Lords Sitting of 30 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 Bradford): The LORD CHANCELLOR on the Woolsack.

European Committee for Prevention of Torture
Lord Aveburyasked Her Majesty's Government:
When they will reply to the letter from the President of the European Committee for the Prevention of Torture dated 29th March 1998 which transmitted the committee's report on its visit to the United Kingdom and the Isle of Man from 8th to 17th September 1997, and asked the Government to provide a report within six months on action taken to deal with the matters raised.
The Parliamentary Under-Secretary of State, Home Office (Lord Bassam of Brighton): My Lords, the Government responded formally to the letter referred to on 16th October 1998. The report was published on 13th January 2000, and the Government hope to respond to it by Easter. When the report is published, the noble Lord will see that the Governments of the United Kingdom and the Isle of Man are facing the committee's recommendations squarely, and have already implemented a substantial number of them.
Lord Avebury: My Lords, will the Minister confirm that it has been more than two years since the Committee for the Prevention of Torture asked the Government to report on the measures to be taken by them in pursuance of the recommendations made by the committee following its visit in November 1997? Given that the Government have had two years to consider those recommendations, why has it taken them at least a further three months since the delayed publication of the report in January to make a substantive response to the recommendations?
Lord Bassam of Brighton: My Lords, this is a complicated issue with complex subsidiary issues that need to be considered. In our discussions with the committee, we have endeavoured to ensure that it reports appropriately, with due regard given to the applicable rules of professional ethics. We have taken some time since the publication of the final report and, as I have said, we intend to make our response at some point around Easter. We have taken that time because we needed to consult with others over our response. I am sure that the noble Lord will appreciate that it is better to make a fuller response than one which perhaps might not be up to the job.
Lord Archer of Sandwell: My Lords, does my noble friend recollect that the report dealt principally with
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two subjects: remedies for complaints against the police and overcrowding in prisons? Both of those subjects have been fully discussed over a long period both in your Lordships' House and elsewhere. Is the response of the Government a closely guarded secret? If so, why is that? If it is not, perhaps we could be given an indication of what the response is to be.
Lord Bassam of Brighton: My Lords, I believe that it would be entirely inappropriate for me to comment on our response this afternoon. It will be published, quite properly, in due course. Thenceforward, noble Lords will be able draw their own conclusions on it. However, we should observe the proper process here; indeed, we have done so. We have complied with the wishes of the Committee for the Prevention of Torture in that regard. I am sure that Members of your Lordships' House will be extremely interested in the content and fullness of the Government's response.
Lord Avebury: My Lords, I am a little mystified by the Minister's answers. He has stated that he had to consult with others, but he has not denied that the committee's recommendations have been in the Government's hands since March 1998. Since that is the case, why have they not been consulting on the recommendations in advance of the publication of the report? Why did they need to wait until January before they began those consultations? Furthermore, even if consultations only commenced in January, as the noble Lord, Lord Archer of Sandwell, has already pointed out, since the matters dealt with in the report recur frequently—for example, in reports of the Chief Inspector of Prisons—why has it taken a further three months?
Lord Bassam of Brighton: My Lords, it was necessary for the Government to consult with the Metropolitan Police, the Prison Service, the Foreign and Commonwealth Office and all those with policy interests in the subject of the report. Those consultations have taken some time. As regards matters discussed between the committee and the Home Office, they were important points relating to legal confidential privilege. Those issues took some time to resolve; I fully accept that. I can tell the noble Lord that the points were properly resolved and the final report was made in January. As I have said, we intend to make our response during the Easter period.

Zimbabwe
3.4 p.m.
Lord St John of Bletsoasked Her Majesty's Government:
What measures they are taking to ensure that the forthcoming elections in Zimbabwe are free and fair.
Baroness Ramsay of Cartvale: My Lords, we have made clear to the Zimbabwe authorities our hope that the forthcoming elections will be free and fair. We

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welcome the decision to extend the voter registration period until 31st March. We are currently contributing funds to the Election Support Network, a grouping of NGOs involved in training Zimbabwean election observers.
Lord St John of Bletso: My Lords, I thank the Minister for her reply. Does the Minister agree that Zimbabwe is currently facing one of its worst financial crises in its entire history, due in large degree to the military intervention of Zimbabwe in the civil war in the Democratic Republic of Congo? Is it not the case that President Mugabe is clearly putting his personal interests ahead of those of his country and the civilian population? Against the background of the farm invasions by the so-called war veterans, the fuel and currency crises and the intimidation of opposition political parties, as well as the issue of unequal access to the media, is it not now time for Her Majesty's Government, together with the Commonwealth, to take far sterner action in order to insist that the elections—which are to be delayed until the end of May or possibly until June—are free and fair?
Baroness Ramsay of Cartvale: My Lords, we share the concerns touched upon by the noble Lord, Lord St John of Bletso, in particular as regards the economic and other developments in Zimbabwe. We will give serious consideration to any request from the Zimbabwean Government for support in the forthcoming elections. However, we would need to ensure that there was sufficient time to establish the minimum conditions necessary for free and fair elections. Many noble Lords will be aware that a UN team of electoral experts visited Zimbabwe last year. The team concluded that a period of six months would be required to make the technical preparations for elections. In the meantime, we are consulting others to see what action the international community can make to ensure that the elections run smoothly. We shall give serious consideration to any request that is made. However, I have to tell noble Lords that, so far, the Zimbabwean Government have not invited the international community to observe the elections. As my noble friend Lady Amos made clear in the debate in your Lordships' House on 22nd March, we would not wish to give legitimacy to a flawed process.
Lord Moynihan: My Lords, in pursuit of the point made by the noble Lord, Lord St John of Bletso, does the Minister agree that the Government of Zimbabwe's recent actions, including the postponement of next month's elections, the threats to kill political opponents and the revelation that many of the farms seized illegally have been distributed to Robert Mugabe's cronies, are not consistent with the Commonwealth's fundamental political values of democracy, human rights and the rule of law? Given those circumstances, will the Government press for the rules of the Commonwealth Ministerial Action Group to be changed to permit the suspension of Zimbabwe from the Commonwealth? Furthermore, in the meantime, taking into consideration the corruption of
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the Zimbabwean Government, will the Government freeze the bank accounts of Zimbabwean Ministers and high level officials?
Baroness Ramsay of Cartvale: My Lords, the matter of the farm invasions is serious. There is no question about that. The Government have robustly made known their views on the matter and have been joined in their response by the declaration made by the European Union and many other international countries. However, they do not constitute the serious and persistent violation of the Harare Declaration principles which would demand investigation by the Commonwealth Ministerial Action Group—CMAG—to which the noble Lord, Lord Moynihan, has referred.
We continue to follow events closely. We deplore the ongoing farm invasions. We have made clear to the Zimbabwe Government our concerns about that and our concerns with respect to law and order, human rights issues and the need to restore sound economic policies. The noble Lord looks disappointed, but I have to tell him that there are not yet serious and persistent violations of the principles of the Harare Declaration which would demand an investigation by CMAG. That is the legal reality.
Lord Hughes of Woodside: My Lords, does my noble friend agree that to talk at this stage of suspending Zimbabwe from the Commonwealth and to argue that the rules of engagement should be changed, as the Opposition now suggest, would simply feed the paranoia of those in Zimbabwe who believe that all the problems stem from outside the country? Is not the test as to whether Zimbabwe should remain in the Commonwealth whether the president accepts the result of the elections when they occur, as in the recent referendum the population of Zimbabwe showed itself not so easily taken in by rhetoric?
Baroness Ramsay of Cartvale: My Lords, I can only reiterate that, like everyone in the House, we hope that the elections are fair and free. Although electoral roll registration has been extended to 31st March, no date has yet been announced for the elections. One presumes that they will slip from April in to May, but no date has yet been announced. At the moment therefore we are all discussing this matter in a slight vacuum.
Lord Harris of Greenwich: My Lords, we understand, of course, the point that the noble Baroness has made about the Harare principles. However, the continued seizure of land and handing it over to friends of Mr Mugabe is entirely unacceptable. Is there not some way in which we can discuss this matter with some degree of urgency with other leading members of the Commonwealth so that a joint approach can be made to Mr Mugabe, pointing out that if he continues to behave in this fashion the most serious consequences will follow?
Baroness Ramsay of Cartvale: My Lords, the House will not be surprised to hear that we are very much in

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contact with the leaders of the Commonwealth, as, indeed, with other members of the international community. For example, with our EU partners we initiated discussion which led to a troika démarche in Harare on 14th March on the farm invasions and to the publication of the EU declaration which noted that the farm occupations seriously undermined the right of ownership and the freedoms guaranteed under the Zimbabwe constitution. The important point to add is that this was not only a declaration of the EU. The central and eastern European countries associated with the European Union, the associated countries, Cyprus, Malta and Turkey, the EFTA countries and members of the European Economic Area were all aligned with that declaration. The Zimbabwe Government are left in no doubt about the isolation of their position and their method of proceeding.
Baroness Whitaker: My Lords, does my noble friend the Minister agree that equitable and legitimate land reform to change the status quo is nevertheless essential for Zimbabwe? Will Her Majesty's Government support that?
Baroness Ramsay of Cartvale: My Lords, we have always recognised the need for equitable land redistribution and have to date contributed £44 million to a land reform programme. A noble Lord opposite says the words "serious socialism" from a sedentary position. I do not see why recognising the need for equitable land redistribution in Zimbabwe is a party political point. We remain willing to support a land reform programme that is transparent, fair and cost effective and which contributes to the reduction of poverty in Zimbabwe. These principles were agreed by the Zimbabwe Government and international donors at the land conference held in Harare in September 1998. We are now looking at a number of proposals submitted by the private sector and NGOs. Noble Lords opposite hiss the word "stealing" from a sedentary position. Have they not heard of the compensation arrangements? To date, in spite of all the rhetoric, no land has been taken without compensation.
Baroness Chalker of Wallasey: My Lords, will the noble Baroness impress upon the Secretary of State, who will go to Cairo this weekend to attend the Europe/Africa Conference, that he should take these matters up in no uncertain terms on behalf of all those who love Zimbabwe and cannot bear to see what is being done to its ordinary people? I am sorry that the Prime Minister will not now go to Cairo, but it seems to me that we have a good opportunity this weekend, with our European partners, to make a difference. Will the noble Baroness please ensure that that is done?
Baroness Ramsay of Cartvale: My Lords, the noble Baroness, Lady Chalker, is absolutely right that all friends of Zimlx.bwe—that is very much the position of Her Majesty's Government—are extremely upset and concerned about the situation in which Zimbabwe
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now finds itself. The matter will certainly he taken up with other leaders both in Europe and in the Commonwealth at every opportunity.
Lord Avebury: My Lords, will the noble Baroness confirm that the Zimbabwean Registrar General has rejected an offer from the United Nations to assist with the preparation of the register; that the provisional register is not to be produced until the middle of April, and that in those circumstances it is virtually impossible to go through the statutory procedures that would be required for a free and fair election to be held this side of the end of May, in spite of Mr Mugabe's denials that it will spill over until June? Has the noble Baroness seen the reports in a Zimbabwean newspaper about the diversion of aid money running to tens of millions received from China and Libya into the ZANU-PF coffers to help them fight the election? If the Commonwealth Secretariat is not able to send a mission to observe the election, will it at least carry out a study from a distance to see whether it can he deemed free and fair?
Baroness Ramsay of Cartvale: My Lords, the noble Lord, Lord Avebury, raises many different points. I reassure him that we shall all do our utmost to take whatever steps we can to make sure that the elections in Zimbabwe are fair and just.
Noble Lords: Next Question!
Lord Carter: My Lords, we have now reached the 17-minute point of Questions; I think that we should move on.

