority must have regard to any representations made to it in accordance with subsection (2).
      (4) If the Authority issues the proposed statement of procedure it must publish an account, in general terms, of—

      (a) the representations made to it in accordance with subsection (2); and

      (b) its response to them.

      (5) If the statement of procedure differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant, the Authority must (in addition to complying with subsection (4)) publish details of the difference.
      (6) The Authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1).
      (7) This section also applies to a proposal to revise a statement of policy.".—[Miss Melanie Johnson.]
      Brought up, read the First and Second time, and added to the Bill.

    New Clause 33

      CARRYING ON REGULATED ACTIVITIES BY WAY OF BUSINESS
      ".—(1) The Treasury may by order make provision—

      (a) as to the circumstances in which a person who would otherwise not be regarded as carrying on a regulated activity by way of business is to be regarded as doing so;

      1001

      (b) as to the circumstances in which a person who would otherwise be regarded as carrying on a regulated activity by way of business is to be regarded as not doing so.

      (2) An order under subsection (1) may be made so as to apply—

      (a) generally in relation to all regulated activities;

      (b) in relation to a specified category of regulated activity; or

      (c) in relation to a particular regulated activity.

      (3) An order under subsection (1) may be made so as to apply—

      (a) for the purposes of all provisions;

      (b) for a specified group of provisions; or

      (c) for a specified provision.

      (4) "Provision" means a provision of, or made under, this Act.
      (5) Nothing in this section is to be read as affecting the provisions of section 373(2).".—[Mr. Timms.]
      Brought up, and read the First time.
      Mr. Timms: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker: With this it will be convenient to discuss the following: amendment No. 198, in clause 17, page 8, line 4, leave out
      "a regulated activity in the United Kingdom"
      and insert—
      "one or more regulated activities in the United Kingdom as a business".
      Government amendments Nos. 67, 406, 77 to 80, 84, 116, 156, 421 and 422.
      Amendment No. 36, in clause 364, page 190, line 29, after "State," insert—
      "in exercise of an EEA right".
      Government amendments Nos. 423 and 424.
      Amendment No. 184, in page 190, line 33, leave out "in any EEA State" and insert—

      "(i) in any EEA State; or

      (ii) in exercise of an EEA right;".

      Government amendments Nos. 425, 426 and 429.
      Mr. Timms: This large group of amendments brings together three important issues, which relate to the scope of regulation: the business test; the territorial scope of regulation; and exemptions from the general prohibition.
      The amendments would introduce a form of business test in the Bill, and allow the Treasury to make orders, which amend the application of the business test when appropriate. The Government have been thinking along lines similar to the Opposition's in introducing changes to include the business test in the Bill.
      Government amendment No. 406 would introduce the business test to the Bill. It would change clause 20 so that, to be classified as a "regulated activity", an activity must, among other criteria, be undertaken by way of business.
      Under new clause 33, the Treasury may provide for the circumstances in which a person who would otherwise be regarded as undertaking a regulated activity by way of business would be deemed not to be doing that. An order under the new clause may apply generally to all activities, a specified category of regulated activities, or a particular regulated activity.
      1002
      Amendment No. 198 proposes changes to clause 17 so that it reads:
      "No person may carry on one or more regulated activities in the United Kingdom as a business".
      I hope that, in the light of the Government's proposed amendments, Opposition Members will not want to press the amendment.
      Amendment No. 422 would make one main change to clause 364. It would cut back the application of the clause on a subject on which the previous drafting partly exceeded the requirements of the directives. That is tackled primarily by providing that the first case specified in the clause will apply where a person: has his registered office, or head office, in the United Kingdom; carries on a regulated activity in another European economic area state; and exercises rights under a single market directive as a UK firm.
      Firms that would currently fall outside the scope of the first case—essentially firms that are not passporting under the directives—may instead be treated under another case set out in the clause.
      Amendments Nos. 421, 423 and 426 would make consequential drafting changes to clause 364, flowing from amendment No. 422. Amendment No. 425 is a clarifying amendment.
      Amendments Nos. 36 and 184 cover territory similar to the Government amendments. I hope that the Opposition are satisfied that they do not need to press them.
      Finally, some amendments deal with the implications of being exempt. Currently, the Bill is drafted on the assumption that an exempt person will not also be an authorised person. However, it is silent on whether an exempt person may become authorised. That should be possible.
      An exemption enjoyed by virtue of clause 34—clause 35 in the case of appointed representatives—will often extend only to a limited range of regulated activities. A person exempt under those provisions should have the option to become authorised in order to extend the range of regulated activities he carries on. That option is subject to his meeting the qualifying or threshold conditions in schedule 6.
      Once authorised, a person's exempt status ceases. His part IV permission must cover all his activities. Customers are entitled to assume that all the regulated activities carried on by a person are covered by the authorisation and subject to the necessary rules and disciplinary procedures, and that the compensation scheme will apply. If that were not the case, customers would be at greater risk when dealing with an authorised person who was also partially exempt than they would be when dealing with another authorised person who did not enjoy any exemption.
      To give effect to that proposition, an exempt person can apply for a part IV permission. If that is granted, he becomes an authorised person and the exemption ceases. Amendment No. 67 makes it clear that a person must be either authorised or exempt to carry on a regulated activity. The new permission can cover the formerly exempt business, so long as the qualifying conditions in schedule 6 are satisfied.
      Amendment No. 84 provides that if a person is exempt as a result of an exemption order, any application for part IV permission will be taken to include application for

