Lords Sitting of 16 March 2000

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Hereford): The LORD CHANCELLOR on the Woolsack.

Home Office: Press Officers
Lord Cope of Berkeley Lord Cope of Berkeley asked Her Majesty's Government:
What is the expected cost of the new team of press officers being set up to react to breaking news stories involving the Home Office.
The Parliamentary Under-Secretary of State, Home Office (Lord Bassam of Brighton): My Lords, the major cost to the Home Office will be the recruitment of up to 10 press officers. The majority are likely to be employed at Information Officer grade, for which the salary band is £17,000 to £28,000 per annum. As with all Civil Service posts, there will be employment costs of superannuation and national insurance amounting to approximately 20 per cent of salary. We estimate that the total cost of staff will be up to £400,000 per annum. There will be some accommodation and information technology costs which are not yet finalised.
Lord Cope of Berkeley: My Lords, I am grateful to the noble Lord for that full Answer. Can he confirm, as the Home Secretary suggested in another place earlier this month, that at present there are still 11 press officers and three trainees in the Home Office press office? Can the Minister confirm that the extra 10 press officers—to be appointed specifically, as the advertisement said, "to react to breaking news", of which, admittedly, there is plenty at the Home Office—are to be paid at least up to half as much again as a London police constable? Can he further confirm that these press officers will be in addition to 10 extra internal communications advisers in the Home Office, who are to be paid twice as much as a London police constable?
Lord Bassam of Brighton: My Lords, I am happy to confirm the figures and statistics upon which the noble Lord has based his interesting point. To try to compare the pay of police officers with that of press officers working in the Home Office rather misses the point. Perhaps I may remind the noble Lord that when he was in another place as a Minister at the Department of Employment, his departmental advertising budget shot up between 1985–86 and 1986–87—I draw attention to that year in particular—from £100,000 to £12.7 million. No doubt the noble Lord thought that was very good value for money and a good investment.
In another place on 13th March 1989, in reply to my right honourable friend Frank Dobson, the noble Lord, while still a Minister, said that his department
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(the Department of Employment) employed 68 members of staff in the press and public relations office.
Lord Marsh: My Lords, many of us on these Benches fully understand that both sides are as bad as each other. Can the Minister say why we need these new people?
Lord Bassam of Brighton: My Lords, the noble Lord makes a very interesting contribution. It is most important to focus on the real issue behind this. When the external consultants looked at press and communications within the Home Office they found that we received 150,000 calls per annum; that we were missing 20 per cent of those calls; that the number of incoming calls to the Home Office had increased by 50 per cent over a period of five years; and that the service was designed for a time when very few news outlets and communications demands were being made on the Home Office. That situation has changed and we have to respond. There are now 24-hour news broadcasts, sometimes at hourly intervals; there is a fifth channel; there is Sky Digital; there is On-Line; there is the Internet; and the media is growing exponentially. For that reason we need an effective service to offer to those journalists who, quite frankly, have been complaining that they cannot get through and make contact with the Home Office press office.
Lord Lipsey: My Lords, I speak as a former working journalist who has spent many of the most fruitless hours of his life trying to get a reply from the Home Office press office. Does my noble friend agree that this increase in staff will be justified if it brings about a proper response rate—although I do not think that my former colleagues will be any more satisfied with the answers that they receive more quickly than they were with the ones that they failed before to get at all?
Lord Bassam of Brighton: My Lords, the noble Lord makes his point well, with his customary wit and charm.
Lord Glenarthur: My Lords, can the noble Lord say why it was necessary to employ external consultants to look into this matter and what was the cost?
Lord Bassam of Brighton: My Lords, I am more than happy to confirm that the cost of the external consultants was £50,000, paid for from the Home Office budget. I should remind the noble Lord that during his party's time in government, the bill for consultants' work grew massively. I have the figures in front of me which demonstrate the full value of that work. We believe that we should make effective use of consultants in advising the Government how best to manage their business. I thought that the noble Lord and his party colleagues opposite shared that view.
Lord Mayhew of Twysden: My Lords, how many of the extra staff will be needed to identify Ministers' jokes?
Lord Bassam of Brighton: My Lords, I was going to speculate on the number of jokes that Ministers tell, but that would be unfair to the House.
Lord Campbell of Alloway: My Lords, will this new team—with its specialist services, access to the media and so on—be restrained from the knee-jerk reaction of saying that, whenever this House decides something, it will be reversed?
Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord for his advice. No doubt the press officers will seek to advise their masters and their officials wisely on all occasions.
Baroness Knight of Collingtree: My Lords, is the Minister aware that part of the answer he gave earlier will cause considerable concern? He seemed to imply that more than twice as many press officers are to be employed because there are so many news items these days? Is he not aware that many of them repeat the same things over and over again? It should not be necessary to double the number of press officers to deal with repetition.
Lord Bassam of Brighton: My Lords, the Home Office is an extremely busy department as regards news. Many Members of your Lordships' House try very hard to put us on the front pages of newspapers and in broadcasts. Business coming into the Home Office is increasing, as it is in many other departments. We want to offer a first-rate service in the Home Office and in all government departments.
The Countess of Mar: My Lords, in his role as spokesman for the Government, will the Minister kindly ask his colleagues in this House and in another place to ensure that, when documents are sent out for public consultation, these press officers—no doubt his department is not the only one to have an increase in staff—use some of their time to publicise the issue of them? For instance, the review of the Mental Health Act was issued in November and it has only now become public knowledge when consultation ceases at the end of this month. It is most important, not only in his department but right across the board, that consultation documents are made public.
Lord Bassam of Brighton: My Lords, I agree with the noble Baroness. It is important that such documents should remain in the public domain and that people have full and proper access to them.

European Parliament: Voting System
3.9 p.m.
Lord Lamont of Lerwick Lord Lamont of Lerwick asked Her Majesty's Government:
What is their attitude to the proposal by the European Commission that some Members of the European Parliament should be elected on European lists, presented to all voters throughout the European Union.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Scotland of Asthal): My Lords, the Government see little merit in this proposal, which would only lead to a decrease in the number of MEPs representing local, regional and national interests in the European Parliament. Nor is it an idea which has so far attracted any serious support from other member states in the IGC.
Lord Lamont of Lerwick: My Lords, I thank the Minister for that surprisingly welcome reply regarding a suggestion that was put forward by the Commission. Does she agree that, given the deep gulf between the man and woman in the street and European institutions, it would further increase alienation were we to have European-wide lists of candidates unrelated to countries or constituencies—Greeks standing in Italy, Fins in Luxembourg, Portuguese in Spain, Swedes in France? While it is utterly unobjectionable if an individual decides to stand, as the noble Lord, Lord Steel, did, in another country, it is wholly different if that is forced upon the European public by treaty and by European-wide parties financed by Brussels. Does the Minister agree that that idea is wholly incompatible with a Europe of nation states and that it is designed simply to further the idea of a European political entity?
Baroness Scotland of Asthal: My Lords, I do not agree with all that the noble Lord says. So far as we are concerned, this idea is wholly unworkable. It is not something that we would promote or agree with, and we do not believe that it would be endorsed by other member states. This issue is a matter for the member states to decide. Of course, it is always useful and interesting to hear ideas promoted by the Commission.
Lord Bruce of Donington: My Lords, will my noble friend make it quite clear to the Commission that the member states are not yet ready for any further self-initiated proposals from the Commission; and that it is high time that, before making any proposals to anyone, it starts putting its own house in order?
Baroness Scotland of Asthal: My Lords, the Commission is of course in the process of putting its own house in order. It is right and proper that the Commission should make its recommendations, and that those recommendations should be listened to. Only when member states feel that they are pertinent and cogent should they be given any due weight.
Lord Mackay of Ardbrecknish: My Lords, is the Minister aware that her Answer will bring a great deal of satisfaction to many of us who thought that this was quite the craziest idea we had heard? Does she recollect that we changed our voting system, because we were forced to do so by our European partners, to a list system, indeed to a closed list system—which must be about the most iniquitous method of allowing the electorate to elect representatives? Does she further recollect that that caused a drastic decline in turnout at the European elections, contrary to what the

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Government and our friends on the Liberal Democrat Benches said? Will the Minister give an absolute guarantee that the Government will stick by the Answer that she has just given and will not back down in the face of pressure from our continental friends?
Baroness Scotland of Asthal: My Lords, first, I do not agree with the noble Lord's analysis as to why there was a low turn-out. That is still a matter of some dispute. I have just outlined the Government's stance. That is our position; it will not change. This IGC will concentrate, as it properly should, on the institutional reforms necessary for enlargement, and this proposal is not central to that process.

Nuclear Waste: Consultation Date
3.13 p.m.
Lord Tombs Lord Tombs asked Her Majesty's Government:
When they will publish the consultation paper on nuclear waste which was promised in their response to the report of the Select Committee on Science and Technology on Management of Nuclear Waste (3rd Report, Session 1998–99, HL Paper 41).
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): My Lords, we aim to publish the consultation paper on the management of radioactive waste during the spring of this year. Copies will be placed in the Library, and copies will also be sent to the noble Lord and to members of the Select Committee on Science and Technology.
Lord Tombs: My Lords, I thank the Minister for that reply, which is a repetition of his closing speech in the debate last October. I seek an undertaking that the promise made, the undertaking then given, will in fact be met. I should be grateful if the Minister could be more specific about the expected date of publication.
Lord Whitty: My Lords, in this House we always have some difficulty defining the seasons. I am afraid that I cannot be more precise than "spring". Spring comes before summer.
Lord Winston: My Lords, does my noble friend agree that the Select Committee report carries matters of great importance which have frequently been shelved by previous governments and that it is in the country's interest to receive a proper answer to the report as soon as possible?
Lord Whitty: Yes, my Lords, I agree that there are some profound and long-term issues involved in the treatment of nuclear waste. It is also important, as the Select Committee underlined, that some of the mistakes made in earlier phases as regards not taking the public along with the decisions are also addressed in our approach to deciding these matters. That is why
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the basis for the consultation paper must be carefully thought through and the consultation process itself very thorough.
Lord Jenkin of Roding: My Lords, will the Minister confirm that at the consensus conference held shortly after publication of the Select Committee report, Mr Meacher said that the Government hoped to have the consultation paper by the end of last year. During the debate mentioned by the noble Lord, Lord Tombs, it was stated that publication had been put off until the spring. Is the Minister aware that my consultations with the industry have evoked the response that the date is becoming increasingly hazy? Does he agree that the request for more specific information is justified by a growing feeling that the Government will kick the issue into the long grass before the next election?
Lord Whitty: My Lords, I entirely refute the noble Lord's last point. It is important that we get the basis of the consultation right. I am indicating today the same timescale as that indicated in the debate mentioned by the noble Lord, Lord Tombs. It is true that, at an earlier stage, we thought we might be able to get the consultations started by the end of last year. But now we are talking about the spring, and spring it will be.
Lord Jenkins of Putney: My Lords, does my noble friend agree that the difficulty with the management of nuclear waste is that it is almost impossible to get rid of it? In those circumstances, does he accept that the right solution is to produce as little nuclear waste as possible—and eventually none at all?
Lord Whitty: My Lords, my noble friend tempts me into a discussion of the long-term future use of nuclear power, on which I am sure varying views are held within this House, as they are outside. The future contribution of nuclear power to our energy mix is an emotive as well as a technical issue. However, were we from now not to have any more nuclear power, there is already a significant waste disposal issue. That is what the Select Committee addressed and it will be the subject of the consultation paper, irrespective of any future positive decisions or otherwise on the use of nuclear fuel.
Lord Jopling: My Lords, in view of the recent lamentable events at Sellafield and the implications for employment in Cumbria, will the Minister say that, regardless of a response to the Select Committee report, the Government will take urgent steps, do their best to retrieve the situation and install more competent management at Sellafield?
Lord Whitty: My Lords, it is true that the recent identification of falsification of records in BNFL has been very unfortunate in relation to the credibility of the operation of Sellafield and BNFL more generally. The reports from the Nuclear Inspectorate have identified very serious problems. BNFL has a couple of months to put those right. Thereafter, it is

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important that BNFL works hard to restore the confidence of its customers and potential customers, and the Government will support it in doing so. As the House will know, a number of changes have already taken place in BNFL's management structure.
Lord Craig of Radley: My Lords, may I tempt the Minister to reveal part of the report's contents? Will the Government's position be that they rule out indefinite surface storage as one way of managing nuclear waste over the longer term?
Lord Whitty: My Lords, "indefinite" is perhaps an inappropriate word here. Clearly, long-term decisions must be taken. It is probable that the high level waste will be surface stored for 50 years. As to what happens to it thereafter, at present it appears that deep level storage is appropriate but other technologies may be developed in that period. The important point is what we do now and, in particular, what we commit ourselves to doing with the high level waste thereafter.
Lord Mackay of Ardbrecknish: My Lords, does the Minister agree that if we are to meet, and in future do better than, the Kyoto emission standards, we must have a nuclear industry? If so, does the Minister agree that we must deal with the question of the management of waste? Does the noble Lord also agree that one of the real problems that faces the present Government, as it did the previous one, is that the pressure groups which oppose nuclear energy will put out all kinds of scare stories that can be countered only by government and industry being open and frank about what they are doing?
Lord Whitty: My Lords, I do not believe that the noble Lord is correct to say that we need additional nuclear capacity in order to meet the target for 2010. In a sense, the question is what happens beyond 2010 and whether nuclear power or alternative non-fossil fuel-based energy sources can be developed. Those are very serious long-term issues both for our own energy mix and that of the world. It is certainly the position of the Government that nuclear technology should remain available for those medium and long-term decisions. It is also the Government's position that one of the problems with nuclear power has been misinformation by both its opponents and, unfortunately, those who have had responsibility for managing it. That distorts the debate, but the Government are determined that BNFL will put the matter right.
Lord Elton: My Lords, further to the Minister's response to my noble friend Lord Jopling, can he say whether the falsification of the safety records of the items which were attempted to be exported represented a danger only to the importing countries or to the citizens of this country? Does the noble Lord
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agree that this is a matter of considerable concern and another reason why the report should be published very soon?
Lord Whitty: My Lords, I believe that the findings of the Nuclear Inspectorate are that the falsification did not of itself present a danger to safety. The problem is the credibility and robustness of the safety regime within Sellafield and the transport of nuclear fuel both here and, potentially, within the customer countries to which the fuel may be returned. Understandably, those customer countries are alarmed. We must reassure them that in future the safety regime will be robust and that there will be no further falsification.

NHS Trusts: Appointments
3.23 p.m.
Lord Clement-Jones Lord Clement-Jones asked Her Majesty's Government:
What steps they take to involve Members of Parliament in the appointments procedure for members of National Health Service trusts and similar bodies within the health service.
The Parliamentary Under-Secretary of State, Department of Health (Lord Hunt of Kings Heath): My Lords, all Members of Parliament are invited to nominate candidates for appointment to those NHS bodies which serve their constituents. The people they nominate are expected to complete application forms and, if considered suitable, are interviewed in the same way as all other applicants. In addition, for chair appointments local MPs are invited by NHS Executive regional chairs to comment on the candidates that they recommend to Ministers.
Lord Clement-Jones: My Lords, I thank the Minister for that reply. We all look forward to the report next week by Dame Rennie Fritchie on appointments to NHS trusts. From earlier reports it appears that that paints a rather different picture from that presented today by the Minister. If those reports are true they suggest massive hypocrisy on the part of this Government, particularly when they were so vociferous in their opposition to the previous government for doing exactly the same thing. Can the noble Lord categorically deny that Labour MPs have no influence over the appointment of those trust members? Furthermore, can he give a definitive answer as to whether it is political affiliation or skill and experience which determines a person's appointment to an NHS trust?
Lord Hunt of Kings Heath: My Lords, I am unable to comment on the report of the Commissioner for Public Appointments before it has been published. However, I can tell the House that we have adopted a vigorous approach to the appointment of non-executive directors and chairs of NHS bodies. These are very

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important positions which must be filled by the best quality people, and we believe that the procedures that we have adopted enable us to do that.
Baroness Hanham: My Lords, can the Minister inform the House what percentage of such appointments arises from applications in response to advertisements placed in newspapers and whether that approach brings in a sufficient number of suitable candidates?
Lord Hunt of Kings Heath: My Lords, I do not believe that an exact breakdown of the numbers in the different categories is available, but I am happy to see whether I can provide that information. We believe that national advertisement is an important part of the process of receiving nominations. But all nominations, whether they come from MPs or through national advertisements, are dealt with in the same way; namely, through a sifting process and panel interview where an independent person is always present.
Lord Davies of Oldham: My Lords, is my noble friend aware that in Oldham the Government reappointed as chairman of the NHS trust a prominent member of the local Conservative Party who, in my experience, is one of the few people from the party opposite with any real commitment to or knowledge of the health service?
Lord Hunt of Kings Heath: My Lords, even I have appointed Conservatives to positions in health authorities and trusts, because at the end of the day we are concerned to appoint the best possible people. We appoint people who have affiliations to all political parties and to none. The key is to get high quality people.
Baroness Gardner of Parkes: My Lords, is the Minister aware that about six months after the present Government came to power I asked a Question and was informed that about 15 Conservative and well over 100 Labour councillors had been appointed? As to the appointments procedure, can the Minister say whether there is still an obligation to interview all those who certify themselves as disabled? Is he aware that I sat on an interviewing panel which came to the unanimous view that some of those who had certified themselves as disabled were not disabled? How does the Minister suggest that a more objective assessment can be made of those who are entitled to claim an interview as of right because of a supposed disability?
Lord Hunt of Kings Heath: My Lords, my understanding is that the procedure is as the noble Baroness describes. However, we need to be very cautious before we change it. Although I accept that there may be instances in which the system is abused, nevertheless it enables people, particularly those with disabilities, to be considered for appointment, which is very important. As to the appointment of councillors, I suspect the answer is that there are very few who belong to the Conservative Party.
Baroness Cumberlege: My Lords, does the Minister share the reported concern of the Commissioner for
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Public Appointments that political criteria should not take precedence over other experience? If the noble Lord shares that view, is it merely a coincidence that 546 Labour activists compared with 149 Conservatives have been appointed?
Lord Hunt of Kings Heath: My Lords, I cannot agree with the noble Baroness. I have already said that we make the appointment on the basis of the quality of the applicant without regard to political affiliation. I pray in aid that in 1999, 76 per cent of the people we appointed declared no political activity.
Lord Goodhart: My Lords, does the Minister agree that the figures make it fairly clear that both the present Government and the previous one have been stuffing NHS trusts with their own supporters?
Lord Hunt of Kings Heath: My Lords, the noble Lord is certainly right about the previous government. One can only describe the approach of the previous government as the packing of boards with Conservative supporters and so-called independents who, none the less, could always be called upon to vote with the Conservatives.
Lord Hardy of Wath: My Lords, is the Minister aware that in my area the balance is reasonable and proper? However, a few years ago, I was so horrified by the multitude of Conservative appointments and scarcity of Labour appointments that when I discovered that the Wentworth constituency Conservative Party had not shared in that loot I offered a strong protest at its being disregarded by its own government.
Lord Hunt of Kings Heath: My Lords, the Nolan Committee, which considered these matters early in the decade, received more complaints about the process of appointments to NHS bodies by the party opposite than on any other issue.

Consolidated Fund (No. 2) Bill
Brought from the Commons, endorsed with the certificate of the Speaker that the Bill is a Money Bill, and read a first time.
Political Parties, Elections and Referendums Bill
Brought from the Commons; read a first time, and to be printed.

Financial Services and Markets Bill
3.32 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord McIntosh of Haringey.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Clause 1 agreed to.
Schedule 1 [The Financial Services Authority]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 1:
Page 216, line 15, leave out paragraph (b).
The noble Lord said: In moving the amendment, I speak also to Amendments Nos. 2 to 6.
Schedule 1 deals with, among other things, the constitution of the Financial Services Authority. Paragraph 1(2) sets out for the purposes of Schedule 1 the authority's legislative functions. These include making rules, issuing statements of principle or policy, issuing codes and so on. These amendments rationalise and update the description of the legislative functions.
Amendment No. 1 deletes paragraph 1(2)(b) devoted to Section 63 on conduct, statements and codes. Amendments Nos. 2 and 4 reallocate the code element of Section 63 to paragraph 1(2)(e) and the statement element to paragraph 1(2)(d). A consequence of this last amendment is the need to broaden by Amendment No. 3 the description of the statements to capture Clauses 69 (on statement of policy with regard to imposition and amount of penalties for misconduct), Clause 114 (on statement of policy with respect to imposition and amount of penalties for market abuse), and Clause 204 (on statements of policy in respect to imposition and amount of penalties for contribution of a requirement imposed on an authorised person) which refer to a statement of policy, and Clause 63 which refers to statements of principle. The amendment also uses the language used elsewhere in the Bill: that is, that statements are "issued" and not "published".
Amendment No. 5 adds directions under Clause 319: directions in relation to the general prohibition in respect of members of the professions to paragraph 1(2)(e) which provides that directions are one of the FSA'S legislative functions.
Finally, Amendment No. 6 deletes Clause 69 and the reference to general guidance since that clause refers throughout to statements of policy and hence is captured in paragraph 1(2)(d) which refers to statements. I beg to move.
Lord Kingsland: Does the Minister know whether the concept of a legislative function is used in an Act establishing any other public authority in this country?
Lord McIntosh of Haringey: I am sure that it is not an original concept since many regulatory bodies have
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to work via rules, statements of principle or policy, and issuing codes. I shall write to the noble Lord about the detail of which other legislative examples occur.
Lord Kingsland: I ask because it seems strange that we have a non-parliamentary body with a legislative function but with no obligation to lay its legislative rules before the legislature.
Lord McIntosh of Haringey: "Legislative function" is perhaps shorthand. We are talking here about functions which are laid on the Financial Services Authority by statute.
Lord Elton: Shorthand is not the language for legislation. If the Minister means that he is referring to the authority's rule-making or regulation-making powers, the Bill should say so. To call them "legislative powers" calls into question the function of this Chamber.
Lord McIntosh of Haringey: I used the phrase "legislative powers" in introducing them in order to provide a collective description of those functions described in the legislation as rules, statements of principle or policy, codes of conduct, codes of practice and so on. I attempted to help the Committee by giving a collective noun to describe them all. "Legislative functions" does not appear in the Bill.
Lord Elton: It does. At lines 12 and 13 on page 216, the Bill states:
"For the purposes of this Schedule, the following are the Authority's legislative functions".
I am happy for the noble Lord to be free with his language. I am not happy for the statute to be free with its language if it does not mean what it says. It is a fairly important matter as to whether Parliament is the only authority in this country which can make legislation.
Lord McIntosh of Haringey: I am happy to accept the noble Lord's correction about what appears in the Bill. The Bill is trying to be helpful, as I am. But it is not new; it is not an innovation. I can respond to the noble Lord, Lord Kingsland, that the phrase "legislative functions", used in the same way, occurs in the Financial Services Act 1986.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendments Nos. 2 to 6:
Page 216, line 16, after ("section") insert ("63 or").
Page 216, line 17, leave out ("publishing statements of policy") and insert ("issuing statements").
Page 216, line 17, after ("section") insert ("63,").
Page 216, line 18, leave out ("or 311") and insert (", 311 or 319").
Page 216, line 19, leave out ("guidance under section 69 or").
On Question, amendments agreed to.
Lord Newby Lord Newby moved Amendment No. 7:
Page 216, line 24, after ("chairman;") insert—
("() a chief executive:").
The noble Lord said: In moving the amendment, I speak also to Amendments Nos. 8 to 11. These are the first of the amendments dealing with the governance of the FSA. It is one of the most contentious issues facing us during the passage of the Bill. The amendments propose explicitly that the roles of the chairman and the chief executive should be split.
At Second Reading, virtually everyone who spoke on the issue agreed that there was merit in separating the role of the chairman and chief executive. In doing so, they echoed the view of the Joint Select Committee. Why was that so? The concerns about the current situation centre on a core worry that a combined chairman and chief executive would be too powerful a creature. The powers of the FSA in making and enforcing rules and levying fines are vast. The scope of the FSA which has been enhanced during the passage of the Bill to include listings and mortgages—we hope that it may be extended further to deal with long-term care—is also vast. We believe that one person solely in charge is too great a concentration of power. We believe that there is a separate job to be done by having a strong, independent voice at the top to ensure that the power of the FSA executive is handled in a careful and appropriate manner. We believe that the way to achieve that is by having a separate chairman.
In looking at the structure at the top of the FSA and more generally, two models have been considered. The model that is enshrined in the Bill is essentially that which we find at the Bank of England where, broadly speaking, the Court exercises the role which the Bill envisages being exercised by the FSA non-executive directors. We do not believe that that model is appropriate.
The Court of the Bank is not a hugely powerful body. When the Select Committee on the Monetary Policy Committee examined its workings, we found that it had not always been active in monitoring certain aspects of the work of the MPC. We believe that to have a non-executive body or group of directors sitting to the side of the executives is not a sensible way forward. My noble colleague Lord Sharman will deal with the issue in greater detail when we consider it later. However, it is relevant to the chairman and chief executive because the Government have taken the whole Bank of England management, in the shape of a governor and a court, and transposed it into the FSA.
The alternative, which we prefer, is to have a single board with a separation of powers between the chairman and chief executive. We believe that via that mechanism, good rules of corporate governance should apply here as they do elsewhere.
It has been argued by the Government and the FSA that the model is incorrect; that it is a bad model because there are no shareholders in the FSA and therefore different rules apply. Clearly, in a technical sense, there are no shareholders, but there are certainly stakeholders in the work of the FSA, whether practitioners, customers or Parliament, and they all
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rightly expect the FSA to follow the highest possible standards. We believe that in this respect the highest possible standards are best achieved by following the normal rules of corporate governance.
What arguments have been used against the model? The issue has generated considerable heat, not least within the FSA. We are fortunate in that we have a detailed explanation by the non-executive directors of the FSA as to why, in their view, the model in the Bill is appropriate. I hope that your Lordships will forgive me if I go through it because it demonstrates the paucity of their case.
First, they argue that,
"fears of an over-mighty executive are best addressed by a board that is fully integrated into the decision taking of the organisation, with their Chairman in a full time executive role".
The first part relating to the fears of an over-mighty executive does not hold water. Under the model in the Bill, the non-executives are not fully integrated. The scope of their powers—the areas which they are allowed to examine in their committee—do not cover the whole of the work of the FSA. Therefore, that argument is not borne out by the Bill. The argument that having a chairman in a full-time executive role somehow curtails an over-mighty executive is a straightforward non sequitur. By simply stating that, they are not making a case.
They then turn to a number of detailed points. First, they state that the number and significance of the decisions, some of which must be taken at the highest level, require a single person at the top. Again, that seems to be a complete non sequitur. I do not know how one can reach that view. Secondly, they state:
"there is a strong benefit in a single individual providing a recognisable public face".
Clearly, there are many circumstances in which the FSA will want to have a recognisable public face. But many organisations have recognisable public faces, which are just that; public faces. One thinks of the BBC—and I see the noble Lord, Lord Birt, in his place. Unless I am mistaken, it has more than one public face, as does the CBI. The fact that an organisation might have two public faces rather than one seems to be an advantage rather than a disadvantage.
Thirdly, they state:
"the Standing Committee structure established by the Treasury/Bank of England/FSA … would be unbalanced if the FSA chairman were non-executive".
I believe the argument is that if there were in a room Eddie George, Gordon Brown and the chairman of the FSA, in some sense the chairman would be a weak creature. There are several ways around that, one of which is that both the chairman and the chief executive could attend the meeting and the other two could take seconds, too. In my view, that is not an argument of great substance.
Fourthly, they state:
"accountability is enhanced by a single individual taking responsibility for the performance of the organisation as a whole … and he is the person with whom the buck stops".

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The FSA is not unique in that situation. Unless I am much mistaken, the same considerations apply equally to every company in the country. No one argues that individual chief executives and chairmen in companies are not accountable to their shareholders or that no one knows where the buck stops. Again, that is not a strong argument.
The next argument is almost my favourite. It is that if there were a split,
"the UK would risk losing authority in international discussions if the FSA were represented by a non-Executive Chairman, or a Chief Executive reporting to one".
Perhaps Members of the Committee will picture the scene at a meeting in, say, Brussels attended by Howard Davies. He could be the chairman or the chief executive of the FSA and when he entered the room all his colleagues and counterparts would be there. Does anyone seriously believe that they will tut-tut and say, "Poor old Howard Davies. He has no powers or authority. He is only the chief executive"? I find that extremely difficult to believe. The argument that someone who would have the authority of either the chief executive or the chairman of the FSA in the UK would suddenly be put down by his counterparts from other regulatory authorities because he did not share those roles is, in my view, unsupportable.
Lord Faulkner of Worcester: I thank the noble Lord for giving way. In the case of other countries, how many international regulatory organisations are represented by more than one individual? Is it not the case that, for example, the international, European and world bodies are represented by full-time executive chairmen in exactly the same way as is ours?
Lord Newby: I believe that that is the case. However, the FSA is a unique creature and has greater powers and scope than virtually any other similar regulatory body. That is at the heart of our reason for proposing the amendment.
The non-executive directors argue that the model that we are proposing is inappropriate because it is different from that of the Director-General of Fair Trading and various other regulatory bodies. However, the core of what we are saying is that this body has greater and broader powers. Therefore, again we do not believe that that is a strong argument.
The non-executives also argue that the essence of the role is to lead the organisation as a whole; if the role were split, there would be a lack of leadership. Again, I simply do not believe that. Therefore, having given considerable consideration to the arguments that they have made, I do not find those arguments compelling.
The final argument which they make—it is often made in the corridors, as it were, but rarely made formally—is that Howard Davies would vehemently oppose a move to a different model, and that that in itself is a strong argument for not doing so. I believe that on these Benches we share the view of everyone who has spoken at all stages of the discussions on this issue; namely, that so far Howard Davies has done an
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extraordinary job with the FSA and that he is a highly impressive chief executive and chairman. Many of the doubts that people, including ourselves, express about these powers do not flow from a view about how Howard Davies would exercise them. However, this is not a piece of ad hominem legislation. It is a piece of legislation that must last for a considerable period and see through a number of generations of leading members of the FSA executive. Again, I do not find that a convincing argument against the model which we propose. Having considered all the models, we are not persuaded by those arguments. Therefore, we retain our belief that a body with the powers and role of the FSA, as proposed in the Bill, requires both a chairman and a chief executive. I beg to move.
Lord Borrie: Perhaps I may ask a question on this matter. It seems rather curious that the noble Lord. Lord Newby, did not refer to the governing body. The governing body of the authority is provided for in Schedule 1, which states that the majority of members will be non-executive members. It follows logically that the minority will be executive members. Presumably, if we take that as the plural, one of them could be regarded as the chief executive.
In other words, I suggest that the provision in Schedule 1, which at the moment provides for a governing body as well as for a chairman, is sufficiently flexible to take into account all kinds of possibilities that might develop in the future, to which the noble Lord, Lord Newby, referred. In years to come, it may be desirable for there to be a chairman and, separately, a chief executive. Another possibility is that one person should hold both roles. That is provided for in Schedule 1. Therefore, why do we need this amendment?
Lord Newby: Because we believe that there should be a chairman and a chief executive and because, as is evidently the case, the Bill as drafted does not envisage that that will happen, although that may change at some point in the future. That has been made clear throughout the discussions on this matter by the Government and by the FSA. Therefore, we believe that if it is wished that the two roles remain separate, that should be specified in the legislation. Unless it is, it simply will not happen, in the short term at least.
Lord Kingsland: I rise not to respond to this group of amendments on behalf of the Opposition—that will be the task of my noble friend Lord Saatchi—but to speak to my own amendment in this group, Amendment No. 9A. That I can do very briefly.
Amendment No. 9A requires that the appointments of the chairman, the chief executive and the non-executive deputy chairman shall not take effect until they are confirmed by the House of Commons Treasury Select Committee following a public hearing. The reasons for tabling this amendment flow from my earlier intervention in this debate. As the Minister conceded, the authority will have legislative powers to make rules which are binding on certain persons. Your Lordships' House and another place will not have the

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opportunity to be consulted on these rules. Therefore, the leaders of the FSA will be in an extremely powerful position. In those circumstances, I believe it only right that their appointment should be confirmed by your Lordships' House and another place.
Lord Stewartby: When the noble Lord, Lord Newby, introduced his amendment, he said that he believed that everyone at Second Reading had been in support of the proposition which he was putting forward. I must say that I clearly recall having expressed some reservations about this matter myself. I should like to explain again why I believe that it is not at all self-evident that his proposed solution is the right one. I do not believe that one can necessarily transfer the format of corporate governance from the private sector to a public sector body of this most unusual kind.
The Financial Services Authority will have huge powers which will impact not only on a very large number of practitioners and professionals in the markets which are regulated, but also in relation to consumer interests over a wide front. Under those circumstances, I believe that the authority must have the structure which is most suitable to it. Equally, I do not believe that that is necessarily to be determined by reference to the Bank of England. I agree with the noble Lord, Lord Newby, about that. It seems to me that the functions and powers of the two bodies are so different that one cannot suggest automatically transferring from one to the other.
I believe that a large part of the problem has arisen because of the sloppy use of the term "chief executive" in the private sector. Many public companies and other large organisations have a chairman and a chief executive. However, in many of them from time to time the role of the chairman will undoubtedly impinge on executive matters. In my view, the implication is that there is no higher executive authority within a body than the person who is described as "chief executive".
Therefore, let us suppose that in the statute in relation to a particular organisation such as this authority, one says that "A" will be the chairman and "B" the chief executive. I am not a lawyer so I cannot judge what the legal force would be. However, the natural interpretation of the language would be that there would be at least an implication that the executive authority stops with "B" and that "A" is not authorised to determine matters of policy, strategy or other executive decisions and certainly would not be the best person to answer for them in the wider forum in which the head of this body must perform.
Therefore, I am doubtful about the proposal of the noble Lord, Lord Newby. I do not know whether he is considering pressing it to a Division, but I would have considerable reservations about whether or not to support him. I believe that there is an essential truth in what he says, which is that those who are chairmen of bodies—whether they are companies or public bodies of this kind—and those who are the principal executives have separate functions. However, normally those functions are worked out between the
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two individuals concerned in the light of the structure, role and functions of that body. There is no hard and fast dividing line between the two. There is likely to be an overlap, and therefore it would be misleading to have someone described as chief executive, with the implication that the chairman was not able to become involved in executive matters.
There is another aspect whereby the functioning of the board could be affected by a decision of this kind. It points rather in the other direction. It is difficult for the chairman of any board, particularly of a public body of such importance, to have to chair it as well as being the principal proponent of its policies. It is always easier for the chairman to be more detached from direct involvement in managerial decisions.
When my noble friend, Lord Alexander, and I were members of the board, mostly in its previous guise as the Securities and Investments Board, the non-executive directors, I am glad to say, were robust in their comments. We often questioned and challenged the executives. Occasionally, that might cause them discomfort, as it might the chairman, the person most fully responsible for the board's actions. However, it is not an insuperable problem.
We must look at the problem pragmatically. We are to establish one of the most powerful bodies in the land outside the system of government. It will have a very important influence internally, within our economy, markets and society, and it will have an important role internationally.
I do not see—here I am perhaps picking up something that the non-executive directors of the authority have said—that the chairman could act effectively as chairman, bearing in mind his accountability for that body's overall presentation and performance, in a completely non-executive role. Therefore, although I think this goes back to a problem of language, I have some reservations about the amendment.
4 p.m.
Baroness O'Cathain: I feel quite confused after the intervention of my noble friend Lord Stewartby. On the one hand, he said that the chairman and chief executive were as one and that—to put it in my own words—in normal corporate parlance, this was the way it was and it was extremely difficult for them to be separate. On the other hand, he said that the chairman was the person who had to monitor the role of the chief executive. How can the chairman monitor himself if he is chairman and chief executive combined?
I have no experience at all of public bodies, but my experience within public limited companies has been that the separation of roles gives a great deal of confidence to the shareholders. They can be confident that the chairman is really looking after their interests in so far as he or she can and does, together with the board, appoint the chief executive, monitor the chief executive and make sure that everything the chief executive does is in accordance with the policies of the company as a whole.