Prison Population: Statistics
3.17 p.m.
Lord Allen of Abbeydaleasked Her Majesty's Government:
How many people are now in prison in England and Wales; and how many are likely to be there in 12 months' time.
Lord Bassam of Brighton: My Lords, as of 30th March this year there were 65,403 prisoners held in prison establishments in England and Wales. It is estimated that the prison population will be some 70,100 at the end of March 2001.
Lord Allen of Abbeydale: My Lords, I am most grateful for that information. However, I am bound to say that I find those high figures and the prospect of further increases to come somewhat disquieting. Everyone would agree that offenders convicted of serious crimes should normally be sentenced to imprisonment, but not everyone in prison falls into that category. I wish to ask the Minister two questions. First, am I right in assuming that this Government at any rate do not regard it as a matter of pride that we have more people imprisoned in this country, in proportion, than any other country in western Europe

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with the sole exception of our oldest ally, Portugal? Secondly—I know that this is not easy—could not Ministers take a little time off from building all these new prisons to try to give the public and the media rather better information on non-custodial forms of punishment?
Lord Bassam of Brighton: My Lords, I shall deal, if I may, with the second point first. I entirely agree with the distinguished noble Lord that it is most important that we stimulate a better quality of public debate and perhaps a more reasoned reaction from the media to prison and prison regimes. However, it is not the Government who imprison people; it is the courts. The courts take a view based on the evidence before them. As to whether the Government take pride in the size of the prison population, we have a duty to provide prison places for those whom the courts have sentenced to imprisonment. I am sure that all Members of your Lordships' House will agree that that is the right way forward. We predict, we provide and we try to ensure that prison regimes are effective in restraining people and in stopping them from committing further crimes. That is one of the primary purposes of the prison regimes.
Lord Dholakia: My Lords, I agree that since 1992 the prison population has risen by 60 per cent. However, the population of women's prisons has risen by a staggering 140 per cent. Does the Minister accept that much of this increase is due to drug-related crime and an element of harshness in sentencing women? Will he have a word with his right honourable friend the Home Secretary to ensure that he uses one of his high-powered speeches to draw attention to the effect that the harsh prison sentencing of women has, especially on children? Will he ensure that this is drawn to the attention of judges?
Lord Bassam of Brighton: My Lords, I do not wish to argue with the noble Lord's statistics today; that would not be too fruitful. It is the case that the number of women in prison has increased remarkably over that period. That is, no doubt, a reflection of the seriousness of many of the crimes they have committed. The noble Lord's observation about their crimes in relation to drugs is also true. We have to find prison regimes that are effective and that turn people away from a life of drugs and crime. That is in everyone's and society's best interests.
Lord Elton: My Lords, is it not clear that the Government's approach is failing and that the number of people in prison shows that they are not acting on the possibility of identifying children about to go into crime—for example, those on school exclusion lists? School exclusion results in 80 per cent of excluded young people being involved in crime. Why do not the Government spend £5 a week on such children rather than more than £500 a week on catching people when it is too late?
Lord Bassam of Brighton: My Lords, we need to continue to ensure that local education authorities and
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the criminal justice system work well together in order to abate the need to send young adolescents—and, as they get older, teenagers and adults—to prison for offences which perhaps begin when young people truant. I do not agree with the noble Lord's assertion that we are failing because the prison population is rising. The noble Lord's own party was in office during a time when there were unprecedented increases in the prison population. I am sure that the noble Lord will accept that point. We have to ensure that we have prison accommodation which is appropriate for the crimes committed, effective and secure.
The Lord Bishop of Bradford: My Lords, as bishop of a diocese with a substantial Asian and Muslim population, with whom I work regularly, I welcome the appointment of Maqsood Ahmed as the new Muslim adviser to prisons. Is the Minister confident that in prisons and other penal institutions where there are Muslim prisoners, satisfactory arrangements are made for the timing of Friday congregations, for the provision of halal meat and for imams to visit? Given the increased number of Muslim young men imprisoned during the 1990s—often for drug-related offences—have the Government made any inquiry as to why this should be so? Is there evidence that it may be related to poverty, underachievement at school and unemployment?
Lord Bassam of Brighton: My Lords, I shall deal first with the right reverend Prelate's last point. There is much in what he said. There is little doubt that the kinds of issues he mentioned are related to criminality. In going round various prison establishments, I have been impressed by the way in which prison regimes have responded to the fact that we live in a multi-faith, multi-ethnic society. That is now beginning to be reflected more accurately in the way that people are given the opportunity to celebrate their particular religions. I am grateful to the right reverend Prelate for his support for that programme.
Lord Cope of Berkeley: My Lords, can the Minister confirm that the prison population would be even higher if it was not for the early release tagging scheme? Does he agree that, under that scheme, some 18,000 prisoners have been released early, including those convicted of attempted murder, sex offences and, in 2,000 cases, drug dealing? Does he further agree that some of those who have been released early have subsequently been charged with further crimes, including rape, assault, theft and burglary?
Lord Bassam of Brighton: My Lords, I am impressed by the noble Lord's interest in this issue. My understanding is that the previous Government began experiments in this programme and that they supported it at that time. Now it would appear the party opposite does not support it. Yes, of course, occasionally there will be failures—that is accepted—but the home detention curfew programme has had a 95 per cent success rate. We should be grateful for that. If we increase the prison population by continuing to restrain those who could be released on home

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detention curfew, the size and scope of the problem will continue to expand. I ask the noble Lord how much more public funding he would like to see put into the Prison Service. That is an important consideration. I should like to know at some point exactly what the noble Lord thinks about that issue.

Working Families: Tax Burden
3.25 p.m.
The Earl of Northeskasked Her Majesty's Government:
On what statistical basis they state that next year's tax burden for the working family will be the lowest since 1972.
Lord McIntosh of Haringey: My Lords, as a result of personal tax and benefit measures introduced by this Government, the tax burden on a typical single-earner couple, on average earnings and with two children under 11, will fall from 21.5 per cent in 1996–97 to 18.8 per cent by 2001, the lowest level since 1972.
The tax burden on such a family is measured as income tax plus national insurance contributions less tax credits and child benefit, as a share of pre-tax earnings. This definition has been used for many years, under successive governments, in the Treasury's Tax Benefit Reference Manual, which is placed in the Library of the House.
The Earl of Northesk: My Lords, I thank the Minister for tint Answer. How seriously can that claim be taken when it fails to take into account the impact of indirect taxation?
Lord McIntosh of Haringey: My Lords, the problem with adding indirect taxation to direct taxation is that indirect taxation depends on the particular consumption patterns of households. It cannot be predicted definitively from a family's level of earnings and family structure in the way that tax credits, income tax, NICs and child benefit can be predicted. No external organisations produce estimates of indirect taxes at the individual level, and that includes the Institute for Fiscal Studies.
Lord Clark of Kempston: My Lords, does the Minister agree teat the so-called "stealth taxes"—such as petrol tax, the disappearance of MIRAS and the marriage allowance, and so on—mean that the take-home pay of the average working family has decreased? Why do not the Government take notice of the various independent reports which have been published by the Library of the House of Commons, the OECD and others? Would it not be a good idea to bring forward the debate on the Budget so that the Government can either substantiate their figures or apologise for misleading the general public?
Lord McIntosh of Haringey: My Lords, the noble Lord used the phrase "so-called stealth taxes"; they are
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not called "stealth taxes" by me. I take no responsibility for that phrase. As to the noble Lord's reference to the report from the Library of the House of Commons, I do not know whether he knows that the author of that report has written to the Shadow Chancellor and said:
"I have had to make some detailed assumptions"—
that is, in estimating the burden of indirect taxation—
"the results are therefore unlikely to be representative of the majority of the population".
Lord Saatchi: My Lords, can the Minister confirm that the Government's tax receipts last year and this year have risen by three times the rate of inflation, by three times the rate of wage increases, and by three times the rate of increase in GDP? Can he tell the House why?
Lord McIntosh of Haringey: My Lords, I can suggest one reason: more people in work. That is rather a good reason for increases in Treasury receipts from taxes.
Lord Haskel: My Lords, does my noble friend agree that the stronger the economy, the more tax the Government collect?
Lord McIntosh of Haringey: My Lords, my noble friend has said in more elegant terms what I said rather more bluntly. Of course, he is quite correct.
Lord Northbrook: My Lords, does the Minister agree that another example of a misleading statistic in the Budget relates to the effect of the impact of proposals to tighten tax rules for companies with overseas subsidiaries? Is he aware that, according to the Financial Times of 23rd March, this will cost companies a total tax figure of £10 billion?
Lord McIntosh of Haringey: My Lords, we have departed a considerable way from the Question about the tax burden on the working family.
Lord Strathclyde: My Lords, perhaps I may ask the Government Chief Whip a procedural question. N of for the first time—I do not wish it to become a habit—a Minister has insisted on posing questions to the Opposition. We make no complaint about that. But will the Government Chief Whip have a discussion with the Leader of the House and with the usual channels so as to make time available for the Opposition to answer?
Lord Carter: My Lords, after all his years in the House, the noble Lord should recognise a rhetorical question.

Business of the House: Standing Order 40
3.30 p.m.
Lord Carter: My Lords, on behalf of my noble friend the Leader of the House, I beg to move the Motion standing in her name on the Order Paper.

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Moved, That Standing Order 40 (Arrangement of the Order Paper) be dispensed with this day to allow the Motions standing in the name of the Lord Bach to be taken last.—(Lord Carter.)
Lord Henley: My Lords, I wonder whether the noble Lord, on behalf of the Leader of the House, can offer a slightly lengthier explanation of the need for this Business Motion. Is it not a fact that it deals with the education regulations and order to which my noble friend Lady Blatch will respond. Is it not also a fact that the regulations and the order were introduced by the Minister responsible only some two days ago? It was then announced by the Minister responsible that the regulations and the order had to go through by the end of the week. Having earlier been offered to my noble friend on a Friday two weeks ago, which my noble friend agreed to do, they were then withdrawn. Is it really a satisfactory way of doing business to force my noble friend to have to respond to two important provisions—one relating to student loans, a subject on which this House feels very deeply—at a very late hour at night? What can the Government Chief Whip say about the time at which the regulations and the order will come up?
We have before us the fifth and possibly—I only say "possibly"—the final Committee day on the Financial Services and Markets Bill. There are more than 30 groups of amendments. I am advised by those responsible for the Bill on this side of the House that there is certainly more than a whole day's business ahead of them in relation to that Bill. Will the noble Lord give an assurance that he will allow my noble friend Lady Blatch to respond to the regulations and the order at a reasonable time, so that she will not have to respond to them at two, three or four o'clock in the morning, and so allow the Financial Services and Markets Bill to be completed on another day, possibly next week?
Lord Carter: My Lords, the Motion is necessary to enable us to take the regulations and the order in the name of my noble friend Lord Bach at the end of business today. Under Standing Order 40, Unstarred Questions always come last. In order to take today's Unstarred Question before the regulations and order, it is necessary to suspend the standing order.
I had understood that the noble Lord opposite was happy with that arrangement. It is true that the regulations and the order were tabled only on Tuesday. I can explain the reason why they need to be taken so quickly. They come into force tomorrow and they have already been agreed by another place. Attempts were made to find the time to debate them earlier this month, but no mutually convenient time could be found. Having said that, now it is clear that we are running out of time, I understand that the Opposition Front Bench has been extremely helpful and flexible in finding a time to debate the regulations and the order before the deadline. I am grateful for that co-operation.
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As regards today's business, there are 30 groups of amendments. There were 30 groups on the third Committee day and we rose at 10 o'clock.
Lord Henley: My Lords, that is certainly not satisfactory. My noble friend agreed the time of the regulations and the order. It is the duty of the Minister to come to the House to push her orders. It is not a matter of finding a mutually agreeable time. Ministers are always available to the House. Ministers' first duty is to the House. If my noble friend could not agree with the Government Whips' Office an appropriate time to take the regulations and the order, the Minister should have been here. It is only fair for the Chief Whip to tell us exactly who is responsible for putting us in this mess and forcing the House to debate at a very late hour matters that are of considerable importance. What is the noble Lord going to do at 10 o'clock or 11 o'clock tonight if three, four, five or six hours are still required for the Financial Services and Markets Bill? Will he come to the House and agree to suspend that business to allow my noble friend to deal with the regulations and the order at a reasonable time?
Lord Carter: My Lords, I am not completely briefed on all that has taken place on all the attempts to find a date. I understand that on the first date that they might have been taken my noble friend Lady Blackstone was in Lisbon on government business. Another attempt was made to find a date convenient for the noble Baroness, Lady Blatch. The noble Baroness says "no", but I understood that that was the case. They have to be dealt with today because they come into force tomorrow. I thought that an attempt had been made to find a time that was mutually convenient.
To avoid having a very long dinner hour this evening—to take the regulations and the order in the dinner hour with the Unstarred Question—with the help of the noble Baroness, Lady Blatch, for which I am extremely grateful, it was agreed to find time at the end of today's business. I do not think that there is any need for today's business to take exceptionally long. As I said, on the third Committee day we had 30 groups of amendments—exactly the same number as today—and we rose at 10 o'clock.
On Question, Motion agreed to.