      1003
      permission for those activities with respect to which he was previously exempt. If an activity that the now-authorised person could have carried on within the scope of the exemption is not covered by the part IV permission, that person cannot continue to carry it on without contravening clause 18.
      Assuming that an activity previously carried on within the scope of an exemption is covered by the part IV permission, it is treated in exactly the same way as any other regulated activity carried on by the relevant person. If the part IV permission is cancelled or surrendered, the person will cease to be authorised under clause 30. The previous exemption will apply again, unless it has been repealed or the person no longer meets a criterion necessary to qualify for it.
      The same logic does not apply to other categories of person who are exempt from the general prohibition in respect of some regulated activities. Recognised investment exchanges and recognised clearing houses, which are exempt under part XVII, are nevertheless regulated by the recognition regime under that part. It would not be acceptable for them to be authorised separately under part IV without losing their recognised status under part XVII.
      Amendment No. 79 provides that appointed representatives of an authorised person may receive exempt status only if they are not themselves authorised persons. Authorised persons may carry on a regulated activity as an agent of another authorised person where that makes business sense and they have the appropriate permission to do so. The other amendments cover drafting points. Government amendment No. 156 imports the definition of "rule-making instrument" in clause 125 to the schedule of definitions set out in clause 363. I hope that those arrangements will be widely acceptable to the House.
      Mr. Heathcoat-Amory: I am grateful to the Minister for that elucidation. I very much hope that he has the territoriality tests right. That will probably unfold over time.
      I shall concentrate on the business test, because we need to know exactly why the Government have gone for a somewhat more restrictive test than the one in the Financial Services Act 1986. Generally, we welcome their incorporation of a business test in the definition of a regulated activity. It must be right to include that in the Bill. New clause 33, which has an "Alice in Wonderland" ring about it, says:
      "The Treasury may by order make provision"
      that those who would not usually be regarded as engaged in business are to be regarded as being so, and those who would usually be regarded as carrying on business are not to be regarded as doing so. I suppose that the Treasury has to have a way of deciding what is a regulated activity, but that wording must and will cause considerable bafflement—and perhaps some amusement—to the outside world when it grapples with what it might regard as a Treasury habit of trying, from time to time, to define black as white and white as black.
      9.15 pm
      That, however, is not really the purpose of my probe. I am asking why the Government have not simply
      1004
      proceeded on the basis of the concept of a business test that already exists, and is working perfectly satisfactorily under the Financial Services Act.
      The Government seek to catch people who are carrying on an activity by way of business. Our amendment No. 198 asks for the words
      "one or more regulated activities in the United Kingdom as a business"
      to be inserted. Hon. Members may wonder what the difference is between carrying on an activity as a business, which is our definition, and carrying it on by way of business, which is the Government's definition; but it is rather an important distinction.
      It is possible to do something in a businesslike way without carrying on the business of doing so. That was made clear in a recent court case involving Morgan Grenfell and the use of derivatives by a local authority. Welwyn Hatfield borough council was held by the court to have entered into derivatives contracts "by way of business", although it was not carrying on the business of doing so. It follows that some activities will now be caught by the Bill, although exactly the same activities do not require authorisation under the Financial Services Act. In other words, the idea of an activity "by way of business" will catch more activities than our definition.
      Why is the existing definition defective? Is the Government's proposal part of a deliberate policy to catch more activities? Perhaps the Minister can give an estimate of the additional ground that the new clause is intended to cover, and the reasons behind it.
      Mr. Cousins: I, too, want to concentrate on new clause 33 and amendment No. 406. What I am about to say may illuminate what was said by the right hon. Member for Wells (Mr. Heathcoat-Amory).
      I am concerned about the disposal of endowments before term. There is a legal deficiency in the 1986 Act: although the purchase of a long-term endowment insurance product is a regulated activity, its disposal is not. As a result, when endowment insurances—often taken out to support mortgages—are surrendered before term, that act of surrender is not a regulated activity. There is no requirement on the provider of the endowment insurance product to ensure that the person so disposing is fully advised, and made aware of how best to maximise his or her position. Often the provider of the endowment insurance reacquires it at a stated value when a higher value could be obtained on the traded endowment market, but there is no requirement on the provider to make the existence of the market known to the person surrendering.
      Of course, nothing that I have said should be construed as encouraging people to dispose of endowments. Clearly, the last thing that anyone with a long-term endowment product should do is dispose of it before term. Someone who does, however, must be enabled to obtain the best possible value.
      I have been seeking an assurance from the FSA that the Bill regulates the surrender of endowments. It may be helpful if I read out the latest exchange that I have had with Howard Davies on the topic, which I received just last week. He tells me:
      "The definition of 'regulated activities' will be finally determined by regulations made under clause 20. The draft of these regulations which Her Majesty's Treasury have published for consultation includes in article 6 the 'regulated activity' of 'carrying out contracts

      1005
      of insurance'. Our view that we will be able to make rules about the surrender of tradeable endowment policies is based upon our interpretation that, in accepting the surrender of a life policy, the life insurance company would be carrying on this regulated activity."
      The business test as incorporated in new clause 33 and amendment No. 406 clearly covers the traded endowment market. There can be no doubt about that, but does it cover the act of disposal of the endowment, which may place that product in the traded endowment market? That is my anxiety, on which I seek the Minister's reassurance.
      Mr. Timms: There are different tests under different Acts—for example, the Banking Act 1987 and the Insurance Companies Act 1982, as well as the Financial Services Act. No single test has been used. The view that we took was that the test in the Financial Services Act was not the most appropriate, although new clause 33 will allow the test to be refined where it is appropriate to do so. However, the right hon. Member for Wells (Mr. Heathcoat-Amory) was right. Our approach is intended to catch, to use his term, along with any mainstream activity, any activity that falls short of constituting a business in its own right but which should be regulated under the Bill. In that sense, our approach represents a much more secure test. It has never been proposed that the incidental provision of financial services should generally be exempt from the authorisation requirement. We think that the aim is better met by the form of test that is before us.
      I am grateful to my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) for letting me know that he wanted to raise traded endowment policies, although I am not sure that I have all the answers that I would like to have. Perhaps there should be further discussion on the matter. Clearly, other hon. Members feel as strongly about it as he does.
      The traded endowment policy market is pretty small. It is estimated to have a value of £250 million a year. There is concern about introducing disproportionate cost.
      I listened with interest to my hon. Friend's comments about the FSA's deliberations on the extent to which regulation would apply. I am personally rather dubious about the benefits of regulating all dealings in that market. It is not clear that the benefits would necessarily exceed the probable costs.
      The sale of traded endowment policies to members of the public will be regulated. We will keep under review the case for extending the regulation's scope to include all dealings in traded endowment policies.
      Mr. Cousins: The Minister may be right to say that the market is a small one, but it is a growing one. The point that I am trying to establish is that, at the point of surrender, the product provider should be obliged to make the existence of the secondary market known to the person surrendering, so that he or she is able to obtain the best advice on, and best value for, the product that they are handing back.
      Mr. Timms: My hon. Friend is making a point to which he has clearly given great consideration. I think that he has also had some constituency experience of dealing with the matter. I should like to reflect on the point and write to him on it with some clarification.
      Mr. Flight: The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) made roughly the point that
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      I wish to stress. There is indeed a substantial and growing market. Frequently, the difference between surrender value and commercial value is substantial, but many people do not even know that there is a commercial market where they could sell their endowment. So the only way of squaring the circle is by imposing an obligation on the insurance company with which people have their policy, obliging it at least to tell them that there is such a market. Whether they use that market is another matter. None the less, it is a consumer issue that has long needed to be addressed. As the hon. Gentleman said, the business definition is one way of addressing it.
      Mr. Timms: Under clause 110, the FSA will be able to make rules on the carrying on of the regulated activity of carrying out a contract of insurance, including the payment of a surrender value. Such rules could require the insurer, subject to general duty, to notify the policyholder of the existence of the market. Such a possibility therefore exists. However, I shall write to my hon. Friend the Member for Newcastle upon Tyne, Central on the matter, and perhaps copy the letter to the hon. Member for Arundel and South Downs (Mr. Flight).
      Question put and agreed to.
      Clause read a Second time, and added to the Bill.