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I have examined, in anticipation of this set of amendments, what I would call semi-public bodies. I reiterate that I have no experience of dealing with public bodies. I was going through the last annual report of the Personal Investment Authority ombudsman council. I see the noble Baroness, Lady Turner, in her place. She used to be the non-executive chairman of that body. It had a deputy chairman, a council of five members and a clerk. The ombudsman—that is, the person who ran the ombudsman function—reported in, as I understand it. I should have thought that that gave the ombudsman some feeling of security, knowing that if he or she made a bit of a mistake about something there was a strong non-executive chairman with a strong council to say "Do you really think this is the way to do this?".
The real purpose of setting up the Financial Services Authority is to try to make the general public confident about the workings of their investments and enable them to feel assured that they will not be sold a bad bill of goods on investments and pensions where there was all the mis-selling. And now we are talking about mortgages.
Most of the population is pretty financially illiterate. A great deal of confidence would be built up if the public knew that all the power in running this body was not vested in one man. If there are on the board a chairman and chief executive in combined roles, plus other, non-executive, directors, one can bet one's bottom dollar that the power will be vested in one man, and the people around him will not spend a lot of time trying to second-guess or query him. I am afraid that that is the way life works.
Therefore, I have grave doubts. My doubts are not at all about Howard Davies. He is a spectacularly brilliant person. I have been very impressed by the presentations he has given. We are not talking about Howard Davies; we are talking about the future of the Financial Services Authority. God forbid that he should ever fall under the proverbial No. 11 bus. There might be a real problem if we then had someone who was nothing like as brilliant, and perhaps did not have the same level of integrity, if the roles were combined. Therefore, we must give the matter a great deal more thought.
Lord Phillips of Sudbury: I should like to say a few words in support of the amendment moved by my noble friend Lord Newby, particularly in relation to public confidence, a matter touched on by the noble Baroness, Lady O'Cathain. Public confidence will be absolutely crucial to the Financial Services Authority. Even more important than general public confidence is the confidence of the sector over which it will have total—some might say totalitarian—powers under the Bill. That confidence is more likely to be achieved by having a chairman and chief executive. If the chief executive's title is director general, I do not mind.
One can only speculate about these things, but I am sure that there will be much more likelihood of general confidence in the carrying out of the FSA's difficult
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tasks if the roles are split. It is a quasi-judicial body. It is not one that requires the supreme brilliance to which the noble Baroness referred; it needs steadiness, fairness, balance and prudence. I believe that they will all be better delivered if the amendment is passed, together with the amendment in the name of the noble Lord, Lord Kingsland.
Lord Boardman: I have some sympathy with the amendment. I am reminded from time to time that what we are discussing is outside the Cadbury rules which apply to commercial companies. I believe it appropriate that the rules that guided Cadbury should also guide this body, which will be a very significant organisation.
It is very important that there should be a separation between the chief executive and the chairman. I like the suggestion in a later amendment, Amendment No. 12, that the chief executive should be called the director general, which would be fitting.
The chairman's role is quite distinct from that of the chief executive in any organisation. The chief executive is the hands-on man, and the chairman, whether or not he is called non-executive—I imagine it will be a whole-time job in any case—has to deal with other issues: shareholders, the public purse, which is paying, and so on. It would be most unfortunate if these two roles were combined. There is also the position of the non-executive directors, who have to form the majority of the board. Under the Bill, it is rightly intended that they should have very considerable powers in looking after things, seeing what is happening and eventually giving guidance. The non-executive directors would be able from time to time to discuss with the chairman their satisfaction or any worries they might have about the running of the business. That would be a very difficult task for them to fulfil if the chairman was also the active chief executive.
When the noble Lord, Lord Newby, read out the views of the independent directors to a combination role, I found his criticism of them quite valid. A very weak case was put forward for combining the two roles. I know that there is concern about the position of the chairman/chief executive, Howard Davies, who has done brilliantly. It is generally acknowledged that he has done a first-class job. However, I believe that he would be helped if there were a chairman to deal with external matters while he continued his magnificent job with a title, however it may be described. Therefore, this amendment has some attractions to.
Baroness Turner of Camden: The noble Baroness opposite referred to my role as chairman of the PIA Ombudsman Council. That was a very different sort of body from the FSA and I do not believe that one can make a relevant or appropriate comparison.
One must take on board the fact that the present FSA non-executive directors feel very strongly—and I have met them and had discussions with them—that the present arrangements work extremely well. If the set-up is working well, particularly if arrangements are made so that the structure is flexible enough to be

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amended in the future if it needs to be, it would be very disturbing and not a good idea at all to alter the structure now in the way that is proposed this afternoon. There is a need to look very carefully before one starts disturbing a structure where everybody is happy with it and feels that it is working extremely well.
The non-executive directors say—and I agree with them—that the analogy with company governance is not appropriate. There the objective is to represent the interests of shareholders, as the noble Baroness said, rather than, as here, accountability through government to Parliament in the public interest. We must bear that in mind. Therefore, I am not in favour of the amendment which has been moved this afternoon.
4.15 p.m.
Lord Alexander of Weedon: I share the view of the noble Baroness that, so far, the Financial Services Authority has done a remarkable job, not least because it has done it without any statutory underpinning whatever. But I feel that when we are giving it statutory underpinning which should last well into the future, we should address the matter not merely as a matter of whether it has worked under a remarkable chairman but we should consider also what is the right form of governance as it goes ahead.
What concerns me about this issue principally is that it is a very strong body. It has a rule-making power which is not to be subject to control by Parliament. As has been said, it is the financial services authority with the most wide-ranging responsibility and powers of any such body in any country in the world. As such, I believe that it should have both a chairman and chief executive in normal circumstances.
I accept entirely that there should be flexibility for situations when the roles are held by the same person. With my noble friend Lord Stewartby, I sat on the board of the Securities and Investments Board, and for three years I was its deputy chairman. The Securities and Investments Board then had a chairman and a chief executive. The chairman was responsible for strategy, its external role, key on-going issues and overseeing the activities of the chief executive. I totally share the view that the role of the chairman of a financial services authority cannot sensibly be non-executive. Such a chairman, if non-executive, would not be in a position to have enough influence within, nor, indeed, knowledge of the working of, the authority. Nor, in my view, would such a chairman have the ability to represent the organisation in international organisations with effective standing.
I know that it is easy to jest about the issue of the precise standing of a person in those international gatherings, but in those gatherings people accumulate, almost osmotically, a particular influence which goes with, to a considerable extent, the power of their role in their organisation. I have no doubt that the chairman of the FSA should be executive and should have the authority to represent the FSA abroad.
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But at the SIB I saw two things. First, undoubtedly a chief executive was necessary to carry out those functions which even the most tireless chairman could not sensibly carry out across the board—as my noble friend Lord Boardman said, to be responsible principally for operational issues within the organisation itself. I believe that it is somewhat esoteric to suggest that where one has a combined chairman and chief executive, the non-executives can easily act as a total counterpoise to a strong person holding that authority.
I believe also that the organisation should have, among the non-executives, a vice-chairman. I have no doubt that those organisations which have pressures on them in relation to their standing and authority need, as well as their fully internal officers, outside non-executives with the stature and the clout to stand back from the issues in order to avoid the organisation being in too much danger of internalising or looking to its own position. He can stand somewhat at a distance to comment on what the organisation does. That is not in any sense to multiply employment. I believe that the FSA, as such a powerful body, should have what many large companies have—a separate executive chairman, chief executive (called "director-general", if you will, if there is some semantic reason for doing so) and an independent vice-chairman leading the non-executives. I really should like to see a combination along those lines in the Bill.
On Second Reading, the Minister said that the Bill did not preclude the appointment of a separate chief executive. The noble Lord, Lord Borrie, in his intervention, somewhat teased—I hope I know him well enough to put it that way—the noble Lord, Lord Newby, along those lines. He said that this is an unnecessary amendment. I do not believe that that is right. It is not enough to say that the Bill does not preclude the appointment of a separate chief executive. The need for a separate chief executive, granted that the posts may occasionally be held by the same person, should be made explicit so that it should be seen as the norm. I strongly support a package of amendments which would, as the noble Lord, Lord Phillips, said, give very considerable confidence and comfort to the balance of powers in this very important organisation.
Lord Eatwell: The noble Lords, Lord Newby and Lord Alexander, have made speeches which I found very convincing. They convinced me that they were both wrong.
I want to leave aside the issues of the particular characteristics of corporate governance and even the issue of the significant powers which the Financial Services Authority will have because the main issue is the characteristics of this organisation as a financial regulator.
The key role of financial regulation is the management of risk—risk which can escalate in a matter of minutes or hours, not over days or weeks. Such risks can pose great dangers to the financial system of this country and, therefore, to the economy

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as a whole. In those circumstances, there is a peculiar need for extreme clarity in the positions taken by the leadership of the financial regulator.
The noble Lord, Lord Newby, referred to a committee meeting; the committee consisting of the Chancellor of the Exchequer, the Governor of the Bank of England and someone representing the Financial Services Authority. One presumes that he had in mind the memorandum of understanding between the three organisations which establishes the relationship between them for the management of the economy when it is in extreme peril. But the noble Lord, Lord Newby, would not leave our three leading figures to manage the economy in a period of extreme difficulty. He would happily dilute that committee. He would include the chairman and the chief executive. He would have the Chancellor of the Exchequer bring along someone else to back him up.
It is in precisely those circumstances that a decision-making body needs to be clearly defined as having the real authority to make crucial decisions at the time. That cannot be a chairman who has only a strategic role; nor a chief executive who has only an operational role. It must be someone who has strategic and operational roles at the same time and who can make decisions in times of extreme difficulty; the decisions which the committee comprising the Chancellor, the Governor of the Bank of England and the chairman or chief executive of the FSA will have to make.
Lord Newby: I hope that the noble Lord will excuse me for intervening. Is he really saying that in a time of extreme difficulty, the Chancellor will take a political decision and execute it, without the Permanent Secretary of the Treasury being in the room? Is he saying that decisions—including those relating to how decisions may be executed—will be taken literally by the three people he mentioned and that no one else with expertise in how such decisions are carried out will be present when the decisions are taken?
Lord Eatwell: The noble Lord should take a lesson from a statement made by the noble Baroness, Lady Thatcher, when she was Prime Minister. She pointed out that advisers advise and politicians decide. At such times, it is vital that the leaders make the decisions. They may have people around them with the skill to advise them, but that is not the point. We need someone who understands the strategy and the operating characteristics of the FSA to be making decisions in times of financial turbulence.
I have been extremely puzzled by the reluctance of the noble Lords advancing the amendment to apply it to the current regime. They have said that they do not want the Bill to be ad hominem, but in fact they do wish it to be ad hominem, because it is not to apply to Mr Davies. If they really believe in what they are arguing, they should argue that there should be a separation now of the chairman and chief executive roles. It is clear that they do not believe in their argument. They are putting forward the amendment as a general attempt to make mischief with the Bill. If
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they really believed in what they were saying, they would present the argument in relation to the current circumstances.
Lord Alexander of Weedon: Is the noble Lord aware of the situation which exists within corporate governance, where it is the norm in the majority of cases for a company to have a chairman and a chief executive, but in some cases, those roles can be held by the same person? If he is aware of that situation, why does he believe that those who take the view that it should apply to the FSA are simply making mischief?
Lord Eatwell: If he really wishes to persist in the position which he has taken so far, the noble Lord will have to answer the following question: can he identify a major financial regulator in the world which is organised in the way he proposes?
Baroness O'Cathain: Those of us who have experience of operating at a fairly high level in corporate governance would find the situation extraordinary. The FSA is now in a strange position. It is actually operating although it has not been given the power to operate. That has been agreed to try to ensure that there is a safeguard for investors and that there is financial regulation. The reality is that the FSA is up and running, despite the fact that it does not have the power to be up and running. Therefore, to cause a problem now may not necessarily be the best thing. I do not believe for one moment that the combined roles should be operating now. I said that there could perhaps be a problem in the future. I believe that I used the phrase, "The spectacular success of Howard Davies". It is quite wrong to keep those roles together.
Lord Jenkin of Roding: The noble Lord, Lord Eatwell, has taken part in many previous proceedings of this House. It is perhaps a little unfortunate that he should describe simply as "making mischief" an idea which has been debated at great length in another place and put forward here with considerable force from the Liberal Democrat Benches. I hope that he may perhaps feel able to withdraw that comment.
Lord Eatwell: Yes, I shall gladly withdraw that comment. It was just a frivolous comment at the end of what I hoped was a series of serious remarks. I hope that it does not devalue the serious remarks I made earlier. I thank the noble Lord for giving me the opportunity to withdraw the comment.
Lord Jenkin of Roding: I am sure that your Lordships will forgive the noble Lord his frivolity.
I find this a quite difficult issue. I have read a number of the papers written on the subject by the authority itself and by others and some of the comments in the newspapers. I have listened with great care to the speeches so far. It seems to me that one begins from the proposition that, although this is a private company, in the sense that it is not a statutory corporation, it is in fact a hybrid. It is that curious hybrid: a private

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company exercising public functions. There are other examples, but nothing with the power, scope and authority that the FSA will have.
The FSA will be the most powerful institution created in peacetime Britain. It is in many respects legislator, investigator, prosecutor, judge, jury and executioner. If one begins with that proposition, one must then examine how one can hold such a body accountable for its actions. How can it operate effectively? I accept the case which has been made that there will be times when that body will have to act swiftly and perhaps quite condignly, if it is to maintain stability. We shall debate later the issue of how to maintain stability in the financial system. I begin from the proposition that one cannot consider the head of the body in isolation. That is only one aspect.
There are a number of later amendments on the Marshalled List relating to the question of a deputy chairman, as my noble friend Lord Alexander mentioned; and to the question of a strong non-executive committee. In my early days, when I moved from politics into one or two commercial posts, I was brought up to believe that the phrase "non-executive" was not liked. One was either a full-time director or a part-time director. Nevertheless, I accept that it has become so much a part of the language of the Bill that I shall use the phrase "non-executive directors". I must say that I like the phrase "director-general"; there is an amendment which deals with that point. It is not just semantics, as we shall see. I like the idea of a powerful committee of non-executive directors, headed by someone—call him the "deputy chairman" if you like—as a body whose authority must oversee the whole of the activities of the FSA. That is not provided for in the Bill as it is worded at present. They are the housekeeping committee, if I may put it bluntly. With the greatest respect to the Front Bench opposite, I do not think we can let that pass. What is the point of having an authoritative, powerful body of non-executive directors if it looks only to see whether it is getting value for money and at matters of that sort? It must have a responsibility across all the functional roles of the authority. We shall come to that. My point is that the chairman and chief executive argument must be fitted into that; it is not a separate, single issue on its own.
I shall listen to my noble friends on the Front Bench and the Minister. However, in looking at the Bill I had come to the provisional view that in the end this must be a split responsibility. Like other noble Lords, I heard with great interest the demolition by the noble Lord, Lord Newby, of the case made by the existing non-executive directors. When a body has such a wide sweep of authority and power to ruin individuals and destroy companies, it must be held firmly to account.
To my mind, splitting the function of chief executive (or director-general) and having perhaps a part-time or "most time" chairman who reports to the hoard seems the best solution. However, having said that, I side with those who say, "It will be sufficient if the Bill makes that possible". I could not take part in the Second Reading debate but I have read it. I understand the noble Lord on the Front Bench said that the Bill
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does just that. Perhaps I may say that it does so silently, by implication. It is not express. There should in my view be an amendment which makes express the fact that that will be an option.
Another factor is the question of review. When one sets up a body with such a huge scope of powers—it is not only the Bill which is immense but the powers—it should be subject to fairly early review. I believe an amendment on the Marshalled List states that that should be considered externally after three years. Whether three years is right, I do not know. One could embark on one form of governance; that is a single chairman and chief executive. I yield to none in my admiration of Mr Davies; I know his personal view on the matter. One has to take account of that. With the greatest respect to the noble Lord, Lord Eatwell, we are not legislating ad hominem; we are dealing with a body in medias res. I am told that the legal opinions to justify setting up the FSA using existing legislation—the 1986 Acts and others—stand as a high pile indeed. Clearly, a great deal of legal confidence was required before that could be done. However, the FSA is doing its job and working. It has an outstanding leader in Mr Davies.
I therefore tend to the view that the right answer is for the combined post to be allowed to continue. It should be subject to review. Whether that is after three, four, or five years is obviously a matter for argument. The Bill should make express provision that the job can later be split. We shall need to look carefully at the powers of the non-executive directors. As I indicated, I believe they are much too circumscribed as they stand in the Bill. We need to consider also the question of procedures for enforcement and the independent investigator. One of the problems of the present structure is that although there may be an investigator, he is still far too much under the thumb of the authority. The whole range of institutions and the features of this institution need to be balanced.
I shall reserve my position until I have heard further speeches. In the end I shall probably come down in favour of keeping Mr Davies as chairman and chief executive, having a much stronger executive board, separating out the investigative function and having a full review by an independent reviewing body, whether or not that is the Comptroller and Auditor General. I believe and support my noble friend in the idea that appointments should be subject to more parliamentary scrutiny, and we shall consider that. The Bill should have an express provision that the function should be split later. One cannot write into a Bill—or it would be difficult—the presumption that it would be split later. We simply cannot guarantee that we would have somebody with the remarkable talents of Mr Davies to take his place.
That would be a balanced package which I would support. I hope that that may commend itself to the Committee.
4.30 p.m.
Lord Grabiner: There are those who subscribe to the view that there is no such thing as a free lunch. I should, perhaps, disclose the fact that I was entertained to lunch by the FSA in February. As far as I was concerned, it was a free lunch.
This is a classic debate about form versus substance. I believe that substance is invariably the more important of the two. In relation to the question of form, I make five bullet points. I intend to be brief. First, the Cadbury approach would no doubt be more appropriate if the FSA was a public company with a body of shareholders. It is not a company but a statutory corporate body. It has no shareholders. The Cadbury analogy is completely irrelevant.
Secondly, the FSA is structured in a way which will ensure a clear line of responsibility and accountability from the FSA chairman to the Treasury. That is unlike any public or private company structure that we ordinarily find in our law. The mischief aimed at by the Cadbury code is simply not appropriate in these circumstances.
Thirdly, Schedule 1 to the Bill provides that the majority of the members of the governing body must be non-executive. The schedule also provides for a committee of non-executives. They will have a chairman appointed by the Treasury. My understanding is that the chairman of the non-executive group will be the vice-chairman of the FSA; and, indeed, he is a distinguished Queen's Counsel experienced in commercial matters. It goes without saying that the chairman and his vice-chairman will inevitably consult together on a regular basis. The idea that this whole enterprise will be run by Mr Howard Davies as some sort of private fiefdom is ridiculous.
Lord Elton: I thank the noble Lord for giving way. It is wholly unfortunate that an individual should be constantly named in this debate. We are trying to build something to last possibly 50 years. We should look at the problem and not the people.
Lord Grabiner: I entirely agree, although why I should be picked on as the target for that point I do not know. I agree with the noble Lord and I shall refrain from mentioning the gentleman's name again.
The non-executive committee will have wide ranging statutory functions and duties which are also provided for in the first schedule. These arrangements are novel and substantial. As I said, they render the debate about Cadbury irrelevant.
Fourthly, there is nothing in the Bill, still less in Schedule 1, which would prevent the authority at some future time adopting a split function of chairman and chief executive if, in the light of developing experience, it were thought necessary to do that. In my view, that is the short answer to a great deal of the formalistic debate which arises on these proposed amendments.
Lord Jenkin of Roding: I thank the noble Lord for giving way. Is it his impression that that paragraph of the schedule was drafted with that in mind, or is it only
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that the words used happen to be able to be relied on to answer the arguments? If it was intended, why was it not stated explicitly?
Lord Grabiner: One thing I have learnt over many years as a lawyer is never to speculate over what was in the mind of the draftsman of a document. He probably would not know the answer himself. However, I suggest that the language of the schedule is sufficiently flexible to permit the structure which, in effect, these amendments are seeking. Nothing in the schedule would inhibit or prevent that structure from being introduced at some time in the future without the need for primary legislation.
My next point is that, under the proposed structure, it is important to appreciate that the executive chairman, whoever he may be, will have no role to perform in the disposal of enforcement cases. There will be a separate enforcement committee which will be chaired by a legally qualified person. The committee will decide the key questions, such as the charges to be laid and, in due course, the penalties to be imposed and other matters of that kind. Noble Lords must not assume that the executive chairman will be bogged down with all kinds of detailed matters which, if that were the case, would inevitably impede his ability to exercise his judgment in relation to strategic matters and leadership issues, which noble Lords on both sides of the debate regard as being of overriding importance.
I have said a few words about the form of these arrangements. However, as I have already indicated, what really matters is their substance. What really matters is the calibre of the people who will run and staff the FSA. Since everyone agrees that the chief executive is the right person for the job, I suggest that we should let him get on with it without more ado.
Lord Fraser of Carmyllie: Like other noble Lords, I was somewhat taken aback by the black-and-white terms in which the noble Lord, Lord Eatwell, addressed this difficult issue. It certainly does not reflect either the evidence or the debates that we had in the Joint Committee under the noble Lord, Lord Burns, either in public or in private. I believe that this is a difficult issue and one that needs to be understood in relation to the variety of models about which we have heard. On the one hand, we have had the Cadbury proposal. I am bound to say that, given the structure that is required for the FSA as a company under the Companies Act, to dismiss Cadbury out of hand seems to me to verge on the cavalier.
On the other hand, we appreciate the arrangements within the Bank of England. I do not believe that there is anyone on this side of the argument—and not necessarily only those on this side of the House—who does not want to see those at the head of the FSA enjoying powerful responsibilities and positions in the country. I would trust that in the future they would be more than confident that they could take on the Chancellor of the Exchequer or the Governor of the Bank of England. For that reason, I believe that we need to look at this very carefully indeed.

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Furthermore, I do not believe that there is a good argument for saying that, if we were persuaded of the desirability of separation, we should be arguing the case in relation to Howard Davies himself. I hold him in very high regard, but that is not any part of my argument. As I recollect our discussions and what is contained in our report, we had an objectively valid reason to advance for retaining Howard Davies in a combined role at this time. Indeed, as the Explanatory Notes to the Bill dictate, no fewer than six bodies are to be drawn together into this one authority, setting aside a number of SROs that are also to be included within it. It seems to me that there is a different function to be performed when such bodies are to be melded together into a single organisation. For anyone who knows anything about the FSA at the present time, it must be clearly recognised that that has indeed proved to be a difficult task and one that I hope is now being accomplished successfully. I do not believe that it can be said that we are being inconsistent in our approach.
Without inviting the Minister to respond to me immediately, I should like to pursue one separate line of inquiry because it would tip my personal opinion one way or the other. As I understand it, it would be either a matter of expectation or requirement on the part of the FSA, as it looked at the recognised investment authorities in the City, that that separation between chairman and chief executive should be maintained. If it is the expectation or requirement that such a division is to be pursued, because such RIAs have responsibility for much of the regulatory functions of the FSA in a devolved fashion, it strikes me as rather startling that the "super-regulator" would not have such a separation of responsibilities, but would require all those at the second level to maintain such a distinction, whether they were mutualised or demutualised organisations. If I am wrong about that, I hope that the Minister will either say so now; alternatively, perhaps he will write to me. That would be helpful because if there is such an expectation or requirement, that would seem to me to be a compelling reason for requiring the same kind of separation within the FSA itself.
4.45 p.m.
Lord Burns: I find myself in considerable agreement with what has been said by the noble Lord, Lord Jenkin of Roding. As the noble and learned Lord, Lord Fraser of Carmyllie, has pointed out, this is not a black-and-white issue; rather, it is quite a difficult issue. We spent a good deal of time debating it in the Joint Committee.
As a number of noble Lords have pointed out, the FSA is a big and powerful organisation. I happen to believe that that is right and appropriate, given its responsibilities. Furthermore, I believe that it is right that we should have a single regulator. However, it means that we must think carefully about the governance arrangements. The noble Lord, Lord Fraser, also pointed out that the Joint Committee came to the view—although many different opinions were expressed in the course of our debates—that, on
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balance, it understood why the roles of chairman and chief executive had been combined in the early stages of the existence of the FSA. Indeed, that was helped by the appointment of a senior non-executive director as deputy chairman. However, in the end we decided that, in the longer term, it would probably be sensible for the posts to be separated so that there would be both a chairman and a chief executive.
It was a difficult balancing act and we were concerned that we did not wish to do anything to undermine the position of Howard Davies. In this case I make no apology for mentioning his name because we were in the early stages of setting up an important organisation and it was vital that nothing was done to destabilise that position. However, we also accepted the argument that it was right not to limit the power and focus on a single individual and that, if possible, moves should be made to enhance the position of the non-executive directors.
For various reasons the Government did not accept that recommendation—it was one of the few recommendations that they did not accept. They stated that they were happy with the present arrangements and did not wish to change them. They also put forward their argument on the importance of establishing a direct line of accountability to Treasury Ministers from the senior executive of the regulator. I can understand their concerns here, because even it' in the longer term they do see the merits of splitting the post, it would be highly disruptive to make an issue of it at the moment. It would then hang over the organisation at the point when we are trying to specify what the position should be, either after Howard Davies or at some later stage. I would be worried, not only in terms of the individual concerned but also because of the danger of giving the impression that we now have in place an organisation which is in some sense wrong, inappropriate or deficient. That would not broadcast a good message to the world.
So, while I continue to come down on the side that in the longer term a different organisation would be sensible, I question whether we need to include this in the legislation and to be quite so specific at this stage. Perhaps the situation could be left as one where a variety of different organisational structures might be possible.
Apart from the conventional corporate governance arguments, it is also a question of the type of individuals available to do the job. Although I am a great admirer of Howard Davies, I do not want to fall into the trap of concluding that he is irreplaceable. Nevertheless it is important to recognise that sometimes one must design organisations in terms of the responsibilities to be placed on the people who are available.
My preference remains, in the longer term, for the job to be split. But I do not want to create a situation where the present arrangements are deemed inadequate or flawed. That leads me to feel that we should not legislate in the detail being put forward for the alternative model. We should have a situation where the Bill leaves open whether or not the chairman

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should also be the chief executive. The noble Lord, Lord Borrie, pointed out that the Bill does that. The noble Lord, Lord Jenkin, pointed out that it may need to be slightly tailored to give a clearer indication that other arrangements are possible. One can then look at this in the longer term, both in relation to the responsibilities and how the organisation develops, to see what is the right organisation.
This has been an interesting debate on a difficult issue. I have come to the view that we do not need the detail of the organisational structure contained within the legislation. I should prefer the Government to indicate that they feel other arrangements can work and that they are not wedded to this model for all time; that they are willing to look at changing the way it is run according to the circumstances. Perhaps they can give an indication that over the longer term we shall have something which involves more of a division of responsibilities. However, we could get ourselves into a great deal of trouble if we try to design in detail an organisational structure which may have to face circumstances we cannot envisage at this point.
Lord Faulkner of Worcester: I am grateful to the noble Lord for giving way. Perhaps I can ask him this. The non-executives on the FSA board published a response to the excellent report of his Joint Committee. Would the view of the Joint Committee have been different, given that he described how finely balanced the debate was on whether or not the two posts should be split, if it had had the benefit of the non-executives' advice during its consideration of this issue?
Lord Burns: My view would not have changed. The response might have been, "They would say that, wouldn't they?" I am not sure that that is necessarily the group of people from whom at this stage one would be wanting to take advice in relation to the organisation in the longer term. I do not want to give the impression that the debate was that finely balanced. We came down clearly on the side that in the longer term this was probably not the right organisation. Moreover, I have some doubts, as the noble Lord, Lord Newby, pointed out, in relation to the specific response we had from the non-executives.
Lord Peston: I did not speak at Second Reading on this matter, not for my usual reason—namely, that there was an important football match to be watched—but simply because I felt that this was a Bill that was substantially correct in all its forms and I did not see the point of wasting 15 minutes of your Lordships' time in saying that. However, I intervene now because we are getting down to the detail.
I too admonish my noble friend Lord Eatwell for suggesting that these amendments are mischief-making. He dealt with the matter admirably by pointing out that the immense benefit of the amendments is to demonstrate without any doubt how right the Bill is as drafted and how wrong the amendments are. It is not mischief-making; it is
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immensely helpful for these amendments to be tabled so that they can be demolished in the excellent way that they have been so far.
My noble friend Lord Borrie called into question certain issues—it sounded more like a demolition of the amendments—but said that the Bill is very clear. A majority of non-executives will meet as a committee. Unless they meet as your Lordships' House meets, they will have a chairman. I should have thought my noble friend would pursue the role that several Members of the Committee said they would like to see.
I am not as enamoured with modern theories of corporate governance as are many other Members of the Committee. Having been the kind of chairman whose main role was to act as psychiatric adviser to the chief executive or to organise dinner parties, I am not persuaded that chairmen have such a marvellous role. I am also a good deal less enamoured, having been one on more than one occasion, of the merits of the non-executives. That thinking is out of fashion these days and people emphasise that what we need in running firms is someone to actually run them.
But as this will be an enormously powerful body—it is right, as my noble friend said, that it should be powerful—we need at the top a powerful executive figure with full responsibility; one who shows leadership and does exactly the job set out in the Bill. The benefit of the amendments is that we are able to elucidate that. The noble Baroness, Lady O'Cathain, raised the matter and for once I am puzzled by what she said. Normally in these areas she says things with which I totally agree. However, she said, "Suppose we appoint the wrong person". That is always a problem. The answer is, first, do not appoint the wrong person; secondly, have a mechanism for getting rid of the wrong person, but do not have two posts solely because one of them might be filled by the wrong person.
Baroness O'Cathain: I thank the noble Lord for giving way. That is not the sole reason for having two posts. He knows that perfectly well. He is just trying to goad me, as is his normal role. Perhaps I can add, as an aside, that I happen to serve in an organisation of which he is chairman, and he does not act as a psychiatrist; he acts as an autocrat. I know that he will take that in the best possible way.
The reality is that one of the roles of a chairman is to appoint the chief executive and to make sure that the chief executive carries out the wishes of the board. The chief executive is, of course, on the board, but it is a useful stopgap for the board to have on it somebody who is appointed by the board for the benefit of all the stakeholders. I take this brief opportunity to say that I am not saying that company boards—corporate governance is the in-thing at the moment—are there solely to look after the interests of shareholders; they have a lot of other "stakeholders", such as the staff, the general public and the good of the country. The noble Lord is trying to simplify what I said and perhaps I used too much shorthand.
Lord Peston: I apologise to the noble Baroness. I should never have provoked her; her intervention has been longer than the whole of my speech.