Financial Services and Markets Bill
3.35 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again 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 202 [Notice for payment]:
Lord Fraser of Carmylliemoved Amendment No. 241N:
Page 102, line 12, at end insert ("unless an appeal has been made to the Tribunal").
The noble and learned Lord said: This amendment has been prompted by the Law Society of Scotland and is essentially probing in nature. I trust that the Government will respond to it in that fashion. A number of other amendments have been prompted by the Law Society of Scotland. In the main, they are of the same character. However, I am bound to say to the Government that a number of administrative decisions may be taken before we reach Report stage on the Bill. If the Minister is not already aware, I hope he will take step; to appreciate that if the decisions are taken in a certain way, they are fraught with constitutional sensitivities and could cause some very real upset north of the Border.
I can be brief on the amendment because I discover from the Marshalled List that the Minister has indicated that it is his intention to oppose the Question that Clause 202 stand part of the Bill. I shall listen with care to what he has to say about that to try to understand his justification for doing so and what amendments he himself proposes in the fullness of time to bring forward. It will not be a new experience for us but it will be useful to know what the amendments are going to be.
The short point that arises here is that if a notice of penalty is to be given to an authorised person under Clause 202, the notice for payment must be in writing and require the person to pay the penalty before the end of such period as specified in the notice. From looking back to the preceding clause, Clause 201, I understand that in such circumstances where a decision notice has been given to an authorised person and where that indicates that there is a proposal to impose a penalty under Clause 199, the opportunity is then given to the authorised person to refer that matter to the tribunal. There is, if one likes, a right of appeal against such a decision notice.
However, unless I am missing the point, there seems to be something rather surprising and unusual here. If one takes that circumstance, and if indeed an appeal has been marked or a requirement that it should be taken up before a tribunal, notwithstanding that indication by the authorised person, he still has to pay the penalty, however vigorously he wishes to reject the imposition of the penalty on him before the tribunal. A more appropriate course would seem to be that suggested by the amendment; namely, until the matter has been satisfactorily resolved one way or another before a tribunal, there should be no requirement on the authorised person to pay the penalty. That is what I understand frequently happens; indeed, I understand it to be the ordinary practice in our courts. In the circumstances it seems appropriate that a comparable provision should be included in the Bill.
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I shall not press the amendment, given that Clause 202 is to be withdrawn. However, I hope that the Minister will be able to give a clear undertaking that the point raised by the Law Society of Scotland will be addressed in the doubtless reconstituted Clause 202 before the Bill returns to this place. I beg to move.
Lord Bach: I hope to be able to satisfy the noble and learned Lord, Lord Fraser of Carmyllie, by speaking to the government amendments that are now grouped with his amendment. I am grateful to him for informing the Committee that this is a probing amendment.
This group of government amendments all deal, in one way or another, with the end of a notice procedure and the manner in which the final determination of the matter may be notified to the person concerned and published more widely.
The Joint Committee, in its first report, rightly took the view that a transparent procedure was necessary for publication of the end result of the disciplinary process. The report said that,
"the pre-Tribunal process must lead as transparently as possible to a fair and just decision in the public interest: it must avoid any impression of secret and collusive plea-bargaining".
The committee therefore recommended that,
"In the interests of public confidence, all final decisions … should be made public, save in exceptional circumstances which would require to be justified".
This group of amendments is concerned with ensuring that this occurs in the variety of situations which may arise under the Bill. Before I deal with publication itself, therefore, it may be helpful to outline the changes we are making to the notice procedures which apply at the final stages of action by the authority.
First, if having issued a warning notice or a decision notice, the FSA decides not to proceed with the action which it originally proposed, we consider that the person concerned is entitled to know that the proposal is being dropped. That is an important part of ensuring fairness. Accordingly, the FSA will be required to give formal notice to the person concerned under the new clause with the rubric, "Notice of discontinuance".
Such a decision might be the result of having considered the person's representations, or further evidence having come to light. On the other hand, in some cases the FSA will wish to proceed with the action proposed, in which case the right will arise to refer the matter to the independent tribunal (and thereafter to appeal on a point of law to the courts against the tribunal's decision).
We propose in due course to amend Clause 124 to make it clear that the authority may not take any further action in relation to a decision contained in a decision notice until such time as the person has had the opportunity to refer the matter, or until a reference (and any appeal) has been finally determined.
Once the time for making a reference has passed, however, or once any reference (and appeal) has been finally determined, the person concerned is entitled

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again to receive proper notice of the ultimate outcome. The new clause on final notices is designed to ensure that that happens.
If the decision has not been referred to the tribunal within the time permitted under Part IX of the Bill, the final notice simply confirms and gives effect to the decision in the decision notice. But if the matter has been determined by the tribunal or the higher courts, the final notice will set out the action the authority is taking to fulfil its obligation (under subsection (2) of the new clause) to give effect to the determination and any directions which have been given to it.
Thus the authority is the instrument by which the determination of the tribunal or court is given effect. The tribunal or court might, for example, direct the FSA: to impose the penalty originally proposed, or a different penalty; to make a public statement instead of a penalty, or vice versa; to make a public statement as originally proposed, or in different terms from those proposed; or to take no further action on the matter.
The final notice clause replaces a number of existing clauses relating to notices for payment which we shall be opposing in Committee or on Report. These are: Clause 202, plus Clauses 67, 92 and 118. Those are the financial penalty clauses under Parts V, VII and VIII respectively.
The final notice given by the FSA under our new clause will have to include full details of any action which the FSA is taking and the date it takes effect. In the case of a penalty, this will include details of how much has to be paid, when and how, and how it will be recovered if it is not paid.
I now turn to the noble and learned Lord's amendment. There was concern among Members of the Opposition in another place that there was a lack of clarity on whether a notice for payment could be issued before a reference had been made or determined. Therefore, we hope that the noble and learned Lord and all other Members of the Committee will be pleased to note that the final notice clause makes it clear that final notices, which will serve that purpose in cases where penalties are proposed, may not be issued before the deadline for reference to the tribunal, and if referred, until the matter is finally determined. That would seem both common sense and justice. That is made clear in subsections (1) and (2) of the new clause.
I have already referred to the Joint Committee's deliberations on publication of decisions. The determinations of the tribunal and higher courts will, of course, be matters of public record. But whether or not the matter was referred to the tribunal it is important for the reasons given by the Joint Committee that the final outcome of the matter is made public.
The remainder of my remarks relate to publication. The new clause on publication, therefore, requires the authority to publish such details about a final notice as it considers appropriate, except for information the
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publication of which would, in its opinion, be unfair to the person concerned or prejudicial to the interests of consumers.
The Government believe, however, that it is necessary to avoid any risk that a person might be unfairly tainted, by giving publicity to the fact that some contravention had been alleged by the FSA, before the person concerned had had an opportunity to refer the matter to the tribunal, or before a matter referred to the tribunal had been finally determined by the tribunal or the appeal courts. Under the new clause on publication, the authority is, therefore, prevented from publishing details about warning and decision notices.
Where action has been proposed in a warning notice or decision notice but is then not pursued by the authority, it would be equally unfair if any suggestion of guilt were given by giving publicity to the fact that the authority had decided not to proceed with the action. At the same time, there might be circumstances where the person concerned might wish that information to be made public in order to clear up any suspicion or rumour which was already in the public domain. Accordingly, this clause allows the authority to publish details about notices of discontinuance only with the consent of the person concerned.
The remaining government amendments in this group are consequential and I shall not weary the Committee with a description of them unless I am asked to do so. My reply has been rather full, but it relates to an important matter. I hope that it has satisfied the noble and learned Lord who moved the amendment.
3.45 p.m.
Lord Elton: I wonder whether the noble Lord can help me by telling me a little more about the new clauses to which he is speaking, and whether they are all on the Marshalled List. At one point he appeared to indicate that the new clause would be produced in the future, after the Committee stage had been completed. If that is the case, I am sure that most Members of the Committee will want to know what scrutiny the new clause has received and the proposed procedures for seeing that it is properly considered by this House and another place.
The noble Lord also used the phrase, "we shall be opposing in Committee or on Report". I do not know whether he was referring to a group of clauses, some of which would be dealt with today and some later. Again, when he comes to them, I hope that we may be told the extent to which the principle and the detail were discussed in another place—that being the procedure that is supposed to replace what we should normally do in Committee in this House.
Lord Jenkin of Roding: While the noble Lord is considering how he will reply to my noble friend Lord Elton—I understand that he might like a moment or two before that happens—perhaps he will take the trouble to explain why it is proposed, in Amendment No. 275B, to leave out the words in Clause 376, "or not

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to take". That amendment is grouped with Amendment No. 241N and it is not immediately clear from the comments of the noble Lord, Lord Bach, why it is proposed to omit those words.
Lord Fraser of Carmyllie: If I have properly understood the Minister's response and the import of the new clauses I will join him in voting that Clause 202 should not stand part. It seems appropriate, given the amendments, for that clause to be withdrawn.
If I understood the Minister correctly, under his Amendment No. 275K if the authority resolved to discontinue any action against an authorised person, a notice of discontinuance might be issued. Under subsection (2) of the proposed new clause, the person to whom the notice is given must consent before it is placed in the public domain. If that is so, I am not sure how subsection (5) comes into play, for it provides that:
"the Authority may not publish information under this section if publication an would, in its opinion, be unfair to the person with respect to whom the action was taken or prejudicial to the interests of consumers".
I am not sure whether that is a second or supplementary test. Even if the individual consents to a notice of discontinuance, is the authority under a duty to look at the matter afresh and reach a decision—notwithstanding the consent of the authorised person? In our view, that would be unfair to the authorised person. It is obvious that if the individual did rot see it as unfair to himself, there should be no bar on publication.
Lord Bach: The noble Lord, Lord Jenkin, asked why the words "or not to take" are to be removed by Amendment No 275B. A decision not to proceed with action will now be the subject of the new notice of discontinuance. Notice will be given only where the decision is to maintain a proposal set out in the warning notice. So those words—to use an expression commonly used in the Committee last Monday—are otiose.
In reply to the noble Lord, Lord Elton, Amendments Nos. 275H, 275J and 275K in the Marshalled List set out the new clauses. Some of the clauses that are to be opposed will hopefully be opposed formally on Report—apart from Clause 202, which I hope will be opposed today. These improvements are brought forward in light of lengthy debate in another place.
To answer the noble and learned Lord, Lord Fraser, a notice of discontinuance should not normally be published unless the person consents. Subsection (5) only allows the authority not to publish—so it does not override the consent of the person concerned.
Lord Boardman: The Minister referred to alterations to Clause 124, which I understand have already been
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discussed in this House. Does the noble Lord propose tabling further alterations on Report? If so, what impact will they have on other provisions?
Lord Bach: I have made it clear that we intend to return to that matter on Report. I hope that I am safe in saying that it will not have a great impact on other of the Bill's provisions.
Lord Fraser of Carymyllie: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 202 negatived.
Clause 203 [Publication]:
Lord McIntosh of Haringeymoved Amendment No. 241P:
Page 102, line 20, leave out ("376(2)") and insert ("(Third party rights)(4)").
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 241Q:
Page 102, line 21, leave out subsections (2) and (3).
On Question, amendment agreed to.
Clause 203, as amended, agreed to.
Clauses 204 to 208 agreed to.
Clause 209 [Rights of the scheme in relevant person's insolvency]:
Lord Bachmoved Amendment No. 242:
Page 106, line 27, after ("who") insert ("or an entity which").
The noble Lord said: Amendments Nos. 242 and 243 are truly technical, to ensure that Clause 209 properly reflects legal arrangements in Scotland. The clause gives the compensation scheme manager rights in insolvency proceedings. Subsections (5) and (7) contain the provisions relevant to bankruptcy proceedings. As they stand, the subsections refer only to individuals. That is satisfactory for England, Wales and Northern Ireland—where it is only possible to take bankruptcy proceedings against individuals. In Scotland, it is possible to take bankruptcy proceedings against other entities, such as partnerships. The amendments adjust Clause 209 to take account of that difference. I beg to move.
On Question, amendment agreed to.
Lord Bachmoved Amendment No. 243:
Page 106, line 38, at end insert ("; or
( ) under section 6 of the 1985 Act for the sequestration of the estate belonging to or held for or jointly by the members of an entity mentioned in subsection (1) of that section.").
On Question, amendment agreed to.
Clause 209, as amended, agreed to.
Clauses 210 to 212 agreed to.
Clause 213 [Scheme manager's power to require information]:
Lord McIntosh of Haringeymoved Amendment 244:
Page 109, line 37, leave out subsection (6).
On Question, amendment agreed to.
Clause 213, as amended, agreed to.
Clause 214 [Scheme manager's power to inspect information held by liquidator etc]:
Lord McIntosh of Haringeymoved Amendment No. 245:
Page 110, line 15, leave out subsection (4).
On Question, amendment agreed to.
Clause 214, as amended, agreed to.
Clause 215 [Powers of court where information required]:
On Question, Whether Clause 215 shall stand part of the Bill?
Lord Elton: I should like to seek clarification on one matter, which perhaps should have occurred to me earlier. Can the Minister say why it has been decided that a person who fails to comply with a requirement imposed under Clause 213 should be dealt with as if he is in contempt of court rather than being subject to some stated penalty?
Lord Bach: The intention behind the provision is to avoid, as far as possible, the use of the criminal law in this part of the Bill. Therefore, contempt proceedings, which are civil but also often apply in criminal cases, are thought to be a more appropriate way to deal with the issue. I do not believe that that is the only example in the Bill.
Clause 215 agreed to.
4 p.m.
Clause 216 [Statutory immunity]:
Lord Tavernemoved Amendment No. 246:
Page 110, line 41, after ("faith") insert ("or reckless").
The noble Lord said: This is my first appearance in the Committee stage of the Bill. I apologise for having been unavoidably absent throughout the previous stages. I owe a particular apology to my noble friends on these Benches who have carried the burden. Having carefully read the Official Report, I must say that my noble friends have done so admirably. I do not intend to move the amendment because the matter has already been discussed. However, before sitting down I should like to refer to one matter.
Lord Elton: I apologise for intervening. The noble Lord can speak only to a Motion. Therefore, he may withdraw his Motion after it has been put to the Committee but not before.
Lord Taverne: I stand corrected. I beg to move the amendment before I withdraw it. The only matter to
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which I draw the attention of the Committee is a report in today's Financial Times to the effect that Conservative and Liberal Democrat Peers have accused the Government of botching the Financial Services and Markets Bill and have united in fighting against it. I make it quite clear to the Committee that that report has no foundation and is incorrect.
By and large, we on this side of the Committee believe that this is a good Bill and we support it. We have argued, and will continue to argue, that parts of it can be improved. So far we have not supported the issues on which the Conservative opposition have called a Division. In time we may move amendments and hope that others from both sides of the Committee will support them. If we agree with an amendment moved by the Conservatives we may well support it. However, I make it absolutely clear that we have not joined forces against the Bill. Such a comment is unhelpful and wrong. I now beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 216 agreed to.
Clauses 217 to 219 agreed to.
Schedule 16 [The Ombudsman Scheme]:
Lord Sharmanmoved Amendment No. 247:
Page 258, line 23, after ("Authority") insert ("and the Treasury").
The noble Lord said: In rising to move Amendment No. 247 I should like to speak also to Amendments Nos. 248 and 249. This group of amendments concerns the establishment of the ombudsman scheme. Earlier this week the Minister told us that when he awoke in the middle of the night he frequently searched for words or phrases to improve the Bill. He may wish to know that when I wake in the middle of the night thinking about the Bill I am frequently confronted by images from "Jurassic Park". For those members of the Committee who are unfamiliar with "Jurassic Park", the film is about the re-creation of dinosaurs by a group of scientists. The security system to contain those dinosaurs is adequate as long as the people who are there at the moment remain. Once one has a change in personnel or a disgruntled personality the system breaks down and chaos ensues.
The reason for the analogy is that, as has been said on many occasions in this Chamber, this Bill creates an organisation of unparalleled size and power. The legislation is itself huge. The system of checks and balances which surrounds that organisation is absolutely vital, and that is the reason why we on these Benches have paid so much attention to it. The ombudsman scheme to be set up under the Bill is just another part of the system of checks and balances. For it to be effective, and for the marketplace to have confidence in it, the scheme must be independent and be seen to be independent.
It is worth pausing for one moment to consider the scale of the scheme. What is proposed is that eight ombudsmen be merged into one. There will be a budget of some £20 million and more than 400 employees. It is anticipated that they will deal