    New Clause 35
    AUTHORITY'S GENERAL DUTY
    New Clause 35
      'PART XVIIIA

        PROVISION OF FINANCIAL SERVICES BY MEMBERS OF THE PROFESSIONS
        .—(1) The Authority must keep itself informed about—

        (a) the way in which designated professional bodies supervise and regulate the carrying on of exempt regulated activities by members of the professions in relation to which they are established;

        (b) the way in which such members are carrying on exempt regulated activities.

        (2) In this Part—
        "exempt regulated activities" means regulated activities which may be carried on by members of a profession which is supervised and regulated by a designated professional body without breaching the general prohibition; and
        "members", in relation to a profession, means persons who are entitled to practise the profession in question and, in practising it, are subject to the rules of the body designated in relation to that profession, whether or not they are members of that body.
        (3) The Authority must keep under review the desirability of exercising any of its powers under this Part.
        (4) Each designated professional body must co-operate with the Authority, by the sharing of information and in other ways, in order to enable the Authority to perform its functions under this Part.'.—[Miss Melanie Johnson.]
        Brought up, and read the First time.
        The Economic Secretary to the Treasury (Miss Melanie Johnson): I beg to move, That the clause be read a Second time.
        Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government new clause 36—Designation of professional bodies.

        1007
        Government new clause 37—Exemption from the general prohibition.
        Government new clause 38—Directions in relation to the general prohibition.
        Government new clause 39—Orders in relation to the general prohibition.
        Government new clause 42—Rules in relation to persons to whom the general prohibition does not apply.
        Government amendment No. 455.
        Miss Johnson: Under this group of new clauses, professionals will require authorisation only when they perform investment business as their mainstream activity. The Government hope that that approach will avoid the need for precautionary authorisation—meeting the concerns of the Burns committee, and of course others—while enabling the professions to provide an all-round service for their clients in appropriate cases.
        We therefore propose that the authority will retain the power to ban individuals who are not fit and proper persons to carry out regulated investment activities or to cut the exemption in relation to a class of person more generally.
        The authority will also be required to monitor operation of the new arrangements, which will involve monitoring the effectiveness of the complaints and redress arrangements of the designated professional bodies. The authority will also be able to make rules requiring persons who benefit from the exemption to disclose to their clients that they are not authorised persons.
        New clause 35 obliges the authority to keep itself informed about the way in which designated professional bodies supervise and regulate the carrying on of exempt regulated activities by their members, and the way in which the members, who benefit from the exemption, carry on regulated activities. It also requires the professional bodies to co-operate with the authority, to enable the authority to fulfil its duty of oversight.
        New clause 36 gives the Treasury the power to designate bodies for the purpose of new clause 35. Bodies will be designated only when they actively regulate their members' provision of financial services.
        New clause 37 sets out the requirements that have to be met for a professional to qualify for the exemption. They include: that the person concerned must be a member of a professional body that is designated by the Treasury; that the person concerned must not receive a commission from a third party in respect of the regulated activities unless he accounts to his client for it; that the regulated activities must be provided incidentally to the provision of professional—for example, legal, actuarial or accountancy—services; and that regulated activities must not relate to sensitive products, such as life insurance.
        9.30 pm
        What amounts to a sensitive product is to be specified by the Treasury, and the regulated activities must be provided in accordance with the rules of the relevant professional body which require the activity to be complementary, and effectively subordinate, to the provision of professional services to a particular client. Those rules must be approved by the authority.
        1008
        Under new clause 38, the authority may direct that the exemption from the general prohibition is not to apply to certain classes of professional. The authority may only exercise this power, however, where it is satisfied that it is desirable to do so in the interests of clients.
        New clause 39 enables the authority to make an order which would have the effect of banning specified persons who are not fit and proper to carry on regulated activities, taking them outside the scope of this new part's provisions. This power complements the authority's power to make prohibition orders under clause 53 of the Bill. It will enable the authority to prohibit particular firms from continuing to carry on relevant regulated activities under the proposed new part.
        New clause 42 allows the authority to make rules requiring exempt professionals to disclose to their clients that they are not authorised. Subsection (3) also requires the professional bodies to make rules which are designed to ensure that members who benefit from the exemption only carry on regulated activities which arise from or are complementary to providing professional services to a particular client. If a member of a profession breaches those rules, he will be carrying on particular regulated activities in breach of the general prohibition, and therefore committing a criminal offence. Rules made by a professional bodies under subsection (3) must be approved by the authority.
        Amendment No. 455 amends clause 374 so that, in all cases, orders have to be dealt with by affirmative resolution. I commend the new clauses to the House, as they are in line with the changes that I indicated in Committee that we would make.
        Mr. Heathcoat-Amory: I am glad that the Government have proposed some provisions for excluding professionals who are regulated through their own bodies. I ought to declare an interest as a chartered accountant, although I do not intend to practise—at least not for a bit. [Laughter.] I hope that I will be the judge of the timing as well.
        The Economic Secretary alluded to the fact that we debated this matter in Committee and that there was concern, not least from the Law Society of Scotland, that professionals up there would suddenly find themselves regulated by the FSA and that higher fees would be levied. Of course, there was sensitivity that they would be regulated from London instead of Edinburgh—a curious form of reverse devolution.
        I presume, although the Minister did not say so, that the clauses have resulted from consultation with the professional bodies. She might say whether they are broadly happy with the way in which the proposals are set out.
        I believe that it could be difficult to qualify for an exemption because the provision has been restrictively phrased. For example, the professional in question must not receive from a partner other than his client
        "any pecuniary reward or other advantage"
        which he does not account to his client, arising out of his carrying out of the regulated activities.
        I can imagine a situation in which a solicitor or an accountant provides advice to a business client about taking over the lease on a shop or factory next door. Presumably, that would count as a regulated activity,