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I believe that the Bill is right. I remind the Committee also that my noble friend Lord Eatwell emphasised what no other speaker emphasised; that is, that the FSA exists for a reason. That reason involves the serious problems of management of risk and fundamental underlying economic problems. We are not discussing an academic issue of corporate governance; we are discussing a body which must have the power to deal with—we hope that it will not happen—a potentially major, catastrophic, risk-like event hitting our economy.
Finally, I turn to the amendment of the noble Lord, Lord Kingsland—
Lord Phillips of Sudbury: I am grateful to the noble Lord for giving way. I simply wanted to ask: is it not the basic duty of a board to decide how it will deal with those emergencies? Boards decide that every day of every week of every year. Why does the noble Lord feel that if we have a chairman and a director-general, they will be incapable of arriving at a clear line of authority to deal with emergencies?
Lord Peston: I know of no organisation in this country, particularly within the private sector, that will remotely face a potential catastrophe, which we hope will not happen, such as that which the FSA may have to face. We require a single person at the top to show the leadership, the control, and of course to have the organisation organised to cope with such an event. But we are dealing with a specialist issue, which is why I quoted my noble friend.
Perhaps I may now turn to the amendment of the noble Lord, Lord Kingsland, unless he has decided that he does not want it debated with this group.
5 p.m.
Lord Kingsland: Before the noble Lord turns to me, I want to turn to him with respect to the remark that he just made about the FSA facing a "catastrophe". It is very interesting that the one responsibility that does not feature in the objectives of the FSA is that of dealing with systemic risk. So if the authority were faced with the catastrophe that the noble Lord talked about, it would not be entitled to deal with it.
Lord Peston: As I understand it, this is a matter that will emerge during the course of this Committee stage precisely in terms of an amendment. That is why it is there. I know that it is incredibly boring of the one or two of us who are economists to raise economic matters when the rest of the Committee would much rather discuss things like corporate governance and non-executive directors, but the organisation exists for an economic purpose, not for its own sake. That is the point I am trying to make.
Finally, I hope that it is still in order for me to turn to Amendment No. 9A. I shall simply say that I disagree with it. My disagreement starts with the problem that the noble Lord, Lord Kingsland, obviously had. The noble Lord referred to the House of Commons Treasury Select Committee and your
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Lordships' House, but the amendment does not mention the latter. It does not do so for a very good reason; namely, that we do not have a committee—though some of us hope one day we will—that could do the job in the first place.
However, that is not my main objection. I accept the remarks made by many noble Lords—certainly those speaking from the Opposition Front Benches—about the problem of parliamentary accountability. Indeed, I am very concerned about that. But, in my judgment, the amendment is not about parliamentary accountability; it is about how to make a mess of the process of appointment. If we consider, not ad hominem but purely hypothetically, the sort of people about whom we are talking and do so entirely within the context of how we normally make such appointments in our country, the notion that those people of standing who we hope will come forward would not merely be sent for by the Commons Select Committee to be queried and interrogated but would also have their appointments confirmed by such a committee seems to me preposterous in the highest degree.
I am able to think of other possible heads of this body; indeed, it is not a case of only one entering into my mind. The sort of people of the standing I have in mind would, of course, be honoured to come before your Lordships' House, but that is another matter. However, to go before the Commons Select Committee with a view to one's appointment being confirmed—meaning, of course, that it may not be confirmed if members of that committee decided that the person was not good enough—seems to me a completely mistaken idea.
I am not for one moment suggesting that the noble Lord is wrong to raise the question of accountability of this body, as his noble friend did on Second Reading. Indeed, that does intrigue me. However, I do not believe that this proposal would give us accountability; it would just mess up the whole question of how we can get first-class people to work in quasi-judicial bodies. You just do not do it in this way.
Lord Desai: I do not have a hymn sheet, so I shall disagree with many of my noble friends. I had intended to speak only on Amendment No. 9A because I very much welcome the proposal. It is a profound defect of the constitution that it is very undemocratic. Whenever one tries to introduce democratic accountability, everyone says, "Nobody who is any good would appear to be scrutinised by a public body because it is simply beneath his dignity to do so". But it happens in the United States all the time. Alan Greenspan, who probably has more to do with "financial catastrophe" than anyone else, has to appear in order to be confirmed in his appointment.
I am sure that the whole debate on this point will be absolutely fantastic. Clearly, as there is only one Howard Davies, it will be difficult to clone him. Indeed, whoever appears the next time will be equally "unclonable" and will be too valuable to lose just by rude questioning from MPs, or even from members of a committee of this place.

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If this is an important issue, it will touch the lives of many people. In that case, it is very important that the person occupying that office should be publicly scrutinised. Everything that people say about the importance of the FSA and its head convinces me that we now have a chance to make a real constitutional innovation. I wish that happened on every appointment, including that of the Governor of the Bank of England, and so on. The noble Lord, Lord Kingsland, and I have had other democratic outbreaks like this, but they have been firmly put down, as no doubt this proposal will be. Indeed, we shall probably be "sent off" and put into a corner.
As regards the big question, I do not see why we cannot, in principle, give the person concerned two titles. The transition problem would therefore be solved. We could call Mr Howard Davies "chairman and chief executive". I do not know what he is called at present, but that title means that it would be possible in the future for those two offices to be occupied either by two separate people or by one person. It would depend upon whom we get.
Lord Haskel: That is what the Bill does.
Lord Desai: It does not say so explicitly; otherwise we would not be having this discussion.
I am aware of the "Borrie" solution, which I believe to be very subtle. However, as I read Schedule 1, I do not see why we cannot put this in writing and make our law slightly more readable and understandable by normally intelligent people, like myself, rather than leaving it obscure. I am sure that the answer will be, "It is all there, if you only look for it"—just as accountability is there, if one looks for it. Some people may say, "You are just ignorant; you are not part of the club. If you were on the inside you would know this, but you are outside. Therefore, you should not be here". I very much dislike that. Let us be explicit; let us be open and flexible. If it is necessary to have one person occupying two offices, that is fine, but it is possible that we will have to have two people occupying them. I do not really understand the problem.
Lord Elton: I believe it is my lack of qualification that qualifies me to speak in this debate. I have less experience of the financial industry than almost anyone else in this Chamber. Therefore, as a member of the public, I think that I should remind the Committee that we ought to be considering the nature of the animal that we are creating and trying to control. It is hugely important and powerful. It is subsuming large parts of the power both of Parliament and, I have to say, of the judiciary. It can extinguish the financial lives not just of individuals but also of large companies. Moreover, it can pry into the most intimate affairs of any organisation under its purview. Indeed, we shall discuss later the powers with which it can follow up what it has discovered—
Lord Jenkin of Roding: It is my recollection that, for a brief and somewhat turbulent period in its life, my
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noble friend was chairman of FIMBRA. I cannot remember what those initials stand for, but my noble friend has actually had personal experience in this matter upon which he should be able to draw.
Lord Elton: I shall be able to draw on that small experience a little later. However, from the outside, this leviathan is a fearsome creature. While controlling the whole of our financial industry, which is responsible for a great deal of the wealth and well-being of this country, it will also be capable of changing the circumstances under which the rest of us will live as a result of the decisions that it makes. So the decisions that we are now making are not unimportant. The concern of the average man and of the average—dare I say it?—voter is that it should not be an uncontrolled power unto itself and that it should not have duties that are beyond its ability to discharge.
I now turn to my brief and "turbulent" time as the chair of the Financial Intermediaries, Managers and Brokers Regulatory Association. I am not at all surprised that my noble friend could not remember the full name. I recall being a chairman with a chief executive. It seemed to me then that my experience as a Minister of the Crown was being duplicated and that anyone working under the pressures that will apply to those people whom we are now considering will, to some extent, be polarised. Those concerned will either be looking down at the regulated or out at the affected; in other words, they will either be looking at the enforcement of policy or at the effects of policy. If the policy is not properly enforced, the system will break down, the public will be let down, and the administration will have no result.
It seems to me that from a human point of view one normally needs to have two people to occupy those two positions and to hold them in tension with each other on the same board and with mutual regard. That works. It is not a recipe for disaster when catastrophe threatens. No Secretary of State is shy of having his Permanent Secretary with him in a moment of crisis, and no chairman need be shy of having his director-general with him in a crisis. But those outside need to see something which they believe can work, and not merely something that the Committee has been persuaded can work. The institution provided for giving public reassurance is Parliament itself.
Like the noble Lord, Lord Desai, whom I shall hasten to pick up if he is put down, or bring from his corner if he is put into it, I feel that Amendment No. 9A is an important one. I am not quite sure that my noble friend has it right, but I do not want to see Parliament push this great "Titanic" out with the danger that we shall all sink in it because we then have no control whatsoever over where it goes. The noble Lord who has introduced the amendment we are discussing has done us a service in drawing attention to where the true stresses lie. I was encouraged to hear that the noble Lord, Lord Burns, was, on the whole, of the same mind, until he answered a hypothetical question. That was a lesson in not answering hypothetical questions in debate! However, until that point he appeared to be on the side of those who favour

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these amendments. He introduced the idea of a change at a later date. I think that the noble Lord, Lord Desai, has put his finger on the matter. There is no reason why there should not be a change now and yet the present circumstances be left undisturbed. The Committee is anxious that the transitional body should not be fatally disturbed. All we are doing is asking one person to carry two names; that should not result in schizophrenia.
Lord Richard: I had not intended to say anything and I shall be extremely brief. I have listened to the whole of this argument but, the longer it has gone on, the less I have understood it. I thought that I understood it when the noble Lord, Lord Newby, started it. I thought that I understood it when one or two people opposed it. However, having listened to the noble Lords, Lord Jenkin and Lord Burns, and then having listened to what the noble Lord, Lord Elton, has just said, I find myself totally confused. The proposition seems to be that the post ought to be split and that there ought to be a chairman and a chief executive, except for now when it is important that the two posts should be operated by one individual. If I think about that for a moment, that seems to me to be saying that the ideal structure when things really matter is the existing one, where the post comprises one person, but that for normal working, the posts should be separated. I do not understand that.
Viscount Bledisloe: I ask the proposers of these amendments two questions. First, does the noble Lord, Lord Newby, accept that if his amendment is passed, it will not be possible to do what the noble Lords, Lord Alexander and Lord Elton, suggest; namely, sometimes having the post comprising one person and sometimes having two separate posts comprising two people? Secondly, if his amendment is passed, it will be necessary always to have a separate chairman and a separate chief executive, except at such times as there is a temporary vacancy. However, one could not say that for the next five years "X" is to be chairman and chief executive. I suggest to the noble Lord, Lord Newby, that that is the true position and that the compromise of the noble Lord, Lord Alexander, may be a wonderful one, but it is not an argument in favour of this amendment.
I now address the noble Lord, Lord Kingsland, and ask him the question that he asked the Minister earlier. Is there any precedent—and, if so, what—for the idea that posts of this kind will be subject to the appalling American practice of confirmation by the legislature, which has meant that in America only third-rate people are prepared to take jobs of this kind?
5.15 p.m.
Lord Hambro: If I may say so, in the FSA we are creating a kind of monster. As has been reiterated many times, it has powers far beyond anything which we have seen before in the financial services industry. Most of the powers of the Bank of England, the Department of Trade and Industry, and other units of enforcement, have been removed and directed to the
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FSA. When the crisis arises—as it inevitably will—in the years ahead, how will the FSA maintain the greatest credibility? The FSA will be a new instrument, a new body, in the eyes of people in this country. It will also be watched carefully internationally. My noble friend Lord Kingsland mentioned the word "systemic". If there is a systemic breakdown, it is important that everyone should consider that the FSA has the power and the wisdom to control the situation. I should have thought therefore that initially it is important that the position of the chief executive and that of the chairman—whoever they may be in the future—should be separated.
Lord Saatchi: The Committee owes a debt of gratitude to the noble Lord, Lord Newby, because he has introduced what is obviously an important issue on which many Members of the Committee have expressed important thoughts. It is, after all, an issue on which the committee of the noble Lord, Lord Burns, spent many hours and on which it made a specific recommendation which the noble Lord, Lord Newby, has tried to address in his group of amendments.
I hope that I may explain why many of my noble friends have concerns about this aspect of the Bill. The issue that those outside the Chamber have brought to my attention and on which they have expressed concern is the very issue that we are discussing. Many practitioners in the City are deeply concerned that the first step that is being taken is to create a powerful body and that the second step will be to create a powerful executive at the head of that body. I hope that my noble friend Lord Elton will allow me to mention the name of the present incumbent again. As the noble Baroness, Lady Turner, said, it is no part of our aim to create disruption in a body which has worked well. Some of us have said that it has worked spectacularly well. It is a minor miracle that the FSA has been able to operate without the underpinning of this legislation. That is a great tribute to its board and to its present chairman. As I say, we believe that it is important not to cause disruption.
However, I reiterate what many of my noble friends have said; namely, that it must be the object of this Chamber to look ahead and to prepare legislation to underpin the working of the FSA for 15, 20 or 50 years. If Howard Davies is listening to, or watching, the debate, or will read the debate in Hansard, I should like him to know that I and all my noble friends have great respect for him. We do not fear him, but rather his potential heirs and successors.
I had difficulty with some of the Government's arguments—many of which the noble Lord, Lord Newby, reiterated—against splitting the two jobs. The first argument that the Government put forward was that having a separate chairman and chief executive would create confusion as regards who would attend certain meetings. It has been raised as an issue that it would not be clear who would attend the tripartite committee on financial stability, a very important body on which the FSA is represented along with the Bank of England and the Chancellor of the Exchequer.

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The Government have also said that there would be other uncertainty about who would attend certain meetings. There are apparently regular meetings of regulators from different countries and the Government are concerned that people would not know who to send. I must agree with the noble Lord, Lord Newby, that it ought to be possible for sensible people to decide who would attend such a meeting. For example, it may be possible to agree that the chief executive in a split role would be the appropriate person to attend these meetings. He is obviously the executive with operational control. Certainly that would be the case in a private company. The chief executive would attend those types of meetings.
That brings us to the heart of the Government objections to splitting these roles. The Government say that the FSA is not a private company. That is why the Government say it is not appropriate to apply the Cadbury or combined code guidelines of corporate governance to the FSA. That is the heart of their argument. I quote the Government in saying they are,
"mindful of the fact that parallels with other models of corporate governance are not exact".
What they mean by that is that the FSA is not a private company. It does not have shareholders.
It is certainly true that the FSA is odd in form, as the noble Lords, Lord Grabiner and Lord Jenkin, have said. Despite the fact that it exercises public power on behalf of these Houses of Parliament, it takes the form of a private company limited by guarantee. Tim Herrington of the City law firm Clifford Chance explained to the committee of the noble Lord, Lord Burns, that:
"The legal structure chosen for the FSA creates challenges in establishing clear accountability arrangements. It is a hybrid; a private body exercising public functions".
It is true that in any normal private company accountability of those in power—in other words, the executive directors—is achieved because the board of directors reports to shareholders who can remove them. The FSA, as the Government say in this argument, has no shareholders. Therefore, how is accountability of the executives to be achieved, and to whom?
This question has led to the wide and consistent calls, which the noble Lord, Lord Newby, has reflected with this group of amendments, for the role to be split in order that an independent chairman can provide a dispassionate view of the performance of the executives. What the critics of the present set-up are driving at is what they see as the advantage in principle in any organisation of having a chief executive, however good he is, who also has a chairman to whom he must answer. They say that the advantage of having the two is a general advantage of good governance and would apply to any type of organisation, especially so when setting up a very large and complex organisation such as the FSA.
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The City—those regulated by it and those outside it—would then have in the chairman, as they see it, someone whom they can approach with their anxieties but who, if he is not instantly responsible for the issues, can take them up with the chief executive in order that the whole system can be seen to work better. Those noble Lords who have expressed anxiety about what this would mean in terms of the running of the FSA might consider this point.
A good example of how this works in practice is the BBC. I am sorry to see that the noble Lord, Lord Birt, is not in the Chamber. However, I think I know his views. This is exactly the type of situation that the critics of the present set-up are concerned about. If, for example, the BBC were accused of political bias of a serious nature, or if it were accused of some gross invasion of privacy, or if it were accused of not meeting its programming obligations in a major way, then it would be clear that someone other than the executive responsible for the allegedly offending decisions would become the court of appeal. That person is the chairman of the BBC. The structure works perfectly well and we all believe that the BBC is an icon of how organisations should be run with the public interest in mind.
Lord Haskel: Is it not the task of the practitioner panel to bring it to the attention of the chairman or the directors of the FSA if the City has concerns about some of its activities?
Lord Saatchi: Yes, it is. Unfortunately—and we shall come to this in other amendments—the status of a practitioner panel is nowhere near adequate for the type of issue that I am describing here. It would only be able to make representations and that would be all, whereas the position of chairman is that of the person who is in command of the board and therefore can take responsible decisions.
It is also worth bearing in mind that IMRO, the SIB and the SFA, which were three of the FSA's regulatory predecessors, and three very important ones, all operated on a system which split the functions of the chairman and the chief executive.
I shall close by saying, only half seriously, that one of my honourable friends in another place researched quangos to see how many of them operated on a similar basis to what is proposed in this Bill. He found only two: the Central Laboratory for Research Councils and the Trinity Lighthouse Service.
Lord Faulkner of Worcester: Before the noble Lord sits down, did that research also include regulators? The FSA is a regulatory body. For example, the Director-General of Fair Trading is a single individual and the railway regulator is a single individual. Is that not a rather closer parallel than the kind of organisation to which the noble Lord has referred, including the BBC?
Lord Saatchi: I am glad to deal with that point. One of the arguments that the Minister, if I have learnt to anticipate his arguments at all well, will reflect is what has just been said. Why are we complaining about this

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when other regulators in other countries and other regulators in Britain too are single individuals—they are usually called "director-general"? I think the Minister reacted enthusiastically when it was said that other financial regulators in other countries have a single individual at the top. I am sure he will deploy that argument. I am pleased to be able to respond to that in advance. The point is that it is not necessarily the case that because all one's friends decide to build their house on a frozen lake in winter that one is obliged to do the same. To take another example which comes to mind, if 11 countries decide that they want to merge their currencies into one, it is not necessarily the case that Britain has to do the same.
I reiterate that one of the points that underpins our great concern about this Bill in so many key areas is that the financial services industry is unique in Britain. Britain has a miraculous thing in the financial services industry, an industry which is a world leader. Our share of the sectors of the financial services industry is much, much bigger than we would deserve on any pro rata basis of our share of world GDP. There are particular reasons for not wanting to disturb what is an extraordinary success story.
Lord Peston: The noble Lord has put his finger on something which I realise now is central. I take it that his argument in reply to my noble friend Lord Faulkner is that the industry being regulated is different from all other industries in this country. That is the essence of the position as he sees it. I must admit that, until he said it, I had not heard any other argument as to why this industry is different from all other industries. It seems a little late, if I may say so, since he has only just raised it, that we should now be having to think about it. None of us has had a chance to say that we are not convinced. I take it that he is going to say yes; that is the essence of his position. This industry is completely different from the whole of the rest of the British economy.
Lord Saatchi: Yes, I am going to put that argument very clearly. It is a unique situation in that the industry itself is a jewel. The reason that the question of the chairman and chief executive is so puzzling to practitioners in the industry is that the FSA is the body that supervises the very companies which themselves are obliged to supervise the application of the combined code to their clients. Reasonable people are mystified as to why the rules of governance that they are expected to apply to their clients should not be applied to the body which regulates them.
5.30 p.m.
Lord McIntosh of Haringey: A long time ago the noble Lord, Lord Newby, said that this is the most contentious issue that will be considered in the Committee stage of the Bill. I hope that the noble Lord is right. It would be very agreeable if we could be amicable about all other matters.
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I have to say—I am sure that I will be misunderstood in saying it—that my starting point here is that of Pope:
"For forms of government let fools contest"—
oh, no, your Lordships are not fools—
"Whate'er is best administered is best".
Frankly, as far as I am concerned, the sooner we get on to the content of what the Financial Services Agency does rather than what it is, the better for the debate.
I recognise that this is an issue on which strong views are held and the Government recognise the sincerity and force with which those have been expressed. I have to say that those view have been expressed from all sides of the Committee with considerably less unanimity on the side of the amendment than might have been expected from the trailers to these debates which have been conducted in the broadsheet newspapers over the past few days. So it is necessary that I should restate the Government's position.
Like all those who have spoken, we want the governance structure which best enables the FSA to achieve its objectives. In our considered view, the arrangements we have—a single person as chairman and chief executive with a non-executive deputy chairman—are the best way of meeting the objectives. My speaking notes say that I know that all noble Lords agree that Howard Davies has been doing a very good job indeed. But I am not allowed to say that, so I have not said it! The present arrangements have been working well, and we see no need to change them.
There are a number of reasons for that. First, there is the question of accountability. This point will be dealt with in many later amendments. We believe that there is great advantage in having a single public face of the FSA; a single chief point of contact who is accountable to the Treasury and who can be called before parliamentary committees; a single person with whom the buck stops within the FSA. Separating the roles would risk confusing that very clear chain of accountability, blurring the lines as to who is responsible for what, and creating doubt as to the authority of any one person to represent the FSA, and, ultimately, to carry the can. The earlier remarks of the noble Lord, Lord Stewartby, were pertinent to that point.
Secondly, we need to ensure that there is a person with the authority to lead the FSA both in its daily business and in the international arena. My noble friend Lord Eatwell referred to daily business. Daily business may well be urgent business. My noble friend said that it is something where there has to be a quick reaction to a crisis, but it could be to any event which requires top-level decision making. In those circumstances, a single person is more fit to do that. In the international arena—what I am going to say has been anticipated so many times that I am almost afraid to say it, but it is my duty—we are anticipating that the FSA will continue to be a major player on the international regulatory stage. Virtually all other major international financial regulators are represented by full-time executive board chairmen. They are the public representatives of those

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organisations, and it is important that the FSA is represented by a person of appropriate, and equivalent, stature.
Thirdly, the nature of the authority and its business means that there is a very real need for an executive office holder to have the full authority to take difficult decisions and to commit the FSA. If, for example—I refer again to the point made by my noble friend Lord Eatwell—the FSA needed to take urgent action to deal with a systemic issue, that decision would need to be taken by a person at the very highest level, with a full-time commitment and a real involvement in the issues. For more everyday matters, there is undoubtedly benefit in having a single individual providing a recognisable public face for the organisation.
It has been suggested by some that the roles of chairman and chief executive should be split in order to reflect the current thinking on corporate governance best practice. The noble Lord, Lord Boardman, made that point about the Cadbury rules, although I doubt whether they are the most recent thinking on current good practice. My noble friend Lord Grabiner answered that point anyway. Although we understand that line of thinking, the parallels with ordinary companies are not exact. The combined code is designed for companies with shareholders, and who do not benefit from the various accountability checks and balances provided for by the Bill. The spirit of the combined code is that there should be a strong non-executive element on the board.
We have more than provided for this. There will be a majority of non-executives. The non-executives will form a committee to keep under review whether the FSA is discharging its functions in the most efficient and economic way; to review the FSA's financial controls; and to determine remuneration. The committee will be chaired by the non-executive deputy chairman. We intend that the deputy chairman should be a key and influential member of the board, leading the non-executive majority in board discussions, in providing an independent perspective to the overall running of the FSA, scrutinising the approach of the executives, and the FSA's overall performance. The noble Lord, Lord Jenkin, described this as "housekeeping". It is a good deal more than that and it covers all of the points raised by the noble Lord, Lord Boardman, and more.
On top of that there are a range of other accountability measures which a "normal" company will not have. The board will be appointed by the Treasury and be subject to transparent appointment procedures. There will be an annual report to Parliament, the contents of which have been agreed with the Treasury. There will be an annual open meeting where stakeholders can air their concerns. Practitioner and consumer panels will be consulted on the FSA's general policies and practices and will make their own annual reports; and of course there are the principles and objectives, guiding the way in which the FSA—and hence its governing body—acts. Those are on the face of the Bill and will be debated later. So the FSA is not really a company of the kind to which the
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main corporate governance reports apply. To the extent that it is, the functions of the board are the fiduciary responsibility of all members. I have to say to the noble Baroness, Lady O'Cathain, that this means that all power is not invested in one person, as I think she was suggesting.
Having said that, we recognise that there is room for more than one view on these matters. It is in recognition of this that the Bill has not been drafted in a way that sets the current arrangements in stone. I shall not become involved in the discussion between the noble Lord, Lord Jenkin, and my noble friend Lord Grabiner, as to whether is was intended that way. I am simply recording it as a matter of fact. The Bill allows flexibility for future administrations to review whether a different governance structure may be appropriate when different individuals are in charge—for example, a non-executive chairman with a chief executive; or indeed, as the noble Lord, Lord Alexander, wants, an executive chairman, although it is not at all clear to me whether that is provided for in the amendments under discussion. Indeed, it is not at all clear to me whether the amendments under discussion are clear as to whether, under certain circumstances, the roles of chairman and of chief executive could be combined in one person, as some noble Lords seem to want.
We do not therefore believe that any amendments need to be made. We think that amendments might make the current position, which I believe has general support, more difficult to sustain. We would risk losing authority in international discussions; for example, Howard Davies is the UK representative on the governing bodies of IOSCO and FESCO, the global and European organisations of securities regulation. As the noble Lord, Lord Haskel, pointed out, all his international colleagues on these bodies are full-time executive chairmen.
Many analogies have been made with other bodies. I do not have time to go into them all. But the FSA is not the only regulator with such a structure. This is the model used with many UK regulators—the Director-General of Fair Trading, the Director-General of Telecommunications and the rail regulator. Incidentally, I should say to the noble and learned Lord, Lord Fraser of Carmyllie, that the Bill does not require investment exchanges to have a separate chairman and chief executive.
Lord Fraser of Carmyllie: I did not suggest that it did or, indeed, that it should. I am trying to ascertain from the Minister, now or at some future point, whether there will be an expectation on RIEs that they should in future have that separation. It would seem anomalous if, as the noble Lord is advancing, there should be only one chairman for the FSA.
Lord McIntosh of Haringey: That is a hypothetical situation. The Bill does not say so and the Government are not proposing to introduce amendments which would make the Bill say so.
The FSA has made clear that it will have a separate enforcement committee, which will not include executive board members, which will decide both on

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bringing charges and on appropriate sanctions. The FSA structure does not envisage a role for the chairman in the disposal of enforcement cases.
I shall not go over the views of the non-executives; they have been roundly criticised. The noble Lord, Lord Newby, spoke of the paucity of their case. Without going over the arguments, they did point out that the Government's model for the FSA is based on the model put in place for the Bank of England in the Bank of England Act, which we approved here in 1998. As the Minister who took the Bill through this House, I do not recall any objection to this element of its governance.
I turn now to Amendment No. 9A, which is grouped with this amendment, to which the noble Lord, Lord Kingsland, and others have spoken. As we have indicated in our response to the Joint Committee report, we do not consider that an extended role for Parliament would sit comfortably with the principle of ministerial accountability for appointments endorsed by the Nolan Committee for Standards in Public Life in its first report.
The appointments of the chairman and chief executive, like the appointments of all members of the governing body, are made by the Treasury, and therefore will be an issue on which Treasury Ministers will be accountable to Parliament. It is important that a clear line of accountability is maintained. If the appointments were subject to the approval of a Select Committee, we believe that that would interfere with ministerial responsibility. As my noble friend Lord Peston said, the prospect of a public hearing and the possibility of being turned down may deter suitable candidates from coming forward. These are non-remunerative posts which are enormously important because they represent the financial community. We want the very best people to do those jobs.
I should say to my noble friend Lord Desai that I am not against constitutional innovation, but it would seem rather strange to introduce this one constitutional innovation—confirmation by a legislative committee—when we are dealing with the FSA. If we are going to take a major step in constitutional innovation, surely we should do it in a deliberate and considered way rather than almost accidentally in one amendment to this Bill.
I have made it clear that we do not believe the amendments are necessary or desirable. It is up to the noble Lord, Lord Newby, what he does with them, but if he decides to divide the Committee I shall advise my noble friends to vote against them.
Lord Alexander of Weedon: Before the Minister sits down, perhaps I may ask a question about Amendment No. 9A. Sharing, as I do, his doubts as to whether an amendment of this kind should be introduced in regard to one particular body, is it right that if we had to consider the issue of principle, we would have to consider it across the board? We would have to consider it as applying to a whole range of prospective posts, such as Chairman of the BBC and
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even possibly to the appointment of judges. The issue would have somewhat wide-ranging implications that we would need to look at very carefully as a whole.
Does the Minister also agree that, if we were considering this issue, we would have to look at whether the control mechanism should be simply a committee of the House Commons or a committee of both Houses of Parliament?
Lord McIntosh of Haringey: The noble Lord has said much more ably what I said rather falteringly and briefly. I am sure that he is right.
5.45 p.m.
Lord Newby: I do not know whether this will be the most contentious debate on the Bill, but I certainly hope that it is the longest. I am extremely grateful to all noble Lords who have taken part. I hope that they will forgive me if I do not go through all their contributions and comment on them. I want to make only two brief, specific comments in regard to questions that have been asked.
My first point relates to a question which was asked initially by the noble Viscount, Lord Bledisloe, and which was followed up by the noble Lord, Lord McIntosh. The noble Lord asked whether the amendment would mean that one would necessarily have a separate chairman and chief executive. On first reading, that is what it means. That was in our minds when we tabled the amendment; as we have discovered, how it may be interpreted in the future is a different matter. On a straight reading of it, there would be two people with two distinctive roles. That was in our minds when we drafted the amendment and is what I tried to say when I opened the debate.
My second point is in response to the noble Lord, Lord Peston, who asked whether we on this side of the debate were arguing that there was something different about the financial services industry from the other regulated industries. It was a lacuna in my argument that I did not make the point that there clearly is. The circumstances are completely different. A 300 year-old industry which has been in the private sector throughout—which is fiercely competitive and which has many, many practitioners—is completely different from a privatised public body. In terms of the regulatory tasks faced by a regulator, it is almost self-evident that the financial services sector is of a different order to the railways, the water, the gas and the electricity industries.
Lord Peston: I am pleased that the noble Lord has been forthright in his statement. I do not want to try and influence what he now decides to do about voting or not voting, but, on reflection, does he not think that as we have not debated precisely what I certainly regard, and what I think other noble Lords regard, as the essence of the subject—it may be that the industry is different—it would be rather foolish to divide on the

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issue? I do not want to stop him dividing the Committee; I merely want him to reflect on it for 10 seconds.
Lord Newby: Let me proceed and all will become clear.
This has been an extremely thoughtful debate. As a number of noble Lords have said, the matter is not completely black and white. I set out the arguments as forcefully as I could because I thought they needed to be put at the start of the debate. A reason for such a degree of greyness about some of these matters is that the FSA is up and running. If it were not, there would be even wider support than there has been for the arguments we have advanced. I accept that.
As to what we intend to do next, we on these Benches have always—perhaps not always, but during my time in your Lordships' House—as a matter of principle chosen not to divide at Committee stage, specifically because we like to grapple with issues. We like to hear what people say and to decide whether our mind has been changed. We shall return to this matter at Report stage. We never intended to force a vote at this stage and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment Nos. 8 and 9 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 9A:
Page 216, line 28, at end insert—
("() The appointments of the chairman, the chief executive and the non-executive deputy chairman shall not take effect until they are confirmed by the House of Commons Treasury Select Committee following a public hearing.").
The noble Lord said: I should like to respond to the kind comments made by certain of your Lordships about my introduction of Amendment No. 9A, but, in particular, to try to deflect the enfilading fire from my noble friend Lord Alexander of Weedon and the noble Viscount, Lord Bledisloe.
I entirely accept that this amendment would introduce, if it were accepted, an unprecedented procedure into our constitution. I make no apologies for taking this initiative. In my submission, the powers that will be exercised by the SFA will be unprecedented for an authority which is, after all, framed in the context of a private company set up under the Companies Act 1985, albeit limited by guarantee.
It appears that even the benefits of that structure as a form of discipline are not to be allowed to your Lordships: by definition, there are no shareholders in this company and therefore the management will not be disciplined by a shareholders' meeting; there is to be no separation of powers between the chairman and the chief executive, so that the latest advice that we have on proper governance is ignored; moreover, the powers of the non-executive directors are to be derisory. So there are no checks and balances whatsoever within the framework of the organisation in which the new authority is to have its being.
What other controls are there? There is no parliamentary control. We see from the Bill that the authority is to have substantial legislative functions; but none of the draft legislation will be laid before either your Lordships' House or another place. Moreover, the organisation will not be subject to the discipline of the Comptroller and Auditor General. So there is no parliamentary control whatsoever on the FSA. Moreover, it is to enjoy—except for acts of bad faith—statutory immunity.
I think I am entitled to say that here is an organisation which has been defined in a Bill, by the Government, who seek not to maximise, but to minimise, control over it. In those circumstances, I believe that the constitutional initiative contained in my amendment is wholly justified.
Lord Alexander of Weedon: Before my noble friend—
The Deputy Chairman of Committees (Lord Ampthill): The noble Lord has spoken to the amendment and I must therefore assume that he meant to say that he moved it. Amendment proposed—
Lord Kingsland: I am giving way to the noble Lord, Lord Alexander.
The Deputy Chairman of Committees: The noble Lord cannot give way to the noble Lord, Lord Alexander; he must give way to me, unfortunately. As the noble Lord has spoken at some length to his amendment, an opportunity must be given for others to respond to it. The amendment proposed is at page 216, line 28, insert the words as printed in the supplementary Marshalled List.
Lord Alexander of Weedon: My Lords, after that exchange, I rise with a certain amount of diffidence. Having heard—this has happened to me before—the persuasive way in which my noble friend Lord Kingsland has moved his amendment, I find the arguments, if they could be addressed in a general context as to which authorities should be subject (in the context of appointments to senior positions) to parliamentary control, highly understandable. If any were to be subject to parliamentary control, the noble Lord makes a very strong case that the FSA should be.
Perhaps I may ask the noble Lord, at whatever would be the appropriate stage for him to deal with this, to indicate whether he thinks it would be more appropriate for an appointment of such importance to be considered by a Joint Committee of both Houses of Parliament.
Lord McIntosh of Haringey: The noble Lord, Lord Kingsland, used his opportunity to move the amendment. It had to be moved, and it was moved—even if only by the words of the Deputy Chairman.
Lord Peston: Perhaps I may interrupt my noble friend. I could have sworn that I heard the noble Lord,