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with 200,000 telephone complaints and 30,000 written complaints annually. As the Bill stands, I do not believe that the scheme will meet the test of market confidence. The ombudsman scheme is just another part of the FSA. Schedule 16 provides that the FSA shall establish the scheme, appoint the ombudsman and receive its report. There is a total absence of any other party to the process.
The question one asks is: why bother? Why not simply provide that there should be another department of the FSA called "the ombudsman"? Amendment No. 247 provides that both the authority and the Treasury are to establish the scheme. Amendment No. 248 provides that both the authority and the Treasury are required to ensure that the ombudsman don the job properly. Amendment No. 249 requires the Treasury to lay before Parliament the reports which it receives. I believe that that is the minimum required for a sensible, independent ombudsman scheme which enjoys the necessary confidence of the market in the carrying out of its duties. I beg to move.
Lord Borrie: Following the earlier welcome remarks by the noble Lord, Lord Taverne, I hesitate to criticise an amendment tabled by the Liberal Democrats who have been so helpful, and not at all obstructive, in regard to this Bill. But I am not convinced by the argument of the noble Lord, Lord Sharman. The noble Lord said that, according to the schedule, the ombudsman appeared to be merely another part of FSA: he even said that the FSA would appoint the ombudsman. That is not so. Schedule 16 appoints a scheme operatcr—it is the FSA that makes the appointment—which is to be a body corporate quite separate from the FSA. Schedule 16(3) provides that the terms of appointment of the board of directors of the scheme operator,
"must be such as to secure their independence from the Authority in the operation of the scheme".
In other words, the scheme operator is a body interposed between the Financial Services Authority and the ombudsman. That is a common feature among private sector ombudsmen whose position has been set up recently, sometimes informally and sometimes by statute, in order to achieve the vital factor of independence of the ombudsman, ombudsmen or ombudspersons (if one wishes to use that phrase) who makes or make the decisions in disputes.
I hope that my noble friend Lord Bach will confirm that paragraph 3, which provides that the appointment of the board of directors of the scheme operator,
"must be such as to secure their independence from the Authority",
means that, as historically has been the case in the past 10 or 15 years when such schemes have been set up, a majority of the hoard will be completely independent of the people who provide the finance, resources and so on—in this case, the authority. Surely the vital matter is that the people who determine disputes—the ombudsmen—will be independent. The panel of ombudsmen is provided for in paragraph 4. The
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ombudsmen's independence is specified in paragraph 4 so that they and the body interposed between the authority and the ombudsmen are also independent. That vital factor is already well assured by Schedule 16. To use again that delightful word, this amendment is "otiose".
4.15 p.m.
Lord Elton: It is important that the scheme shall be seen to be, as well as being, effective; and that these people are seen to be, as well as being, independent. I wonder how the interposing of a body appointed by the FSA to appoint the ombudsman will secure the feeling that it is in some way insulated from the ombudsman. Presumably any unsatisfactory appointments made by the interposing body can result in discomfort for the interposing body or perhaps departure of some of its members.
The noble Lord, Lord Borrie, has great experience of these matters to which I defer. He referred to the independence of the "ombudspeople" (if that is the correct term). However, the provision as stated in paragraph 3 seems analogous to the independence of the editor of a newspaper wholly owned by a certain person of a certain political complexion. For that reason also there is need for greater insulation and distance.
Finally, the importance of the matter is even greater than was described by the noble Lord, Lord Sharman, who spoke so graphically of the release into the landscape of a tribe of lumbering and possibly fearsome creatures. That may not be the right analogy because the creatures will not be proactive. However, they will need restraint. They are localised in one place. Perhaps a nuclear fuel reprocessing organisation would be a better analogy. If we apply his analogy of people changing and disregarding the procedure set out on the face of the Bill, the result is incalculable damage. In nuclear terms, we have Chernobyl to consider.
It is not a small issue. I hope that the noble Lord will not be lightly dissuaded by the arguments which no doubt will be put to him in due course by the Government Front Bench.
Lord Lipsey: I do not know whether the noble Lord, Lord Sharman, will be persuaded by the Government's arguments. Perhaps I may try an argument of my own in the hope of persuading him that the amendment is indeed otiose. I wonder how many "otioses" we shall get through today!
I have been a director of one of the schemes to be abolished by the Bill, under the Personal Investment Authority. For the Personal Investment Authority ombudsman there is a separate board, the PIA Ombudsman Bureau, which happens to comprise directors, for the time being, of the Personal Investment Authority, so the independence is less than that under this Bill.
In these cases, I believe that practice is worth quite a lot of theory. Having been such a director, I know that the idea that we would in any sense interfere with

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the ombudsman's independence is completely theoretical. He would have our guts for garters, publicly and privately, if we did so. There are some issues where it is helpful to have a dialogue with the ombudsman, such as about the use of resources, and how many staff he requires for certain purposes. It is right that there should be a dialogue, as I am sure there will be under the provisions for the Financial Services Authority. No one has ever questioned that the ombudsman is properly independent under the arrangements in place. I believe, therefore, that it is not necessary—although I can see its attractions—to write on the face of the Bill the provision that the noble Lord, Lord Sharman, seeks.
Lord Jenkin of Roding: There is a great deal in the Bill about the need to protect consumers, much of which we have already debated.
I am sure that I am not alone in having received in my post this morning a press release from the Financial Services Authority with the heading, "Consumer help at the click of a button". It states:
"Baffled by all the different financial products available? Fed up with small print and jargon? Want to complain but don't know how?
"Don't despair. A new website section is now available to answer any questions you may have about your personal finances—no jargon, no gobbledegook, just easy-to-understand, totally impartial information at the click of a mouse".
So I tried to access the website. It is called "www.FSA.gov.uk/consumerhelp". I tried three times; but my computer was unable to find it. I talked to one of those extremely helpful people at 2001, our helpdesk, who also tried and said, "Yes, we have succeeded. You don't write 'consumerhelp' but simply 'consumer'". So I deleted the last four letters and—bingo!—it worked. When I eventually got on to the website, it was quite good; there was quite a lot of information. But it is not very encouraging if the FSA cannot get the address right. I do not know whether that is the sort of complaint that should go to the ombudsman.
The point I want to make about the noble Lord's amendment is this. The noble Lord, Lord Lipsey, referred to previous ombudsmen. In the insurance company I used to chair, we dealt with his ombudsman. We always felt that the post was independent of the regulator. When one had an extremely intransigent policyholder who could not possibly be persuaded that what we had done for him was perfectly reasonable, we always ended our letters in reply to the complaint by giving the ombudsman's address, saying that if the individual felt unable to accept the company's decision, he should feel entirely free to take up his complaint with the ombudsman.
I was somewhat sceptical about the scheme at first, but I came to recognise that it is quite good. Its independence is important—not only its independence from the companies the authority regulates, which goes without saying, but also its independence of the authority itself. Sometimes it might be said, "Perhaps
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the company did everything perfectly all right but the regulator should have stopped what it was doing, or should have ensured that it behaved properly".
I attach great importance to the independence of the ombudsman. I hope that when the Minister replies he will satisfy us that that will be the case. It is an important arm of consumer protection. It has worked quite well in the past. It needs to work even more effectively in the future.
The Earl of Onslow: We all know the old Latin tag, guis custodiet ipsos custodes—who guards the guards themselves? It is important that the ombudsman appears to be divorced from the authority setting up the post. During the water industry privatisation, it was originally proposed that the water authorities should police themselves. Reasonably, there was an uproar, especially in this House. Michael Howard changed his mind and set up a separate policing authority for the water companies.
Everyone agrees that the proposal in the Bill is a good idea. No one is saying that the person who will be proposed by the FSA will be anything other than a totally honourable, upright man who will do his job properly.
Lord Borrie: Does the noble Earl accept that the Bill does not provide that the authority will appoint the ombudsman?
The Earl of Onslow: I understand that he is indirectly appointed by the body which in turn is appointed. If I appoint the noble Lord, Lord Borrie, to do something and he appoints someone else to do something else, there is a direct link between the person he has appointed and myself. That is not to take away from the genius of the noble Lord, Lord Borrie, or the superb appointment he makes. All one is saying is that it appears to be wrong.
For the sake of argument, let us assume that I appoint the noble Lord, Lord Borrie, to do something and that he makes a totally out-of-character error of judgment and appoints my noble friend Lord Archer who appears—and I use that word totally advisedly—not to be as good as he is appointed to be. I then get the rocket, as does the noble Lord, Lord Borrie, because he has not been appointed by someone else. Appearances are so important. We want the system to work; we want the ombudsman to protect the consumer and we want him to be at arm's length.
That metaphor may have been a little hyperbolic, but I intended no insult. I merely illustrate what can go wrong and we do not want that to happen. We want the system to work.
Lord Bach: We want it to work and we believe that it will. We believe that the body's independence is already well established in practice as well as in theory.
I shall deal first with Amendments Nos. 247 and 248. They deal with paragraph (2) of Schedule 16, which sets out the FSA's key responsibilities in relation to the ombudsman scheme. Those