        1009
        and although the professional in question would receive no direct reward from an outside body, he would receive a pecuniary reward or advantage, because he would be paid by his firm for providing that advice. It could be said that he would be caught by new clause 37 and would fall to be regulated by the authority. Will the Economic Secretary clarify what she understands subsection (3) of that new clause to mean? It might be unduly restrictive and catch many people who are giving advice or engaging in regulated activities as part of their normal tasks, especially if they work for firms that provide a wide range of services to clients.
        As the Economic Secretary said, the rules of the professional bodies are to be checked and authorised by the FSA. That is understandable, but there is a danger that professionals working for such firms and regulated through their professional bodies will attempt a form of dual authorisation. They will be content to be regulated by the Law Society or the Institute of Chartered Accountants, as appropriate, but—so that they can with impunity break the rules of their professional body on authorised activities—they will also seek to be authorised directly by the FSA. It might not work, but it would be an unhealthy development. If that approach were to become a trend among professional people, it would be unfortunate and counter-productive. I invite the Economic Secretary to say a few words about her discussions with the professional bodies and regulators concerned. Do they also have lingering concerns about the wording of the new clauses?
        Mr. Loughton: We welcome the fact that some 27,000 intermediary firms will not be brought into the clutches of the FSA, but that was breaking news as we discussed the measures in Committee. It is good to have a little more detail now, but I wish to raise a couple of issues. In particular, new clause 37 refers to the fact that regulated activities must be incidental to the provision of professional services. Can the Economic Secretary give us more detail about what "incidental" means? It could be defined in several different ways.
        I am concerned about equality of regulation. We would not wish to impose yet more regulation on accountancy and legal firms that deal in financial matters, but we would wish to ensure a level playing field with those who will be fully regulated by the FSA because their very business is dealing in financial products. The dividing line is blurring, with the emergence of financial supermarkets—for want of a better term.
        Some firms—usually of accountants, but sometimes of solicitors—could be described as managing assets for clients without being asset managers, which would bring them within the scope of the FSA. Such firms can offer advice to clients on the geographical split of assets, or the split between equities or bonds. The firms can also recommend professional dedicated managers, who would look after a certain section of a client's portfolio, or other firms that offer financial products that might be suitable for that client. The firms may even offer bank deposit facilities themselves. In such cases, the firms would not actually be offering financial advice to the client—although at some stage they would take a cut, which they would rightly have to disclose—that would mean that they would be caught by FSA regulations. That is a growing
        1010
        area of the market. Financial intermediaries who, to all intents and purposes, control a client's financial circumstances, parcel out the risk in terms of product selection to other financial managers controlled by the FSA. As I understand the proposals, those intermediaries would be subject neither to the full rigours of FSA inspections or requirements for best advice, nor to the disciplinary procedures.
        The result may be that many firms that are, to all intents and purposes, financial managers will opt out of FSA regulation, because they will enjoy a more benign regime under their own professional bodies. What assurances can the Minister give that certain firms will not take advantage of that potential loophole?
        Sir Nicholas Lyell: If a professional, who is regulated by his professional body and is entitled to act for a restricted line of clients, should find that he is acting for someone who is not sufficiently within that client line, he will be considered to be transgressing and therefore guilty of illegality. That person may have received money on the basis that he would pass it on to another professional, in the way described by my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton). That money may have been placed in a bona fide investment deal that fails. If the person is asked to return the money because it was taken for a deposit, he will be obliged—because he is properly regulated—to return it.
        Such spin-offs worried me with regard to unlicensed deposit takers, which we debated earlier. I can see the same problem arising in this connection, and I should be grateful if the Minister would describe how she sees matters working out. Is not the risk faced by people such as have been described equivalent to that faced by careless drivers who, instead of being fined £40 for a parking offence, get fined £1 million?
        Mr. Flight: I have one question for the Economic Secretary: who will define what is incidental—and therefore exempt—and what is not? Will it be the Treasury, which has to specify what is a regulated activity under clause 20?
        Miss Melanie Johnson: Some of the questions that have been asked overlap. The right hon. Member for Wells (Mr. Heathcoat-Amory) asked about consultation and the professional bodies. Representatives from all the professional bodies were present when I announced the broad proposals on 13 October. They have been involved in discussions about how the proposals should be taken forward, and I believe that they are broadly content with the Government's proposals.
        Several other hon. Gentlemen have asked about the distinction between what is part of a person's normal tasks and what is incidental. The first point to be made is that, in the investment services directive, "incidental" is used to mean ancillary, perhaps subordinate. That is the sense in which we are using it, and it is a fairly common use of the word in any event. Examples of an incidental activity might be advice on investments given by an accountant for tax planning purposes, or advice on investment as part of a wider portfolio of assets given by a solicitor to a couple who are negotiating a divorce settlement. I cited other examples in Committee, such as advice given in the course of probate.

        1011
        9.45 pm
        The tests are to make sure that these are genuinely not mainstream activities carried out by the professionals concerned. The other tests make sure that such activities meet the criteria for being dealt with as we propose. The advantage of this method is that 2,000 firms will fall within the scope of regulation, while some 13,000 will fall outside the scope of regulation. We are intent on regulating only when it is absolutely necessary.
        That brings me to a further point raised by a number of Conservative Members regarding the checking of rules by the FSA. Of course, it is important that the professional body's rules are checked by the FSA. The hon. Member for East Worthing and Shoreham (Mr. Loughton) suggested that, if the FSA did not have oversight of its rules, there was the danger that this might be a more benign course of action for people to follow than to come under the FSA for regulation. We have foreseen that difficulty, which is why we have made sure that the FSA is involved in oversight of the professional body's rules.
        The right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) followed up the points that he raised in an earlier debate about unenforceability. Although I was not convinced by his argument when we debated the issue earlier, he raised some interesting questions. If he writes to me, I shall be happy to look in more detail at the points that he raised.
        Let me turn to how the line is to be drawn.
        Mr. Flight: The issue that my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) raised will arise under new clause 2, so it is exactly the same territory.
        Miss Johnson: I am grateful to the hon. Gentleman for that comment. As for his point about where the line is to be drawn, the intention is that it will be set out in the professional body rules, subject to FSA approval. That relates to subsections (4) and (5) of new clause 42 and will allow more fine tuning than would be possible if we simply relied on the Bill and Treasury secondary legislation.
        Finally, the hon. Member for East Worthing and Shoreham made a point about people taking advantage of the loophole. We need to ensure that there are sufficient safeguards. The rules must define activities that are not merely incidental, but are supplementary to a service provided to a client and must be approved by the FSA. That belt-and-braces approach will ensure that the problem described by the hon. Gentleman will not arise.
        Sir Nicholas Lyell: I am grateful to the Minister for her invitation that I write to her, although I do not have quite the same civil service support that she does. She noted that it might be quite complicated to find out whether a matter was incidental. If it was not incidental, it might fall under the general prohibition and thus become illegal, with drastic and disproportionate consequences. Will the hon. Lady reflect on the fact that such consequences—which, as I have explained in some detail, worry me—are contrary to the Bill's aims, one of which is proportionality?
        Miss Johnson: I am happy to reflect further on those points. We certainly want a proportioned measure. One of the strengths of our approach is that our proposals offer a
        1012
        proportionate response that builds on existing mechanisms to ensure that they are used to protect the consumer and that we regulate in an appropriate, but proportionate, manner. I commend the new clause to the House.
        Question put and agreed to.
        Clause read a Second time, and added to the Bill.