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Lord Kingsland, move his amendment two hours ago. I understood that he had withdrawn it. I am totally at a loss to know why we are debating it now.
Lord McIntosh of Haringey: It could not have been moved two hours ago. There can only be one amendment before the Committee at a time.
Perhaps the Committee will excuse my brevity if I say that I think the arguments against this amendment in particular were made most effectively by the noble Lord, Lord Alexander, in considering Amendment No. 7. I shall be glad to address the extraneous points raised by the noble Lord, Lord Kingsland, about accountability and parliamentary scrutiny when we come to the appropriate amendments in due course.
Lord Elton: As the opportunity has been provided, will the noble Lord explain to me a little more clearly the status of the body that we are creating? It is described on page 16 of the Explanatory Notes as,
"an existing company limited by guarantee".
As it was rather differently described in our debate and no one was corrected in so doing, I thought, therefore, that it had lost that status. Then I see, in paragraph 14 of Schedule 1, that,
"The Authority is to continue to be exempt from the requirements of the 1985 Act relating to the use of 'limited' as part of its name"—
which seems to mean that it is indeed a limited company. I should like to know which view is correct.
Lord McIntosh of Haringey: The Explanatory Notes are correct. It is a company limited by guarantee which is not required to use the word "limited" in its name.
Lord Kingsland: It was my intention in speaking after the noble Lord, Lord Newby, to respond, as the noble Lord did in respect of his amendments, to those noble Lords who spoke to my amendment, and then to withdraw it. The reason I did not complete the procedure was that I felt a frosty wind from behind me and my noble friend Lord Alexander got to his feet. Therefore, before I could say the fatal words, he was up and I was down. I now beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 10 and 11 not moved.]
Lord Saatchi Lord Saatchi moved Amendment No. 12:
Page 216, line 32, at end insert—
("Director General of the Authority
. The person holding the office of Chief Executive shall be called the "Director General of the Financial Services Authority".").
The noble Lord said: This amendment deals with the concept of renaming the chief executive of the FSA "the director-general of the Financial Services Authority". I need not rehearse the background, as so much has already been said about this. As I said earlier, the Government have argued that a separate chief executive and non-executive chairman would complicate relationships with other bodies and other
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regulators. The amendment would leave no one in any doubt. It proposes to give the chief executive—if there were to be one—a suitable title to deal with this very point. It would make the status of the top man in charge crystal clear.
Surely the Government cannot have it both ways. If the FSA is a private company, as the Minister has just said it is, it should be subject to normal corporate governance rules. If it is not a private company and is simply a regulator, the man at the top should have the same title as those at the top of all the other regulatory bodies. It really has to be one way or the other. I beg to move.
Lord Borrie: In the light of the withdrawal of the amendment moved by the noble Lord, Lord Newby, this amendment seems quite inappropriate. I should have thought that the noble Lord, Lord Saatchi, would have chosen not to move it. What we have now is the position as described in Schedule 1; namely, a chairman and a governing body where there will be executive and non-executive members who can be called whatever the authority wishes to call them, and I should have thought that it was best left to them. I say that despite the fact that I have a certain affection for the title "director-general". However, I do not think that it is appropriate or necessary to have this amendment in the Bill as it now stands.
Lord Saatchi: If I felt the same way, I should certainly seek to withdraw the amendment right away, but first perhaps I may hear what views there are.
Lord Stewartby: I shall speak only briefly to the amendment because the arguments have been deployed in relation to the previous group. My particular concern regarding the amendment of the noble Lord, Lord Newby, was the introduction of the term "chief executive", because it carries with it the implication that there can be no higher executive authority. If there were to be a director-general, I should be much happier. My main concern is that we should not introduce the term "chief executive". If the roles are separated, I hope that the authority will not use the term "chief executive", with its implication that there is a chairman who is not executive in any sense.
Lord McIntosh of Haringey: I honestly do not see the point of this amendment. It does not imply a splitting of the roles of the chairman and chief executive, which is what we debated for two hours—quite properly and quite rightly. But the question of the actual title, whether it is "chairman" or "director-general", seems to me irrelevant. If there is no implication for the nature of the role, I would say that Pope is doubly right:
"For forms of government let fools contest;
Whate'er is best administered is best"
I hope that the noble Lord will not pursue his amendment. There is no evidence of any dissatisfaction with the existing title. I believe that the amendment would be change for change's sake.
Lord Saatchi: I moved the amendment in the context of seeking to deal with the general structure at the top of the FSA. I am sure that this is an issue to which we shall return on Report. At this stage, I beg leave to withdraw the moment.
Amendment, by leave, withdrawn.
6 p.m.
Lord Sharman Lord Sharman moved Amendment No. 13:
Page 216, line 32, at end insert—
("Functions of the chairman
.—(1) In this paragraph "the chairman" means the chairman of the Authority appointed under paragraph 2(1)(a) above.
(2) The chairman shall at least twice in every calendar year consult the Governor of the Bank of England in relation to those matters affecting the general duties of the Authority under this Act.").
The noble Lord said: I must first declare an interest as a paid adviser to a firm which would be regarded as a practitioner under the Bill. In moving Amendment No. 13 I should like to speak also to Amendments Nos. 52 to 57. All the amendments deal with systemic risk. I have been encouraged by a number of references to the need for the Financial Services Authority to deal with catastrophe. I have in mind the observation of the noble Lord, Lord Kingsland, that at the moment the authority would not have that power. The amendment seeks to address the issue.
The migration of supervisory powers from the Bank of England to the FSA poses a number of questions regarding the role and powers of the authority to deal with systemic risk to the financial sector as defined in the Bill. Systemic risk to the financial system could be caused by the failure of a single institution, triggering subsequent failures by domino effect, or through a problem of infrastructure—perhaps the failure of a major clearing bank which affects the UK payments system as a whole.
The issue is whether under the Bill the FSA should have the power to deal with systemic risk. There is at present a lack of clarity. One sees the Bank of England as lender of first resort in that it alone can provide liquidity to the system. But it also remains the lender of last resort in the case of systemic risk since, as the central bank, it is the only institution able to issue money or put value into the system. In the past the Bank's powers of intervention to bale out failing institutions have been used sparingly, the prevailing rule being that a private sector solution is to be preferred in all cases involving individual institutions. But the standard to which that power is deployed also varies over time, as does the definition of "systemic risk".
If we look back awhile, in the case of Johnson Matthey the Bank of England baled it out because, as one of the five gold banks at the time, it was felt that there was a systemic risk. In the case of Barings, the failure was considered more a risk to reputation than a systemic risk and there was no intervention. It is also true that the Bank will intervene only when solvent institutions are in difficulties because of lack of asset
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liquidity. It is unlikely that it will intervene or commit public funds to rescue an institution which is also insolvent.
There is an issue with regard to the interaction between the Bank of England, the FSA and overseas authorities in that each body seeks to protect its own constituency or consumers in the event of failure. Regulators have regularly used the college system as a means of communication between regulatory institutions. BCCI is an example of where that arrangement worked reasonably well. However, each failure is different and the circumstances which led to the rescue of one institution at a particular moment may not necessarily be appropriate or repeated subsequently. At the moment, the Bank of England retains certain powers of intervention in the case of systemic risk, but its management functions have been transferred to the Debt Management Office, a government agency under the Bank of England Act 1998, to which reference has already been made.
As I understand it, under the Bill the powers available to the FSA include the power to compel the provision of information, the power to intervene, the power to participate in insolvency, and the general application of moral pressure on institutions. But it is necessary to raise the game, as it were, and increase awareness of the responsibility for systemic risk. I believe that it is wise to add a general duty under Clause 2 to have regard to the circumstances and risks of individual authorised institutions and the impact of circumstances on the financial system as a whole.
The other amendments deal with the process of regular communication between the Governor of the Bank of England and the chairman and chief executive of the FSA to ensure tighter co-ordination of their respective roles. I believe that it is desirable to clarify the position on the face of the Bill. I beg to move.
Lord Jenkin of Roding: I listened to the noble Lord, Lord Sharman, with much interest. I believe that there should be a much clearer duty placed on the FSA, together with the Governor of the Bank of England, and so on, to have regard to the problem of systemic risk. My interest stems from the fact that at about three o'clock on a Friday afternoon in 1970, not long after my appointment as Financial Secretary to the Treasury, I was beginning to think of travelling to my constituency for my weekly surgery when officials told me that there was a problem. They said that the Mersey Docks and Harbour Board would be unable to pay the wages that weekend. I asked them why the board could not appoint a receiver and they replied that under its Act of Parliament it was a statutory port authority and had no power to do so. From the point of view of Merseyside, in particular a large number of widows and orphans, it was a very serious matter and became something of a cause célêbre.
It was perfectly clear to me that in that case the Treasury was unable to give advice. Obviously, the bank was involved. Clearly, we did not intend to bale out the board; we had come into office on the clear understanding that we would not assist companies in that way. We had turned our back on what our

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predecessors had done. It was an isolated matter. However, the following week I had lunch in the City as a guest of Samuel Montagu where the reaction of the large number of bankers around the table was one of total horror. How on earth could we have allowed an organisation of that kind to go into liquidation? After some discussion my reaction was to say that what they needed was a spectacular bankruptcy to understand the philosophy of the new government. A few weeks later we were greeted by the problems of Rolls-Royce.
The lesson I draw is that there must be a clear responsibility. Obviously, a trust port is nothing like BCCI or the failure of the German bank where there was a risk of a domino effect. However, this is an issue of considerable importance. Although my experience of some 30 years ago may not be entirely relevant, it left the searing memory in my mind that there was nothing we could do except shell out large sums of public money, which was not what we were about.
I support the amendment in this group proposed by my Front Bench. We need to ensure that the Bill is clearer on this issue.
Lord Eatwell: I speak with some trepidation having been generally admonished on the last occasion I spoke. I promise noble Lords that from now on my speeches will contain no colourful language, will be irredeemably dull and will concentrate on technical matters.
I speak to Amendment No. 54, which stands in my name and is grouped with Amendment No. 13 relating to the definition of market confidence and systemic risk. At Second Reading I argued that one of the most important tasks of the FSA is the management of systemic risks; that is, the risks that the actions of individual firms may create for the stability of the financial system as a whole. I argued then that this task is even more important than the protection of the consumer. What is the point of protecting consumers' rights if at the end of the day the consumers' savings are consumed in a general financial crisis?
In managing risk and ensuring stability, the role of the regulator is paramount. In the face of a general collapse, the central bank—in our case the Bank of England—may step in as lender of last resort to prop up the markets. But by the time things have gone that far the financial system will already be in extreme jeopardy. Just as important—in many ways more important—are the day-to-day activities of the regulator which seek to limit the risk to which society is exposed: for example, by requiring firms to maintain prudential capital; promotion of effective risk management practices; ensuring that participants in the market are fit and proper; identifying and enforcing best practice, and so on, through the wide range of regulatory procedures. There can surely be little doubt that a core objective of the FSA is the management of systemic risk; that is, the maintenance of stability and—it is crucial in financial markets—the expectation of future stability.
The Joint Committee, chaired by the noble Lord, Lord Burns, recommended that the Government acknowledge on the face of the Bill that a fundamental
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objective of the FSA must be the control of systemic risk. In one of the most puzzling actions of the Government to date, they rejected that recommendation of the Joint Committee. The Government's argument, which was paraphrased by my noble friend Lord McIntosh at Second Reading, was that to define the objective of market confidence—that was the committee's proposal—as,
"maintaining confidence in the soundness of the financial system",
would somehow throw doubt on the role of the FSA in (I quote the Government's response),
"maintaining confidence in the effective prudential supervision of individual institutions".
They seem to be contrasting the soundness of the system as a whole with individual institutions.
This is a peculiar argument. In fact it is an argument that, in politest terms, contains very little sense. (Your Lordships will note that I am maintaining polite language.) How could the Government maintain confidence in the soundness of the financial system other than by "effective prudential supervision of individual institutions"? That is how it is done; there is no other way. The first goal must embody the second. I do not believe that my noble friend could give me even one example of effective prudential supervision of an individual institution that does not contribute to the maintenance of confidence in the soundness of the financial system as a whole.
Why is the issue of systemic risk so important? Why am I so concerned about spelling out the management of systemic risk as an objective of the FSA? It is because in doing so we would establish beyond all reasonable doubt the central role of the FSA in this area. That is essential for two reasons. First the tripartite agreement between the FSA, the Bank of England and the Treasury—it has been referred to today—clearly establishes the responsibilities of the three bodies in securing the stability of the financial system, and acknowledges the overall role of the Bank of England. Clearly defining the role of the FSA in maintaining stability would add significantly to the clarity of that document.
Secondly, clarifying the role of the regulator is vital for the FSA's international relationships. In the modern world, many of the threats to this country's financial stability derive from international financial markets. It is, therefore, in the international arena that risks must be managed as a co-operative venture between national regulators. The FSA is our national regulator. It should be crystal clear that the British Government have full confidence in the FSA to do that job. My amendment would make crystal clear the Government's commitment and confidence.
In Committee in another place, my honourable friend Ms Patricia Hewitt acknowledged that the term market confidence did mean the regulation of systemic risk, but also stated that it went wider. I have searched for a definition that would capture what Ms Hewitt said. I think that I have managed to find one; help was at hand. My amendment is taken word for word from the FSA's document, A New Regulator for the Nets' Millennium. In other words, my amendment contains

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the words of Mr Howard Davies. On page 5 of that document, the FSA states that the objective of maintaining confidence,
"involves, in our view, preserving both actual stability in the financial system and the reasonable expectation that it will remain stable. This is achieved through … preventing material damage to the soundness of the UK financial system"—
that sounds like the Joint Committee—
"caused by the conduct of, or collapse of, firms, markets or financial infrastructures".
They are the individual institutions that the Treasury wanted to have referred to. It is achieved also by,
"explaining on what basis confidence in the UK financial system is justified: this includes stating explicitly what the regulator can and cannot achieve".
I cannot imagine a better characterisation of that wider approach to the definition of systemic risk that Ms Hewitt sought. That is why I have used the FSA's own words in my amendment. I am sure that my noble friend would not want to repudiate Mr Davies's own document and will accordingly be happy to accept the FSA's definition of market confidence as a welcome clarification to the Bill.
6.15 p.m.
Lord Fraser of Carmyllie: The noble Lord, Lord Eatwell, indicated that he was much chastened by some earlier remarks. I hope that it does not upset him more if I say how much I agree with him on the amendment. I am sure that the noble Lord is right. That is not just because I agreed with him in the Joint Committee: we should have some indication of the importance of dealing with systemic risk on the face of the Bill. I like the wording that he has lifted from the FSA report.
The other publication which seemed to back much of what he said was the Treasury's own paper, the Draft Recognition Requirements for Investment Exchanges and Clearing Houses, published in February of last year. Page 3 explains that the requirements for these bodies are expressed at a fairly high level. It continues:
"The additional requirements concerning default rules are more detailed in nature. This is because if the high degree of systemic risk that can arise from a default on market contracts".
It seems to me desirable to have that on the face of the Bill. The draft statutory instrument which accompanied that 1999 document indicated the extent to which there would be requirements for greater information to be provided from RIEs and others.
That series of requests for further information tends to be regarded by practitioners as the most excessive and intrusive. If there is to be greater understanding of the relationship between the FSA and individual practitioners as regards requests for further information, the City should understand that they arise because of concern about the control of systemic risk. In all the circumstances, it seems desirable to expand the definition in the Bill along the lines the
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noble Lord indicated. If that were done, I believe that there would be a greater understanding of what the FSA will be required to do.
Lord Kingsland: Everything I wanted to say in relation to my amendment in the group has been said by the noble Lords, Lord Sharman and Lord Eatwell. They will be relieved to know that I have no intention of repeating it.
I understand that the FSA believes that the memorandum of understanding between the Chancellor of the Exchequer, the Governor of the Bank of England and the head of the FSA is the appropriate vehicle for considering questions of systemic risk. However, as the noble Lord, Lord Eatwell, indicated, unless the FSA has power to react in relation to the institutions for which it is responsible, it will not make a constructive contribution to the work of that meeting. As Members of the Committee are aware, the Bank of England no longer has responsibility for the management of the financial sector.
I want to draw the Committee's attention to Amendment No. 57, which is purely technical and relates to page 2, line 37, of the Bill. Its purpose is simply to make it clear that "financial system", referred to in Clause 3(2), is not just the activity of taking deposits. That is a regulated activity. It refers also to the institutions which carry on that activity: that is to say, the banks themselves.
Lord Alexander of Weedon: I am pleased to support the amendment tabled by my noble friend Lord Kingsland and the spirit of the amendment tabled by the noble Lord, Lord Eatwell. It is an important matter. It is crucial that the FSA should seek to preserve market confidence and have that as an objective. But it cannot do so in any spin-doctoring sense in regard to financial stability. If it is truly to be able to do that in a substantive sense, it must have a greater responsibility for the preservation of financial stability.
I also share the view expressed by my noble friend Lord Kingsland about the memorandum of understanding. That is no doubt an admirable division of responsibilities between the Treasury, the Bank of England and the FSA. However, in this regard, the duties of the Financial Services Authority should be spelt out in statute so that it may be able to play its role to the full and so that there may be no doubt as to true accountability.
Lord McIntosh of Haringey: These are important amendments. They raise the important issue of the extent to which the FSA's market confidence objective gives it responsibility to deal with threats to the stability of the UK financial system. For reasons referred to by the noble Lord, Lord Alexander, that is closely linked to the relationships between the FSA, the Treasury and in particular the Bank of England.

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It is an important part of the FSA's responsibility. Sound and prudent regulation lies at the heart of maintaining financial stability and it is already covered by the objective of maintaining confidence in the financial system. For that matter, it is also an important part of the consumer protection objective. This wide interpretation of the interests of consumers is critical to the way in which the FSA's various powers under the Bill work; for example, the power to vary permissions under Part IV.
During the hearings of the Burns committee, my noble friend Lord Eatwell drew attention to the desirability of giving the FSA the explicit task of managing systemic risk. The point that he made was picked up in the final recommendations of the committee, which stated:
"We recommend that the market confidence objective should refer to 'maintaining confidence in the soundness of the financial system', and should be expanded to include a reference to the management of systemic risk, in collaboration with the Treasury and the Bank of England".
In responding to that recommendation, the Government noted,
"that public and market confidence in the financial system clearly requires confidence in the soundness of the system as a whole".
They went on to state, in words quoted by my noble friend Lord Eatwell;
"other aspects arc also relevant, notably maintaining confidence in the effective prudential supervision of individual institutions. Singling out one aspect could throw doubt on the FSA's role in this area and narrow its remit".
My noble friend Lord Eatwell, in the politest possible way, poured scorn on that response. He asked me specifically whether I could give an example of the prudential supervision of an individual institution not affecting confidence in the soundness of the financial system. The collapse of an insurance company could undermine confidence in the insurance market and discourage foreign customers from insuring in the London market, but that would not necessarily amount to a lack of confidence in the financial system. There is a distinction still to be made between effective prudential supervision of individual institutions and confidence in the soundness of the whole system. It is applicable to these amendments.
However, I have not had an opportunity to speak to my noble friend about the issue in detail. Between now and Report stage, I should like to meet him, with officials and any other Members who want to be involved, in order to go through what I concede to be difficult and potentially contentious areas. An issue is not solved by naming it on the face of the Bill. Good intentions are fine—and, clearly, we all have good intentions—but we shall not resolve them with forms of words. We shall resolve them only with powers that are effectively used.
With those comments, I turn to the way in which the Government believe that systemic risk is covered and that the maintenance of confidence in the financial system is covered in a way that is not reflected in the Bill. It is not the responsibility of the FSA alone. As the Government pointed out in response to the Joint
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Committee, the Treasury and the Bank of England also have essential roles to play. There must be cooperation between them and the FSA.
That is the subject of the Memorandum of Understanding between the Treasury, the Bank and the FSA, which the Government published on October 1997. It sets out the respective responsibilities of each institution for maintaining financial stability.
The problem with these amendments is that they lose the focus on the fact that the FSA's role, while important, is not the end of the story. They appear to give the FSA the sole responsibility in this area and to the exclusion of the Treasury and the Bank of England. That cannot be right. The Memorandum of Understanding also sets out the details of standing arrangements for ensuring that there is full and effective co-operation between the Treasury, the Bank and the FSA.
With that, I return to Amendment No. 13 to Schedule 1. It seeks to impose inappropriate and unnecessary rigidity on those arrangements, with biannual meetings between the FSA chairman and the governor. The standing arrangements envisage information exchange between the Bank and the FSA on a number of levels; through cross-membership of the court of the Bank and the FSA board, through secondments and through the ongoing sharing of information.
The standing arrangements also provide for monthly meetings between the Treasury, the Bank and the FSA in the standing committee. That can meet more frequently and at short notice where circumstances warrant it. Therefore, the rigid requirement that is provided for in Amendment No. 13 would not add to those flexible and effective arrangements. Of course, if it makes sense for the chairman and the governor to have regular bilateral meetings as well, there is nothing to prevent that.
I turn to Amendment No. 57. I can assure the noble Lord, Lord Kingsland, that, where the Bill states that the "financial system" includes regulated activities, that includes regulated activities carried out by authorised persons. But I cannot see the value of saying so. The important point is that the concept of what constitutes the "financial system" is not restricted to the activities of authorised persons, but includes the activities of those who do not need to be authorised by virtue of various exemptions, or those who should be authorised but are not, but who may still have an influence on overall financial stability.
In conclusion, I agree that the FSA has a very important role in, although not the sole responsibility for, seeking to maintain the stability of the UK's financial system. That role is already encompassed within the scope of Clauses 3 and 5. The standing arrangements for co-operation between the Treasury, the Bank and the FSA under the tripartite memorandum of understanding are a robust, flexible and effective mechanism for ensuring that each of those institutions plays its important role in achieving the overall objective of a sound economy and a healthy and stable financial system.
6.30 p.m.
Lord Sharman: I am grateful to the Minister for his remarks. In response, perhaps I may say that I was fascinated to hear the noble Lord, Lord Jenkin, talk of the Mersey Docks and Harbour Board, and Rolls-Royce. They are deeply ingrained on my mind from the time that I spent working on them.
I very much look forward to meeting the Minister on this issue because I believe, and feel very strongly, that it is not in any way a substitutive matter. I am not seeking to substitute one thing for another, but to add to and clarify the Bill in order to make it clear. With that remark, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Saatchi Lord Saatchi moved Amendment No. 14:
Page 216, line 34, leave out sub-paragraph 1) and insert—
("(1) The Treasury must secure, after consulting the Authority, that the majority of the members of the Authority's governing body are non-executive members.
(1A) The Authority must secure that a committee of its governing body, consisting solely of the non-executive members, is set up and maintained for the purposes of discharging the functions conferred by paragraph 4.").
The noble Lord said: In moving Amendment No. 14, I shall speak also to Amendments Nos. 16 to 21, which are included in this grouping. My noble friend Lord Kingsland will address Amendments Nos. 22 to 24.
Amendment No. 14 splits into two sub-paragraphs what is currently paragraph 3(1) of Schedule 1. Although the Treasury has the power to appoint and remove members of the FSA's governing body, paragraph 3(1) requires the FSA itself to secure that a majority of the members of its governing body are non-executive members. Given that the Treasury has the power of appointment to the FSA's governing body, it seems to us more appropriate that the Treasury should secure the non-executive majority. That would be achieved by our new paragraph 3(1)(a). Clearly, the Treasury should consult the FSA about those appointments. Hence, Amendment No. 14 provides that the Treasury's obligation is to be performed "after consulting the authority".
Proposed paragraph 3(1)(b) in effect repeats the current provisions of paragraph 3(1)(b), except that the functions of the non-executive committee of the governing body are spelled out by referring to the functions conferred in paragraph 4, rather than the current wording which refers only to the functions conferred "by this schedule".
Amendments Nos. 16 and 17 later in this group are intended to emphasise that the particular committee of non-executive members established by paragraph 3(1)(b) is that particular committee set up to discharge the functions described in paragraph 4. New subparagraph (4) to paragraph 3 set out in Amendment No. 18 is intended to emphasise that the governing body of the FSA may set up and maintain other committees of the governing body for purposes other than those referred to in paragraph 3(1)(b).
Proposed sub-paragraph (5) to paragraph 3 is a further measure to provide checks and balances in the operation of the FSA's governing body. It provides for the FSA to make arrangements at its own cost for the non-executive members of its governing body to obtain independent legal advice in relation to their responsibilities and the performance of their duties. Such an arrangement for non-executive directors to obtain independent legal advice is a standard feature of publicly listed companies.
Amendments Nos. 19, 20 and 21 are ancillary to Amendment No. 18 and, again, are intended to make clear that the particular committee of the non-executive members of the FSA's governing body referred to in paragraph 3(1)(b) is a specific committee established for the particular purposes set out in paragraph 4. As I said, my noble friend Lord Kingsland will refer to Amendments Nos. 22, 23 and 24.
Perhaps I may quote the combined code of the Committee on Corporate Governance. It states that:
"The board should include a balance of executive and non-executive directors … such that no individual or small group of individuals can dominate the board's decision-taking".
Our amendments and our arguments reflect that because we want to give the non-executive members of the governing body additional and stronger functions, such as reviewing and approving the annual budget, and scrutinising and monitoring the performance of the executive management.
Without Amendment No. 14, the role of the non-executive members of the governing body of the FSA will be restricted to examining matters of efficiency, auditing and remuneration. We want to see this kind of definition of the role of the non-executive directors of the FSA, which, if I may, I shall read to the Committee:
"Assisting their colleagues within the firm's governing body in setting, and monitoring, the firm's strategy, providing an independent perspective to the overall running of the business, scrutinising the approach of executive management and the firm's standards of conduct".
I did not write that description. It comes from the FSA consultation paper No. 35 on the way that the role of the non-executives should be defined in the companies that the FSA regulates. Therefore, surely it cannot be that what the FSA believes is right for the description of the role of the non-executives in the firms which it supervises is wrong for itself. I beg to move.
Lord Sharman: I rise to support the amendments as set out and to speak briefly to Amendment No. 15. As the noble Lord, Lord Saatchi, said, these amendments aim to clarify on the face of the Bill the functions already performed by the non-executive members of the putative FSA. I feel that the authority should be required to meet the principles of good corporate governance.
I am much troubled by the way in which some Members of the Committee have waived the application of corporate governance. I have spent a career trying to persuade people to exercise that. It would be helpful to have some support. All we have are

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the Cadbury recommendations; there is nothing else. This has been arrived at through a considerable body of opinion, a considerable amount of work, and through much time spent looking at what goes on around the world and deciding what is best. I feel that we should take it into account.
As non-executive members of the corporate body, they should be responsible for advising the FSA executive regarding the management of the authority. More importantly, if they are properly to discharge their functions as directors of a company, they must be involved in establishing policy and reviewing its application.
At present, the executive restricts the role largely to budgetary items and efficiency. Although my professional background would lead Members of the Committee to believe that I consider this to be very important, I recognise that the issues of strategy and of overall supervision are equally important. It is interesting to compare this with the model of the responsibilities for the Bank of England's Court of Directors. The Bank of England Act 1998 provides for a sub-committee of directors of the Bank. It provides for them to keep under review the Bank's performance in relation to the objectives and strategy determined by the Court of Directors of the Bank. That is what we propose in these amendments.
Lord Borrie: There seems to me to be considerable merit in the amendments tabled by both the noble Lords, Lord Saatchi and Lord Sharman. In particular, I believed that there was considerable logic in the amendment of the noble Lord, Lord Saatchi. Bearing in mind that the Treasury will appoint, the Treasury should secure that the majority of the members of the governing board are non-executive members. Indeed, I believe that it would be impossible for the Treasury to do its appointing job without ensuring that. It is impossible for the authority to do so on its own. Therefore, I believe that the Treasury must do so through its appointment.
I say that there is considerable merit in relation to the amendments as a whole, but I am less certain as to whether the other amendments should be embodied in legislation. After all, the company governance rules which are, in a sense, followed here are not themselves embodied in companies legislation. I do not believe that the Government intend that they should be embodied in the companies Bill which they will bring forward in due course. That remains to be seen. However, the fact is that they are not in legislation at the moment. There are certain difficulties in having them embodied in legislation for a public authority. Some provisions of the Fair Trading Act 1973, to which the Office of Fair Trading is subject, were very dated after a number of years. They are still there, because they have never been amended, and I suppose there is never parliamentary time to amend them.
There are serious risks in putting into primary legislation detail relating to current mantras of what is desirable—in this instance, in corporate governance. However we may think the legislation is amendable, in practice it is not easily amendable. The fact that we
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have a Financial Services and Markets Bill in 2000, 14 years after the last one, is not bad; it usually takes 20 years or more to have substantial legislation changed again. It might be undesirable to put all this precise wording about the functions of non-executive members rigidly into the legislation before us.
Lord Stewartby: I hope that the Minister can make it plain when he responds whether the fact that some non-executive functions are listed in the schedule is meant to imply that they are the only non-executive functions. I am very sympathetic to what my noble friend Lord Saatchi and the noble Lord, Lord Sharman, said. Clearly, one would expect the non-executive directors to perform much the same kind of role as good, efficient, active, energetic non-executive directors of any public corporation or body in the private sector would. But the wording of paragraph 4 is such that it could be read to imply that what is expected of them is only what is defined there. If that is so, it is not satisfactory. I hope that the noble Lord can assure us otherwise.
Lord Fraser of Carmyllie: I wish to tell the noble Lord, Lord Borrie, that it seems to me that the point in question has been picked up and that Amendment No. 14 is correct. I am at a loss to understand how the authority can secure that a majority of the members are non-executive. What happens if the Treasury fails to appoint a sufficient number of non-executive members, or if it decides to dismiss some of those non-executive members, so that the non-executives are in a minority, even though the authority has understood that? I see no provision in the schedule that enables it to return to a majority. I do not think it can even sack the executive members of the governing body, because they are also appointed by the Treasury.
My other point concerns the matter raised by my noble friend Lord Stewartby. The functions of the non-executive committee—essentially housekeeping operations—are spelt out in some detail in paragraph 4, because that is the one committee that is to be wholly non-executive in character. The rest of the schedule indicates that the non-executives are to be in a majority on the body, and we see in paragraph 5 that any of its functions—other than those in relation to legislation, so described—may be,
"discharged by a committee, sub-committee, officer or member of staff of the Authority",
and doubtless it could have a committee of any character doing that.
That would seem to me to follow, but I should be grateful if the Minister would confirm it.
There seems to be a rather curious imbalance here, in that so much detail is spelt out as to what the non-executive committee is to do, with so little indication of what the majority of non-executive members might do in discharge otherwise of the authority's functions.
Lord Elton: The detail is disturbing, because there is a well established principle in law expressed as inclusio unius est exclusio alterius. If we mention various members' tasks but not others, the assumption is that

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only those mentioned are to be referred to. Therefore, if the schedule is to be as prescriptive as it is, there should be a paragraph saying "Such further functions as may be", and so on, to permit other things to be done, because clearly there are other things to be done by the non-executive directors that are not mentioned in the Bill.
I hope that the Minister will enlighten us further about the policy on appointments. Whatever its demerits, one of the merits of the self-regulation system was that it brought out of the industry people who were very well steeped in its practices and understood it well. That process has now been interrupted. I wonder what steps the Government intend to take, through the Treasury, to see that those appointed to the board between them cover the very wide range of expertise that the very wide range of the powers of the board require it to have.
6.45 p.m.
Lord Kingsland: I rise to speak to my Amendments Nos. 22 to 24. They are precisely on the point raised by my noble and learned friend Lord Fraser of Carmyllie and my noble friend Lord Stewartby.
Sub-paragraphs (a), (b) and (c) of paragraph 4(3) all stipulate rather minor activities of the committee. They are important to certain individuals, but in terms of the overall responsibilities they are in a minor key. That is why Amendment No. 22 stipulates that an additional sub-paragraph (d) should be added, requiring the non-executive directors to keep
"under review the question of whether in discharging its general functions the Authority is acting in the way required by sections 2(l) and 2(3)",
which define the FSA's broad statutory duties. That would remove any doubt that the non-executive directors were indeed able to range over the authority's full responsibilities.
Furthermore, with regard to my noble and learned friend's observations about paragraph 5, Amendments Nos. 23 and 24 seek to remove any doubt. They make it clear, I hope, that the FSA may discharge all its functions acting through its governing body. However, it is recognised that the FSA will want to make arrangements for many of its functions to be discharged by committees, sub-committees, officers and members of staff of the FSA. Although arguably it is implied that the FSA can discharge all its functions by acting through its governing body, the amendments make the position absolutely clear.
Lord McIntosh of Haringey: I am grateful to noble Lords for the way in which they have introduced the amendments. Perhaps I may say a few words in general about the non-executive members of the FSA's board before I turn to the specific amendments.
First, I apologise to the Committee for having said in response to an earlier amendment that the non-executive directors are not paid. They are in fact paid a fee. That fits in with my being able to say that in the Government's view the non-executives have a key role to play in the governance of the FSA.
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The fundamental point here is that the role of the non-executive committee is set out in paragraph 4. The non-executive committee is made up of the non-executive directors and not the executive directors. They review whether the FSA is using its resources in the most efficient and economic way; review its internal financial controls; and determine the remuneration of the chairman and executive members of the board. In that case I acknowledge that they are largely housekeeping functions.
But, of course, the role of the non-executive directors is not confined to their role as members of the non-executive committee. They are also members of the board and they have all the functions of full members of the board, which do not need to be provided for in the Bill, because one does not specify every single thing. We believe that the amendments specify a little too much. For example, making rules, which is one of the fundamental legislative activities of the FSA, is the responsibility of the whole board, including the executive and non-executive directors.
Before I turn to the individual amendments, a further general point is the need for the FSA to decide for itself how it should organise itself to meet its objectives. Schedule 1 sets out a framework. We do not believe that it is for the Bill to prescribe the FSA's governance too precisely beyond ensuring that proper structures and procedures are in place to ensure accountability.
These amendments are intended to and would achieve a number of differences from the Bill as currently drafted so I want to explain why, in our view, these amendments would either be too prescriptive, which is the normal case, or would make little difference to the Bill as currently drafted.
I turn first to Amendment No. 15, which was spoken to by the noble Lord, Lord Sharman. The two main effects of Amendment No. 15 would be, first, to limit the term of the non-executive members of the board to four years. That is a good illustration of my point about not being over-prescriptive. The existence and duration of such limits is for the Treasury to decide. The power of the Treasury to decide removes the temptation, however unlikely, that the executive members might weaken the non-executives by offering only short-term contracts.
The second effect would be to make a function of the non-executives,
"the question of whether the Authority is discharging its functions in accordance with the general duties under this Act".
That should be the responsibility of the board as a whole, executives and non-executives, and not just the non-executives.
The main effect of Amendment No. 14 would be that the Treasury, rather than the FSA, would have to secure that a majority of the members of the FSA's governing body were non-executive. I appreciate the thinking behind it but I do not believe, with respect, that it would add very much. The Bill is quite clear in specifying that the FSA must have a majority of non-executive members of its governing body. The

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suggestion that the Treasury would somehow inhibit that and make it impossible to do that is a little fanciful.
Lord Elton: The Bill as drafted is telling the authority to do something that it does not have the power to do.
Lord McIntosh of Haringey: I concede that it could be interpreted in that way, and if it could be interpreted in that way it ought not to be because it is certainly the intention of the Bill to ensure that that happens.
Lord Elton: Will the noble Lord think a little further about that because I believe that there is only one way of interpreting it, in fact?
Lord McIntosh of Haringey: I thought that I had indicated that I would think about it further. I shall come back to the noble Lord on that. If amendments are required, then we must make those amendments. But I am sure that there is some devilishly clever reason why the authority has the ability to do what the Bill says it is going to do.
As I said, the Bill is quite clear in specifying that the authority must have a majority and, indeed, it has a majority of non-executives at the moment.
A further effect of Amendment No. 14 would be to specify that the non-executive committee, specified in paragraph 3(b) of Schedule 1, would discharge the functions of the non-executive committee specified in paragraph 4. Paragraph 3(1)(b) refers to functions conferred on the non-executive committee under Schedule 1 and paragraph 4 is, of course, part of Schedule I and is therefore covered.
The next point of difference would be to specify, as Amendment No. 18 does, that the FSA board may also set up and maintain a committee comprised mainly or solely of non-executive members for purposes other than those specified in paragraph 4. Again, there is nothing in the Bill to make that impossible. We do not see any reason to change it. As has been said, paragraph 5(1) allows the FSA's functions to be discharged inter alia by a committee. There is nothing to stop such a committee comprising non-executives and, indeed, only non-executives.
Another impact of Amendment No. 18 would be for the authority to be required to make arrangements, at its cost, for non-executive members to obtain independent legal advice in relation to their responsibilities and the performance of their duties. I appreciate that that is a recommendation both of the Cadbury report—and it is all we have—and of the Combined Code, Principles of Good Governance and Code of Best Practice.
We have no objection to that principle but we believe that it is something for the non-executives to decide between themselves rather than it being prescribed in legislation. I should add that the FSA is quite content in principle to finance independent legal
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advice to the non-executive members of the FSA board. Indeed, I can go further and report that the FSA board resolved on 15th April 1999 that:
"Any director who requires professional advice on a matter relating exclusively to the duties of a director may … have direct access to the Authority's professional advisers; and, if the director considers it essential to receive independent professional advice on such a matter, this may be obtained at the Authority's expense within reasonable financial limits after reference to the Chairman or the Deputy Chairman".
Lord Jenkin of Roding: I apologise for not being here at the beginning of the debate. What the Minister has read out seem to me to be fairly limited circumstances. Let us suppose—and I hasten to say that I do not believe that it has ever arisen in relation to anything in which I have been involved—that a director says to his colleagues, "Look, I do not think we have power to do that. I do not think that the authority has power to do that", and that is then challenged by the executives who produce their legal advice, and the non-executive director then says, "Well, I believe that we should have independent legal advice". That is nothing to do with his functions as a director. He is challenging the legal advice that has been given to the authority.
I had always understood that that recommendation of the Cadbury committee sought to address the problem where one or more directors of the board felt that they were being asked to do something which is not proper and who felt that they should have independent advice on the matter. That is much wider than the phrase the Minister read out.
Lord McIntosh of Haringey: My immediate response is that I do not think so. I believe that if a director is challenging the legal advice that has been given, he is challenging it as a director and that the resolution of the board on 15th April which says that he may receive independent professional advice at the authority's expense is a full answer to that challenge. If I am wrong, I shall write to the noble Lord and to other noble Lords who have taken part.
Lord Boardman: I support my noble friend on this matter. It needs to be looked at. At the moment, it is incomplete and leaves the non-executive directors very exposed.
Lord McIntosh of Haringey: I must include the noble Lord, Lord Boardman, on the list of recipients of any such letter. But my immediate understanding is that the example which the noble Lord, Lord Jenkin, gave of a non-executive director challenging the legal advice would be a proper exercise of his functions as a director and would therefore come within the scope of the resolution I quoted.
Amendment No. 22 would require the non-executives to keep under review adherence to the board's general duties in Clause 2(1) and the principles of efficiency, competitiveness and so on to which it must have regard. Again, I suggest that those are duties of the whole board and not just the non-executives.