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responsibilities are, first, that the authority must establish the scheme manager to exercise the functions of the scheme; and, secondly, that the authority must take the necessary steps to ensure that the scheme operator is at all times capable of exercising those functions. The amendments seek to change paragraph (2) so that both the authority and the Treasury are placed under these obligations. At first blush, that does not seem an unattractive change. However, on reflection, we believe that it would be a mistake.
Schedule 16 places two key obligations on the authority; unequivocal statutory obligations. The Bill is clear and the authority must do these things. There is no get-out clause and no room for fudge. By splitting those obligations in some unspecified way, as the amendments propose, we would reduce the clarity of that responsibility. It would not be clear where the buck stopped and that could damage the commitment of the FSA to get an effective scheme up and running and to enable it to keep running.
Nor do we believe that it would be right to say that the amendments would increase accountability. On the contrary, they would confuse the lines of accountability. The Bill as drafted makes the authority responsible for setting up the scheme, and it makes the scheme operator and the chief ombudsman clearly accountable to the FSA.
However, we believe that the fear about independence is unreal. Schedule 16 also makes it clear that the board's independence from the authority must be secured by the terms of appointment and, importantly, the terms governing removal from office. As my noble friend Lord Borrie made clear, the scheme operator, not the FSA, will appoint the ombudsman again on terms consistent with their independence. Therefore, the independence of the scheme operator and of the ombudsman is written onto the face of the Bill.
Perhaps I may remind Members of the Committee that the present chairman of the Financial Services Ombudsman Scheme is no less than Mr Andreas Whittam Smith. It was perhaps ironic that the noble Lord, Lord Don, should use the parallel of a newspaper editor when debating this topic. Members will know well that a few years ago Mr Whittam Smith was a most distinguished and independent-minded editor of the Independent newspaper. He was appointed following a Nolan-style selection process on terms designed to secure independence. Following open competition, Walter Merricks was appointed as chief ombudsman. Anyone who has any dealings with him, or knows anything about him, will know that, to put it mildly, he is an independent-minded individual.
Lord Elton: The more the noble Lord makes us repose our confidence in the excellent characters of the people who will fill the post, the more he diminishes it in the machinery which those people will fill. I was hoping that he would persuade us that nothing could go wrong, whoever did the job. However, he is saying that nothing can go wrong because brilliant saints and
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wonderful geniuses are filling the jobs. I say nothing in denigration of them, but they are the worst possible examples he could choose.
Lord Bach: I do not believe that the noble Lord could have been listening carefully to what I was saying before I began my eulogy on the two individuals concerned. I was pointing out—and I thought that it was clear—that Schedule 16 makes it clear on the face of the Bill, which is significant, that the scheme is as independent as is sensible.
I turn to Amendment No. 249. It would have the effect of requiring the Treasury to lay before Parliament copies of reports it receives under paragraph (7). That paragraph does not appear to provide for any such reports to be made to the Treasury. Members of the Committee may consider that that goes to the heart of the matter and that the Bill should make provision for the Treasury and for Parliament to receive such reports. I have no doubt that that was one of the issues being addressed by the noble Lord, Lord Sharman. Indeed, that appears to be the intention behind Amendment No. 249.
We can understand the concern of Members of the Committee. Clearly, Parliament has a valid interest in what the ombudsman scheme gets up to, just as more generally it has an interest in the activities of the authority itself. However, the Bill sets up a clear line of accountability which we believe it would be wrong to confuse. The line runs from the scheme operator to the FSA and then further to the Treasury and to Parliament. The FSA has a responsibility for setting up the ombudsman scheme.
Both the scheme operator and the chief ombudsman report at least once a year to the FSA and those reports must be published. In turn, the FSA will be accountable to Treasury Ministers, who are of course accountable to Parliament. The FSA in its turn must make an annual report to the Treasury covering the discharge of its functions under the Bill. One of them is to set up a scheme and ensure that it can run effectively. That report must itself be laid before Parliament. That requirement is set out in Schedule 1, paragraph (10). We believe that the amendments would muddy the water. Furthermore, the scheme manager will be a company under the Companies Act and it will be obliged to publish a full report and accounts in accordance with relevant statutory requirements.
The Government are grateful to the noble Lord, Lord Sharman, for tabling the amendments because we have had a short and good debate on the important issue of the independence of the new scheme. We believe that there are protections on the face of the Bill and that, as my noble friend Lord Lipsey said, in the real world there is nothing for the noble Lord, Lord Sharman, to be concerned about.
Lord Sharman: I am grateful to the Minister for his reply. He adequately summarised my anxieties by saying that I am more concerned about the perception of independence than the actual activity of those charged with the duty of performing the role of

927
ombudsman. We have touched on this matter in previous debates on the Bill. The purpose of legislation is not to provide for those who are carrying out the job at present; it is to provide for an ongoing situation. That is why I use the analogy of "Jurassic Park": when the scientists were good and friendly, nothing happened. That is my concern.
I would point out that the ombudsman operates from the same address as the FSA. That, prima facie, does not exactly make one think that he is independent. I can understand the noble Lord's response that the first two amendments that we tabled might cause a little confusion, but they were intended to add an independent thread to the appointments process. I, for one, endorse the comments made by the noble Earl, Lord Onslow, who made the point more elegantly than I did.
The chain of command is there. If one appoints a body to appoint someone, that person is appointed. This is wonderful, but out in the real world that is what happens. If I create a subsidiary of a business and that subsidiary appoints its chief executive, no one would consider that I had appointed him. My goodness! Therefore, I believe that a misperception exists and that is what market confidence is about. I accept that the final amendment in the group was not elegant in its drafting. It did not achieve what I sought to achieve.
The phrase in the Bill that concerns me is,
"publish[es]…[as] it considers appropriate".
I have forgotten the exact reference but I am sure that the noble Lord will remember it. The ombudsman will publish his annual report as he considers appropriate. I do not believe that that is adequate. I believe that there should be a compulsion to lay those reports before Parliament. Nevertheless, having listened carefully to what the noble Lord—
4.30 p.m.
Lord Elton: Before the noble Lord withdraws his amendment—I believe that that must have been the preface to withdrawing the amendment—I am anxious to be clear in my own mind. I presume that he will come back to the matter at a later stage. If that is the case, I should like to refer to something that the Minister said with regard to splitting the authority and the Treasury and putting them in a harness together. If the noble Lord were to bring back the amendment without "the authority" and have this matter stand clear of the ombudsman, from a different postal address and with the right website address functioning, then I would find it a much more attractive amendment. I hope that we shall see it again in that form.
The Earl of Onslow: Before the noble Lord continues, it seems to me that Members of the Committee have a perfectly genuine and real concern. I understand also that the Government believe that they have it right. Although I have a feeling that they may have it right, it does not look right. Can the noble Lord say, "I accept that concern has been raised. We
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shall have a little think about it again. I cannot promise to do anything but I shall look at it with an open mind"? That is the House of Lords at its best, and he is a good Minister.
Lord Bach: The noble Earl flatters easily and he flatters me even more easily than others. Of course, we shall do exactly as he says. Our doors are open to representations on this, as on any other, subject between now and Report. I must cover what I say by using one of the remarks that he made; that is, we do not commit ourselves to any change. I thank him for his contribution.
Lord Sharman: I was about to say that, having listened very carefully to the contributions of noble Lords in this short debate, for which I am grateful, nevertheless I want to consider the matter. We shall look carefully at the situation before perhaps we return to it on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 248 to 250 not moved.]
Schedule 16 agreed to.
Clauses 220 and 221 agreed to.
Clause 222 [Determination under the compulsory jurisdiction]:
Lord Saatchimoved Amendment No. 250ZA:
Page 114, line 13, leave out subsection (2) and insert—
("(2) The Ombudsman shall only make a determination in favour of a complainant where he is satisfied that the respondent has breached either or both of—

(a) the Authority's general rules;

(b) any relevant provision of the law.").

The noble Lord said: In moving Amendment No. 250ZA, I wish to speak also to the other amendments in our names in this group. It is also my pleasure to be able to tell the Committee that I believe that the super-ombudsman himself, Walter Merricks, is in the Chamber to hear our debate about his role.
I start by examining certain aspects of the workings of the ombudsman scheme. I believe that it might be of help to begin by trying to define in simple terms what the role of the ombudsman is supposed to be. I believe that, in principle, it is to provide a quick and cost-effective forum for settling disputes between firms and investors in order that investors may avoid incurring the time and expense of going to court to settle their disputes. That is surely well and good and we all applaud that. However, we believe that, in order to act fairly to both parties, the ombudsman should be bound by the same rules as a court. But the Bill does not describe the processes that the ombudsman will follow in that regard.
Clause 222(2) states that the ombudsman is to determine a complaint,
"by reference to what is, in [his] opinion, fair and reasonable in all the circumstances".
That does, indeed, sound reasonable. However, the problem with this formulation is that it would enable the ombudsman to uphold a complaint, even though a

929
firm had observed all the FSA's rules and all the relevant legal provisions. That is potentially unfair to firms. In addition, it removes the level of certainty which firms should have when they devise their own procedures. Therefore, this first amendment in the group proposes that the ombudsman will uphold a complaint only where the respondent has breached either the FSA's rules or the relevant provisions of the law.
I now address our second amendment, Amendment No. 250A, and I shall speak also to Amendments Nos. 250B and 250D. I start with Amendment No. 250A, which relates also to Clause 222 and the method of determination of complaints by the ombudsman. I believe that it ad dresses a most important point and, I hope that the noble Lord will agree, a point of principle; that is, the imbalance that now exists in the Bill between the complainant and the authorised person who is the subject of the complaint.
I shall try to describe the imbalance. First, the complainant can choose whether or not to have a complaint dealt with under the ombudsman scheme. We find that in Clause 220(2)(a). On the other hand, the authorised person has no such choice. The scheme is compulsory and the firm must submit itself to it.
Secondly, once the ombudsman has determined the complaint, if the complainant does not like the determination, he can reject it and take the matter to court. Only the complainant can appeal to the courts. The company that is complained of has no such right. It is true that this non-binding nature of the determination of the ombudsman on the complainant is a feature also of some other existing ombudsman schemes. However, in those cases the schemes are voluntary. But under this proposed Act the ombudsman scheme will not be voluntary; it will be compulsory on authorised persons. Under those circumstances, we believe that it would be fairer to both parties if both were bound by the ombudsman's determination or if both could decide to reject the determination. That is the purpose of Amendments Nos. 250A and 250B.
I turn now to Amendment No. 250D. We find in Clause 224(3) that the ombudsman's rules,
"may not provide for the making of an award against the complainant n respect of the respondent's costs".
I imagine that the logic behind that provision is that access to the ombudsman should be without charge to the investor. However, participation in the ombudsman scheme is expensive for firms; for example, the PIA currently charges firms a fee of £500 whenever it receives a complaint from an investor relating to that particular firm. In addition, the firm's costs of investigating that complaint could also be substantial. There is no reason that we can see why the scheme rules should not provide that an award of costs may be made against a complainant where that complainant's claim is frivolous, vexatious or dishonest.
That may sound far-fetched but I can give the Committee an illustration. That was a case where a group of 10 investors made what turned out to be
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fraudulent complaints against a well-known firm which was put to substantial expense in gathering evidence to refute the claims. In such a case, we believe—and this amendment seeks to provide—that it would be appropriate for the ombudsman to have required the investors in that case to pay the firm's costs. I beg to move.
Lord Taverne: I wish to speak to Amendment No. 251 which stands in my name and that of my noble friends Lord Newby and Lord Sharman. Clause 224(4) seems to sit rather oddly with subsection (3) which states:
"Costs rules may not provide for the making of an award against the complainant in respect of the respondent's costs",
while subsection (4) states:
"But they may provide for the making of an award against the complainant in favour of the scheme operator, for the purpose of providing a contribution to resources deployed in dealing with the complaint".
I should like the Minister to answer that point because it seems to be a somewhat strange provision. I do not know what are the precedents for it. There are occasions on which professional bodies—for example, the Institute of Chartered Accountants—provide, in the case of disciplinary proceedings, that an order for costs may be made in favour of the costs incurred by the proceedings themselves. But that seems to be a very different case because the ombudsman is not a disciplinary body. He is taking up complaints.
If it is decided that he should not be able to make an order against the respondent, why should he then make an order in favour of himself? It is almost as though, when the funds run low, the ombudsman might be tempted to take a rather more severe view than he would do otherwise. It seems to me a surprising provision. Therefore, our amendment proposes that subsection (4) should be omitted. However, we await with interest the Minster's explanation.
4.45 p.m.
Lord Lipsey: I wish to speak in particular to Amendment No. 251 but, first, I want to make a few comments on the amendments proposed by the noble Lord, Lord Saatchi.
The purpose of an ombudsman scheme is to provide reassurance and redress for consumers and to have a process which is reasonably quick for the resolution of disputes. That is why, as the noble Lord, Lord Jenkin, said earlier, the scheme has won the support of the industry.
What I fear about the noble Lord's amendments is that if you take away from complainants the right to go to the court if they do not like the ombudsman's decision, they will be encouraged by legal advisers to go straight to the courts, ducking the ombudsman on the way. That will lead to a more expensive and less satisfactory procedure than would otherwise be the case.
I turn now to what seems to me to be the more substantive amendment before us; that is, Amendment No. 251, which removes the ombudsman's right to levy