    New Clause 36

      DESIGNATION OF PROFESSIONAL BODIES
      ".—(1) The Treasury may by order designate bodies for the purposes of this Part.
      (2) A body designated under subsection (1) is referred to in this Part as a designated professional body.
      (3) The Treasury may designate a body under subsection (1) only if they are satisfied that—

      (a) the basic condition, and

      (b) one or more of the additional conditions,

      are met in relation to it.
      (4) The basic condition is that the body has rules applicable to the carrying on by members of the profession in relation to which it is established of regulated activities which, if the body were to be designated, would be exempt regulated activities.
      (5) The additional conditions are that—

      (a) the body has power under any enactment to regulate the practice of the profession;

      (b) being a member of the profession is a requirement under any enactment for the exercise of particular functions or the holding of a particular office;

      (c) the body has been recognised for the purpose of any enactment other than this Act and the recognition has not been withdrawn;

      (d) the body is established in an EEA State other than the United Kingdom and in that State—

      (i) the body has power corresponding to that mentioned in paragraph (a);

      (ii) there is a requirement in relation to the body corresponding to that mentioned in paragraph (b); or

      (iii) the body is recognised in a manner corresponding to that mentioned in paragraph (c).

      (6) 'Enactment' includes an Act of the Scottish Parliament, Northern Ireland legislation and subordinate legislation (whether made under an Act, an Act of the Scottish Parliament or Northern Ireland legislation).
      (7) 'Recognised' means recognised by—

      (a) a Minister of the Crown;

      (b) the Scottish Ministers;

      (c) a Northern Ireland Minister;

      (d) a Northern Ireland department or its head.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 37

      EXEMPTION FROM THE GENERAL PE0
      ".—(1) The general prohibition does not apply to the carrying on of a regulated activity by a person (`P') if—

      (a) the conditions set out in subsections (2) to (7) are satisfied; and

      (b) there is not in force—

      (i) a direction under section (Directions in relation to the general prohibition), or

      (ii) an order under section (Orders in relation to the general prohibition),

      1013
      which prevents this subsection from applying to the carrying on of that activity by him.
      (2) P must be—

      (a) a member of a profession; or

      (b) controlled or managed by one or more such members.

      (3) P must not receive from a person other than his client any pecuniary reward or other advantage, for which he does not account to his client, arising out of his carrying on of any of the activities.
      (4) The manner of the provision by P of any service in the course of carrying on the activities must be incidental to the provision by him of professional services.
      (5) P must not carry on, or hold himself out as carrying on, a regulated activity other than one which rules made as a result of section (Rules in relation to persons to whom the general prohibition does not apply)(3) allow him to carry on.
      (6) The activities must not be of a description, or relate to an investment of a description, specified in an order made by the Treasury for the purposes of this subsection.
      (7) The activities must be the only regulated activities carried on by P.
      (8) 'Professional services' means services—

      (a) which do not constitute carrying on a regulated activity, and

      (b) the provision of which is supervised and regulated by a designated professional body.".—,[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 38

      DIRECTIONS IN RELATION TO THE GENERAL PROHIBITION
      ".—(1) The Authority may direct that section (Exemption from the general prohibition)(1) is not to apply to the extent specified in the direction.
      (2) A direction under subsection (1)—

      (a) must be in writing;

      (b) may be given in relation to different classes of person or different descriptions of regulated activity.

      (3) The Authority may exercise the power conferred by subsection (1) only if it is satisfied that it is desirable in order to protect the interests of clients.
      (4) In considering whether it is so satisfied, the Authority must have regard amongst other things to the effectiveness of any arrangements made by any designated professional body—

      (a) for securing compliance with rules made under section (Rules in relation to persons to whom the general prohibition does not apply)(1);

      (b) for dealing with complaints against its members in relation to the carrying on by them of exempt regulated activities;

      (c) in order to offer redress to clients who suffer, or claim to have suffered, loss as a result of misconduct by its members in their carrying on of exempt regulated activities;

      (d) for co-operating with the Authority under section (Authority's general duty)(4).

      (5) In this Part 'clients' means—

      (a) persons who use, or may be contemplating using, any of the services provided by a member of a profession in the course of carrying on exempt regulated activities;

      (b) persons who have rights which are derived from, or otherwise attributable to, or which may be adversely affected by, the use of such services by other persons.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 39

      ORDERS IN RELATION TO THE GENERAL PROHIBITION
      ".—(1) Subsection (2) applies if it appears to the Authority that a person to whom, as a result of section (Exemption from the general prohibition)(1), the general prohibition does not apply is not a fit and proper person to carry on regulated activities in accordance with that section.
      (2) The Authority may make an order disapplying section (Exemption from the general prohibition)(1) in relation to that person to the extent specified in the order.
      (3) The Authority may, on the application of the person named in an order under subsection (1), vary or revoke it.
      (4) 'Specified' means specified in the order.
      (5) If a partnership is named in an order under this section, the order is not affected by any change in its membership.
      (6) If a partnership named in an order under this section is dissolved, the order continues to have effect in relation to any partnership which succeeds to the business of the dissolved partnership.
      (7) For the purposes of subsection (6), a partnership is to be regarded as succeeding to the business of another partnership only if—

      (a) the members of the resulting partnership are substantially the same as those of the former partnership; and

      (b) succession is to the whole or substantially the whole of the business of the former partnership.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 40

      CONSULTATION
      ".—(1) Before giving a direction under section (Directions in relation to the general prohibition)(1), the Authority must publish a draft of the proposed direction.
      (2) The draft must be accompanied by—

      (a) a cost benefit analysis; and

      (b) notice that representations about the proposed direction may be made to the Authority within a specified time.

      (3) Before giving the proposed direction, the Authority must have regard to any representations made to it in accordance with subsection (2)(b).
      (4) If the Authority gives the proposed direction it must publish an account, in general terms, of—

      (a) the representations made to it in accordance with subsection (2)(b); and

      (b) its response to them.

      (5) If the direction differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant—

      (a) the Authority must (in addition to complying with subsection (4)) publish details of the difference; and

      (b) those details must be accompanied by a cost benefit analysis.

      (6) Subsections (1) to (5) do not apply if the Authority considers that the delay involved in complying with them would prejudice the interests of consumers.
      (7) Neither subsection (2)(a) nor subsection (5)(b) applies if the Authority considers—

      (a) that, making the appropriate comparison, there will be no increase in costs; or

      (b) that, making that comparison, there will be an increase in costs but the increase will be of minimal significance.