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Amendment No. 23 would specify that the governing body, as well as those below the level of the governing body, may discharge the FSA's functions. That is not ruled out by the Bill as currently drafted and the amendment is not necessary.
I should say to my noble friend Lord Borrie that he is right that the Treasury has a role because it determines who is appointed as a non-executive director but the authority has a role because it could, in the absence of a provision such as paragraph 3 of Schedule 1, assign roles to the directors which were incompatible with their being non-executive. That is why we have that provision in the Bill.
I repeat as a general argument on what I consider to be these well-intentioned amendments that there is no reason why the role of non-executive directors, quite apart from their responsibilities as a non-executive committee, should not be as wide as those of any other directors of the FSA. That is provided in Schedule 1. We expect the non-executives, led by the deputy chairman, to play a full role in the board, providing an independent perspective on the scrutiny of the executives and the FSA's overall performance.
Lord Fraser of Carmyllie: I am grateful to the Minister. I noticed that he did not reach Amendment No. 24, which concerns the word "but". I was going to say to the Minister that it would not be the most radical act of revision in your Lordships' House were that "but" to be deleted, but it seems a quite redundant word in that context. Its excision would have a marginal effect in reducing the length of the Bill.
7 p.m.
Lord McIntosh of Haringey: Allow me to defend parliamentary counsel. The "but" is absolutely essential. It is critical to the whole understanding of this part of the Bill. Paragraph 5(1) states that,
"The Authority may make arrangements for",
the discharge of its functions,
"by a committee, sub-committee, officer or member of staff … But"—
it must be said—
"in exercising its legislative functions, the Authority must act through its governing body";
otherwise, the authority could delegate without reference to the governing body and the governing body would be entirely bypassed. If the word "but" was not used, there would not be that protection.
Lord Jenkin of Roding: I greatly protest. I find that a thoroughly mischievous argument. Of course I understand the sense of what the Minister is saying, but the "but" would be appropriate if the two subparagraphs were one and ran straight into one another; then it would make sense. Otherwise, through the way in which they have been drafted, they are two paratactic sub-paragraphs. With the greatest respect
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to the Minister—I have a huge respect for his learning on such matters—"but" is not good English in that context.
Lord McIntosh of Haringey: It means what it is intended to mean. If the noble Lord can find in Fowler or Sir Ernest Gowers a prohibition on the use of the word "but" at the beginning of a sentence, I shall gladly talk to him about it afterwards. But certainly, the Bill as drafted means what it means.
Lord Stewartby: However—may I ask the Minister one more question? I am grateful for his assurance that there is nothing here which implies that non-executive directors' functions are limited, but will he reconsider the phrase, "the non-executive functions"? They are not defined in Clause 392 and therefore they do not have a special meaning within the Bill. The normal English language meaning of "the non-executive functions" in such a context would be all the non-executive functions. It is not a major point, but it implies that what is listed thereafter is the full list of what non-executives may do. If the phrase "the non-executive committee functions" was used instead, it would put the matter beyond doubt, because the whole paragraph relates to the committee. The way in which the phrase is used implies that the full range of non-executive functions are thereafter listed.
Lord McIntosh of Haringey: I do not see that. Paragraph 4(1) states that,
"'the committee' means the non-executive committee".
Paragraph 4(2) states that,
"The non-executive functions are functions of the Authority",
which—
"but must be discharged by the committee".
Paragraph 4(3) lists the non-executive functions. It is a finite list; it is intended to be. It is what was rudely called "housekeeping". It does not restrict the role of non-executive directors in their capacity as members of the board. It restricts their functions only as members of the non-executive committee.
Lord Elton: The Minister's slip of the tongue opens the door for me to be a broker between my noble friend and him. He said, "functions of the Authority which", but then corrected it to "but". If there is to be a definition in that sub-paragraph of the functions only of the committee and not of the non-executive members of the board, the substitution of that word would have that effect. I do not want to detain your Lordships on the matter. The Minister apparently is not going to use this opportunity to tell us how the Treasury, in trawling for members of the non-executive committee, will bring a sufficient range of practitioner experience on to the board. But will he be able to do so at some later stage?
Lord McIntosh of Haringey: I am sorry to have neglected that point. If I inadvertently paraphrased the Bill rather than reading it out, the Bill is right and I am wrong.

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On the more substantive issue of how the non-executive directors can be expected to embody the wide range of disciplines regulated by the Financial Services Authority, the answer is clearly that, with 11 non-executive directors, it would be impossible to secure that every single part of financial markets' existence and development should be covered within the personal experience of the members of the non-executive committee. They are people who have a wisdom in financial markets in general and who cover a wide range of financial markets, but they cannot be expected to cover every nook and cranny. That is why there is a practitioner panel as well.
Lord Saatchi: Yet again, I find that I must agree with the amendments tabled by the noble Lord, Lord Sharman. I should like to ask the Minister to clarify a point. If the FSA itself feels it necessary to spell out the functions of non-executive directors as it sees them, why would the Government not feel it necessary to spell out the functions of the non-executive members of the FSA, which is what Amendment No. 15 seeks to do?
Lord McIntosh of Haringey: The Government feel that it is unnecessary to spell out all the functions of non-executive directors, but it is necessary to spell out the functions of the non-executive committee, which is a subset of the board of the FSA as a whole and which is charged with certain housekeeping functions necessary as a control on the executives. In all other respects, non-executive directors have equal weight and equal fiduciary responsibilities with the executive directors and they act as members of the board as a whole. I do not see the difficulty with that.
Lord Saatchi: Would it then be acceptable to the Government if the words used in FSA consultation paper No. 35 were used to describe the general role of non-executive directors of the FSA?
Lord McIntosh of Haringey: Without having the consultation paper in front of me, I am not able to answer that question with the precision that I should like. I shall write to the noble Lord about the matter.
Lord Elton: I should know the answer to this question, but the Minister said that the number of non-executive directors was limited to 11—
Lord McIntosh of Haringey: I said that it is 11 at present.
Lord Elton: One answer to my question could be a vast, and probably too large, expansion of the number of non-executive directors. That is not an area of policy. Does the answer to my question lie in the practitioner panel and not in the constitution of the non-executive members of the executive? It is an important question when it comes to how the body will actually work.
Lord McIntosh of Haringey: Without giving an unequivocal undertaking that the practitioner panel
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will include every single sector within the broad range of financial markets—I do not want to be trapped into doing that—the answer is that the representative function is the responsibility of the practitioner panel. The non-executive directors of the FSA are not there as representatives of individual disciplines within financial markets, but as wise persons with knowledge of a wide range of financial markets, able to contribute to the work of the authority.
Lord Saatchi: As I understand the Minister I grow more uncomfortable; more so than when I first entered the Chamber. I must explain the thrust of our amendments and why this is such an important point. The Minister tells us that a restricted description of the role of the non-executive directors of the FSA is contained in the Bill—
Lord McIntosh of Haringey: I am sorry, but I am not saying that at all. I am saying that there is a finite description in paragraph 4 of Schedule 1 of the responsibilities of non-executive directors in their capacity as members of the non-executive committee and only in their capacity as members of the non-executive committee, which is set up as a counterbalance, deliberately excluding the executive directors. There is no such limitation on the role of non-executive directors in their capacity as members of the board.
Lord Saatchi: Except that that leaves open and unstated the role of the non-executive directors. This is causing difficulty to me and, I believe, some of my noble friends and the Liberal Democrat Front Bench. I am sure that the thrust of our amendments is becoming clear to the Government. Our basic concern is that this unique body is very powerful indeed. The question to which we are trying to obtain a better answer is: who guards the guardians?
We had a long debate about whether or not a key guardian figure might be the chairman. The Minister said no. We are now asking whether the guardian role might be performed by the non-executive directors. The Minister is again saying no. He is stating that he does not want to define the role, even though the FSA wants definition. That is the problem.
Lord McIntosh of Haringey: I thought that what I said was that the responsibilities of the non-executive directors encompass all the responsibilities of the members of the board, including the executive directors. If I failed to say that, I apologise to the Committee. Any attempt, as in these amendments, to be prescriptive about those functions can only restrict the functions of the non-executive directors rather than add to them.
Lord Donaldson of Lymington: I do not want to detain the Committee. However, perhaps it is possible for a total outsider, in the most helpful spirit, to join in what appears to be a private fight. If one inserts inverted commas in paragraph 4(2) around the words "non-executive functions", I believe the functions

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would then be confined to those which have to be performed by the committee. That would cast no doubt upon other functions of non-executive directors, but one need not turn it into a term of art.
Lord McIntosh of Haringey: I shall, with great trepidation, put that matter, through legal advisers, to parliamentary counsel.
Lord Saatchi: I thank the noble Lord for that intervention. We are unhappy with the outcome of this discussion and shall want to return to it on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees (Lord Strabolgi): I must inform the Committee that if Amendment No. 15 is agreed to, I cannot call Amendments Nos. 16 to 22.
[Amendments Nos. 15 to 24 not moved.]
7.15 p.m.
Lord Kingsland Lord Kingsland moved Amendment No. 25:
Page 218, line 40, leave out ("Authority") and insert ("investigator").
The noble Lord said: This group of amendments concerns the role of the investigator. The amendments that we have tabled deal with two issues. The first concerns to whom the complaints should be made.
Under the Bill, the complaints against the authority are to be made to the authority. If the authority then considers a complaint to be serious, it passes it on to the investigator. Our amendments question the wisdom of that procedure for two reasons. The most obvious is that the complaints are likely to be against the authority. It seems odd to have the authority performing the act of filtering complaints against itself. Secondly, it seems to us a complete waste of time to filter the complaints through the authority when they could go directly to the investigator. Moreover, that would add independence and credibility to the investigator's role.
The second group of amendments concerns the obligation of the investigator to report the result of its investigation to the authority. I understand that the authority has said, unofficially, that there will be circumstances in which it is prepared to make an ex gratia payment to a complainant where the complaint is held to be justified. Indeed, I believe that an internal memorandum exists in the authority setting down the criteria that it would apply in order to come to a conclusion as to whether or not an ex gratia payment should be made.
The intention of our second group of amendments is to require the Bill to say on its face that there will be circumstances in which the investigator will recommend an ex gratia payment. I should add that if we do not succeed later on in our amendments to remove the statutory immunity of the authority with respect to negligence, we shall then, at Report stage, reconsider our amendments on ex gratia payments,
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probably moving to convert them into an obligation to pay a complainant whose complaint turns out to be justified.
Lord Borrie: I am doubtful of the value of the amendments. It seems to me clear that the investigator is independent. The Bill not only states specifically that he is independent, but, most important, if the authority decides not to investigate a complaint, it must notify the investigator. Schedule 1, paragraph 8(4), states:
"If the investigator considers that a complaint of which he has been notified … ought to be investigated, he may proceed as if the complaint had been referred to him under the complaints scheme".
He has complete independence and freedom to investigate even if the authority has not submitted the complaint to him under the complaints scheme. Therefore, I do not see that there is any doubt about the reality of the independence of the investigator.
Baroness O'Cathain: I can see the reason for the remarks of the noble Lord, Lord Borrie. However, the reality would be a rather tortuous procedure. Would it not be better for all complaints to go to the investigator in the first place rather than having them looked at by the authority and passed to the investigator? It seems that there should be two bites of the cherry. In the interests of complaints being dealt with and finalised to the satisfaction of the FSA or the complainant, as soon as possible, I believe that that is how it should be done.
Lord Borrie: Perhaps I may respond briefly. I took it for granted that the complaints should go to the authority. It is surely in everyone's interest that the authority should be told that a complaint has been made against it. It may need to respond. In any case, it may determine the matter rapidly and favourably towards the complainant without the matter needing to go further.
Baroness O'Cathain: Perhaps I may pursue the matter. If someone makes a complaint about the Financial Services Authority, it might be easier for that person to go through an independent investigator. I take the point that if it was a silly complaint, the authority could say, "Sorry, there has been a misunderstanding. This is the way it should be done". However, I believe the complainant would have more confidence if he or she went straight to the investigator rather than just to the authority. Experience shows that if the complaint goes to the people who are supposed to have done wrong, it is better to have an independent investigator. A complainant would feel better about that.
Lord Donaldson of Lymington: Perhaps I may refer to the banking ombudsman scheme which I used to know quite a lot about. In that scheme, as in the insurance ombudsman scheme and no doubt other schemes, the complainant is first required to exhaust his remedies with the authority. There is good reason for that. As has been said, there may be a misunderstanding or a "slip-up" by somebody down

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the chain. The matter can then be speedily put right, perhaps by ex gratia compensation or by recantation on a ruling. It would not do any harm and, as the noble Lord, Lord Borrie, pointed out, the complainant must be kept informed.
I believe that there are respectable precedents for suggesting, indeed requiring, that complaints go first to those being complained against.
Lord McIntosh of Haringey: Of course that is right. I can think of no example of a complaints procedure which does not require the complaint to go first to the people complained against in order that it can be put right. As the noble Lord, Lord Donaldson, has said, it may simply be a mistake which can be dealt with quickly, or it could be a serious matter which may affect their procedures or policies and which has to be taken very seriously. The quickest way to ensure that that happens is for the complaint initially to go, in this case, to the authority. That is what always happens with complaints procedures and I cannot think of any exceptions.
Take, for example, the notice from the London Transport Passenger Committee on a London bus. It states that complaints should first be addressed to London Transport. If a passenger is not satisfied, he should then go to the London Transport committee, whose address and telephone number is given on the notice.
The independent investigator forms only a part of the protection provided for consumers by this Bill. Later, we shall debate the financial services and markets tribunal and the ombudsman schemes. I can assure the noble Baroness that protection is stacked up line behind line in the Bill. The effect of the Opposition amendments would be to prevent the FSA from having the first opportunity to deal with complaints made against it. It would not be sensible or in accordance with practice to take the FSA out of the process in this way.
Furthermore, what would be the implications for the time and resources of the independent investigator if he were to investigate all complaints in the first instance? Here, we are trying to set up a mechanism for cases which the FSA cannot resolve with complainants rather than every single case that might arise. Nevertheless, the scheme ensures transparency. If, as my noble friend Lord Borrie said, the FSA decides not to investigate a complaint, the investigator has to know about it. At that point, the investigator can take up a complaint if he sees fit. Of course, if the FSA does not settle a complaint and decides that there should be an investigation, that also is where the independent investigator comes in. However, taking the FSA out of the picture in the first instance would be neither right nor efficient.
Two government amendments have been included in this group; namely, Amendments Nos. 30 and 31. Schedule 1(7) to the Bill specifies that the complaints investigator set up by the FSA must be independent of it. We believe that that independence will be reinforced if the investigator is not allowed to employ FSA staff
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to investigate complaints against the FSA. At the moment the Bill would permit FSA staff to be used, which we do not believe is compatible with the level of independence that we seek. These government amendments would prevent the investigator from using FSA staff. I hope that I shall be allowed to move the amendments formally when we come to them.
Lord Jenkin of Roding: I have listened to what the Minister has said about where the complainant should first go with his complaint. However, those of us who have had experience of dealing with constituents may recognise certain problems that can arise. I always used to say that I had no difficulty in dealing with a nutter who had what was clearly a silly problem. I also had no difficulty in dealing with a sensible constituent who was talking nonsense, because he could be persuaded otherwise. But occasionally one saw a nutter who was not talking nonsense.
I can envisage the temptation for someone working down the line in the Financial Services Authority, when encountering a person who does not put his case well, is a little unreasonable, but has in fact touched on a point of some substance, to say to his superiors, "I don't think we need to pay. This chap's barmy. We should write him or. That is the message that would reach the investigator. However, if the complainant had had the opportunity to go to the investigator in the first instance, while the investigator might be subject to the same temptation to write him off, at least he would not have had someone from the FSA saying to him beforehand, "Don't waste your time on this chap". That kind of circumstance lies behind the unhappiness with the provision as it is structured at the moment.
7.45 p.m.
Lord Grabiner: I do not know whether all noble Lords have had access to a paper dated 2nd March issued by the FSA. I am entitled to assume that it was not sent only to me because it states that copies have been distributed to all noble Lords who spoke in the debate on Second Reading.
What the document says in terms on the point before us is that, if the FSA decides in any particular case to decline to meet the complaint by accepting responsibility for that complaint, then the FSA will be under a duty to notify the matter immediately to the independent investigator. The problem will not be shuffled under the carpet. It must be passed immediately across to the investigator.
Lord McIntosh of Haringey: I agree with my noble friend. What must be sent immediately to the investigator is the substance of the complaint rather than any form of word picture of the complainant himself.
Lord Faulkner of Worcester: Further to the point made by my noble friend Lord Grabiner, I shall quote from the same document, where it states that,
"The FSA's complaints scheme will make provision for the Investigator to be notified of all complaints which it receives, whether or not it decides to investigate them itself. Complainants

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will not necessarily have to await the conclusion of the FSA investigation before requesting that the matter be pursued by the Investigator. Complainants will be informed at the outset of these arrangements".
I am not sure whether all noble Lords have received a copy of this document. Apparently it has been sent to all noble Lords who spoke in the debate on Second Reading. However, it seems to me that this goes a long way towards satisfying the points made by the noble Lord, Lord Kingsland, when moving his amendment. Furthermore, it also picks up on the point made by the Government in their amendments. This seems to be a remarkably detailed attempt to provide an independent investigatory machinery which perhaps other organisations would be interested in following.
If all noble Lords concerned do not have a copy of this document, I think that it would be most helpful if it were made more widely available.
Lord Elton: Can the noble Lord inform the Committee of the status of the document which we have not seen?
Lord Faulkner of Worcester: The document was sent to me as a Member of your Lordships' House who spoke in the debate on Second Reading. It is entitled Independent Investigation of Complaints Against the FSA, "Note by the Financial Services Authority". My copy is dated 9th March, which may mean that it has been sent out at different times.
Lord Jenkin of Roding: I did not speak in the debate on Second Reading. I have not received a copy of the FSA document. Clearly, once I have had an opportunity to read it, we may be able to decide what we shall do about this matter on Report.
Lord Grabiner: Perhaps I may add, first, in response to the question of the noble Lord, Lord Elton, that the opening paragraph of the document states that,
"This paper summarises the arrangements which the FSA envisages maintaining for the investigation of complaints against itself".
Secondly, it also deals with the point raised by the noble Lord, Lord Kingsland, on the question of ex gratia payments and sets out in some detail an acknowledgement of the concept that it will be responsible for the making of ex gratia payments. The circumstances in which ex gratia payments will be made are identified in some detail, along with the principles to be taken into account when deciding whether and how much should be paid.
Noble Lords may feel that this document is rather critical to our debate. I suspect that it answers most, if not all, of the points raised by these amendments.
Lord Elton: I am most grateful to the noble Lord, Lord Grabiner, for that explanation. It raises the interesting point of what weight should be given to a declaration of intent which is in no way binding on the
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body giving such a declaration. I do not say this in any pejorative sense, merely in a legalistic sense. However, we must consider its weight.
Lord McIntosh of Haringey: That is exactly why I have not relied on that document in my response to these amendments.
Lord Kingsland: In my opening remarks, I referred to that document—I described it as a "memorandum of understanding"—when I talked about the criteria that the FSA said it would apply when making ex gratia payments. Perhaps the Minister would be kind enough to respond to the points I made in that regard. This is not a criticism of the Minister; it is simply an observation. I do not remember him responding to my amendment on ex gratia payments.
Lord McIntosh of Haringey: I did not; it is not included in this group of amendments. Amendment No. 29 is tabled alone. Since the noble Lord, Lord Kingsland, spoke to it, I shall gladly respond and then we can avoid taking it afterwards.
Lord Kingsland: The Minister expressed the view that he hoped that we would move with increasing momentum after the first amendment. I have been happy to oblige.
Lord McIntosh of Haringey: I am happy to oblige the obliging noble Lord. The main thrust of Amendment No. 29 would be to allow the complaints investigator to recommend ex gratia payments by the FSA when complaints are well-founded. In that regard I refer to the document to which the noble Lord referred in his opening speech.
The FSA recently circulated details of the circumstances in which it would make ex gratia payments and will be consulting further. I shall ensure that copies of the memorandum are available in the Library of the House and to all Members of the Committee who took part in this debate, even if they did not take part at Second Reading. We can certainly consider this in more detail with the assurance that we all have the same information behind us. It would be entirely legitimate for the noble Lord, Lord Kingsland, to raise the matter again on Report. Meanwhile, I hope he will withdraw his amendment.
Lord Kingsland: I am obliged to the Minister. I shall now respond briefly to both groups.
On the question of the independence of the investigator and the appropriate route for complaints to take, the proper context in which to look at that question is the statutory immunity granted to the authority at a later stage in the schedule. As the noble Lord is aware, excluding bad faith and the effect of the Convention on Human Rights, the authority enjoys statutory immunity, in particular against reckless or negligent behaviour by any of its employees. Therefore, if I am a regulated body and I am a victim

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of reckless or negligent behaviour which ruins my business and my reputation, I need to have some form of recourse in the Bill, since I cannot sue in the courts.
To have, simply, provisions in the Bill which say, "Before you do anything else you must go and talk to the authority about it", seems to me to be wholly inadequate, if I may say so with the utmost respect to the noble Lord the Minister. Even if there are circumstances in which that is a satisfactory solution, it would not be seen to be a satisfactory solution by the regulated bodies. That is why I say to the Minister that the absolute minimum required, so that individuals who are victims of this kind of conduct for which they have no redress in the courts, is an investigator with real, perceived credibility and total independence of the FSA. That is why I believe the responses from the Minister and the Benches behind him are not adequate to the scale of the problem.
Nevertheless, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 26 to 29 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 30:
Page 219, line 19, leave out from ("person") to ("to") in line 20.
The noble Lord said: I have already spoken to Amendments Nos. 30 and 31. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 31:
Page 219, line 21, at end insert—
("() Neither an officer nor an employee of the Authority may be appointed under sub-paragraph (7).").
On Question, amendment agreed to.
[Amendment No. 32 not moved.]
Lord Bach: I beg to move that the House be now resumed. In moving this Motion, I suggest that the Committee stage on this Bill be resumed not before 8.35 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Lone Parents
7.35 p.m.
Baroness Ashton of Upholland Baroness Ashton of Upholland rose to ask Her Majesty's Government what has been the impact of their policies since May 1997 on the prospects for lone parents.
The noble Baroness said: My Lords, in opening this debate I thank my noble friend Lady Hollis of Heigham for her time, and that of other noble Lords who share an interest in this area of policy.
It is against the backdrop of the Government's commitment to the eradication of child poverty that this debate takes place. The policies to support lone parents must, in my view, be at the heart of that commitment. There are 2.8 million children living in lone-parent households and two-thirds of them are poor. Or, put another way, 43 per cent of all poor children live in one-parent families.
In preparing for this debate I am grateful to the Library and also to the National Council for One Parent Families and Business in the Community. Each provided me with valuable information, and each provided me with information which changed my perceptions.
As it is some time since this area of policy was debated in your Lordships' House, by way of introduction I should like to do a little myth exploding. Lone parents are not new. In the 19th century there were as many families headed by a lone parent as now. What is new is the reasons. Death was the major factor then. Now, three in five lone parents are "ex-married" (a new term)—-divorced, separated or widowed. The fastest growing group is the never-married. But before we read too much into that, we should recognise that most of those—77 per cent—registered their children to two parents living at the same address. Only 15 per cent of lone parents have never married or lived with the child's father. Within that 15 per cent lies an important group of teenage mothers.
I do not underestimate the importance of teenage pregnancy. From the research I have done, it is clear that we need to do more to understand and tackle the relationship between teenage pregnancy and low expectations of young people, ignorance and the mixed message for some that somehow sex is compulsory but contraception illegal.
The average age of a lone mother is 34; a lone father is most likely to be in his 40s. There is no evidence of teenage lone parents having a child to obtain housing benefit. Most have no idea of the system; what information they do have almost invariably turns out to be wrong. Never-married lone parents tend to be younger and are more likely to be on benefit. But they also tend to have smaller families, take paid work and "re-partner"—my second new word of the night—sooner.
Eleven per cent of lone parents come from black or ethnic minority communities. Compared with 22 per cent of white families, 9 per cent of Indian, 17 per cent of Bangladeshi and 55 per cent of black families are headed by a lone parent. Finally, one quarter of all families with dependent children are headed by a lone parent, according to the last general household survey. That means that nearly half of all children may find themselves at some point or another living in a one-parent family.
I said at the beginning of this debate that two-thirds of the children living with lone parents are poor. I want to turn to the reasons for this poverty. I can say with feeling that children are expensive. Women are most likely to be the lone parent. They are most likely to earn significantly less than men; most likely to be in

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low paid work; and more likely to be employed in the non-standard or flexible economy. They have no independent source of income and are consequentially reliant on benefit. And of course they have no second earner.
There is no doubt that, where possible, the practical route out of poverty is through work—and I emphasise the word "possible". Indeed, 44 per cent of lone parents are in work, compared to 68 per cent of women in couples with dependent children. But 90 per cent of lone parents indicate that they would like to work, not necessarily immediately but when circumstances allow.
In my view, the New Deal for Lone Parents offers valuable support and encouragement. It has been criticised for low take-up rates—the last figures I saw were around 33,500—but I would argue that this is a classic case of a policy needing time to demonstrate its effectiveness. It should not become a victim of short-termism. This group of parents faces enormous barriers to work: attitudes of employers and the organisation of work; lack of transport; existing financial hardship and the constraints that it imposes; childcare needs; lack of skills; low pay, scarce and insecure jobs; concern about meeting housing costs; and the complexity of the benefit system.
The introduction of small but practical measures—such as the two-week run-on of income support for lone parents moving into work and the introduction of back-to-work grants for those who have been unemployed for a long time—have had an impact on the ability of lone parents to take up employment. I hope, too, that my noble friend the Minister will look at the help that might be given to those lone parents who own their own homes. Of course, the introduction of the working families' tax credit and the accompanying childcare tax credit are important, particularly the latter.
However, I also want to mention the importance of the role of employers in helping lone parents back to work. Noble Lords may recall that I have spent most of my working life involved in partnerships between the public, private and voluntary sectors to regenerate communities and develop new policies to support people into work, or back into work. Employers can, and should, play a role in supporting families of whatever kind, especially those who rely on one parent. I wish to draw the attention of the House to a few examples that I believe illustrate this, partly pour encourager les autres.
The Bank of Ireland has introduced flexible working options—98 per cent of those taking up the options are women. Moreover, to support take-up and compensate for any reduction of income through flexible working, the bank offers to reschedule employees' loans or mortgage repayments. The main benefits identified to the bank are increased morale, better retention rates, and improved productivity measured by cost savings and customer satisfaction.
BT has piloted projects involving home working, combinations of long and short days, full-time working over four days and "banking time" to take
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during the school holidays. These are now being considered for integration into mainstream policy. As a result, three employees have remained who would have left; an employee was able to support his disabled children more effectively, allowing his partner to take on part-time work; and line managers report improvements in productivity. Staff turnover has fallen to 5 per cent in the trial centre, compared to 15 per cent in equivalent centres. These are examples of how the best employment practice is also the best business practice.
However, not all lone parents wish to, or can, take up employment. For some, educational opportunities are the way forward. Revising or learning new skills may provide the means to employment of a higher standard and greater income. Financing education can be difficult. For some, the loss of free school meals and the imposition of prescription charges, because student loans are regarded as income, may be problematic.
The ability to take on employment or education depends on adequate childcare. Research carried out some years ago indicated that between the hours of three and four o'clock in the afternoon the productivity of women changed as their thoughts turned to their children leaving school. For some children that would have been a journey to an empty home, for others a journey to childminders or elsewhere.
This is a classic joined-up thinking issue. I look forward to the days when we will be able to provide sufficient after-school provision for children. I have in mind sport, art, drama, homework clubs and fun. These are of benefit to both the children and the parents. Better use would also be made of school facilities. I commend the efforts of the New Opportunities Fund in funding and supporting a range of after-school facilities. Speaking from personal experience, I can say that after-school childcare is most difficult to find. We should embrace all the opportunities that we can. Again, employers can also help.
As an employer, the Benefits Agency has invested in child care champions to provide information on childcare, spread best practice and raise awareness. It has set up 12 new holiday schemes and plans up to 50 by next year. Some staff have already indicated that they are staying specifically because of the policies introduced.
Bishop Auckland College now operates a 100-place nursery for its students, staff and local community. Since its opening, staff turnover is close to zero and the percentage of women managers has risen by 20 per cent. The number of women accessing higher education has grown by 30 per cent. Some women who had children before they were 14 are now training at the college and the number of women returning to education has increased by 51 per cent.
It is because good childcare is important that I believe parents entitled to claim support for it should be freer to use it as they see fit. I am thinking especially of the army of grandmothers who regularly support

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their children by looking after the grandchildren. We should consider allowing parents greater flexibility to decide what works best for their children and, with safeguards, contribute to the income of those who do.
For some lone parents the most important role that they can perform at this point in their and their children's lives is to be a full-time parent. Whether the children are young, the break-up traumatic, or for whatever reason, it may be best for the parent to be with the children as much as is possible. That may rule out paid work or education for the time being. I believe that we also need to recognise this and be cautious in our push for employment as the only solution for poverty in every case.
Finally, we will in this House debate many times the question of marriage and family. Let us be aware of the importance of the one-parent family and ensure that no child believes as a consequence of our action that somehow the love and care that he gets from his family is inferior to anyone else's. For some, being in a one-parent family marks freedom from physical or mental abuse; it means control of the finances for the benefit of the children; and it means the beginning of a new life. For some children a one-parent family is infinitely preferable to the alternative. Let us celebrate our successful one-parent families, cherish them and support them in every possible way.
7.46 p.m.
Lord Brett: My Lords, I should like to begin by thanking my noble friend Lady Aston of Upholland for giving us what is really the first opportunity to debate and review the raft of policies that have been put in place by the new Labour Government to improve the lot of lone parents. I share with my noble friend the belief that much good has been done. However, like her, I also recognise that not all lone parents have benefited equally—or, indeed, at all—despite the Government's best intentions. It is a number of those anomalies that I should like to raise in my contribution this evening.
The cut in the lone parent rate of child benefit and the elimination of the lone parent premium in income support is the most obvious anomaly. This has significantly reduced income to a group of people who are demonstrably at the greatest risk of poverty. It is often the individual case that most graphically illustrates how unintended disbenefit can arise even with improved and, it is to be hoped, beneficial policies.
A particularly difficult case has come to my attention—that of a young lone parent mother who suffers from a debilitating disease, Crohn's disease. I trust that noble Lords are aware of the symptoms of this disease and its effect, because in the six minutes at my disposal tonight there is little time to describe it. It is a condition with no known cause and, therefore, no known cure. Treatment is by continuous use of medication or, where appropriate, surgery. While this young lady was on income support she qualified for free prescriptions and, indeed, free school meals for
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her child. However, courtesy of the efforts of the Child Support Agency, her income now exceeds—but only just—the moneys previously paid in income support. Of course, this has now been withdrawn, together with the entitlement to free prescriptions, which this young lady needs if she is to lead anything approaching a normal life.
Unfortunately, although Crohn's Disease is lifelong, it is not considered to be life threatening. Thus it does not qualify for inclusion in the list of those diseases which, in turn, qualify for free prescriptions. With medicines, dressings, and so on, this young lady's prescriptions could cost £25 to £30 a month, or perhaps more. Of course, all this far exceeds any additional income that she receives, courtesy of the CSA, over her previous income support. The only advice that she has received from those who can advise her in this respect is that she could consider purchasing a pre-payment certificate costing, I believe, around £70 a year. This would obviously be a better option than paying prescriptions at £5.90 or £6 a time. Although £70 per annum may not seem an enormous amount of money to a Member of this House, it is an enormous amount of money to a young women who is bringing up a child with absolutely no spare income.
A broader anomaly, which was referred to by my noble friend Lady Ashton, is that of lone parents who are, or who wish to be, full-time students. Such parents are now penalised by the removal from income support of an element equal to the student loan, whether or not such a loan is taken, together with the loss of free school meals and prescriptions. Is it possible that this can be sensible? Should we not consider disregarding the student loan when calculating income for the purpose of income support? After all, a loan has to be repaid; it is therefore a debt, and a debt is not income, however one looks at it.
In summary, lone-parent families, who represent 25 per cent of all families in Britain, have much for which to be grateful to the Government. I refer to the working families' tax credit, the National Childcare Strategy, real increases in child benefit, and increases in income support. That adds up to a good record and a good overall policy. However, can the Minister offer any encouragement that these lesser but important anomalies to which I have referred will receive the attention of her department with a view to making a good policy better by dealing with these anomalies, which I am sure are not intended? Will the department consider how those who slip through whatever net we create can be offered advice which is rather more sympathetic than that of, "Go away and spend money you do not have"?
7.50 p.m.
Baroness Crawley: My Lords, I welcome the chance to take part in this important debate. I thank my noble friend Lady Ashton for giving us the opportunity to focus briefly on a group of people who have had more than their fair share of vilification over the years.
Most lone parents are mothers. Over the past couple of decades there has been an increase in lone mother families. According to the 2000 edition of Social