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costs against complainants who are vexatious. I use that word for the purposes of simplicity. There are two questions to be asked about that. First, is it likely to lead to fewer vexatious complaints? I make the following points. First, there are not many. I have checked with the ombudsman's office. They really are a rarity.
Secondly, on the whole, people who are thinking about being vexatious are not put off by this kind of provision. They are out to cause bother or, as the noble Lord, Lord Saatchi, said, to commit fraud. If that is their purpose, this provision is not likely to put them off.
The third point is that a provision of this kind will add to costs and not reduce them, because in each case the ombudsman will have to decide whether it is a vexatious complaint. That will be another process in addition to the process of resolving the complaint. So it will add to the costs.
Finally, I do not believe that the ombudsman has put forward any proposal to make rules under this scheme. So he perhaps regards the power—to use the word for the fourth time this afternoon—as "otiose."
But it is not merely that it is otiose. It would have an ill effect. I believe that it would cause legitimate complainants to be reluctant to go to the ombudsman. We can imagine the scene. Someone has had a trusted IFA for some years and then he finds that he has been flogged something which was not appropriate for the purpose. That person then says, "Right, I am going off to the ombudsman to complain". The IFA says, "You do that. Did you know that the ombudsman has the right to award costs against you and you may lose not only the money you lost on my product but you may lose your costs? And I can tell you when I get to the ombudsman, with my knowledge of the industry against your rather feeble knowledge, I am going to make a case that you have been a vexatious complainant and it may cost you your home, your car and your estate".
I know that that is an empty threat if you have the degree of expertise that we have, perhaps, in this Chamber. But it is not an empty threat if you are Joe Soap. You are rather out of your depth in these waters anyway and you are looking to someone to sort out your complaint. Therefore, the effect of the proposal will not be to discourage vexatious complainants but to discourage genuine complaints, which will seriously weaken the scheme.
I beg the Minister to think very hard about this between now and Report stage. I hope that on reflection, looking again at the debate that has taken place in the industry and on consultation, he will agree that the Bill will be stronger with the amendment proposed.
Lord Elton: What protection or redress does the noble Lord, Lord Lipsey, suggest for perfectly honest practitioners against vexatiously expensive
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complainants of whom we have already heard—as I know myself—there are a number around in the market?
Lord Lipsey: The person against whom the complaint is made will not get redress under this clause anyway. The redress will go to the ombudsman himself. The ombudsman has made it very clear that he will ruthlessly strike out what appears to be a vexatious complaint at an early stage. It really does not need this provision.
Lord Bach: Before responding to the specific amendments, I want to make a few key points, perhaps, about the ombudsman scheme. In many ways, they echo what the noble Lord, Lord Saatchi, said, when he moved his first amendment.
It is important that I should do so because it may help us to see these interesting amendments in context. As he said, effectively the scheme is intended to provide a quick, cheap and informal mechanism for resolving disputes between authorised firms and consumers. Past experience shows the benefit for firms and consumers in having those arrangements. Traditionally, ombudsman schemes have accepted cases only where the firm and consumer concerned are in a stalemate position; and yet by referring the dispute to an independent third party, the vast majority—over 80 per cent—are resolved between the parties without the ombudsman having to take a decision one way or another.
So questions about who should be bound by the determinations and on what basis they will be reached, and the circumstances in which a complainant could be ordered to pay certain costs, must be seen against a background where those issues do not even arise in the vast majority of cases.
I turn to the amendments. Amendment No. 250ZA would alter the basis on which the ombudsman is to determine complaints. We have considered the matter carefully and we believe it right to require the ombudsman to determine cases on the basis of what is fair and reasonable in all the circumstances. Of course we would expect him to take the matters mentioned in the amendment into account where they were relevant. But we do not believe it is appropriate to be too prescriptive. This is not a court of law.
To ensure transparency, the ombudsman will be required to make a written statement of the reasons for his determination. He will, of course, be required to comply with Article 6 of the European Convention on Human Rights. I say that to the noble Lord, Lord Kingsland, with rather more confidence than the other day. However, it is the very point of an ombudsman scheme that it should be quick and informal. It would not be right to constrain the ombudsman by requiring a purely legalistic focus or a focus on general rules to the exclusion of everything else. Indeed, to do so could mean that he was unable to examine all the matters, such as delay or maladministration, relevant to a complaint. It is right to provide such an accessible and flexible means of consumer redress. Previous schemes have determined cases on the basis of what is fair and

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reasonable, and we do not believe that we should abandon that principle in setting up this new and important scheme.
Amendments Nos. 250A and 250B deal with the question of whether the ombudsman's decisions should be binding on the complainant. We do not believe that they should. In that respect, the new ombudsman scheme will again follow those it replaces. Those schemes are based on the premise that the decision is not binding on the complainant. They provide consumers with an alternative to court action, but they do not deprive them of their legal rights at any stage before they decide to accept the determination. We believe that, in providing for the new scheme, it would be wrong to design it in such a way as to put the complainant in a less favourable position than under the current schemes.
The ombudsman's decisions are of course binding on respondents. The purpose of the scheme is to provide consumers with a free and accessible means of redress where there has been wrongdoing to ensure that individuals without the vast resources and expertise available to some firms are treated fairly in the financial marketplace. A scheme that achieves that aim will underpin consumer confidence in financial markets and services. Were the ombudsman's decisions not binding on respondents, that objective would not be realised. The consumer could find himself, once again, faced with having to decide whether to pursue a case through the courts, which, we know, is frequently a long and expensive process.
Amendment No. 250C has not been spoken to. Amendments Nos. 250D and 251 pull the Government in different directions. On the one hand, Amendment No. 250D, spoken to by the noble Lord, Lord Saatchi, would allow for the ombudsman to make an award of a firm's costs against a consumer. On the other hand, Amendment No. 251, spoken to by the noble Lord, Lord Taverne, and by my noble friend Lord Lipsey would mean that it was not possible for the ombudsman to award any costs at all against a complainant, even where his behaviour had been improper, unreasonable or vexatious. Together, those amendments illustrate that the Bill probably—I emphasise that word—strikes the right balance at the present time.
It would not be right or desirable to provide for the ombudsman to award the respondent's costs against a complainant. The scheme is intended to provide consumers, many of whom in the real world simply do not have the resources to pursue a case through the courts, with a free means of redress. The respondent's costs will be outside the control of the ombudsman. To allow those costs to be awarded against the complainant would risk imposing heavy penalties or the perception just as importantly—that such penalties might be imposed on complainants, which might discourage them from properly using the scheme. That would run against the grain of what we are trying to achieve.
However, to protect against the possibility that consumers may misuse the scheme, the Bill as presently drafted allows, in limited circumstances, for the
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ombudsman to make an award of the scheme operator's costs against a complainant. That is an important balance which Amendment No. 251 would remove. It is important to remember that the ombudsman will normally be able to award costs against a complainant only when he has acted improperly or unreasonably, or has been responsible for an unreasonable delay. Consumers should be free to complain when they have not been treated fairly. The scheme could provide an accessible, free means of doing so. We agree that if the ombudsman were routinely to award costs when he found against the complainant, that could deter people with a legitimate grievance from seeking the redress to which they are entitled.
We do not believe that any such award would be made except in extreme cases and only after prior warnings had been given to the complainant and—what I am about to say now is also an important rider—only if it has been shown to be necessary in the light of experience for rules to have been made to allow it. Although we shall invite the noble Lord to withdraw Amendment No. 251, I want to make it clear that we want to consider the matter before Report stage. We should like to listen to representations if any noble Lord interested in the amendment wishes to make them.
As I have said, it is important that the provisions allowing for such awards to be made where the complainant's behaviour has been improper or unreasonable remain in the Bill. They provide an important and necessary safeguard against inappropriate use of the scheme. It would not be right for the Bill to allow consumers carte blanche to indulge in unreasonable behaviour. All the amendments would disturb arrangements that have been carefully designed to produce a scheme which safeguards consumers while, we hope, remaining fair to business. Significantly, they are also broadly similar to those under the existing schemes which firms have joined on a voluntary basis in the past. I therefore ask all noble Lords who have put their names to the amendments to consider not pressing them.
Lord Jenkin of Roding: Perhaps I may begin by making the representations for which the Minister has just asked. I have been reminding myself of the evidence given to the Joint Select Committee about the scheme by Mr Andreas Whittam Smith, acting as spokesman for the ombudsman. It so happens that Mr Whittam Smith and I had a passage of arms three or four years ago, where I sought the help of the Press Complaints Commission. It would be entirely wrong for me to take up the Committee's time in describing the circumstances.
Before I went to the Press Complaints Commission, I had clearly to agree that it was a complete alternative to suing the newspaper for libel. Once I had initiated a complaint with the Press Complaints Commission, I was, as I understood the matter, precluded from taking my case to the courts. I considered at some length wit h my legal adviser as to whether that was the right course

935
of action in the circumstances. I was advised that the hassle of the courts would not be worth what I might get out of it.
I then had a long battle with the help of the Press Complaints Commission to get Mr Whittam Smith to issue an apology. I am happy to say that after some months his newspaper published an appropriate apology and that was the end of the matter. I cannot quite understand why it is right that someone who can be quite seriously damaged by a newspaper should have to give the kind of undertaking which complainants to the Press Complaints Commission have to give, whereas someone can go to the ombudsman and, if he does not receive the answer he wants from the ombudsman because under the Bill the ombudsman's decision is not to be regarded as final, he is then free to pursue his complaint in the courts.
It may well be that there are significant differences between the two and, obviously, one must not take the parallel too far. But it has always seemed slightly odd that the complainant, having failed to persuade the provider or authorised person that he has a justified complaint, having then failed to persuade the ombudsman that he has a justified complaint, may then continue to pursue his case through other channels at the cost, it seems, of the authorised person. I certainly believe that the amendment in the name of my noble friend on the Opposition Front Bench is one that requires careful consideration.
On the amendment spoken to by the noble Lord, Lord Taverne, I believe that to be a reasonable provision to retain in the Bill in view of the fairly extreme circumstances that the subsection requires before costs can be awarded against the complainant.
I listened to the noble Lord, Lord Lipsey, with some concern. He fears that this provision will deter genuine claimants. With the greatest respect, I do not recognise the circumstances that he describes. I have never met an authorised person, if I may so describe an insurance broker or some such person, who would even remotely behave in that way. Maybe such people exist, but there needs to be a sanction against the totally unreasonable and vexatious complainant. After all, the courts will act in that way, to the extent of ultimately barring someone from the proceedings in the court. If the Attorney-General is prepared to certify that someone is a vexatious litigant, such a person cannot attend the proceedings.
I am unsure why this limited power to award costs in the circumstances of unreasonable behaviour or unreasonable delay should have a bad effect. Perhaps the noble Lord will take that on board. I believe that the amendment of my noble friend is justified. I would hate to see subsection (4) removed because I believe it is a valuable discipline against unreasonable complainants.
5 p.m.
Lord Lipsey: Does the noble Lord accept that the reason he has not met such people is that he moves in highly respectable financial services circles? I
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commend to him the experience that I have of sitting on the disciplinary committee of the Personal Investment Authority. At the bottom end of the industry he will find people who are not of the character that he represents to the Committee.
Lord Donaldson of Lymington: I repudiate emphatically any suggestion that one should use the Press Complaints Commission as the yardstick for deciding what we should do in this scheme. That commission invented its own scheme. If relevant, I would happily join in the debate about the unnecessary omissions from that scheme. I merely state that is not the yardstick.
On the provision in Clause 224(4)(b), where costs can be awarded in favour of the scheme operator if the complainant is responsible for unreasonable delay, would it not be more appropriate to provide that his complaint should be dismissed? If he is responsible for unreasonable delay, I do not understand why everybody should be put to the trouble involved.
Lord Walker of Worcester: In support of the amendment in the name of my noble friend Lord Saatchi, the situation of an unauthorised person and a consumer involved in a procedure, where only one of them is bound by that procedure, is an uncomfortable one. The Minister's main argument appeared to be that consumers are small people with limited resources and authorised persons are large people with plenty of resources, although sometimes it could be the other way around. There are plenty of small insurance brokers and small financial advisers, who are perfectly honourable and who may have wealthy clients who are in dispute with them. In that situation, the ability to meet future legal costs is totally the other way around.
In my view it would be advantageous if the ombudsman could say to both sides, "If you wish to pursue my procedures the result will be binding on both sides". That could also result in many people seeking redress before the ombudsman before seeking redress in the courts because the cost would be small, the procedure speedy and they may achieve a quick result. In the event, plenty of people, perhaps against legal advice, may go to the ombudsman.
I hope it will not embarrass the noble Lord, Lord Taverne, if I support the Government in their opposition to his amendment. From his opening remarks this afternoon, I thought that there would be total agreement between the Government and the Liberal Democrats on all issues. However, I believe that the noble Lord, Lord Lipsey, was correct in his criticism of the potential effect of this. I hope that that amendment will be withdrawn.
Listening to the noble Lord, Lord Taverne, I was reminded of a letter written many years ago by AP Herbert of The Times, in which he said that the Liberal Party is as a herring: the backbone is to the left or to the right depending on which way you open it!
Lord Elton: The noble Lord has made it clear, as does the Bill, that the decision of the ombudsman is binding on the respondent. I understand that that is