      (8) The Authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1).

      1015
      (9) When the Authority is required to publish a document under this section it must do so in the way appearing to it to be best calculated to bring it to the attention of the public.
      (10) 'Cost benefit analysis' means an estimate of the costs together with an analysis of the benefits that will arise—

      (a) if the proposed direction is given; or

      (b) if subsection (5)(b) applies, from the direction that has been given.

      (11) 'The appropriate comparison' means—

      (a) in relation to subsection (2)(a), a comparison between the overall position if the direction is given and the overall position if it is not given;

      (b) in relation to subsection (5)(b), a comparison between the overall position after the giving of the direction and the overall position before it was given.".—[Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 41

      PROCEDURE ON MAKING OR VARYING ORDERS UNDER SECTION (ORDERS IN RELATION TO THE GENERAL PROHIBITION)
      ".—(1) If the Authority proposes to make an order under section (Orders in relation to the general prohibition), it must give the person concerned a warning notice.
      (2) The warning notice must set out the terms of the proposed order.
      (3) If the Authority decides to make an order under section (Orders in relation to the general prohibition), it must give the person concerned a decision notice.
      (4) The decision notice must—

      (a) name the person to whom the order applies;

      (b) set out the terms of the order; and

      (c) be given to the person named in the order.

      (5) Subsections (6) to (8) apply to an application for the variation or revocation of an order under section (Orders in relation to the general prohibition).
      (6) If the Authority decides to grant the application, it must give the applicant written notice of its decision.
      (7) If the Authority proposes to refuse the application, it must give the applicant a warning notice.
      (8) If the Authority decides to refuse the application, it must give the applicant a decision notice.
      (9) A person—

      (a) against whom the Authority have decided to make an order under section (Orders in relation to the general prohibition), or

      (b) whose application for the variation or revocation of such an order the Authority had decided to refuse,

      may refer the matter to the Tribunal.
      (10) The Authority may not make an order under section (Orders in relation to the general prohibition) unless—

      (a) the period within which the decision to make to the order may be referred to the Tribunal has expired and no such reference has been made; or

      (b) if such a reference has been made, the reference has been determined.".— [Miss Melanie Johnson.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 42

      RULES IN RELATION TO PERSONS TO WHOM THE GENERAL PROHIBITION DOES NOT APPLY
      ".—(1) The Authority may make rules applicable to persons to whom, as a result of section (Exemption from the general prohibition)(1), the general prohibition does not apply.
      (2) The power conferred by subsection (1) is to be exercised for the purpose of ensuring that clients are aware that such persons are not authorised persons.
      (3) A designated professional body must make rules—

      (a) applicable to members of the profession in relation to which it is established who are not authorised persons; and

      (b) governing the carrying on of regulated activities by those members.

      (4) Rules made in compliance with subsection (3) must be designed to secure that, in providing a particular professional service to a particular client, the member carries on only regulated activities which arise out of, or are complementary to, the provision by him of that service to that client.
      (5) Rules made by a designated professional body under subsection (3) require the approval of the Authority.".— [Miss Melanie Johnson.]
      Brought up, read the First and Second time, and added to the Bill.
      Further consideration adjourned.—[Mr. Betts.]
      Bill, as amended in the Standing Committee, to be further considered tomorrow.

      DELEGATED LEGISLATION
      Mr. Deputy Speaker (Sir Alan Haselhurst): With permission, I shall put together the motions relating to delegated legislation.
      Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),
      Ordered,

      DELEGATED LEGISLATION
        IMMIGRATION
        That the draft Immigration (Regularisation Period for Overstayers) Regulations 2000, which were laid before this House on 17th January, be approved.
        CONSTITUTIONAL LAW
        That the draft National Assembly for Wales (Transfer of Functions) Order 2000, which was laid before this House on 20th January, be approved.—[Mr. Betts.]
      COMMITTEES

        PUBLIC ADMINISTRATION
        Ordered,
        That Mr. Richard Shepherd be discharged from the Select Committee on Public Administration and Mr. Michael Trend be added to the Committee.—[Mr. Keith Bradley.]

  Child Support Agency
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]
  9.53 pm
  Mr. Jim Murphy: This debate is about the Child Support Agency's handling of the case of one of my constituents. The issues are difficult and affect families—especially young children—in my constituency. I would not normally give the names of the people involved, but my constituent has already spoken publicly about the case. As the matter is in the public domain, thre is no difficulty about mentioning his name.
  I unreservedly welcome many of the positive reforms that the Government are carrying out in respect of the CSA. I hope that those changes will mean that the circumstances of my constituent's case are never repeated.
  A summary of the case will enable the House to understand how badly my constituent, Mr. Reilly, was treated by the agency. I shall go over the case, deal with some of the issues and perhaps request my hon. Friend the Minister to investigate some of the more pressing concerns of my constituent and myself.
  The agency made deductions from Mr. Reilly's earnings, and as a consequence he could not maintain his mortgage payments and then lost his house. Mr. Reilly's health suffered; indeed, his own GP is on record as stating that he suffered stress. As a consequence, he also lost his job.
  I have been involved in this terrible case for a long time. Mr. Reilly came to my first ever constituency surgery, in the month after the general election. I believe that he has been at every one since. I have written more than 50 individual letters about the case, to officials, the agency, the independent case examiner and Ministers. I have met representatives of the agency on two separate occasions at two different venues to discuss the specifics of the case. I even attended the tribunal hearing relating to the case. Despite the years of effort and the many hours of meetings and letter writing, we still have not obtained any justice for Mr. Reilly.
  Let me explain the facts of the case. I shall deal with the issue of the assessment and how the tribunal dealt with the case, and then I shall make a plea for proper compensation for Mr. Reilly.
  In the process of assessment that contributed to so many of the difficulties, the agency did not take into account all the figures, all the factors and all the circumstances involved in the family. Mr. Reilly paid more than £7,000 in maintenance. He has since received £1,600 of that back, but not all the figures relating to the relationship between the agency and the Benefits Agency were properly administered, communicated or dealt with. The independent case examiner, who recently reported on the case, said that
  "the Agency performance over this issue has been very poor".
  That contributed to the serious problems that my constituent experienced.
  We then sought the tribunal hearing—which I attended, as I said—and the tribunal made certain recommendations arising from the case. However, the recommendations were not acted on and they did not improve my constituent's life. Then the case was closed, despite the
  1018
  fact that the recommendations had not been acted on. The independent case examiner said in his report that he was concerned about the way in which the agency had acted upon the tribunal's decisions, and recommended that £1,600 of the £7,000 be returned.
  I emphasise that, although I attended the tribunal; although more than 50 letters were written; and despite the meetings that I had with officials, the tribunal's findings and recommendations were not acted on.
  I shall now discuss compensation—a subject that I recently had reason to discuss with the chief executive of the agency, Miss Faith Boardman. I also had correspondence from the special payments unit of the Child Support Agency. I quote the recent correspondence:
  "Compensatory payments for financial loss are intended to restore a person to the financial position that they would have had it not been for Agency maladministration".
  The purpose of compensation payments is clear, and the special payments unit has publicly stated it.
  Throughout that process, Mr. Reilly received a £100 compensation payment while an independent case examiner's report was being prepared and written. Point 25 of the report recommended that a "substantial" compensation payment should be made to my constituent for the harassment and the consequences of the CSA's maladministration in terms of loss of employment, loss of health and loss of home.
  Inevitably, I have become closely involved in the case and feel strongly about it. On the day on which Mr. Reilly received that letter, he came into my parliamentary office. For the first time he had come not seeking advice but offering thanks—in fact, bringing presents of a very small monetary value, well below any level of declarable interests. He was delighted by the independent case examiner's recommendation that there should be substantial compensation, as was I. After more than two years of effort, I thought that we had achieved some justice for my constituent. At best, I was surprised—
  It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.
  Motion made, and Question proposed, That this House do now adjourn.—[Mrs. McGuire.]
  Mr. Murphy: I did not expect to have to give way to my Whip during the debate, but I shall not detain the House for much longer.
  When we received the letter, we felt a sense of achievement. I have written more correspondence, had more meetings and expended more energy on this case than on any other of the many cases with which I have been involved. I thought that, finally, we had achieved justice and compensation.
  The sense of disappointment, surprise and annoyance—however one wishes to describe it—was considerable when the Child Support Agency acted on the recommendation of the independent case examiner. It provided by post a cheque to my constituent, as compensation for its maladministration and mistreatment of him over several years, for the princely sum of £50.
  I have not had time this evening to check a dictionary definition of the word "compensation". However, I know that under no circumstances would £50 be thought to be considerable or substantial compensation. We felt real disappointment at the way in which the compensation issue has been dealt with on my constituent's behalf.