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Trends, in 1971 7 per cent of families with dependent children were lone mother families. By 1998 the figure had risen to 22 per cent; it had trebled. Before the mid-1980s much of the rise in lone parenthood was due to divorce; since then, single lone motherhood has grown at a faster rate.
As my noble friend Lady Ashton said, lone parenthood is not a recent phenomenon. There is evidence that lone parent families were just as numerous in the 16th and 17th centuries although they declined somewhat in the later 19th and early 20th centuries. Lone parents comprise young or older women with young, teenage or older children. They may be divorced, separated or widowed, or they may never have married. Their profile is far from the stereotypical description that was once guaranteed to earn a cheer at the Conservative annual conference.
Some lone parents have professional jobs; some are on benefits; some work full time; and some work part time. For many, childcare is a real problem; for others, it is more manageable. Many lone parents form part of the poorest group of people in this country. However, as the noble Baroness, Lady Hollis, said recently in a debate in this House on poverty:
"Indeed, one-third of all children are poor. The face of poverty in this country is the face of a child".—[Official Report, 16/2/00; col. 1300.]
The number of children living in poverty has soared over the past 30 years, despite the fact that family size and the number of families with children has fallen. By 1995–96 over 4.3 million children—one-third of all children in Britain—were living in households below the poverty line, up from just one in 10 in 1968. Therefore it is imperative not only for the social inclusion of poorer lone parents themselves, but also for the future of their children, that the Government's commitment to halving child poverty by 2010 is realised. As my noble friend the Minister said in that recent debate, poverty is not a birthright.
Breaking the cycle of deprivation and low esteem and even lower expectations from parents to child so that children can get the best start in life has to be one of the driving motivations behind the Government's New Deal for lone parents. The New Deal is a major weapon in the Government's armoury of making work pay and tackling child poverty. It recognises that improving the income of lone parents is the surest way out of that cycle of deprivation. However, we know that it is not the only way. Access to good health, good education and good housing are also enormously important in finding sure routes out of poverty.
The Government's New Deal for lone parents deserves our support precisely because it is attempting to break down the barriers faced by all those lone parents who are presently locked out of the labour market. Obstacles such as little or no experience of work, demoralisation, demotivation, the need for reskilling, an abandonment of confidence in one's own social skills, as well as poor qualifications and, indeed, no qualifications, are all prevalent.
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I believe that the New Deal is a practical, comprehensive package of back-to-work help designed to assist and encourage lone parents on income support to take up paid work. I quote the comments of some lone parents on the New Deal. Dawn from Weston-Super-Mare has three children between the ages of 18 and seven. She states of her introduction to the New Deal:
"At our first meeting I explained that whatever happened I could not afford to be any worse off financially. Nicky explained how the benefits would be affected by the increase in hours. She helped me by doing a calculation to show how much family credit and housing benefit I would receive working full time".
Nicky was Dawn's personal adviser.
Carrie from Burnham-on-Sea has a small child of three. She stated of her personal adviser:
"It was a two-way relationship; a real joint effort. Carol wanted to help me into a job and I wanted to work. The fact that the scheme is voluntary means you feel you've made a personal effort".
David from Kent had children for whom he had given up his teaching job. He stated:
"Initially I was very sceptical about the prospect of working again. However, I found that I was reassured when I was not put under pressure. It was always made clear that if I felt the kids weren't ready for me to go back to work, I wouldn't lose anything by backing out".
Those are some of the comments of lone parents on their experience of the New Deal.
I conclude by asking the Minister whether she will take up the point that my noble friend Lady Ashton made as regards how relatives—my noble friend gave the example of grandparents—can be assisted financially and in other ways to take on some childcare responsibilities.
7.57 p.m.
Lord Warner: My Lords, I too am grateful to my noble friend for giving us the opportunity to discuss the subject of lone parents this evening. I want to place lone parents in the broader context of family policy. In doing so, I draw the House's attention to the Government's consultative document, Supporting Families, which focuses on the care, welfare and upbringing of children.
The document recognises that families come in all shapes and sizes and that it is not for the Government to preach to people. Instead the policy emphasis of the Government—rightly, in my view—has been to provide practical help to parents rather than harangue them about the nature of their adult relationships.
Too often in the past lone parents have been regarded as though they had single-handedly sought their status. There has been too little recognition that large numbers of single mothers have demonstrated huge resilience and have brought up their children successfully despite difficult circumstances. I am glad that this Government have seen lone parents as a group who should be able to benefit from broader improvements in family policy as well as having some targeted help that relates to their particular circumstances.

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The real disgrace of the family policy that this Government inherited is the huge increase in child poverty that took place in the 1980s and 1990s, to which my noble friend Lady Crawley drew attention. The previous government liked to describe themselves as concerned with the family but they allowed this increase in child poverty to take place through their failure to provide adequate financial support to millions of families with children. The benefit and tax measures introduced by this Government will now start to remove children from poverty in both one- and two-parent families. The huge increases in child benefit, the working families' tax credit and the childcare tax credit will all help lone parents and will take hundreds of thousands of children out of poverty during the lifetime of this Parliament.
The new childcare places will also benefit 1 million children by 2003, many from lone parent households. The Sure Start programmes, with expenditure of about £0.5 billion, will provide more integrated services in early years for many parents in areas where incomes are low. Guaranteed nursery places for every four year-old and improved maternity leave, pay and grants are all measures of a general kind that will help and benefit lone parents.
On top of this, the New Deal has provided targeted help specifically for lone parents on income support. This does help to overcome the barriers to work for many low income lone parents. Despite a perhaps slow start, these new arrangements have helped several thousand lone parents into work in the pilot areas. I am sure my noble friend Lady Ashton is right to argue for patience in letting this new policy initiative take root.
I believe lone parents will also benefit from the greater help that is being made available to parents generally. There is increased funding for Parentline so that parents who are struggling, have difficulties or have problems can telephone for help. There has been expanded funding for local parenting groups that provide information and mutual support. That is again something that will help some lone parents. Much greater funding has been given to voluntary organisations such as HomeStart, with its befriending services. Again, that will help socially isolated mothers with young children, among whom are many lone parents. These are the kinds of practical projects that will help lone parents as well as families with two parents.
I draw attention finally to an area where the Minister has been very active. This is the work that she has done on reforming the shambles of the Child Support Agency. Producing more realistic and practical arrangements for ensuring that non-resident parents support their children will be a major help for many lone parents. My noble friend the Minister deserves great credit for the reforms that she has driven through in this very difficult area.
In conclusion, in developing an inclusive, coherent and non-judgmental family policy, this Government have helped all parents, whether they are single parents or in households with two parents.
8.2 p.m.
Baroness Kennedy of The Shaws: My Lords, I too wish to thank the noble Baroness, Lady Ashton, for introducing this debate. Child poverty and the position of lone parents have long been two of my own preoccupations. Indeed, I remember very well that one of my first speeches in this House two-and-a-half years ago was with regard to my worry about the effect of benefit cuts on lone parents. I am happy to say that, since then, the Government have shown that they are committed to lone parents and have introduced many policy changes to address their special needs.
As the noble Baroness, Lady Ashton, has said, there is nothing new about the lone parent, particularly lone mothers. Ninety per cent of lone parents are women. Women have often been forced by circumstances to bring up children alone. Indeed, many people in this House were brought up in that way. As the noble Baroness, Lady Ashton, described, the circumstances themselves may have changed. Less lone parenthood may be brought about by effects of war or by death and more as a result of relationship breakdown. However, as my noble friend Lady Crawley described, there is a great deal of mythology—mythology about lone parents selecting their status and doing so to secure housing and other state benefits. All this is a travesty of the truth.
I, too, wish to congratulate the Government on the New Deal initiatives. Working is invariably the way out of the poverty trap. The best way for women to find self-esteem and to recover their confidence is to take that step back to work, especially as often they are recovering from the demoralisation of rejection and the failure of a relationship. However, I am concerned that, in asserting, as the Government properly do, the importance of parents being able to stay at home when their children are very young, we also recognise that, immediately after breakdown, particularly in circumstances where there has been domestic violence and a woman has left because of abuse, there has to be a serious period of time before she is encouraged into work. The children of such families are so emotionally needy as regards the parent who remains.
My main area of interest and concern is the route into work through education. As many noble Lords will know, I have been involved in the field of further education and have produced a report on the subject. One concern we still have in the further education field relates to the difficulties encountered by mothers seeking to acquire an education—often because it was not readily available to them when they were younger—have in affording childcare, even where it is available within the colleges. Often, childcare facilities are available in the college but they are still too costly for a lone parent.
I understand that the Government are bringing in bursaries in higher education to help with the cost of childcare. I ask the Government to consider whether similar provision can be made available in further education. So often, that will be the starting point for single mothers in acquiring education they failed to get the first time round.

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A complaint that is often made regarding the problems in further education is that because women with children who are trying to study have so much pressure upon them, the lecturer in the college becomes the counsellor and supporter. We need to see a development of access funds to include more money for childcare. At the moment, access funds for further education are being used by lone parents for childcare rather than for buying books, computers or other items that they really do need.
Gordon Brown, the Chancellor of the Exchequer, announced in a pre-Budget report that £50 million will go into further education in September. It is welcome that this money is going to this area of education, which has always been neglected. I would be very grateful if it were possible for the Government to give a steer by saying that a significant part of that money should go towards childcare, an area which will be most beneficial for women.
Those are the matters that I wish to raise in this debate. I want to thank again those who have participated in the debate and the noble Baroness, Lady Ashton, for introducing it. In addition, the Minister has played a great role in seeking to promote and improve the position of lone parents. I know that she shares my view that one of the routes off welfare and into work for many women is education. I should be grateful if she could give an indication as to how that might be shaped up in the months and years to come. I am happy that the message coming from this House tonight is that families come in many shapes and sizes and that it is not helpful if there is moralising about people who are left to bring up children on their own.
8.8 p.m.
Earl Russell: My Lords, I, too, should like to thank the noble Baroness, Lady Ashton of Upholland, for introducing this debate. In particular, I welcome her remarks about the importance of childcare, in which I hope the Minister will assume that she has spoken for us all.
I should also, I am afraid slightly backhandedly, like to welcome the introduction of this Unstarred Question because it has freed me from a self-denying ordinance. The Minister may have noticed that in the debate on 16th February I mentioned neither single parent benefits nor incapacity benefit. I thought the House knew what I thought about those things. I do not want my silence to be taken for consent, and this debate gives me an occasion to say that we on these Benches are by no means reconciled to those changes.
I should also like to say to the noble Lord, Lord Brett, that he may be pleased to know that when the Child Support Act was brought forward in 1991, the noble Lord, Lord Carter, divided the House on precisely the point about passported benefits which he has now made. He did so with my enthusiastic support. The noble Lord, Lord Brett, raises it tonight also with my enthusiastic support.
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I know that since the 1997 cuts the Government have introduced a number of welcome measures which, in the words of the National Council for One Parent Families, have gone some way to restoring the losses of lone parents. But since the working families' tax credit, by definition, applies to those in work, those who are not in work have gone less far than others towards recovering the lost ground. The argument the Minister and I had about whether separate costs are attached to being a single parent was inconclusive, interesting and of a high level. I was interested to note that the Acheson report agreed with me on that. It does not, of course, make me right, but it does suggest that the view is one which can be seriously entertained.
However, the biggest problem obviously is poverty. I am interested to notice that research shows that in lone parent families which do not suffer from poverty, the children do no less well than they do in any other family. That is a point to which we might return on 23rd March when we discuss guidelines. I shall throw the Minister a statistic for a present in a debate in which I am not generally being entirely kind to her. At present, 62 per cent of lone parents have an income which is below half the average income. In 1979, the figure was 19 per cent. I imagine that the Minister may want to repeat that figure on occasion.
The Government have only one answer here. It is work. It is a good answer for many people. Work is a right. I believe in helping people to uphold their rights. But where one has young children to care for, not working, equally, is a right. We on these Benches believe in upholding both those rights. The Government tilt the scales a little. Tomorrow we have the work-focused interviews which single parents are being required to attend for the first time. We have single parents suffering a good deal of fear where disentitlement to benefit is concerned, afraid of the stigma to which many speakers have referred, afraid of the threat of losing benefit before appeal, suffering problems with childcare and transport, of which we have heard. On 16th February the Minister expressed surprise at transport coming into a debate on poverty. It will not be the last time.
Above all, this is an issue of human rights, an issue of subsidiarity—the state does not know what is going on in a family—and an issue of the state's competence, therefore, to assess what is happening. I have not forgotten the speech on this subject of the noble Lord, Lord Evans of Parkside, when the cuts in single parent benefit were before the House. I have also been spending a good deal of today reading the DSS research report 110, The Evaluation of the New Deal for Lone Parents. In the light of that, I wonder whether the Government's faith in that is entirely justified. If one wants to calculate the effect of the New Deal, one has to calculate two things: dead weight—that is, those who would have found jobs anyway; and substitution—that is, how many of those off the programme who find jobs thereby displace other people who would have found those jobs if the others had not. The report makes a great effort to calculate additionality. The researchers calculate that, out of

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8,107 people on the programme, 3,393 found jobs, and 645 would not have found them without the programme.
I have as much confidence in those figures as the researchers, which is to say that I cannot think of any better ones, but I do not know whether they are right. On the question of substitution, they say that they have made an assumption that for each person off the programme who found a job, one other person remained one month longer on benefit. They say, "This is a bold assumption". Yes, it is, especially with no evidence in favour of it. It seems to me that where the programmes have created no additional jobs, there is a rebuttable presumption that dead weight plus substitution add up to 100 per cent. If the Minister can rebut that presumption, I shall be very interested indeed to hear her do so.
8.15 p.m.
Baroness Buscombe: My Lords, I should first like to thank the noble Baroness, Lady Ashton of Upholland, for providing us with the opportunity to speak on this important subject, although it is impossible to do it justice in six minutes.
It is important to focus upon the 1.7 million people who are single parents bringing up our next generation—nearly 3 million children. There is no doubt that we need policies which provide positive, sensible, realistic and workable support systems for lone parenting, not just for the sake of the children, but also for the parents, most of whom do not choose to be single parents.
Lone parenting carries with it a huge burden of responsibility. As a working mother with three young children, while I have an extremely supportive husband and reliable help with childcare, I nevertheless sometimes find it tough to juggle and tough to cope. I frankly admire all those men and women often struggling but managing to bring up children on their own.
We have heard much this evening about what the Government have been doing to help lone parents since 1997. I am bound to say that I do not agree that they have had much success. The fact is that the Government are evading the key question: what is the right balance between tough and responsible unpaid work looking after a child and breadwinning paid work to avoid dependency on benefit?
While this is a dilemma that most partnered mothers face, it is much more acute for single parents where all the responsibilities of breadwinning and carer come together. For new Labour, the focus is entirely upon paid work. By talking in terms of only valuing the role of bringing up children if you leave them to go out to work and pay someone else to look after them, the Government have caused huge offence. In addition, they have introduced programmes such as the New Deal for Lone Parents and the ONE programme. It is all rather confusing. Both schemes are supposed to get single parents into work. The ONE programme entails all single parents turning up for an interview, but after that nothing is required of them.
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As for the New Deal, figures from the Government show the initiative to have been an expensive failure. A £190 million scheme has secured jobs for only 4.5 per cent of the lone parents invited to join. This percentage means that fewer than 20,590 people out of a total of 454,920 are now in work. Eighty-six per cent of the single parents invited to join the scheme have not even attended an interview with an adviser. This figure is unlikely to improve as the monthly participation rate is now falling fast. In October 1999, 5,760 of those invited to join the scheme attended an initial interview. The latest figures show that less than half that number did so in December.
Ministers have often claimed that the New Deal for Lone Parents is a success. However, they have, so far, neglected to admit that the published figures are distorted as they add in the single parents with children younger than five who were not invited to meet a jobs adviser but who found work anyway. This is not right because only those in the target group are invited or expected to join.
It is my hope that the Minister will give us the true figures and also respond to articles such as that by Alasdair Palmer in this week's Sunday Telegraph, entitled "The Deceit of Brown's War on Benefit Fraud". Alasdair Palmer states that research carried out by the Department of Social Security which involved comparing an area in which the New Deal for lone parents operated with one in which it did not produced a surprising discovery. It showed that while the two areas chosen were as alike as possible in every respect, more lone parents found jobs in the area where there was no New Deal than in the other. That tells us that lone parents do better when the deal is not offered to them. With a budget of nearly £200 million, I believe that it is right now seriously to question whether the scheme is worth it.
We question the drive to push lone parents of young children into work. We do not believe it is in the best interests of the children, particularly when childcare options and facilities remain woefully inadequate. The evidence is that children, especially when they are very young, derive significant long-term advantages through having a parent stay at home and look after them. However, when children get older, the position is reversed, especially for daughters. Let me quickly offer some statistics about the chances of the child of parents in different circumstances securing either no academic qualification or an advanced academic qualification.
For sons brought up in a two-parent family, there is a 50 per cent chance of achieving an advanced education qualification, regardless of whether their mother worked or did not work during their teens. In contrast, if they are brought up by a lone parent they have only a 29 per cent chance of achieving an advanced qualification if their mother worked during their teens and a 30 per cent chance if their mother did not. Interestingly, for daughters the picture is rather different. Brought up in a two-parent family, their chances of achieving an advanced educational qualification is 38 per cent whether the mother worked or not. However, a daughter brought up by a lone

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parent has a depressingly low chance—7 per cent—of achieving an advanced educational qualification if that lone parent does not work while the daughter is in her teens. The figure rises to 24 per cent for the daughter of a working lone parent—still too far behind a daughter from a two-parent family but much better than in the case of a non-working lone parent. That tells us that the daughter's chances of achieving good results, and therefore real opportunities and a chance to succeed in a life away from dependency, away from poverty, are much greater if her lone parent works during her teens.
One reason is, of course, economic since a boost in income will help. However, there is no doubt that children, once they reach their teens, benefit from the experience and role model of a parent going out to work. That is why we on these Benches believe it right to expect lone parents actively to seek work when their children reach secondary school age.
Baroness Amos: My Lords, I hesitate to interrupt the noble Baroness but she has been speaking for eight minutes. That means that the Minister will not have sufficient time to reply.
Baroness Buscombe: I apologise, my Lords. I shall bring my speech to a close.
There is no doubt that reforms to the job market implemented when we were in government mean that the British economy has a wealth of opportunities for part-time jobs which help single parents in fulfilling their role as carers. We need practical, workable measures, not bureaucracy, interviews and more initiatives and programmes that sound good but cost the taxpayer more and which, more importantly, do not deliver real help to lone parent families.
8.23 p.m.
The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, first, as other noble Lords have done, I should like to thank my noble friend Lady Ashton for so eloquently introducing the debate. Both she and my noble friend Lady Crawley have emphasised that the poor in this country are children and, indeed, that one-third of all children are poor.
The number of lone parents has grown—up 50 per cent in 10 years—so that now one family in four is headed by a lone parent. They are bringing up 3 million children. One million of those lone parents are on income support. They are poor. Half of all lone parents are in the bottom income quintile whereas only one-fifth of couples are. Even more importantly, lone parents and their children are also more likely to be persistently poor than other people, remaining in the bottom quintile for years—and, if moving up, falling back again within a couple of years. It is this persistent poverty that scars.
There are many children in low income couple families, but their low income is less likely to be persistent. It is the children of lone parents, where the child's family is not only workless but fractured, that
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the poverty scars. We know that their poverty is accompanied by poor health, poor education, poor life chances. That is the problem that the Government's cross-ministry Sure Start programme seeks to tackle.
So how are we seeking to help lone parents and their children? The Government do not underestimate the need for direct financial support. The combined effect of the financial measures introduced in the Budgets of 1998 and 1999 will raise the incomes of the poorest fifth of families with children by £1,000 a year—that is £1,000 in two years; some £6 billion extra spent on children by 2001. That is a significant achievement by any standards. For example, for children under 11 in workless families the value of their income support has risen in two years by 50 per cent.
None the less, as your Lordships have acknowledged, we believe that the only reliable path out of poverty is for the parent to move into work. Lone parents share that culture. They tell us that they want to work, and most of them want to work now or in the near future. As your Lordships have recognised, it is harder for them than if they were in a couple. Married women are far more likely to work because they have the childcare within their family. They are more likely to be older and better educated—51 per cent of all lone parents have no educational qualifications at all—and they can share childcare with their family.
That is why your Lordships were right to dwell on the New Deal, which is the second part of our strategy. Financial support, yes, but also help into work. I am grateful for the remarks made by my noble friends on this matter. We are spending £190 million on the programme and personal advisers, who support lone parents through training, job search, childcare arrangements, better-buy calculations and benefit roll-on.
This programme is already a success, even though it is in its early days. More than 120,000 lone parents have voluntarily joined the New Deal; that represents 90 per cent of those who came to an interview. Some 41,000 of them have found jobs and more than 14,000 are in training since the programme began in July 1997. For many it has turned their lives around.
Both the noble Earl, Lord Russell, and the noble Baroness, Lady Buscombe, criticised the New Deal. I wonder whether they have read the three evaluation reports. Have they read, for example, the calculation of the cost effectiveness of the programme, which shows that the average cost for a lone parent on the New Deal is £640 and that 20 per cent of them have made a clear gain? The lone parents themselves say that it is 28 per cent, but the researchers have taken 20 per cent as the figure. At 23 per cent—which is lower than the figures given by lone parents—that programme breaks even.
If there is no substitution—and the report suggests that there is no evidence of substitution—that programme makes a profit for the community and is a rich resource for the lone parents.
Earl Russell: My Lords, I rise only to say that the report—
Baroness Hollis of Heigham: My Lords, I do not wish to give way. I have only 12 minutes to speak and I am trying to answer many of the points made by noble Lords. I very happy to take up points in correspondence with the noble Earl.
If there is no substitution, unless there is additionally a wage premium—the research shows that one of 6 per cent almost certainly exists—then again that programme is in profit. It is already clear that the total gain of people coming off benefit is exceeding the cost of the programme when these other factors, substitution and wage premium, are put into effect. If we strip out the differing labour markets of the comparator areas, it is already clear that the New Deal is having a significant and valuable effect. It is early days but the programme is a success for those who are reaching it. Given those assumptions, it is already breaking even.
The problem—a legitimate problem—lies with those lone parents we are not reaching—almost three-quarters—who, despite letters, are not coming to a New Deal interview. That is the problem. They are often those who have been lone parents for many years. Half of those tell us that they would have come on to the New Deal with further encouragement. It is clear that we must work with that group. None the less, we face a problem in regard to those parents who inherit many years off work, who may have poor health, whose children may have poor health, who have low skills and qualifications, and who live on rundown estates. It will take time to build up their skills and confidence, but we must reach them—and we are determined to do so.
That is why, through the new ONE pilot schemes, we seek to interview all lone parents when they first come on to benefit so that they do not join the stock of those lone parents who have remained socially isolated and beyond our reach. Following the interview, they are not, of course, required to go into work or take training if they do not wish to. But I believe that a lone parent is the best person to judge what is in the best interests of herself and her child. I am sure, also, that that lone parent needs to be empowered to make that judgment. If she does not know about the options, which will be explained to her in the setting of a supportive ONE interview, she cannot take up the opportunities. If she does not know the choices, she cannot choose.
So I repeat: the New Deal is already a success. It is turning around the lives not just of one generation, but of two. But we need to ensure that when people become lone parents they are fully aware of all the opportunities available to them so that, when they judge that the time is right, they too will be able to make that springboard leap into work which alone will guarantee them relative prosperity.
But we need to do more than provide financial support; we need to offer more than the New Deal. We need also to adapt the benefits system in order to
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ensure that work pays. Understandably, lone parents will not take jobs that do not pay. The new WFTC and its generous childcare tax allowance will improve incentives to work. As a result, the financial benefit for someone with two children moving into work and receiving a typical entry wage has increased from £30 a week to a £54 a week gain. Half of those claiming WFTC are lone parents; half the rest are in families where women are the main wage earner. WFTC is a woman worker's benefit. It will raise women's wages and will help those working in traditionally female, low-paid sectors such as catering and retailing.
But, in turn, the WFTC must be underpinned by a minimum wage, so that WFTC does not subsidise the exploitative employer. That point has not been mentioned in the debate. Beneficiaries of the minimum wage too are women, young people, part-time and casual workers and, above all, lone parents. One effect which again was not mentioned during the debate and is little noticed, but in which I take a great deal of pleasure, is that the minimum wage takes a further one-quarter of a million women over the lower earnings limit, allowing them to build up contributory benefits, including incapacity benefit and stakeholder pensions, in their own right.
Research suggests that, put together, the lower rate of tax, the national insurance changes, the minimum wage, and the WFTC mean that a quarter of a million extra people will enter the labour market and relative prosperity; and that, overwhelmingly, the beneficiaries will be women, among them lone parents.
If the perception of low and insecure wages has been one major barrier to re-entering the labour market, the cost and availability of decent childcare has been a second. It was mentioned by several speakers. The more generous childcare credit, which unlike the arrangements under family credit actually aids the poorest, will fund up to £70 of a £100 weekly childcare bill for one child, and up to £105 of £150 for two or more. And we are improving the supply of childcare: we are investing nearly £500 million in England alone.
A number of my noble friends, including my noble friend Lady Crawley, asked whether there should be a role for grandparents. We know that informal care by grandparents is the childcare choice of many lone parents. It is obviously an issue on which the Government must reflect.
The third problem that lone parents tell us they encounter is surviving the transition from income support to work, surviving that first month without money—and hence the housing benefit roll-on and the income support roll-on. I am glad that those have been welcomed by my noble friends.
A final problem, mentioned by my noble friends Lord Brett and Lady Kennedy, has been the question of support for lone parents when they enter further and higher education. Those who enter HE come within the student support system, but they remain eligible for income support and housing benefit if their income permits them to claim it. As for lone parents entering FE, I am sure that my noble friend will be aware that the ring-fenced budget for childcare access funds will

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be increased to £25 million in the year 2001—nearly three times the amount in 1999–2000. That will help some 37,000 students, particularly those on low incomes and including, above all, lone parents.
If one reason that a child is poor is because her parent with care is not in work, the other reason is that the non-resident parent is failing to support her. Children of lone parents are doubly disadvantaged. Too often, they are in a workless family; invariably they are in a fractured family. So I am grateful for the kind words of my noble friend Lord Warner welcoming our child support measures.
We inherited a CSA in which 70 per cent of mothers and 70 per cent of fathers failed to co-operate with the CSA and, as a result, some 1 million children were denied the maintenance that they should have received. We hope that as the result of our reforms he will co-operate under a simple system and that she will help us, because she will stand to gain £5 if he is on benefit, £10 a week if he is in work and she is on benefit; and if she is on working families' tax credit, the lone parent will keep every penny of the maintenance that she will receive. Her children will not only gain from the extra cash; they will see their father contributing to their keep and will, I hope, learn how decent dads behave.
Finally, we shall seek to introduce the integrated child credit: a sort of basic citizen's income for children which will move seamlessly from out-of-work benefits to in-work provision, thus ensuring the well-being of children.
We value all families, but we know that lone parent families are not only poor, but persistently poor and find it very hard to spring the trap of that poverty. That is why, together, our financial support for those lone parents who remain on income support, our New Deal, the minimum wage, the WFTC, the national childcare strategy, and our work for supporting families and children have shown such significant progress over the past two to three years. We have more to do, but we are getting there. If we succeed, we shall not only springboard one generation, but two, into a secure and prosperous life.

Financial Services and Markets Bill
8.36 p.m.
House again in Committee on Schedule 1.
Lord Saatchi Lord Saatchi moved Amendment No. 33:
Page 219, line 34, after ("2(3);") insert—
("() the costs and expenses incurred by the Authority in the period covered by the report, a break-down of those costs and expenses and a comparison with the corresponding costs and expenses incurred in the previous year;
() the fees paid to the Authority under rules made under paragraph 17 in the period covered by the report and a comparison with the fees paid in the previous year;
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() a review of the costs incurred by the Authority in the period covered by the report in comparison with the costs incurred by regulators in other jurisdictions;
() the work of the investigator and any action taken by the Authority in response to criticisms of the Authority's conduct made by the investigator;
() the operation of the penalties scheme referred to in paragraph 16 in the period covered by the report and a comparison with the operation of the penalties scheme in the previous year;").
The noble Lord said: At present, under paragraph 10(1) of Schedule 1, the FSA must at least once a year make a report to the Treasury on the matters set out in headings (a) to (c) of paragraph 10(1). There is also a provision for the Treasury from time to time to direct on other matters on which it wishes to receive a report.
The purpose of the amendment is to spell out specific further items which we should like to see included in the FSA's report to ensure full accountability in its activities. The first section of the amendment would ensure that a breakdown of costs and expenses incurred by the FSA in the period covered by the report would be included and that a comparison would also be provided with the corresponding costs and expenses of the previous year. It is one of the most basic of the generally accepted accounting principles that readers of a financial report are provided with a comparison of performance with the previous accounting period.
The second section of the amendment states that the fees paid to the FSA under rules made under paragraph 17—these are fees paid to the FSA by authorised persons to cover the FSA's expenses—should be detailed and that a comparison with the fees paid in the previous year should also be included in the report. The purpose is to make more transparent the amount of fees paid to the FSA by the community that it is regulating and to be able to disclose how those fees have increased from one year to another.
The third additional section that we should like to see in the report is a calculation of the costs of regulation in the UK as against those incurred by regulators in other jurisdictions. The regulated community itself and many others will want to see this level of transparency and comparability.
Under the fourth section of the amendment we aim to see a description of the work of the independent complaints investigator as referred to in paragraph 8. In addition, we should like to see described the action taken by the FSA in response to any criticisms of the FSA's conduct made by the investigator following the investigation by him of complaints against the authority.
The final part of the amendment details the operation of the penalties scheme and the provision of a comparison with the previous year. We believe that these are reasonable minimum requirements for the disclosure of performance indicators by any body that performs a public duty. Certainly, they are not sufficient for the purposes of a full review of the FSA's

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actions, for which we must look to our later Amendments Nos. 84 and 86, but we believe that they are necessary. I beg to move.
Lord Newby: The amendments standing in our name in the Marshalled List in this and the next group deal with two matters. The first is that the report of the FSA to Parliament should be as full as possible. Our model for the kind of report that we believe is required is that produced by the Securities and Exchange Commission to Congress as part of its annual appropriation process. We believe that that covers all the relevant information that is required in a considered and detailed manner.
Amendment No. 34, like Amendments Nos. 37 and 37A, seeks to remove the Treasury filter within the framework of the Bill in terms of the relationship between the FSA's reporting function and Parliament.
Amendment No. 36 deals with another matter which was raised briefly in an earlier debate; namely, the extent to which the practitioner and consumer panels are taken seriously. It is all very well to have such panels, the establishment of which we strongly support, but it is more important that their recommendations are taken seriously by the FSA and that everybody can see when the authority does not follow them, rather than that the panels submit proposals which simply disappear into a black hole. Amendment No. 36 would give effect to the suggestion of the Joint Committee that in its annual report the FSA should be required to state the recommendations made by the practitioner and consumer panels appointed under Clause 8 of the Bill and whether the authority has implemented them.
8.45 p.m.
Lord Jenkin of Roding: I was not a member of the Burns committee but I have read a good deal of its two reports in a pre-legislative context. There appears to be widespread acceptance that with a Bill of this kind that has been a most invaluable innovation. One wishes that perhaps the Government had adopted more of the committee's recommendations. We have debated some of them during the course of this afternoon and we shall come to others later. There is no doubt that, faced with a highly complex and technical Bill of this kind, the Joint Committee of the two Houses did an amazing job in an astonishingly short time. It demonstrates the value of that piece of machinery.
I believe that in part the accountability of the FSA must be to Parliament. Perhaps a report to both Houses would be very cumbrous. I do not see how the FSA could report only to this House. No doubt the other place should have an opportunity to question the chairman and others about the activities of the FSA, but the idea that there should be a Joint Committee (on the lines of the Burns committee) which has an opportunity to receive the annual report and have a session with the chairman, and no doubt one or two others, is extremely valuable. Although I do not necessarily agree with the specific amendment that is before the Committee, something along these lines is justified on the grounds that the FSA is a very large,
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powerful and unique body with an extraordinary range of powers and severe penalties that can be applied to individuals. I do not believe it is enough that the FSA should be accountable to the Treasury and that Treasury Ministers should then be accountable to Parliament as now. I believe that we should adopt this proposal as part of the general stiffening up of the accountability of the authority, and, therefore, I very much support it.
I should be interested to hear the reply of the Minister to the question of what should go into the report. I believe that it is very reasonable to ask for statistics which enable comparisons to be made not only with previous years but also with comparable bodies; and that there should be a separate report by the non-executive directors' committee on their view of the cost-effectiveness of the whole operation. They appear to be very valuable provisions, and I hope that the Minister is able to accept them.
Baroness O'Cathain: I am utterly confused by the contribution of my noble friend. I thought that the Committee was considering the first group of amendments. We have not yet reached the later group. I strongly support Amendment No. 33, except that I have a slight concern about one of its proposals. If we proceeded along these lines, the general public would have greater confidence in the transparency of the authority, which is important. More importantly, it would encourage the authority to improve its performance year on year in the management of its costs. I am aware that having to produce two lines of figures giving year-on-year comparisons which enable people to see whether they are doing better or worse is a good incentive to raise the level of the game. Another encouragement is that it would be a document in the public domain and the media would crawl all over it with a fine-tooth comb, which would not be a bad idea.
One comes to the,
"review of the costs incurred by the Authority in the period covered by the report in comparison with the costs incurred by the regulators in other jurisdictions".
I am slightly concerned that the actual costs and time incurred in making a true comparison may outweigh the benefits. The comment is always made that one must take account of exchange rate movements; that perhaps one is comparing apples with pears and so on. Although it may be of great interest, one must be very careful about balancing the advantage against the cost. However, I believe that the whole of Amendment No. 33 is a great improvement on what is now in the Bill.
Lord Haskel: I believe that of far greater importance than the working methods of the consumer and practitioner panels and their reporting procedures is their independence. If they are not independent, whatever they do does not have much value. I was a member of the Joint Committee. We were careful to ensure that the two panels should be independent so that they could make whatever reports they wanted to make. We went as far as to say that the consumer panel should be financially independent and have a separate