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the case only if the respondent accepts the award. If the respondent goes to court, is there a provision in the Bill that makes this an alternative, or is it an additional recourse? I assume that it is not an alternative and that it is the expectation that the complainant will appeal against the award of the ombudsman. However, there is nothing to stop the complainant seeking an award against the practitioner, thus having two bites at the cherry. Surely there must be a protection for practitioners against such a situation.
As the award is not binding on the complainant, the result is that there will be two classes of decision within the compulsory jurisdiction. In many respects, although not in all, I take it that the ombudsman is expected to conduct himself—I speak of him collectively—as a court. To what extent are his—or its—decisions binding? To what extent must decisions taken on Wednesday be consistent with decisions taken on Tuesday? Is there any difference between a decision that has been accepted by the respondent and one that has not and, therefore, has not been put into force? Is the ombudsman bound by that when a similar case comes up in the future?
Such matters may seem small now, but they are cumulative. Down the years a considerable body of what we would otherwise call "case law" will build up, and it is important to know how that will build up.
Lord Donaldson of Lymington: The noble Lord, Lord Borrie, knows far more than I do about this. However, I know quite a lot about the bank ombudsman scheme and people do not have trial runs in front of the ombudsman. One may think that they would, but they do not. Furthermore, there is no doctrine of precedent. The operation is much more like that of a mediator. Indeed, as I understand it, in practice the banking ombudsman used to issue a draft award, so to speak, so that the complainant would know what would happen if he pursued the matter and usually that settled the issue one way or the other. The answer is that it works, although intellectually that may be a little surprising.
Lord Elton: The noble and learned Lord treats the experience of the banking ombudsman as though it were precedential. Can we be assured by the Government that this scheme will operate in the same way? If not, from where will that reassurance come?
Lord Borrie: Perhaps I can add a helpful point of fact. The insurance ombudsman, a position that has existed since 1982—a precursor of the other private sector ombudsmen—from time to time has published quite detailed case law in terms of loose-leafed volumes of decided cases. I understand that they are not strictly speaking precedents in the same way as decisions of the Court of Appeal under the Master of the Rolls are regarded as binding precedents, but they are useful both to later ombudsmen and to the industry.
Lord Elton: That is helpful. Does that mean that a complainant can look through the records and,
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through the ombudsman, apply the same principle to his case as was applied in a decision taken three or four years ago?
Lord Borrie: The noble Lord is speculating about something I do not know. I know that there is availability and, therefore, a very bright complainant may well check. It may be that one of these days such information will be available on the Internet and many people will see these "precedents".
Lord Elton: The noble Lord mistakes me. In any case, I am asking the question in the presence of those who know everything: the Government and their advisers. The question I am asking is not whether people will appeal to previous cases for precedent, but whether in fact they will be entitled so to do. The noble Lord, Lord McIntosh, looks as though I am straining rather far, but I am not. I have been on the edge of these affairs. It is quite important for those making the decisions to know whether a decision made today will be held to under different circumstances on another occasion in the same way as is a court. The noble Lord may want to write to me about this; I would like an answer.
Lord Bach: I have nothing further to add to the letter I wrote; I should just be repeating myself. In each case, the ombudsman must be fair and reasonable, given the circumstances of the matter before him. If one of the parties to the case wants to refer to whether it is a "loose leaf" precedent or not, that will be his or her right. No doubt the ombudsman will take note of that, but he will decide the case on what is fair and reasonable to that particular complainant and respondent. That is all I want to say on the matter.
Lord Elton: The noble Lord said that in fact it will not form a precedent and presumably will not be justiciable as such. A precedent is something by which one is bound. I beg the noble Lord's pardon, it will not form a binding precedent and therefore it will not be justiciable as such, which is what I wanted to know.
Lord Saatchi: I am grateful to all noble Lords who have spoken in this short debate about the ombudsman. His role is probably one of the most important aspects of this Bill. Therefore, we shall want to come back to this issue on Report. The noble Lord, Lord Sharman, made some very interesting points as regards the ombudsman in relation to a previous group of amendments. I am grateful to noble Lords who have spoken to this point.
The striking thing about the very short debate that we have had is that one gets a slight impression that the Government's position is that the authorised persons—namely, the firms—are like naughty school children. There is a presumption that that is what they are. However, we should remember for a moment that it is the authorised persons who are paying for this scheme. It is their money that is being contributed to making the ombudsman scheme work. I believe that

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we could give them a little more credit than has been apparent in some of the comments we have heard this afternoon.
Lord Bach: There is no way in which we believe the authorised person, to use the expression of the noble Lord, to be like a "naughty person" in all this. As I understand it, already many people will voluntarily become authorised and use any ombudsman scheme that is now available because it has been found to be a practical and satisfactory way of dealing with disputes. There is absolutely no bias set into this scheme at all. We want to see the problems sorted out as quickly, flexibly, and cheaply as possible.
Lord Saatchi: How can the Minister say that there is no bias? The two parties who come before the ombudsman—namely, the authorised person and the complainant—do not have the same rights. Therefore, bias is built into the structure of the Bill. Nevertheless, I shall not delay the Committee any longer. We shall return to this matter on Report. I am grateful for what noble Lords have said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 250A and 250B not moved.]
Clause 222 agreed to.
Clause 223 [Awards]:
[Amendment No. 250C not moved.]
Clause 223 agreed to.
Clause 224 [Costs]:
[Amendments Nos. 250D and 251 not moved.]
Clause 224 agreed to.
Clause 225 [Ombudsman's power to require information]:
Lord McIntosh of Haringeymoved Amendment No. 252:
Page 116, line 27, leave out subsection (6).
The noble Lord said: This amendment was spoken to with Amendment No. 89. I beg to move.
On Question, amendment agreed to.
Clause 225, as amended, agreed to.
Clauses 226 to 229 agreed to.
5.15 p.m.
Lord McIntosh of Haringeymoved Amendment No. 252VA:
After Clause 229, insert the following new clause—
OPEN-ENDED INVESTMENT COMPANIES
(" .—(1) In this Part "an open-ended investment company" means a collective investment scheme which satisfies both the property condition and the investment condition.
(2) The property condition is that the property belongs beneficially to, and is managed by or on behalf of, a body corporate ("BC") having as its purpose the investment of its funds with the aim of—

(a) spreading investment risk; and

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(b) giving its members the benefit of the results of the management of those funds by or on behalf of that body.

(3) The investment condition is that, in relation to BC, a reasonable investor would, if he were to participate in the scheme—

(a) expect that he would be able to realize, within a period appearing to him to be reasonable, his investment in the scheme (represented, at any given time, by the value of shares in, or securities of. BC held by him as a participant in the scheme); and

(b) be satisfied that his investment would be realized on a basis calculated wholly or mainly by reference to the value of property in respect of which the scheme makes arrangements.

(4) In determining whether the investment condition is satisfied, no account is to be taken of any actual or potential redemption or repurchase of shares or securities under—

(a) Chapter VII of Part V of the Companies Act 1985;

(b) Chapter VII of Part VI of the Companies (Northern Ireland) Order 1986;

(c) corresponding provisions in force in another EEA State; or

(d) provisions in force in a country or territory other than an EEA state which the Treasury have, by order, designated as corresponding provisions.

(5) The Treasury may by order amend the definition of "an open-ended investment company" for the purposes of this Part.").
The noble Lord said: The definition of an open-ended investment company, which I gather is called an "OEIC", has generated much discussion in the course of debates on this part of the Bill, and the Government have indicated at each stage that they are carefully considering the issue. I am pleased to say that, with the help of industry representatives, these deliberations have been successful and we now have a robust and well-targeted definition to put to the Committee. A draft reflecting the substantive changes brought about by the Government's amendment was shared with the main industry representative body, the Association of Unit Trusts and Investment Funds, which I understand is called AUTIF, and the FSA, both of which strongly welcomed it.
The difficulties in defining an OEIC have largely been in pitching the definition at the correct level to cover companies that need to be regulated as OEICs (and thus as collective investment schemes), without catching those that do not have the necessary characteristics. It is also important to get the definition right because it forms the foundation on which certain types of investment scheme can be formed and, together with the regulations to be made under Clause 256, which the Government have recently put out in draft form for consultation, will facilitate the development of innovative new investment products. In line with the wider aims of the Bill, this reflects the Government's desire to keep the UK at the leading edge of the highly competitive international collective investment schemes market and to continue to improve consumer choice in these products.
In his Budget speech last week, the Chancellor announced a wide-ranging review of UK institutional investment to be led by Paul Myners. The investment-raising opportunities for UK business are very much at the forefront of this. The possibilities opened up by the definition of an OEIC given by the Government's

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amendment reinforce this theme and form the foundation on which new ways of raising funds for UK business hero and abroad can be developed.
The definition given by these amendments is framed by reference to two tests, both of which must be satisfied in order for a scheme to be an OEIC; namely, the property condition and the investment condition. I promise that ore gets used to the word "OEIC" after a while.
The property condition carries forward tests in the existing clause. The investment condition, however, now has two limbs. The first relates to the rights of investors over the redemption of their shares or securities, the second to the expectations that a reasonable investor would have.
The important features that the amendments secure in the investment condition are, first, to tie into the definition the expectations of a reasonable investor in relation to the period within which he will be able to realise his investment, and, secondly, to stipulate that he would have to be satisfied that the amount so realised would be based on the value of the relevant scheme property. This brings in an element of judgment as to whether or not a company actually functions as an open-ended investment company.
The investment condition is concerned with actual or potential redemption of shares or securities. It is important here to exclude redemption outside the scope of an OEIC's activities as a collective investment scheme, so actual or potential redemptions under the Companies Act 1985 is excluded as are those under corresponding provisions in an EEA state. In order to be able to take into account redemption under provisions of non-EEA states, a new subsection (to be inserted by subsection (4)(d) of Amendment No. 252VA) gives the Treasury the power to designate, by order, such provisions. This will be subject to the negative resolution procedure. Subsection (5) gives the Treasury the power to amend the definition of o n OEIC for Part XVII purposes. This may be used in the future to enable the definition to respond rapidly to commercial developments or to rectify weaknesses in the current definition if they become apparent. As an order under this power could widen the scope of the definition, and thereby have broader implications, for example, for orders made by the Treasury, under the powers in Clause 256, it will be subject to affirmative resolution. Amendment No. 278E provides that orders made by the Treasury under this amendment changing the definition of an OEIC will be subject to the affirmative resolution procedure.
There are a number of opposition amendments in this group. It may be for the convenience of the Committee if Members opposite speak to them now. I can then respond rather than trying to anticipate what they might say. I beg to move.
Lord Elton: It would have been fascinating to hear what the noble Lord said in response to everything Members might Lave said but did not; however, we are to he denied that pleasure.
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Can the Minister say whether this amendment has been seen by the Delegated Powers and Deregulation Committee for its comments on the delegated powers therein? If so, which report can we find it in?
Lord McIntosh of Haringey: I have written to the noble Lord, Lord Alexander, as chairman of the Delegated Powers and Deregulation Committee, who expressed concern that we were sending him amendments in dribs and drabs for his comment. It is with his agreement and that of the committee that we shall be sending all the amendments together before Report stage so that they can be considered by the committee at one go, at its convenience, in time for the House to consider them on Report. We do not believe that this specific amendment has been put forward already. Therefore, although I have taken care to ensure that these are affirmative resolution procedures—I am sure that is what everyone wants—the amendment will be included in the more substantial batch which will go to the Delegated Powers and Deregulation Committee shortly.
Lord Elton: I am grateful to the Minister and am reassured by the level at which he is putting in these powers. Can I also be reassured that if, by any chance, the committee were to be critical of one or other of the amendments—there are many—we would be in order to table amendments supportive of that, even though it would not have been possible to give notice, as is normal, in Committee that we were planning so to do because we would not know what the criticisms were?
Lord McIntosh of Haringey: There is nothing in procedure or in propriety which would stop the noble Lord from doing that.
Lord Kingsland: By Amendment No. 252VA the Government are altering the definition of "open-ended investment companies". These are the only bodies corporate which constitute collective investment schemes and so are subject to the extra marketing restrictions on authorised persons contained in Clause 231; to the requirement for the manager to be authorised under the Bill; and to United Kingdom offshore funds tax legislation which treats capital gains as if they were income.
The substantive part of the amendment seeks to change the definition of when the company is to be regarded as open-ended. The Government have accepted that, unless there is an express right to redeem, redemptions made should not make the investment company open-ended unless the redemptions are at the option of the investor. As the Minister is aware, the Government consistently refused our amendments to this effect in another place, even though this was exactly what the UCITS directive provided.
We, the Opposition, welcome the new clause, subject to one important caveat, which I shall explain in a moment. The clause appears to provide a much more flexible and forward-looking definition of open-ended investment schemes. It should allow the