  1019
  In recent discussions with the Child Support Agency, I asked it whether £50 was considered to be substantial. It admitted that it was not. I therefore make a plea for justice on my constituent's behalf. I would not normally try to secure an Adjournment debate or detain the House on an individual case, but I hope that the Minister understands that I believe that I have exhausted every other avenue, including writing an incredible amount of correspondence. That is my job, and I am not asking for acknowledgment of that. However, there has been so much correspondence and so many meetings, and I have felt so frustrated by the highs and lows that I have experienced that I felt that there was no other option than to apply for an Adjournment debate.
  I hope to achieve three things from the debate. First, I hope that there will be a thorough investigation of the communications between the Child Support Agency and the Benefits Agency and that the full facts, the full figures and, crucially, the dates relating to the case are put into the public domain. The key to that is the communication that did or did not take place between the Child Support Agency and the Benefits Agency.
  My second aim is related to my first. I hope that there will be an investigation into how much Mr. Reilly should have paid. He is comfortable about contributing and wishes to pay his fair share based on the formula, but how much should he have paid? If the investigation finds that he has paid more than he could fairly be expected to pay, some of the £7,000 should be repaid to him. Of course, £1,600 has been repaid as a result of the case examiner's report, but an investigation should still be carried out into the substantial sum that he paid.
  My third aim is perhaps the most important. I know that there is no formal appeal process, but I urge that there should be a review of the level of compensation that is paid. Bearing in mind all the difficulties that my constituent and his new family have experienced over a number of years and the stress and the impact on Mr. Reilly's family life, there should be a full review of the level of compensation. I know that others—probably rightly—have received much more substantial payments than £50. I urge that, in the review, the £50 figure is upgraded substantially in line with the independent case examiner's report, so that Mr. Reilly can at least have some financial recompense to help him and his family to rebuild their lives.
  10.4 pm
  The Parliamentary Under-Secretary of State for Social Security (Angela Eagle): I congratulate my hon. Friend the Member for Eastwood (Mr. Murphy) on being successful in the ballot for Adjournment debates and on the excellent way in which he has represented his constituent in this difficult case.
  As my hon. Friend will appreciate, I am bound by the rules of confidentiality and cannot therefore respond in detail in the House to the points that he has made about the CSA's handling of this case. I share his concerns, however. It is clear that the standard of service that Mr. Reilly received falls far short of what is acceptable. I shall be happy to meet my hon. Friend in a more discreet environment to discuss the details of the case.
  I apologise on behalf of the agency for its mishandling of the case. The problems date back over six years and flow from a succession of errors and failures on the part
  1020
  of the agency. I understand that the CSA's independent case examiner has now investigated my hon. Friend's constituent's complaints about the way in which his case was handled, and ex gratia payments have been made to him in recognition of those failures. I am also told that arrears of maintenance that were wrongly paid have also been refunded. Perhaps I can discuss with my hon. Friend whether all those arrears have been refunded, because he raised the issue of amounts that do not tally.
  My hon. Friend tabled four questions last summer about the operations of the CSA's independent case examiner, and he has corresponded with my ministerial colleagues on this case, with the most recent response having been sent last week.
  My hon. Friend has raised a number of issues about the way in which the Child Support Agency handled his constituent's case, and I shall try to respond to those in general terms, but in particular to four key issues that the case highlights.
  First, there were clear failures in keeping Mr. Reilly, and indeed my hon. Friend, informed about decisions of crucial importance in the handling of the case and subsequent inquiries. As many hon. Members know, the CSA has always had difficulties with clear and effective communication. That is partly because it uses a computer system that was already 20 years out of date when it was bought in 1990. As a consequence, it issues notification letters that pose more questions than they answer and could rarely be described as being written in a clear and understandable way.
  There is a further failure on the part of the CSA to share information with other parts of the benefits system, which can make difficult cases even more confusing. That has happened in the case that we are discussing.
  The changes to the decision-making provisions in child support, which we implemented in June 1999, gave us the opportunity to simplify and enhance the way in which the CSA communicates with its clients. In particular, the reasons for decisions are now explained more clearly, and parents should now have a much clearer understanding of how they can get a decision with which they disagree reconsidered.
  The second point concerns the way that allegations of fraud and undeclared income are approached by the CSA. I am sure that my hon. Friend will appreciate that that is inevitably a difficult matter for an agency that has to amass the vast range of information needed to complete an assessment using the existing unwieldy child support formula.
  Too often, parents come to the CSA already highly suspicious of each other and all too ready to believe the worst. Given that the CSA's involvement usually begins as a result of a claim to benefit by the parent with care, there is often suspicion on the part of the non-resident parent that benefit has been claimed fraudulently.
  In the past, the CSA has simply passed such allegations to the Benefits Agency and failed to follow them up. However, that has changed since the Government took office. I can assure my hon. Friend that allegations of fraud are taken very seriously. All well-founded allegations of benefit fraud are investigated and further action is taken when appropriate.
  That may take a little time and it is not always obvious to the person who has made the allegation that the suspect is under investigation. That may of course be frustrating