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budget. Therefore, I am not sure that these amendments are important. As long as the panels are independent, they can do virtually whatever they think is necessary.
Lord Kingsland: I should like to deal with Amendment No. 35 which is another amendment in the group that the Committee is considering. That amendment seeks to add two further categories to paragraph 10(2) of Schedule 1.
The first category would be reports by the practitioner panel and the consumer panel. The value of those reports would be greatly enhanced if the Minister were to accept some later amendments connected with the powers of both those panels to express their views on the various codes and guidelines to be produced by the FSA. Having a summary every year of the views of those two panels about the quality of legislation produced by the FSA would have enormous advantages for whichever parliamentary committee will consider the annual report.
The second category relates to a report from the independent complaints investigator. I place, as the noble Lord is already aware, great importance on the work of the independent complaints investigator in view of the absence of any recourse of a regulated party to the courts.
Lord McIntosh of Haringey: I am grateful to noble Lords for what they said about the amendments. The annual report is an important part of the FSA's accountability to consumers, practitioners and the Treasury.
Paragraph 10 of Schedule 1 already requires wide-ranging information to be in the report: the discharge by the FSA of its functions; the extent to which the regulatory objectives have been met; following amendment in another place, consideration of the principles—proportionality, the UK's competitive position, and so on—to which the FSA must have regard; and other matters as directed by the Treasury. Moreover, the annual report must be accompanied by the report of the non-executive committee and other reports or information as directed by the Treasury. So paragraph 10 is already quite prescriptive.
Amendments Nos. 33 and 35—the latter has been spoken to by the noble Lord, Lord Kingsland—would require the FSA to produce the following in its annual report: the costs and expenses incurred by the FSA; the fees paid to the FSA under paragraph 17 of Schedule 1; a review of costs incurred by the FSA compared with costs of regulators in other jurisdictions; compliance costs both compared with previous years and with other jurisdictions; the work of the complaints investigator; a report by the investigator, and any action taken by the FSA in response to criticisms by the investigator; the operation of the penalties scheme; and any report which the practitioner and consumer panel wish to include. Amendment No. 36 would require a response by the FSA to recommendations by the consumer and practitioner panels. The noble Lord,
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Lord Jenkin, will recognise that the amendments he supports provide the comparative statistics which he, quite rightly I think, seeks.
The last annual report of the FSA, in July 1999, already included some of this information: for example, on costs and reports by the equivalents of the complaints investigator. In its press release of 6th July 1999 which accompanied the annual report, the FSA has already committed itself to providing substantial information in its future annual report, taking account of the Joint Committee's recommendations. This includes fees and expenditure for the current and prior year, and responses to reports by the complaints investigator and the practitioner and consumer panels, meeting, I hope, the aim of Amendment No. 36.
I have the press release in front of me. The main contents proposed for annual reports in the future are under the headings: statutory objectives, policy, rule making, consultation, cost benefit analysis, regulatory issues, and accounts of authorisation of firms and approval of individuals, supervision and monitoring, enforcement action including policing the perimeter of regulated activities, cases settled or determined by the tribunal, fines and costs, significant judgments by the tribunal, work with customers to include initiatives and criteria used to assess the public awareness objective, international work and implementation of EC directives, work with other authorities, including overseas regulators, the Treasury/ Bank of England/FSA standing committee, and investigation of enforcement agencies, complaints, responses to reports by the independent complaints commissioner, the ombudsman scheme, the compensation scheme, the consumer panel, the practitioner panel, and any value for money reports produced by the Treasury, publications, information on major publications during the year, statutory accounts, of course, the report of the non-executive committee of the FSA, an assessment of regulatory burdens and compliance costs of UK markets compared with overseas jurisdictions, and changes over the year in question, operations (including human resources), and IT issues. That is quite a list. It encompasses everything included in the amendment, and quite a lot more. It will be a very hefty annual report.
For that reason, I have no objection whatsoever to the detail of the amendments proposed. They are generally well founded. But we said in response to the Joint Committee that we do not want to prescribe in legislation too much of the report's contents in case other priorities emerge in the future, and, if anything were by any chance left out and they were a few pages short of the 1,000 pages to which I imagine the report will run, since the Treasury can in any case direct the content of the report should it fail to meet users' requirements, I hope that the amendment will not be pressed. I think that we have more than met the objectives underlying the amendments.
Amendment No. 34 would have the effect of removing the Treasury's power to direct the FSA on the contents of its annual report. I do not think that that would be desirable. It would restrict Ministers' rights over what information was in the FSA's main

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annual public statement. I do not think it necessary to have an amendment which would allow the FSA to add material beyond that specified in paragraph 10 of Schedule 1. There is nothing to restrain the FSA from publishing separately any information which cannot be incorporated in its annual report.
It is clear that I support the objectives of the amendments. However, I believe that we have more than accomplished the objectives which noble Lords have in moving them.
Lord Donaldson of Lymington: Perhaps I may use the opportunity of Amendment No. 33 to make a point which I shall try to make on every possible occasion.
The amendment calls for a report on the operations of the penalty scheme referred to in paragraph 16. When I first began to read this monumental work, I had thought that with the statutory base to the FSA we should find that most market misconduct and the like was dealt with by the FSA under the terms of paragraph 16. It is a perfectly splendid paragraph; I am thoroughly in favour of it. However, it has now come to my notice that that will not happen. Only in cases where recognised investment exchanges have no jurisdiction will the FSA come in. The real question will be the extent to which the FSA, in one way or another, can require those bodies to comply with the standards imposed by Parliament on the FSA itself.
If we were to go down that route, I should want to see a report on the regulations that the FSA was imposing upon other subordinate regulatory authorities.
Lord McIntosh of Haringey: That is one of the reasons why we do not wish to be too prescriptive about the annual report of the FSA.
Lord Saatchi: The Minister responded warmly to the proposed amendments. I am grateful. However, have I understood correctly that he thinks it too prescriptive to put in the Bill that the revenue and the costs of the FSA should be detailed in its annual report?
9 p.m.
Lord McIntosh of Haringey: I have indicated my support for the FSA's proposals set out in its press release of 6th July 1999 and I have indicated my opposition to any attempt to take away from the Treasury its power to prescribe what shall be in the annual report.
If anything which was in the July press release, including the matters to which the noble Lord referred, were to be excluded, the Treasury would use its powers to ensure that it was included. I think that we win on that both coming and going. We provided a reserve power for the Treasury to insist on the inclusion of all issues which Members of the Committee and I want to have included, yet we have left it without too much prescription.
Baroness O'Caithain: What would happen if the Treasury did not want to include such information and
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decided to obfuscate? The Treasury has occasionally obfuscated. I know that we are living in times of transparent government, but there could come a time when it might say, "We don't want those costs put in because they were pretty horrific".
Lord McIntosh of Haringey: I believe that the noble Baroness and I should discuss that away from the ears of officials. In such circumstances, the electorate would be entitled to vote the Government out of office.
Lord Saatchi: The Minister said that the Treasury "may" direct this and that. We are saying that we want Parliament to decide and to say which items should be contained in the annual report.
I shall not go on any longer in case I bore the Committee on this point, but a strong theme is emerging in our discussions. I am happy to leave the matter to the Report stage and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 33A to 36 not moved.]
Lord Newby Lord Newby moved Amendment No. 37:
Page 219, line 39, leave out ("the Treasury") and insert ("Parliament").
The noble Lord said: I wanted to speak to my Amendment No. 39 in the group, but having heard the intervention of the noble Lord, Lord Jenkin, there is nothing more I need to say in support of it. He expressed our views most admirably.
I understand that Amendment No. 37 falls foul of parliamentary niceties, in that it is not the role of a Bill to dictate to both Houses how they might deal with an issue. Therefore, I shall not be surprised if in response the Minister points that out. However, it would be helpful if this House could send as strong a signal as possible about the way it wants the report of the FSA, once it arrives in Parliament, to be dealt with. Parliament has a mixed track record in fulfilling its function to examine reports.
In this area, the work of the Burns committee has shown how both Houses of Parliament working together can achieve more than the two Houses working separately. Therefore, I am keen that the substance of the amendment is carried into effect. I shall be delighted if the Minister tells me that my fears about the proprieties are misguided and that he agrees with me. In any event, it is important that the message should come out from this House that this is a sensible way to deal with a report from the FSA and, in future, similar bodies. I beg to move.
Lord Kingsland: On reflection, I think that our Amendment No. 38, which is also in the group, is not as good as that tabled by the noble Lord, Lord Newby. Therefore, I am happy to associate us with everything that he said.

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In a sense, these are probing amendments, because I suspect that the Minister will tell the Committee that he is not in a position to commit your Lordships' House one way or the other on a matter which is not in the Government's jurisdiction but in that of your Lordships' House.
Nevertheless, perhaps, if the Minister looks on the amendments as being probing, he will be disposed to indicate the view that the Government Benches may take to the establishment of a committee of your Lordships' House to consider the annual report. In particular, dare he say whether he would be more inclined to favour a joint committee rather than a committee either of your Lordships' House or of another place, or both sitting simultaneously?
Lord Jenkin of Roding: I thank the noble Lord, Lord Newby, for his kind remarks. Perhaps my next remark is addressed to Hansard: copy and paste. I apologise for having made my speech in the wrong place.
Lord McIntosh of Haringey: It happens. I am grateful to Members of the Committee for the way in which they have introduced these amendments. Accountability to Parliament is a very important aspect of the FSA's responsibilities. The FSA will be more effective if it is accountable for its actions. It is a single regulator and its lines of accountability will be clearer than they were under the previous regime of multiple regulators. The general support that has been expressed throughout the passage of the Bill for the single regulator principle never becomes clearer than it has in the demands for parliamentary accountability.
The Bill makes several provisions to ensure effective transparency and accountability. The FSA is accountable to Treasury Ministers who have various rights and sanctions. They have the right to appoint and dismiss members of the FSA's board (Schedule 1); to require independent inquiries into regulatory matters of serious concern (Clause 12); and to require independent reviews of the FSA's use of resources (Clause 10).
Ministers, in turn, are accountable to Parliament. As Members of the Committee have recognised, that, of course, is not something for the Bill to specify. However, it is an important principle which underlies the provisions of the Bill. We are more than happy for Parliament to scrutinise what the FSA does, as, indeed, the Joint Committee recommended. Executive powers in relation to the FSA should rest with Ministers, who in the normal way will be accountable to Parliament for what they do in the exercise of those powers.
It is certainly not for me to say whether any committee of either House or, indeed, of both Houses should be set up. However, I believe that it is permissible for me to say that the work of the Joint Committee, with the membership and chairmanship that it had and using the procedures that it did, was enormously helpful in developing this Bill and in ensuring that it will have an easy passage through your
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Lordships' House, which I am sure that it will. If I am asked what the usual channels will think, I believe I can assure your Lordships that I shall speak severely to the Deputy Chief Whip and urge him that the usual channels should consider this matter very seriously!
The difficulty with Amendments Nos. 37 and 37A is that they go fundamentally against the grain of the accountability structure that I have described. The ability to give directions on the contents of the FSA annual report is an executive act which is properly exercised by Ministers, who can be held to account by Parliament for any exercise of it or failure to exercise it.
The principle which underlies Amendment No. 38 would require the Treasury to have regard to representations, reports and resolutions by either House on any report made by the authority. Although that may seem unobjectionable, it suggests that, in the absence of such a provision, the Treasury would be free to act in disregard of the views expressed by Parliament or any committee. However, that is not our position under our constitution and it would be wrong to suggest that it is.
As I said, Ministers are accountable to Parliament and they can be held to account if they fail to behave in the manner described in this amendment. They can be asked by Parliament to explain why they have not followed a recommendation and, as I hope that the Government's response to the Burns committee shows, that system is effective. We should not cast doubt on its operation here or, as inevitably would be the case if the amendment were accepted, in other areas of governmental responsibility.
As I made clear, Amendment No. 39 is less a matter for me and more one for the House and Members of another place. As I said, Treasury Ministers warmly welcome parliamentary scrutiny, whether by a Joint Committee or by other means. If the Houses so decide, we shall co-operate fully with any such scrutiny. Under those circumstances, I urge noble Lords not to press the amendment.
Lord Newby: I take the cautious words with which the noble Lord welcomed the spirit of Amendment No. 39 as being a ringing endorsement, in spirit, on his part. We understand the form of constraints under which he operates. However, we hope that in his role as Deputy Chief Whip he will ensure that as and when this Bill becomes an Act and this matter comes before the House—
Lord McIntosh of Haringey: I said that I would speak severely to the Deputy Chief Whip. I did not say that he would pay any attention to what I said!
Lord Newby: I realise that the noble Lord has a peculiar problem in this regard, and it is one that only he can resolve with his conscience. However, as I said,

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we hope that the half of the personage who receives the message will respond as favourably as the half who is passing it on. With that—
Lord Jenkin of Roding: Before the noble Lord withdraws his amendment, perhaps I may say to the Minister that I detected more than an echo of "The Gondoliers":
"United we speak as one individual".
Lord McIntosh of Haringey: I believe that the noble Lord has his Gilbert and Sullivan wrong. I believe that it was Pooh-Bah in "The Mikado" to which I referred.
Lord Newby: Certainly the Minister had "a little list" a moment or two ago when he read out the contents of the annual report. However, before we descend completely into "Gilbert and Sullivanalia", I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 37A to 39 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 40:
Page 221, line 43, leave out ("incidental purpose") and insert ("purpose which is necessary or desirable for carrying out its functions").
The noble Lord said: This amendment seeks at page 221, line 43 to leave out the expression "incidental purpose" and insert "purpose which is necessary or desirable for carrying out its functions".
As the Committee is no doubt aware, under paragraph 17(1)
"The Authority may make rules providing for the payment to it of such fees"
by the regulated community
"as it considers will … enable it—
(a) to meet expenses incurred in carrying out its functions or for any incidental purpose".
The amendment is intended simply to cut down the wide "for any incidental purpose" wording by stipulating that it must be a
"purpose which is necessary or desirable for carrying out its functions".
I beg to move.
9.15 p.m.
Lord Jenkin of Roding: I am sure that other noble Lords have found themselves, as I have, chairing the board committee of a regulated insurance company—in my case—or of a bank or whatever. One reaches a point on the accounts where the management says "There is nothing we can do about this. The fees have gone up 20 per cent from last year, and it was 20 per cent the year before". The board fumes and says that a stiff letter must be sent to the regulator and that this must not be allowed to continue year after year, as the company's profits have not gone up by anything like as much.
Regulated bodies feel very strongly that the regulators have not exercised sufficient self-discipline in the past. There is the feeling that the fees can be put
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up almost without concern simply to meet what seem to be inexorably rising costs. It is right to voice that concern here.
This is a small amendment, but it is perhaps indicative of an attitude. We really should make sure that regulators can pass on only that which is necessary and desirable, and not just any incidental expense.
The wider point is that this is of considerable importance to the regulated community. I hope that the FSA will take that on board. It was apparently not always heeded by its predecessors.
Lord McIntosh of Haringey: I understand the concern expressed by the noble Lord, Lord Jenkin, and I sympathise. But I do not think that the amendment achieves what he wants.
As the Bill stands, the FSA is able to raise fees to meet expenditure which it incurs in the discharge of its functions and in doing things which are incidental to the performance of those functions. This imposes an important check on the FSA's ability to raise fees, while enabling it to raise fees to cover expenditure which it incurs, for example, in connection with or in consequence of the functions conferred on it under the Bill, but which is not strictly expenditure incurred in the discharge of those functions. If the FSA is to do its job properly, it obviously needs flexibility to expend money on activities which are incidental to its central job of performing the functions conferred on it. In the FSA's case this includes international work, such as the Basle Committee and IOSCO.
The provisions of the Bill as they stand give the FSA that flexibility, and they are no different from the provisions of the Financial Services Act 1986, which was enacted by the previous government. The test imposed is essentially an objective one, which has been shown to work over the years. The amendment would introduce an undesirable element of uncertainty into the question for what purposes fees may be raised. If it is necessary for the FSA to incur expenses in carrying out its functions, that is already covered, since the expenses will be incurred in the carrying out of those functions.
I am not sure what the objective limits are if we move from a test which limits the FSA's ability to raise fees to meet expenses incurred on incidental matters to one which instead confers on it an ability to raise fees to meet expenses incurred in doing things which were desirable for carrying out its functions. What does "desirable" mean? Who is to determine what is desirable? There is an element of subjectivity here which seems inappropriate with regard to a statutory fee-raising power.
Of course, the FSA will have to justify its expenditure. Its annual report will contain a statement of its budget, and that will be subject to scrutiny by Ministers, Parliament and the annual open meeting which the Bill requires it to hold. If the directors of the FSA were to travel everywhere by private jet, if like the EBRD in its early days they were to coat the ceiling of their entrance hall in the finest Carrara marble, that

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would inevitably appear in due course and there would be a comeback, a rejection, because it would be evident in the annual report.
Although I respect the motives for the amendment, I do not seriously think that it would improve the wording of the Bill.
Baroness O'Cathain: While I agree with the Minister that the word "desirable" probably opens up a problem, the phrase
"purpose which is necessary for carrying out its functions"
is a neater way of saying "incidental purpose". I think that there are stronger parameters in it. That would cover the point which my noble friend Lord Jenkin made. Perception is all. People who are regulated feel very strongly that they must keep their costs to a minimum and they are constantly being regulated. But they want to know who looks after the regulator and whether he is getting away with it.
I am sure that the Minister will agree that "incidental purpose" could mean anything whereas,
"purpose which is necessary … for carrying out its functions",
is a tighter phrase.
Lord McIntosh of Haringey: I am sorry; I do not agree. "Incidental" has worked for 14 years. I am not aware of any complaints since the passage of the Financial Services Act 1986.
Lord Kingsland: I am not as satisfied as I should like to be with the Minister's reply, but I believe that he has indicated some sympathy with the views expressed by my noble friend Lord Jenkin. In view of that, I know that he will be leaving your Lordships' House determined to look very carefully at the amendment which we have tabled to make absolutely sure that he has not got it wrong. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sharman Lord Sharman moved Amendment No. 41:
Page 222, line 19, after ("Authority") insert ("or any person acting in the capacity of an agent of the Authority under any provision of this Act").
The noble Lord said: These four amendments deal with the issue of statutory immunity. In moving Amendment No. 41, I should like to speak also to Amendment No. 42.
Amendment No. 41 deals with the issue of an agent of the competent authority. As the Bill stands at present,
"any person who is, or is acting as, a member, officer or member of staff"
of the competent authority is exempt from being liable,
"in damages for anything being done or omitted in the discharge, or purported discharge, of the Authority's functions".
Paragraph 6(1) of Schedule 1 provides that:
"Those arrangements may provide for functions to be performed on behalf of the Authority by any body or person who, in its opinion, is competent to perform them".
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Amendment No. 41 seeks to extend that immunity to the agent of the authority so appointed, acting on behalf of the authority.
Amendment No. 42 deals with the issue of recklessness. As the Bill stands, the statutory exemption from damages is removed only in the case of bad faith. It seems to me that that exclusion from damages enjoyed by the FSA, the manager and all the other entities covered by it, should be extended beyond just bad faith into reckless behaviour.
Recklessness would need to be proven in any action for damages against the authority or any of its agents and it may well be that the authority would be required to establish whether or not its actions constituted recklessness on the facts as they stand. I beg to move.
Lord Donaldson of Lymington: Perhaps I may say a few words about Amendment No. 42. I raised this question at Second Reading. I strongly support the idea of immunity.
Perhaps I may expand on that. The reason that the courts of law have a statutory and, indeed, common law immunity is that, otherwise, there would be no end to litigation. As soon as a litigant lost his case, he would sue his counsel. When he lost that case, he would sue the solicitor who had advised him in that case; and so it would go on and on.
I believe that a considerable element of the same could be said about the FSA. It will be making judgmental decisions which may be right or wrong, with which people may agree or disagree. But disgruntled regulated or unregulated persons will be able to go to the courts and say that the FSA has been reckless, whether or not they have any justification. There will be considerable expenditure of money and a considerable diversion of management effort and the like on the part of the FSA.
Having lost in the courts, as I have no doubt they would in most cases, they will then, with the assistance of the Government's conditional fee agreement or something—or perhaps that is an irrelevance—go on to the Court of Appeal. Having failed there, they will start on the human rights ladder. The noble Lord, Lord Kingsland, is about to point out that, whereas originally I sensibly opposed the Human Rights Bill, when it came around again I supported it, but only because I believed it was the only way of controlling the press. But that is beside the point.
With regard to this point, I believe that the FSA needs immunity. The courts, of course, have immunity. Nevertheless, apart from what happens in court, if one's case is not listed or is listed wrongly or anything like that, that is a judicial function, even if it is a delegated function. Therefore, it is covered by the immunity. If one goes to the Lord Chancellor's Department, it will, in suitable cases, pay compensation. The same approach should be adopted by the FSA.
Lord Bagri: The question of immunity has been examined at length by the Joint Committee under the noble Lord, Lord Burns. It made some valuable

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suggestions which have been incorporated into the Bill, so far as I can read it. It is important for the good of the financial services industry, as well as for good regulation, that regulators are not deterred from taking regulatory action by the mere risk of ending up with all kinds of challenges in court. The balance in the Bill is right. It is correctly drawn.
Lord Phillips of Sudbury: Far be it from me to presume to question the opinion recently expressed by the noble and learned Lord, Lord Donaldson—
Lord Donaldson of Lymington: No one else refrains from disagreeing with me!
Lord Phillips of Sudbury:—but I believe it is fair to say that the immunity which he described is an immunity in terms of the trial process and not in terms of work which may be carried out by barristers in the privacy of their chambers. That is an important distinction, because most of the work that will be carried out by the new authority will, of course, not be in a tribunal—so to speak—but will be carried out in the course of a normal working day, applying the vast regulatory framework with which it is endowed under the Bill.
On these Benches, we are absolutely at one with the Government in wanting to create a forceful regulatory body which can carry out an extremely difficult task in an extremely naughty world. There is no question but that the powers given are commensurate with the power of some of the financial bodies and agencies which operate in the global financial market. Having said that, we return to the question of balance and public confidence. It would not be in the long-term interests of the authority and its staff to have the extent of the immunity granted by the Bill as it now stands because, as I suspect all of us—certainly the lawyers among us—know only too well, proving bad faith is an extremely difficult test to establish. We are well aware also of the current extremely ineffectual provisions in the City which do not do their job satisfactorily.
I suggest that the addition of those words will not open the floodgates to a vast amount of speculative legal action. If one considers the purview of the old Monopolies and Mergers Commission, which had no immunity whatever—it was open to the full extent of the common law—I am not aware that it was the subject of much, if any, litigation. I believe that by adding those words we are widening in a sensible way the prospect of commencing and succeeding in an action against the authority.
During the supper break I looked up the definition of "recklessness" in Halsbury's Law. Definitions vary according to the context in which they arise. Broadly, recklessness is acting in a manner,
"which creates an obvious and serious risk"
of damage to the other person. An obvious and serious risk seems to be fair, not just plain common or garden negligence.
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I am sure that Members of the Committee know that bad faith is dishonesty. As I said, that is extremely difficult to establish, particularly within a bureaucracy. I suggest, therefore, that the amendment proposed, far from weakening the Bill, will strengthen it. It will give the financial community a good deal of reassurance.
9.30 p.m.
Lord Grabiner: The thrust of the proposed amendments is that although the claimant can sue for damages if he is the victim of bad faith behaviour and infringements of the Human Rights Act, and although in addition he is free to sue for judicial review, those remedies are insufficient. It is said that claimants should, in addition, be allowed to sue variously for negligence and recklessness, and that on that footing the FSA and its officers and staff should not be immune from liability. I respectfully agree with the observations of the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Bagri. Perhaps I may refer to the points and develop them briefly.
First, if the matters complained of by an individual complainant reveal conduct that is so unreasonable to the extent that no reasonable regulator could have acted in such a way, that is behaviour which will, by definition, be caught by the judicial review principles which are now well established and, indeed, for which many government Ministers over the years have had to pay, to the greater or more efficient performance of their statutory and other responsibilities.
There will, therefore, be a remedy which will be sufficient to ensure that the FSA will behave itself. If in the exceedingly improbable event that the FSA finds itself confronted with numerous successful applications for judicial review, it will be obvious that something has gone fundamentally wrong. I believe that the existence of a remedy of judicial review will be a sufficient control over the improbability of that sort of behaviour developing.
My second point particularly supports the observations of the noble and learned Lord, Lord Donaldson. In my view we would do a great public disservice if we agreed an amendment which turned this legislation into a paradise for lawyers. Contrary to popular belief among some lawyers, it is not the function of legislation to satisfy the hunger of lawyers. It is tolerably clear what is meant by "bad faith". It is also clear what is meant by "judicial review" and the circumstances when judicial review arises.
The problem is that once the concept of negligence is introduced into legislation of this kind, it will be—I speak from bitter experience—impossible to restrain clients who are told that they can simply complain about unreasonable behaviour as a basis for starting litigation against the FSA. There would be no end to litigation and much of that litigation would be nothing short of nonsense.

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I turn to "recklessness". In my view, if that word was to be introduced, it would inevitably lead to endless litigation. In English law, notwithstanding whatever the noble Lord may have discovered in the dictionary, this is an exceedingly elusive concept.
Lord Phillips of Sudbury: I thank the noble Lord for allowing me to intervene. I did not consult a dictionary, but Halsbury's Laws, to which even he may defer.
Lord Grabiner: That would depend on who was the editor of the particular volume, so I should like to reserve my position.
"Recklessness" is a very elusive word. Without wearying noble Lords with the detail, it has, first, given rise to enormous difficulty in the criminal law. Secondly, in the context of the civil law, it is usually found in discussion about what is meant by fraudulent, reckless or deceitful misrepresentations, as in making reckless statements at the point of a bargain where the provider or seller is anxious to do the deal and goes much too far in making exaggerated claims for the product. That kind of exercise is no doubt interesting, but inevitably it would involve a great deal of litigation and much activity for lawyers.
I believe that the provision would waste valuable court time; it would result in a waste of time for FSA officials; and there would be a corresponding waste of money. Finally, and most importantly of all, it would distract the attention of FSA officials who ought to be concerned with the functions and furtherance of the interests of the FSA in carrying out its statutory responsibilities.
Perhaps I may also say that I am not suggesting for a moment that the proposed amendments are not well motivated because they do have a certain superficial attraction. However, I believe that they are quite unnecessary and that it would be more appropriate for them to be withdrawn.
Lord Fraser of Carmyllie: At this stage, I do not think that it is necessary for me to elaborate on any of the arguments that have been advanced by the noble Lord, Lord Grabiner, the noble and learned Lord, Lord Donaldson, or my noble friend Lord Bagri.
The line I should like to suggest to the Government—here I hope that I am kicking at an open door—is this. As I understand the scheme of the Bill, the "super regulator" should be the Financial Services Authority. In many respects, it wants the responsibilities imposed on it by statute to be discharged by lesser or devolved bodies; that is to say, the recognised investment exchanges. Then, when it comes to matters such as market abuse or whatever it may be, the FSA would expect those bodies to take up the investigation and the approach before the FSA itself took on those tasks. If that is the case and if I have understood it correctly, it seems to me to be entirely right that if a degree of immunity is to be granted to the
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FSA, it follows that the same degree of immunity should be given to the RIEs or other bodies required to discharge such responsibilities.
I hope that that is a self-evident proposition and that I have understood what the FSA and others have told me. However, if I am wrong about that, it would be helpful if the Deputy Chief Whip could explain the position. While I am not in any way threatening the Government, if he cannot do so, we shall need to explore these matters in much greater depth on Report.
I believe that the short and simple answer to this problem is that there should be an equivalence of treatment in terms of immunity. Whatever degree of immunity is conferred on the FSA, exactly the same degree of immunity should be conferred on those who might be required, under the terms of this statute, to discharge their responsibilities to ensure that the markets are properly regulated.
Lord Burns: I too support the remarks of the noble and learned Lord, Lord Donaldson of Lymington, and the noble Lord, Lord Bagri. During the course of the Joint Committee's investigation I was fully persuaded of the case for statutory immunity on the grounds of the dangers of over-regulation.
Financial supervision requires a lot of difficult judgments and if everything the regulator does is to be subject to threats of legal action, over-regulation and excessive caution will ensue. It is already the case that, if anyone loses money because a bank or security house goes down, the first thing he does is go to the regulator for compensation. That already happens even though statutory immunity exists in relation to banking supervision.
Regulators will become enormously cautious. They will want everything checked. They will want copies and written confirmation of everything that is done. They will regulate and regulate. There is always going to be risk. The only way to avoid risk to a regulator is by pushing up the costs and making life extremely difficult. So, although the idea of statutory immunity is difficult for many of us to live with, the alternative is considerably worse.
Lord Jenkin of Roding: I should like to add a few brief words. I am not sure that I go along with the noble Lord, Lord Grabiner, on the question of recklessness. I find myself nearer to the views expressed by the noble Lord, Lord Phillips of Sudbury. I did not recognise his definition of "recklessness", though it is a long time since I have had to look into a law book. The phrase that comes to my mind is that recklessness is not caring whether something is true or false.
The situation that I fear may arise is where a keen, enthusiastic regulator—a member of the staff of the regulatory body—goes into a firm, be it an insurance broker or an investment manager and his suspicions are aroused that the business is not being run properly. In that suspicious frame of mind he feels he is being obstructed because personal antagonism has arisen between him and the head of the office. He then realizes

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that he has not got all the documents he needs to be able to conduct his investigation. He storms out and as he goes he points and says, "Make no mistake, we are going to get you".
Events continue on and finally he goes for an Anton Piller order; the bailiffs go in and all the documents have to be frozen. But it all turns out to be a mare's nest. The business was being perfectly properly run and the situation simply fell foul of human relations. That is not bad faith, but it could be recklessness. He could have got himself into the frame of mind whereby he said, "I am going to get him and hang the consequences". Is there to be no remedy for that?
That is the sort of situation which I can envisage and where, without the word "recklessness" appearing in the schedule, the wronged head of the office would only be able to throw himself on the mercy of the ombudsman. That was one of the points Mr. Herrington made when he gave evidence to the Joint Select Committee of the noble Lord, Lord Burns. If the ombudsman finds that there has been malpractice, then he can now order that there shall be compensation paid. As Mr. Herrington reminded us, that is what happened in the Barlow Clowes case. That was the other way round, of course; The regulator should have recognised that he was dealing with a fraud and failed to. A lot of people lost a lot of money as a result, so compensation was ordered and the DTI had to pay.
That would be the only other remedy available. The noble and learned Lord, Lord Donaldson, shakes his head and my noble friend Lord Bagri says no, so perhaps I had better sit down. But I envisage that kind of case, where extreme damage could be done to a firm and to its reputation and there may be no redress at all.
Lord Donaldson of Lymington: At the risk of trespassing on the Committee's time, perhaps I can briefly answer that if the FSA goes to the courts and asks for Anton Piller orders or Mareva injunctions or anything of that sort, it will be liable in costs. Its immunity would not extend to it then. I entirely support the point of the noble and learned Lord, Lord Fraser, in relation to devolution.
9.45 p.m.
Lord Goldsmith: Perhaps I may add a few words on this important topic. I do so not on the question of what this would do for lawyers. Indeed, I entirely agree with the noble and learned Lord, Lord Donaldson, and my noble friend Lord Grabiner. Lawyers will be the greatest losers if this amendment is not passed. Neither my noble friend Lord Grabiner nor I will be able to show our faces in the Temple and Lincoln's Inn for weeks to come.
I do not wish to speak on that point and I do not speak as a lawyer; I speak as someone who, for a period of about three years, was chairman of a regulatory body. I wish to support, and perhaps slightly elaborate, the point made by the noble Lord, Lord Bagri. I refer to the risk of distortion of the regulatory process as a result of imposing on
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regulators a duty of care towards others, which is what the negligence amendment would do. But who is likely to be in their sights? The people who are most likely to sue for negligence are those who would be regulated. So this amounts to saying that the regulators owe a duty of care to avoid loss to the regulated.
As a matter of pragmatism and as a matter of theory, that seems to me to be wrong. It is wrong that the FSA should be looking at those who are to be regulated and worrying about what the consequences will be. It is wrong both in practice and in theory. It is wrong in theory because the duty—and this is the substantial point—that the authority ought to be following is not a duty to avoid loss to those who are regulated, it is a duty to support the regulatory objectives under Clause 2; namely, market confidence, public awareness, the protection of consumers and the reduction of financial crime. Anything which takes the eyes of the regulators off those objectives would be wrong. Of course, there must be limits—no bad faith and no breach of fundamental rights, such as those in the Human Rights Act. But, beyond that, those objectives should remain clear and focused. These amendments would distort and paralyse that process.
Lord Bagri: There is already a provision for judicial review. Perhaps Members of the Committee can imagine themselves in a regulatory body that lost two or three judicial reviews in a row: no one would have any confidence in you, no one would trade in your market and, indeed, no one would believe you. I believe that there is an automatic remedy in this respect. If we go in for subjective judgment about recklessness or negligence, it will open up a Pandora's box.
Lord Kingsland: In view of what many noble Lords have said about these amendments—three out of four of which are tabled in my name—I feel that I ought to be making my contribution from the Opposition Front Bench under an assumed name, or at least wearing a false beard.
I should like to start by saying how profoundly I disagree with the contribution of the noble Lord, Lord Burns. He has made such a distinguished contribution to everything connected with this Bill that I find this very hard to say. All my amendments ask the FSA to do is to behave reasonably. The noble Lord said that, if the FSA was saddled with the obligations set out in these amendments, it would be immobilised. However, doctors are not immobilised just because they face an action for negligence if they commit a mistake in an act of surgery. Soldiers are not immobilised because they know that if they pull the trigger and get it wrong they may be tried for murder. Policemen are not immobilised when they rush to make an arrest. Those three professions face big liabilities if they get it wrong.
The FSA has months to plan what it is going to do—months to consider each step that it takes. Why should it have immunity in circumstances where those other bodies do not? I quite understand the concern of the noble Lord, Lord Burns, and that of the noble and learned Lord, Lord Donaldson, about endless

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litigation. But what about the regulated party who has been negligently or recklessly ruined by a decision of the FSA? What recourse does he have—particularly when one looks at the wholly inadequate provisions of the investigator? I think, with great respect, that there is a different context in which these amendments ought to be looked at. I hope that I may take the Committee through the three amendments.
Lord Burns: I did not go into the issue of the complaints procedure and looking at this from the side of the party that was regulated. My comments concerned depositors and the people who carry out business with the financial institutions and the relationship they have with them. If, at any stage, anything were to go wrong with one of the financial institutions that was being regulated, there would immediately be a great outcry on the part of everyone who had lost money. They would try to use these provisions to recover their money, possibly even where they had taken a risk which they should have taken into account but which they would subsequently try to lay off on the regulator. That was the burden of my remarks. I was not so much considering the matter from the point of view of the regulated firm—which, I have argued in the past, should be dealt with by the complaints procedure—but rather from the point of view of depositors. An awful lot of depositors become evident when a financial institution gets into difficulty.
Lord Kingsland: I thank the noble Lord, Lord Burns, for that clarification which raises a series of issues which I believe will be dealt with later in the Bill. My amendments focus on the position of the regulated party.
These amendments amount to three changes to paragraph 19(3) of Part IV of Schedule I to the Bill. The first seeks to introduce the concept of recklessness into paragraph 19(3)(a), which is, at the moment, limited to bad faith. The second seeks to add acts or omissions in breach of European Community law to paragraph 19(3)(b). The third seeks to include the provision where, in the case of the authority but not its employees, acts or omissions are shown to have been negligent.
I shall discuss the amendments in turn. In paragraph 19(3)(a) it is clear that the authority is not exempt from liability for damages if it acts in bad faith. There is some uncertainty about what the term "bad faith" means. Some have argued that bad faith here ought to be defined in the way that it is in administrative law; that is to say, someone who acts wholly unreasonably, or takes into account issues that he ought not to have taken into account, or in some other way contravenes the rules of fairness which exist in judicial review. I suspect that that is not the sense in which the courts would interpret bad faith in this context.
It seems to me that they are most likely to interpret bad faith along the lines of the tort of malfeasance in public office. As many Members of the Committee are aware, there is at present some uncertainty about the scope of that tort. But on one interpretation that tort
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could include reckless behaviour if by reckless behaviour is meant not caring whether or not some consequence flows from an act. Recklessness may therefore already be contained in the concept of bad faith. But in any event, in my submission there ought not to be immunity from recklessness. If the authority acts, not caring what the consequences are, I believe that that is grossly wrong and so irresponsible of an official that the authority for whom he works ought not to be protected.
Then we come to the question of the scope of the Human Rights Act. Again, I know that a number of noble and noble and learned Lords will be all too well aware of the recent case of Osman in the Strasbourg court, reversing an important decision in our courts in the case of Hill v. Chief Constable of West Yorkshire, which essentially stated that police engaged in the activities of investigating and controlling crime are not immune from actions of negligence, or, at least, that any attempt to make them immune from actions of negligence is in breach of Article 6(1) of the human rights convention.
We do not know how that decision will play in our own courts because, under the Human Rights Act, our courts are obliged only to have regard to the jurisprudence of the court in Strasbourg. They are not bound by it. I am not saying that the consequence of what is already in the Act will, in effect, make decisions by the FSA, which are negligently made, liable for actions for damages. I am saying that the scope of that provision—heading(b) of paragraph 19(3) of the schedule—is now really quite uncertain and may in fact mean that the FSA is liable for negligence.
The third part of the amendment, I say with great respect to the Minister, is surely one that he can accept. If acts or omissions are in breach of European Community law, in circumstances where European Community law under the doctrine of a case like Francovich requires damages to be paid, the FSA will have to pay damages. There can be no question one way or the other. I put it to the Minister that that is something that should, irrespective of value judgments he might reach regarding recklessness or negligence, be fairly and squarely in the Bill.
The noble Lord, Lord Grabiner, who, like the noble Lord, Lord Goldsmith, is a lion at the commercial Bar and is very familiar with the application of judicial review to commercial matters, pointed out that judicial review is available as a remedy. He is quite right about that. As he well knows, for the particular remedies that are specific to judicial review itself, you cannot get damages. You can get an injunction—although I suspect that the remedy of an injunction will not be much use to a regulated authority because, by the time it wakes up to what has happened to it, the damage will have already been done by the authority. But damages are not open to it unless it has an independent, self-standing remedy deriving from another part of English law. With great respect to the noble Lord, Lord Grabiner, he might think that judicial review helps him. However, I am not sure that it does help me in trying to achieve what I am seeking to achieve.

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In sum, I would feel less evangelical about these amendments if the Minister could find his way, between now and Report stage, substantially to reinforce the role of the independent investigator. Although of course it is important that the Minister takes into account the interests of the FSA in being able to take decisions that are final, it is very important that the Minister also takes into account the interests of those who are regulated. After all, they are the individuals who have made the City of London the enormous success it is today. They need certainty and they need to be treated decently, just as much as the FSA requires them to behave decently. In my submission, the Bill does not get this balance right. Either the balance has to be right in the area we are debating now; or the Minister has to go back to the earlier part of the debate we had today and reconsider what he said regarding the complaints investigator.
10 p.m.
Lord McIntosh of Haringey: I am very well aware of the importance that noble Lords opposite attach to these amendments. There have been ferocious articles in the press in the past few days inspired, or written, by the noble Lord, Lord Saatchi, which have made it clear that statutory immunity is one of the principal areas in which they think the Bill is defective. I do not deny the importance of this issue. It is a topic which was considered in detail by the Joint Committee, which broadly approved the level of immunity proposed by the Bill, subject to certain proposals to strengthen the complaints arrangements, which we have broadly followed.
Statutory immunity is not new. We are not introducing it for the first time. The Financial Services Act 1986 provided for it; the Banking Act provided for it; and the Companies Act 1989 provided for it in relation to the regulation of company auditors. The Pensions Act 1995 gives the Occupational Pensions Regulatory Authority the same statutory immunity as the FSA will have under the Bill. Indeed, the Opposition, as the Conservative government, were instrumental in introducing the immunity into the existing legislation. The immunity was supported not only by the noble and learned Lord, Lord Donaldson, but also by the late Lord Denning, among many other distinguished lawyers. The immunity which is enacted here is limited. It does not prevent action for damages where the FSA has acted in bad faith. Developments since the Financial Services Act, the Banking Act, and the Pensions Act will serve to narrow the extent of the FSA's immunity.
Under the Human Rights Act, actions for damages are permitted in respect of an act or omission unlawful under Section 6(1) of that Act. I have signed a statement saying that the Bill is compatible with the European Convention on Human Rights. Conformity with the Human Rights Act is specified in paragraph 19(3)(b) of Schedule 1. The amendment on that point is simply not necessary.
In addition, of course, the FSA will not be immune from judicial review. It is essential that we have a structure which allows the FSA to get on with its work
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efficiently and effectively. A strong but accountable regulator is in the interests of the industry and consumers alike. I simply do not recognise the description which has been given in the press by the noble Lord, Lord Saatchi, and journalists, of this monster which is a succubus on the financial services community. I think that I have used the word "succubus" wrongly.
Noble Lords: Yes!
Lord McIntosh of Haringey: I am allowed to get away with it, okay!
The success of the financial services industry in this country is dependent on effective regulation. Members of the Committee have referred to the interests of depositors. This Government are on the side of the punters. That is what we have sought to achieve in this part of the Bill. Immunity of the kind that is provided in the Bill is essential in delivering that. Without it, the FSA could be frustrated by law suits and red tape.
Frivolous litigation could be an easy ploy to distract or hinder the regulator. We have had a good deal of discussion about the definition of "recklessness". What about negligence? I noticed that the noble Lord, Lord Kingsland, did not attempt to defend the amendment which seeks to extend the protection from immunity to negligence, which is a much wider concept than recklessness or bad faith.
Lord Kingsland: I obviously did not explain myself as clearly as I thought I had done. In my opening remarks I said to the noble Lord, Lord Burns, how much I regretted the fact that he felt that the FSA would be inhibited by having to face actions for negligence. I pointed out a number of examples where others who face those actions for negligence do not appear to suffer the same inhibitions. I meant to say—if I did not, I apologise—that I back 100 per cent my amendment on negligence.
Lord McIntosh of Haringey: I am delighted to know that the noble Lord, being in a hole, insists on continuing to dig. Earlier I used the word "succubus". I realise that I should not have done. It is a female demon believed to have sexual intercourse with sleeping men. I do not think that I quite meant that.
In an attempt to remove my own levity from the debate, I have said that we are on the side of the punters, of the depositors. But of course we are on the side of the financial services industry as well. The noble Lord, Lord Burns, made very clear at the time of his committee and a few minutes ago, that the absence of immunity could make the FSA more averse to risk; it could engender a more formalistic regulatory environment; it could lead to the FSA seeking to collect too much information, setting tougher minimum standards, avoiding giving guidance and taking longer to reach decisions than it otherwise would.
It is important that the FSA has the ability to implement the objectives and principles—especially those rehating to competition and competitiveness. We

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want the FSA to be a dynamic regulator. That might mean taking difficult or finely balanced decisions in cases where the answers are not black and white. In those cases, the authority should not have to run the risk of being sued as well. That is why core principle No. 1 of the Basel principles concerning banking regulators recognises the need for immunity of banking supervisors. We fully support that principle, and it is enacted here.
Consumers could also suffer if immunity were cut back. They too will benefit from the FSA applying the right touch—which is occasionally the light touch—to regulated firms.
The Bill provides checks and balances on the FSA's powers. Look at the disciplinary provisions, for example. Before the FSA takes disciplinary action, it is required to issue a warning notice, to receive representations from the recipient of the warning notice and then to issue a decision notice. The person in question can then refer the matter to the independent tribunal to be considered afresh.
There are also international comparators. There are, for example, the Basel core principles, as I have said, and other jurisdictions, such as the United States and Canada, where there is immunity from suit to varying degrees.
Amendment No. 41 would extend immunity to those acting as an agent of the authority. But the Bill does not contemplate the concept of an agent of the authority. It is difficult to see why, if the authority chooses to use an agent, the Bill should confer immunity on the agent if he renders himself open to actions in damages because he fails to fulfil some duty which he owes independently. If the authority wishes itself to indemnify an agent, that is a matter for the authority.
Amendment No. 42 seeks to cut back the immunity to exclude cases where the FSA has been reckless. Distinguished lawyers on all sides of the Committee have been arguing about what is meant by "recklessness". It is a term with different shades of meaning in different contexts, but it is primarily a concept, I think, in the criminal law. I am not therefore persuaded that the amendment is appropriate.
I should not want to introduce doubt into the scope of the immunity, since it is a vital element in ensuring that the FSA is able to take difficult decisions and to make prompt and effective responses to fast moving situations. But I do not want it to be thought that the FSA has been given a licence to act recklessly by the immunity as it stands.
Amendment No. 43 draws attention to the possibility of the FSA breaching European Community law in the context of statutory immunity. But the responsibility for ensuring that proper effect is given to the UK's Community obligations is one which rests on the Government, not on the authority. For example, directives are addressed to member states and it is for the Government to ensure that proper effect is given to them. Where it is necessary for the authority to take action in order to implement a
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directive, the Government must ensure that the relevant action is taken. If they fail to ensure that the action is taken, then it is the United Kingdom which will be in breach of Community obligations and the Government will be the proper respondent in infraction proceedings. That is why, although the Treasury has no general power of direction over the FSA, it will have such a power in respect of international obligations. Clause 389 refers expressly to Community obligations in this context.
I hope that this persuades Members opposite that this amendment, while highlighting an important issue, is unnecessary.
Amendment No. 44—I apologise to the noble Lord, Lord Kingsland. for coming back to this—would lift statutory immunity for negligence. We believe that the FSA should be able to operate in a fast-moving environment without fear of being sued for negligence; otherwise, we believe that the balance between freedom to regulate and over-caution would be tipped too far.
The noble and learned Lord, Lord Fraser, asked specific questions about regulated investment exchanges. In line with the recommendations of the Burns committee, Clause 284 provides for such immunity in relation to actions by both non-members and members. The Bill has always provided immunity for recognised investment exchanges in relation to actions by members of the exchange. The Burns Committee recommended that the provision should be extended to actions by non-members and the Bill was amended accordingly in Committee.
In conclusion, I realise the importance that those on the Opposition Front Bench attach to these amendments. But they have been soundly thrashed from all sides of the Committee: from the Cross-Benches by the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Burns; and on their own Benches by the noble Lord, Lord Bagri. They have no friends. I recommend that they withdraw the amendments.
Lord Sharman: I found the Minister's response to the amendment totally unsatisfactory. If the arguments that have been arraigned on his side of the House and by others in this debate have any validity at all, they apply to anyone carrying out the functions of the authority. All the amendment seeks is to extend that immunity to people properly appointed by the authority to carry out its functions on its behalf. If one follows the logical extension of the arguments advanced, that must be right and proper. I give notice that we find the government response totally unsatisfactory and that we shall be returning to this point on Report.
As regards Amendment No. 42, I find my experience is somewhat intimidating and unique. I have the big guns of noble Lords who are learned in the law arrayed against me on what I thought was a sensible extension of the provision. While I do not have a great deal of experience in this matter, not being a lawyer, I probably have more experience than anyone in this

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Chamber of being sued. In fact, I would put money on it. The prospect and the experience are generally good for the soul. I have yet to come across a lawyer who has advised me not to take legal action.
I believe that there is a valid concern in regard to standards and behaviour, and the whole concept of the behaviour of staff in an authority. If an authority is totally immune—and it is clear that the authority will not be totally immune from damages—the young, aggressive men who go around the market-place seeking to fix problems are totally without control. There needs to be a sensible hand on the budget. Again, it would be sensible to return to this matter on Report. In the interim, I seek leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 42 to 44 not moved.]
On Question, Whether Schedule 1, as amended, be agreed to.
Lord Jenkin of Roding: Perhaps I may ask one small question on the schedule. I apologise to the Minister for not giving him notice of it. I return to the subject of fees, and my question arises in relation to paragraph 17(2):
"In fixing the amount of any fee which is to be payable to the Authority, no account is to be taken of any sums which the Authority receives, or expects to receive, by way of penalties imposed by it under this Act".
It appears that if penalties have been exacted—and I have some corporate experience of that happening—the fees which the authority then fixes take no account of what it will receive from those who suffer penalties. What happens to those amounts?
When the insurance company with which I was concerned was subject to a penalty, there was widespread comment in the press that that was not unfair; it meant that everybody else's fees would be reduced and those who had to pay penalties paid the penalties. But this particular paragraph of the schedule appears to preclude any reduction in fees to anybody else to take account of the fact that the authority may have received penalties from some of its erring customers, as it were. Is that right, or have I totally misunderstood the paragraph?
10.15 p.m.
Lord McIntosh of Haringey: I do not believe that the noble Lord has totally misunderstood it; rather, he has read only half of it. Paragraphs 16 and 17 are a symmetrical provision. Paragraph 16(1) provides:
"In determining its policy with respect to the amounts of penalties to be imposed [on] it under this Act, the Authority must take no account of the expenses which it incurs, or expects to incur, in discharging its functions".
Paragraph 17(2) provides:
"In fixing the amount of any fee which is to be payable to the Authority, no account is to be taken of any sums which the Authority receives, or expects to receive, by way of penalties imposed [on] it under this Act".
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This is a symmetrical provision which applies both ways. It is intended to ensure that the fees and penalties are related to the offence involved and the authority's expenses in running its business rather than being punitive, which would otherwise be the case.
Lord Jenkin of Roding: I believe that the noble Lord misquoted the sub-paragraph. He said "penalties imposed on it", whereas the last line reads "penalties imposed by it". If the noble Lord suggests that in relation to a particular regulated person or firm the fees take no account of any penalties that it may have to pay, that is one thing. However, that is not what the sub-paragraph says. The sub-paragraph provides that in fixing the level of fees no account is taken of whatever may be received by way of penalties, which presumably is available to the authority as a source of income. I understand the Minister's point about reciprocity with paragraph 16(1), but I do not believe that that is what paragraph 17(2) says. Perhaps the Minister will look at it again or consider whether I have misunderstood it. I read the provision as meaning that the fees are fixed and no account is to be taken of the fact that there is another slug of income arising from the generality of fined firms.
Lord Donaldson of Lymington: The problem is that, whereas in a court of law the prosecution will never specify the penalty but merely allege that the offence is serious or otherwise, in disciplinary tribunals of this kind it is not unknown for the prosecuting authority to say that it does not believe the offence is worth more than, say, £5 or £6 million. That produces an extremely embarrassing situation for the tribunal, particularly if one visualises a suggestion that if another £1 million is added a dividend can be declared. That is a thoroughly unhelpful atmosphere. While I agree that there is a problem over what to do with the fines—above all, they must not go to the Treasury—certainly they should be divorced from the fees which are paid by the members. Perhaps a benevolent fund should be set up for that purpose. All kinds of possibilities exist. But one must not have a situation in which an authority that prosecutes its members tries to hot up the penalties in order to reduce its fees.
Lord McIntosh of Haringey: I believe that the noble and learned Lord confirms what I said. Incidentally, if when I quoted the sub-paragraph I was heard to say anything different from the words of the Bill the fault was my articulation. Perhaps the fault was the noble Lord's hearing, but I prefer to blame it on my articulation. The point the noble and learned Lord makes is critical. The FSA does not take account of penalty income because it has to operate a scheme to rebate penalties under paragraph 16(2) of the schedule. That was a recommendation of the Joint Committee and the Bill reflects it.
Schedule 1, as amended, agreed to.
Clause 2 [The Authority's general duties]:
Lord Kingsland Lord Kingsland moved Amendment No. 45:
Page 1, line 19, at end insert ("; and
() which does not unnecessarily impair the competitive position of the United Kingdom").
The noble Lord said: The amendment seeks to add a paragraph to Clause 2(1). The wording of the amendment is similar to that of Clause 2(3)(e), referring to,
"the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".
Essentially the Opposition seek to lift paragraph (e) of Clause 2(3) and add it to Clause 1 as a new paragraph (c).
Why do we seek to do so? In its present position, that provision is a factor to which the FSA must have regard. That means that it is a relevant factor, but the weight given to it is up to the FSA. For example, as the Bill is currently drafted, the FSA can take into account the desirability of maintaining the competitive position of the United Kingdom but give that factor zero weight. We believe that the issue is central to the way the FSA goes about its work. The desirability of keeping in mind the importance of the international competitive position of the City should infect every decision the FSA takes.
In the proposed new position, that is precisely what would happen. Under Clause 2(1) the Bill would read:
"In discharging its general functions the Authority must, so far as is reasonably possible, act in a way which does not unnecessarily impair the competitive position of the United Kingdom".
The Minister will recall that, at Second Reading, your Lordships' House touched on the competition provisions in the Bill. Many noble Lords may recall that competition is defined in three different ways in Clause 3: first, in the way I have just described; secondly, in terms of the importance of the FSA having regard to the desirability of facilitating competition; and, thirdly, the importance of minimising the effects on competition that might arise from the general function.
The Opposition are content to leave the question of initiating competition and fighting cartels in the clauses as drafted. Indeed, as regards fighting cartels, a new chapter in the Bill deals with the relationship between the FSA and the Director-General of Fair Trading.
But the competitive position of the City is central, because if we over-regulate we quickly lose the wealth that the City has created. In those circumstances, the benefits that consumers of financial services have gleaned from additional probity would be completely undermined by the loss of inventiveness and the inclination to take initiatives that characterised the City before the Bill came on the statute book. I beg to move.
Lord Borrie: I find this an odd amendment. Surely no Member of the Committee would dispute the importance of London, or the UK, being globally
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competitive in financial services. The noble Lord, Lord Kingsland, must be right in suggesting that a balance must be kept between regulation and over-regulation.
I believe that effective financial regulation is a plus, a positive, in making Britain more rather than less competitive in financial services. Of course I agree that we must avoid over-regulation. However, in his amendment the noble Lord has "lifted"—that is his word, but I should say "elevated"—the promotion of competitiveness to a position which is wrong in the context of the Bill. He has moved it to a place above and beyond the four statutory objectives of the authority. He has raised it above the objectives of ensuring market confidence, consumer protection and so forth, but surely it is already in its proper place as one of a number of factors which it is wholly desirable for the authority to take into account.
Lord Kingsland: I am most grateful to the noble Lord for giving way. He will see that the regulatory objectives have their initial status under subsection (1). Therefore, competitiveness is not raised above the regulatory objectives, but is given equal status.
Lord Borrie: Most Members of the Committee will have noticed that I listed (or began to list) the regulatory objectives, and they come after the place where the noble Lord wants to insert the phrase in his amendment. However, I understand his point and I hope that he understands mine; that he is seeking to raise the matter to a position of significance which is wrong in the context of the Bill where the main objectives of the FSA are the four listed. The Opposition have no objection to them and they accept them as being perfectly proper. I believe that competitiveness, as one of the factors to avoid overregulation which the authority should take into account, is listed in the proper place.
Lord Fraser of Carmyllie: The noble Lord, Lord Borrie, has advanced what I would describe as a "reckless" argument. When we discussed the matter in the Joint Committee, I attempted—I must admit that I failed—to persuade the other members that the issue of the international competitiveness of the United Kingdom, rather than simply of the City of London—I stress that to my noble friend—should be included among the regulatory objectives.
As everyone seems to agree, we are attempting to achieve a "balance". Indeed, the noble Lord, Lord Borrie, used that word in addressing the Committee. If the issue of the desirability of maintaining the competitive position of the United Kingdom were to be found only in subsection (3), that would relegate it to too low a status. I say to my noble friends Lord Kingsland and Lord Saatchi that the positioning of their amendment in Clause 2 meets exactly the objective of securing a balance. I shall surrender, albeit reluctantly, my initial argument that it should be among the objectives. For my purpose, I should be content to see it fit where my noble friends have suggested that it should be placed. That seems to me to achieve exactly what we are trying to do. The last thing

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I want to see is the United Kingdom as a kind of "Wild West" of financial services competitiveness, like some unnamed Caribbean island where anything goes. We are not in the least bit interested in that.
The noble Lord, Lord Borrie, is absolutely right: good regulation is good for business. I have no doubt that that is correct. Although I believe that the present administration in the Financial Services Authority is well seized of the desirability of ensuring the international competitiveness of the United Kingdom, nevertheless we are putting down in statute what should be its responsibilities beyond the immediate administration. It seems to me that this is the correct place in which to put that.
In advancing the argument—I make no bones about it—it is something of a concession from the position I originally wanted to see, as the noble Lord, Lord Burns, will know from hearing me state it endlessly while we conducted our deliberations. It would achieve the desirable balance. I hope very much that the Government will appreciate that we are not trying to cause serious damage to the scheme of the first clauses of the Bill; nor are we criticising the existing approach of the Financial Services Authority. I believe that it is desirable to encapsulate in statute the balanced approach that would be best for the United Kingdom in the future.
I hope that in the fullness of time—I doubt that we shall do so tonight—we shall achieve the agreement of the Government. It must be desirable that we do not do anything that damages the international competitiveness of the United Kingdom. The noble Lord, Lord Newby, believed that the issue of the chairman and the chief executive was the most important change to be achieved in the Bill. I must say to the Committee that by a long, long way, I regard as quite the most important feature that we ensure at all times the international competitiveness of the United Kingdom.
It surprises me that the importance of this is not better understood. At the moment, not only the City of London but, dare I say it, Scotland, which perhaps commands approximately 25 per cent of financial services in the United Kingdom, are in a position of extraordinary pre-eminence and one that we cannot afford to risk losing. My hope is that if the Financial Services Authority will grasp this as being the correct basis on which to approach its general duties, the preeminence that we enjoy at present will not be damaged. I hope that the noble Lord, Lord Burns, and my other colleagues on the Joint Committee will recognise that, because of the elegance of the solution that my noble friends have put forward, with a degree of reluctance I depart from the original approach that I once suggested.
Lord Jenkin of Roding: My noble and learned friend Lord Fraser of Carmyllie has painted a picture of himself as a lone fighter battling against vast forces, championing his cause and hoping that one day it will come right. With the greatest respect to my noble and learned friend, I believe that he under-estimates his allies. I am sure that the noble Lord, Lord Burns, will
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recognise that many people have voiced concern that the competitiveness objective has been downgraded in the way that it now appears in the Bill.
I turn to the Interim Report into Competition and Regulation in the Banking Sector produced by Don Cruickshank. He noted that in effect other regulators have an additional regulatory objective to promote competition, stemming from their role in relation to competition in a particular authority. However, here we are talking about competitiveness overseas—with other markets. It is in that respect that the practitioners are really worried.
A survey of practitioners by the FSA's Practitioner Forum found that a large majority believed that
"enabling the UK to remain competitive"
was an essential criterion for a regulator. A large number have insisted that it is imperative that these dual considerations of competition and competitiveness be elevated to principles to make the Bill more balanced.
The National Consumer Council, the British Bankers' Association and the Association of British Insurers all made it clear to the Burns committee that an objective relating to competitiveness and competition was required urgently. The Cruickshank banking review also favoured it, summarising well the bigger issue, as follows:
"Our priority should be to develop a strategy for striking the optimal balance between competition and necessary regulation. In the search for a higher sustainable growth rate in the UK beyond a stable low inflation macro-economic climate, there is in my view nothing more worthwhile for government to do than to get this balance right."
Downgrading the competition clause so that it appears where it does in the Bill now, rather than among the principles seems to me to be doing precisely the opposite.
Apparently the Government gave a pledge to reconsider the matter were Cruickshank to take a position on the issue. I am told that there has been no response. The Treasury Select Committee in another place also agreed that there was a good case for its inclusion, and called on the Government to consider it. That is in its third report of 1998–99. It should be noted that the SEC in the United States, with which many comparisons were drawn on Second Reading and the only body with comparably large powers, is now under a duty to consider, not just to have regard to,
"whether the action will promote efficiency, competition and capital formation".
Therefore, I strongly support the amendment. My noble friend is not a voice crying in the wilderness; he is voicing the concerns of a very large part of the financial community, a voice that the Government so far do not seem to have listened to. I hope that they will listen to it tonight.
Lord Eatwell: The noble and learned Lord, Lord Fraser, was quite right in arguing that he has consistently put forward this point, including to the Joint Committee, but he was a little coy as to why the Joint Committee rejected it.

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The point that was made then, and is important here, was that in so many situations today the regulatory strength of the Financial Services Authority will be defined by its relationship and joint action with other regulatory authorities. This is because of the general internationalisation of financial markets today and the need for regulators to act in cooperation with one another to secure the objectives set out in Clause 2(2).
The problem with the amendment is that if it were seen that it was an objective, or indeed one of the prime responsibilities, of the FSA to promote the competitive position of the United Kingdom, the FSA's ability to persuade other regulators to act in the interests of the UK would be impaired, since they would have a reasonable suspicion that the FSA was acting to promote the UK's interests against the interests of their national markets.
Lord Fraser of Carmyllie: I think that we are getting into a Clause 28 argument. The amendment reads:
"which does not unnecessarily impair the competitive position of the United Kingdom".
There is a distinction to be drawn.
Lord Eatwell: I believe that the noble and learned Lord is taking his argument too far. For example, I refer to the point made by the noble Lord, Lord Jenkin. The SEC rule gives it a duty to promote competition but not a duty to promote the competitive position of the United States, which would be a quite different requirement.
I believe that this amendment switches the balance much too far. The competitive position of the UK is dealt with in the right part of the Bill. If this provision is placed as required by the amendment, it will weaken the voice of Britain in international regulatory fora.
Lord McIntosh of Haringey: I wonder whether some Members of the Committee fully appreciate the full hierarchical beauty of the way in which this part of the Bill is constructed. The Burns Committee appreciated that beauty and was extremely supportive of the approach which we have adopted and, in particular, was very supportive of the role which is given in the hierarchy to the competitiveness objective.
Lord Kingsland: The noble Lord must accept that appreciating the beauty on the one hand and being very supportive on the other are not necessarily the same.
Lord McIntosh of Haringey: That is why I mentioned one after the other. You can appreciate the beauty and disagree with it. But the Burns Committee appreciated the beauty and agreed with it. I did not say that they were necessarily connected. I said that those two did follow in the Joint Committee report.
Clause 2 sets out the FSA's general duties. Subsection (1) makes it clear that the FSA must, so far as reasonably possible, act in a way which is
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compatible with its regulatory objectives and which is appropriate to meet those objectives. Subsection (2) then lists those objectives, while subsection (3) sets out a number of matters, sometimes referred to as principles—that is, principles of good regulation; I do not mean legal principles—to which the FSA must have regard in carrying out the objectives. That is the hierarchy.
The purpose of the first six clauses of the Bill is simple. We want the FSA to regulate at the right level: neither to over-regulate nor to under-regulate. The objectives and principles work together towards that end, backed by the accountability and transparency arrangements which the Bill puts in place.
The purpose of the noble Lord's amendment is to bring competitiveness as an objective higher up the hierarchy. In answering that, I can do no better than to refer to the Joint Committee report. First, the Joint Committee supported the principle that the Bill should set statutory objectives and principles to inform its behaviour as it seeks to ensure markets of integrity and to provide a yardstick for accountability. It states:
"We agree that these should be set at a high level of generality, so as to be adaptable to changing circumstances. We agree that they should apply at the level of general policy and principles, rather than applying directly to every single act and decision of the FSA. We agree that they should not be ranked".
That is in paragraph 24. Then it goes on to deal specifically with competitiveness and competition:
"We agree with the importance of maintaining and seeking the competitiveness of UK financial markets. Some of us",
and presumably that is the noble and learned Lord, Lord Fraser,
"would prefer competition and competitiveness to feature among the FSA's statutory objectives".
That is the noble and learned Lord. Lord Fraser, mark 1 rather than mark 2. It goes on:
"However, the Committee is content that competition and competitiveness should remain among the principles, rather than being turned into objectives. Making competition an objective would confuse the roles of the FSA and the OFT; making the competitiveness of UK financial services an objective could damage the FSA's relations with overseas regulators",
as my noble friend Lord Eatwell pointed out.
Those arguments are absolutely decisive. Nothing in what we are saying suggests that we do not have positive competitiveness objectives nor does it suggest that the Government are opposed to competitiveness. This is an area where the primary responsibility does not lie with the FSA. The international competitive position of the UK financial services industry will be maintained by the people who built it up; that is, our financial services businesses themselves.
10.45 p.m.
Lord Bagri: With due respect, I do not believe that that is only in the hands of the practitioners. If one over-regulates—there is little downside for regulators in over-regulating—that adds to the burden of regulation, which adds to the cost. There is nothing the practitioners can do to reduce that cost. I do not see

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why we are bashful about saying that we shall improve the competitiveness of UK industry and making that an objective.
Lord McIntosh of Haringey: I agree entirely with that. The effect of bringing competitiveness up the hierarchy in the way that the amendments propose would be to increase the regulatory burden rather than to reduce it. I do not know whether he wishes to, but the noble Lord, Lord Bagri, is in effect supporting the point I am making.
Lord Fraser of Carmyllie: Perhaps I may briefly make my final point. I wish the Minister would recognise the enormity of the concession I was making. Both the noble Lord, Lord Eatwell, and the noble Lord, Lord Burns, know how vehemently I argued for the international competitiveness of the United Kingdom to be placed fairly and squarely among the objectives and not to be relegated to subsection (3). What I did not recognise at the time—I wish that I had; I am quite open about that—is that I would have argued for the solution now being proposed because, dare I say it, it provides a third way. Had I known that the situation might be approached in such a way, that would have seemed to provide me with the opportunity possibly to reconcile the differing views within the Joint Committee.
Lord McIntosh of Haringey: I have huge sympathy and admiration for the noble and learned Lord's odyssey. But I must be concerned with the destination of the journey rather than the way in which it has been achieved. The amendments proposed would upset the delicate balance currently contained in the first six clauses of the Bill. Changing the nature of the competitiveness principle in that way would induce a positively dangerous lack of clarity as to how the duty which noble Lords propose be placed on the FSA would interact with the objectives on the one hand and the principles on the other. It would be neither an objective nor a principle.
As the Bill stands, subsection (1) places a positive requirement on the FSA to take action. That is appropriate when discussing objectives; that is, the aims of regulation. In contrast, the need to take account of international competitiveness is something which should condition the way in which the FSA goes about meeting the objectives. That is as true for competitiveness as it is for the other matters dealt with in Clause 2(3). Competitiveness is not something
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which stands alone. While it is important—that is why we have included it as a regulatory principle—it is not more important than, say, the need to ensure that the FSA is inhibited from over-regulating; something which is dealt with also in the principles. In fact, overregulation in itself can be a barrier to competitiveness. That is, I believe, the point made by the noble Lord, Lord Bagri. That illustrates that competitiveness is not something which can or should be viewed in isolation. It needs to be considered alongside all the other matters dealt with in Clause 2(3).
I have made clear the importance we attach to maintaining the international competitiveness of the United Kingdom. The UK financial services industry contributes around 7 per cent of our gross domestic product; it employs over 1 million people. UK markets are world leaders with a substantial and well-deserved international reputation. That is why we have been so careful in the Bill to give the FSA the right objectives and principles and why we put in place an impressive array of accountability arrangements. I appreciate and support the outcome that the amendment seeks, but I believe that the Bill as drafted already achieves it in the right way.
Lord Kingsland: I have not heard the Minister make a speech today where charm and content were more sharply contrasted. The Opposition are extremely unhappy with what the Minister has said and will return to the matter on Report.
Lord McIntosh of Haringey: Is the noble Lord seeking to insult me over my charm or the content of my speech?
Lord Kingsland: From the sentence that followed the sentence to which he refers, I should have thought the Minister could see exactly what I was saying.
Oh, by the way, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 46 not moved.]
Lord Carter: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at ten minutes before eleven o'clock.