  1021
  for the parent concerned, but I hope that hon. Friend will understand that data protection principles do not allow the person who has made allegations of benefit fraud to be kept informed of progress with any investigation.
  In the summer of 1998, the chief executive of the CSA, Faith Boardman, invited the benefit fraud inspectorate to inspect the agency and help to develop a security strategy. The resulting fraud and security strategy was published as part of its report. It included a number of specific commitments to support the Benefits Agency's fight against fraud, in particular by the introduction of better, streamlined fraud referral processes, clear service level agreements with the BA and better information sharing.
  It should be remembered that, even if it is proved that benefit has been claimed fraudulently, maintenance liability might not be affected. That is because child support action that began with a claim to benefit does not cease automatically when a parent with care is found not to have been entitled to the benefit concerned. The simple fact of benefit being paid begins the child support process; it only stops after entitlement to the benefit has ceased and the parent with care asks the CSA to stop acting.
  Thirdly, the case raises issues about the treatment of payments made between the parents and the interaction between such direct payments and the amount that the CSA seeks to collect if asked to do so by either parent. It is right that the CSA should, if asked to do so, seek to collect maintenance by the method that will best ensure that maintenance due becomes maintenance paid. When there is no agreement with the non-resident parent that ensures that maintenance will be paid, maintenance can, and should, be deducted directly from the non-resident parent's earnings.
  That does not mean that the CSA can ever be justified in failing to ensure, before action of that sort is taken, that liability and any debts have been calculated properly; that the non-resident parent is given every opportunity to discuss alternative means of payment; and that any difficulties deductions from earnings may cause are considered sympathetically. Clearly, the handling of Mr. Reilly's affairs fell far short of acceptable in that respect.
  We have already taken steps to improve the service that the CSA offers to non-resident parents. Longer opening hours and more use of the telephones mean that staff are available at times that suit working parents. In addition, the CSA is working with the private sector to improve compliance, to ensure that where possible parents do not fall into arrears with payments.
  Fourthly and finally, Mr. Reilly's case highlights problems in getting tribunal decisions put into effect. Hon. Members will appreciate that, given the complexity of the child support formula, appeal tribunals are often not equipped to work out the new assessment when they allow an appeal. In the past, the tribunals were required to send all appeals that they allowed back to the CSA for action. That often entailed further investigation and long delays before people who appealed had their liability put right. Those delays simply added to the months that parents had had to wait for the appeal to be heard in the first place, thus piling frustration on frustration.
  As I have mentioned, we have now changed the way in which child support decisions are made; we have also changed the way in which tribunals work. Delays in
  1022
  hearing appeals will be reduced and the way in which successful appeals are handled has been streamlined. Where necessary, the tribunal can still refer the assessment back to the CSA for determination; inevitably, that will continue to take time. However, where the tribunal can decide the issue under appeal, it will be free to do so.
  We have all encountered such cases via our constituency postbags—I have dealt with some myself—and they are the main reason that we are determined radically to reform the agency. I understand my hon. Friend's concern that the agency has provided him with information that was wrong. There is no excuse for that, but the complexity of the current system substantially increases the risk of it happening, especially in connection with cases that go back many years.
  Ever since the CSA was launched in April 1993, there has been a catalogue of complaints from parents with care who do not get the maintenance to which they are entitled, and from non-resident parents who have been let down by receiving a poor service. With hindsight, we can see that the problem lies with the way that the child support system was designed. The complex rules do not fit, either with the lives of separated families, or with other systems that provide support for those families.
  Parents are left baffled and angry with a system that seems bureaucratic and insensitive to the very real difficulties that they face. When things go wrong, they can go very wrong indeed, as Mr. Reilly's case shows. The way in which the system operates too often adds to the tensions between parents, thus denying children a good relationship with both their mother and their father. Complexity leads to delay, which leads to maintenance debts as the non-resident parent's liability mounts waiting for the CSA to makes an assessment. That leads to anger and resentment all round.
  That is why we plan to abolish the current scheme and replace it with a simple, more deliverable system that is focused on the needs of children and of good, responsible parents. Parents who face up to their responsibilities will receive a better service, whereas irresponsible parents will face effective and speedy sanctions.
  As I said earlier, the case to which my hon. Friend referred has been the subject of an investigation by the CSA's independent case examiner. The agency takes complaints about its service very seriously and has developed a system to analyse them and to identify and correct the weaknesses that they reveal. For example, there is now an earlier recognition of clients' problems, and early efforts are made to put them right. More cases that reach the independent case examiner are resolved by an early resolution procedure that prevents the need for a full-blown and lengthy investigation.
  The case which lies behind tonight's debate highlights problems of which we are all only too aware, many of which surfaced in the early days of the CSA. There have been substantial improvements in the agency's performance since then. As a result, the CSA has seen its numbers of complaints fall by more than 20 per cent. as compared with 12 months ago, at a time when its case load has increased by more than 20 per cent. The agency now has nearly a million cases on its books.
  Ultimately, however, the only answer lies in radical reform. That is why we must introduce a new child support service with a simple, transparent and predictable

  1023
  formula for working out child support. In the reformed scheme, non-resident parents will know in advance what their maintenance liability is likely to be and can plan accordingly.
  A more effective and efficient child support service coupled with the introduction of a £10 maintenance premium in income support and the 100 per cent. disregard of maintenance in working families tax credit will mean that more than 1 million children will gain, many of them seeing the benefit of maintenance for the first time.
  The case that my hon. Friend has raised tonight underlines the need for reform, but that does not excuse the errors which have occurred. I am very sorry for the poor service that the CSA has given in this case. I will be
  1024
  happy to meet my hon. Friend to discuss it in more detail. I have asked the chief executive of the CSA to consider urgently whether adequate compensation is being paid to Mr. Reilly, especially in the light of the recommendation of the independent case examiner that substantial compensation should be paid. It must be borne in mind, however, that there are some constraints in this respect. The Government are determined to address these problems, and our reforms for child support are the right way in which to do that. In the meantime, we shall be looking to the CSA to learn the lessons from cases such as that raised tonight.
  Question put and agreed to.
  Adjourned accordingly at seventeen minutes past Ten o'clock.