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establishment in the United Kingdom of a greater variety of products, thereby enhancing the competitive position of the United Kingdom as a place in which to operate such schemes.
The ability to develop new products is, as Members of the Committee are well aware, of vital importance to the United Kingdom investment funds industry if it is to respond to the changing needs of investors and maximise its potential for international growth. We would welcome the Minister's confirmation that these provisions are intended to encourage innovation and development, already well established in other jurisdictions, of authorised investment companies where redemption periods may vary. Indeed, an "investment company with variable capital" may well be a more accurate description of such companies than is contained in the present title.
There are concerns that the wording in subsection (3)(a) could, notwithstanding the exemptions in subsection (4), have the effect of bringing within the definition a closed-ended company with a finite life. The example might be of a company set up for a fixed period of 10 years, at which point it would be liquidated. An investor who invested in such a company in year nine would have a reasonable expectation that he would be able to realise his investment within a year, which would be a period appearing reasonable to him.
That could have unexpected consequences for tax status, for example. Would that company be regarded as open-ended under the proposed definition? We would welcome clarification on that point before Report stage. One way of avoiding this possibly unintended effect may be to refer in subsection (3)(a), to the realisation of the investment being, "at the request of the investor", rather than as a result of a corporate decision which was known in advance. We would also welcome confirmation that the new definition will allow scope for a wider range of authorised funds which are intended for domestic consumption and which do not seek to benefit from the UCITS passport.
With that caveat in mind, it will not be necessary for us to move Amendments Nos. 252XA, 252A, 252AA, 252AB and 252AC. Amendment No. 252AD concerns the definition of "operator". The current definition, which is the same as that in the Financial Services Act, covers unit trust schemes with a separate trustee and open-ended investment companies; but it does not cover other types of collective investment scheme. The identification of who is the operator is important for the purposes of the definition of a collective investment scheme in Clause 229, and for determining whether someone is carrying on a regulated activity which includes establishing and operating a collective investment scheme in accordance with paragraph (8) of Schedule 2.
Finally, I turn to Amendment No. 254YK. As the Committee is aware, Clause 264 of the Bill contemplates individually recognised overseas schemes becoming recognised schemes. The provisions of the clause are unclear as to whether such schemes
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must have a trustee or depository. The amendment is intended to make it clear that, if the scheme takes the form of an open-ended investment company, it must have a depository; and if the scheme takes some other form, it must have a trustee or depository. That would be consistent with good market practice and would be for the protection of consumers.
Lord McIntosh of Haringey: I can give the noble Lord the assurance he seeks which will enable him not to move the amendments whose numbers he listed. It is not the case that the Bill provides only that redemption should be at the request of the shareholder. Introducing the requirement that redemption of shares must always be at the request of the shareholder would narrow the definition to an unacceptable degree. A company could be open-ended if the redemption was initiated by the company provided that there was an expectation that this would occur. That is what is provided for in the new clause.
In relation to limited life companies, again I can put the noble Lord's mind at rest. The answer to his point on the fixed life company in the last few months of its life is that the definition we proposed is based on the overall impression that the reasonable investor would get when he is considering investing in it. The investment condition operates in relation to the company itself. It does not concern a particular point in time at the end of the company's life. Focusing on that particular point in time does not give an impression of the nature of the company; it is the nature of the company that counts as far as concerns the definition in the new clause.
I hope that that enables me to speak only to Amendments Nos. 252AD and 252YK, to which the noble Lord referred. As regards Amendment No. 252AD, this point was brought up in the other place. I believe that the concern here is that in the case of collective investment schemes that are neither OEICs nor unit trusts, the term "operator" is not defined. The amendment proposes a definition.
We feel that it is unwise to speculate on the nature of schemes constituted under non-UK law. It is far from clear that the definition proposed would be appropriate in any given case, given that in subsection (4) of the amendment we need to cover all of the possibilities covered by Part V of the Companies Act 1985 in this country, the Companies (Northern Ireland) Order 1986, provisions in another EEA state or provisions in force in a country other than in the EEA which the Treasury has designated for corresponding provisions.
In any event, the operator of a scheme will generally be apparent from the conduct of the scheme and the natural meaning of the word itself. Furthermore, when dealing with unfamiliar arrangements, we believe that this is the best approach with which to address the question rather than a definition which might be defective and, indeed, might not be robust as the international implications of OEICs develop.

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Amendment No. 254YK also came before the Committee in another place. It is difficult to specify precisely the structures under which non-UK, non-EEA schemes will operate. Although generally they will have trustees or depositories, this will not always be the case, and exceptionally a scheme without these may be fit for recognition by the FSA. We wish to retain this flexibility for recognised schemes, but it will in no sense be allowed to diminish the investor protection considerations applied when recognising such schemes.
5.30 p.m.
Lord Stewartby: Perhaps I may ask the Minister whether subsection (5) of the new clause proposed in the government amendment regarding the Treasury's power to amend the definition is only a general precaution against changing patterns in the marketplace. Alternatively, does it presage any specific changes?
Lord McIntosh of Haringey: The subsection has been written in because we intend to move towards a home-state base for all such schemes under EEA law. At the moment, we have a host-state based system in many countries. The firm intention of the EEA is to move to home-state systems. However, the speed at which that is done and the differences between countries that have reached one or other stage of the process means that it might be necessary, on occasion, for the Treasury to make amendments to the definition to reflect the changing position. When we reach that home-state base, then no such changes will be necessary.
Lord Stewartby: Should I take it that the Government do not expect significant changes other than those which the Minister has just mentioned?
Lord McIntosh of Haringey: That is correct.
On Question, amendment agreed to.
The Deputy Chairman of Committees (Lord Strabolgi): I have informed the Committee that, if Amendment No. 252WA is agreed, I shall not be able to call Amendments Nos. 252XA to 252AC inclusive.
Lord McIntoshmoved Amendment No. 252WA:
Page 118, line 6, leave out subsections (2) and (3).
On Question, amendment agreed to.
[Amendments Nos. 252XA to 252AC not moved.]
[Amendment No. 252AD not moved.]
Clause 230, as amended, agreed to.
Clause 231 [Restrictions on promotion]:
Lord Kingslandmoved Amendment No. 252B:
Page 119, line 10, leave out from ("communicate") to end of line 11 and insert ("to a person in the United Kingdom—

(a) an invitation to participate in a collective investment scheme; or

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(b) information which is intended or might reasonably be presumed to be intended to induce any person to do so.").

The noble Lord said: Before I turn to the amendment, perhaps I may say a few words to the Minister with respect to his last intervention concerning Amendment No. 252VA. I thank the Minister very much indeed for his words. His contribution appeared to be most helpful, but I shall need to read the text in Hansard to be sure that all the points I raised were satisfactorily covered.
I beg to move Amendment No. 252B. Clause 231 imposes special restrictions on the marketing of collective investment schemes. As it stands, the prohibition applies to even non-UK branches of an authorised person and even in relation to investors outside the UK. We wish to make the same amendments to the prohibition as we propose for financial promotion generally.
Mrs Melanie Johnson, the Economic Secretary and Member of another place, said in Committee in another place that she had in fact begun to realise that marketing restrictions applicable to authorised persons under Clause 231 do not need to be as wide as those applicable to non-authorised persons under Clause 19. This is why the amendment restricts the prohibition to communications,
"to a person in the United Kingdom".
This restriction follows the existing rule. In another place, Members of the Official Opposition tried several times to persuade the Minister that it would damage United Kingdom competitiveness if the local regulator allowed the marketing of collective investment schemes to particular categories of investor not allowed by the authority—for example, typically high-networth individuals. Thus, the only firms which could not market the schemes to them were authorised persons.
The prohibition applies to all authorised persons, not only United Kingdom firms. Why should non-United Kingdom firms which establish a branch in the United Kingdom—perhaps using the passport—have to be subject to a worldwide prohibition on marketing investment funds to prohibited categories of investor from the United Kingdom branch? In addition, if the collective investment scheme that they want to market is actually established in the United Kingdom—typically an English limited partnership—the non-United Kingdom firm cannot market it from any branch anywhere in the world. That goes, perhaps, just a shade over the top.
The imposition of the worldwide prohibition is likely to induce United Kingdom or non-United Kingdom authorised persons to use an offshore group company—for example, a special purpose subsidiary—to market the collective investment scheme to prohibited categories of investors outside the UK. It really does not seem to do anyone any good to force this step to be taken and thus to incur perhaps substantial expenses.

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As far as concerns Amendment No. 252C, again this makes a similar amendment to the special restrictions on promoting collective investment schemes as the amendment we proposed to the general prohibition on financial promotion marketing in Clause 19.
Amendment No. 252D relates to Clause 231(5) and the exemption from the prohibition in Clause 231 for promotions otherwise than to the general public. Amendment No. 252D removes the uncertain concept of "the general public" and allows instead promotion to "persons of specified descriptions".
Clause 231(7) elaborates on what is meant by the term,
"Promotion otherwise than to the general public",
and introduces a further uncertain category of,
"persons for whom participation would be unsuitable".
This amendment seeks to give the authority greater flexibility in determining which types of unauthorised collective investment scheme can be promoted to identified categories of persons without having to be concerned as to whether those categories of persons may constitute the general public.
5.45 p.m.
Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Kingsland, for the way in which he has introduced his amendments, which I shall deal with in turn.
Amendment No. 252B would have a number of adverse effects. First, it would remove the prohibition on the communication of "inducements" and replace it with a prohibition on the communication of,
"information which is intended or might reasonably be presumed to be intended to be acted on by a person".
"Inducement" was introduced into what is now Clause 231 in another place, at the same stage that it was brought into the general financial promotion rules of Clause 19. It is therefore consistent with that. The Government have outlined the policy behind "inducement" on several occasions. The paper Financial Promotion—Second Consultation Document issued last October indicated that the term includes a degree of incitement, and does not apply to purely factual communications which contain no incitement. However, as indicated in the discussions on Clause 19, we would appreciate a further opportunity to review whether the policy here should be clarified. We may also bring amendments in relation to the "inducement" question here at Report stage.
Secondly, the amendment would reduce the territorial scope of the communications to be prohibited to those communicated to a person in the United Kingdom. This is unnecessary as the Government have already announced that they intend to introduce a "directed at" test in secondary legislation, on which we also consulted through the October 1999 Financial Promotion consultation document. Furthermore, it is important that the rules are capable of addressing promotions out of the
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United Kingdom. For example, the Government have important European obligations in relation to the marketing of collective investment schemes, and this amendment would prevent them from being honoured.
We have had representations on the issue of outward promotion, notably from the British Venture Capital Association. It has emphasised the importance of the international competitiveness of the UK collective investment schemes not just for the financial services sector but also in enabling UK business to access overseas funds. The Government understand this, but compliance with our European obligations is essential—not respecting these would invite retaliatory action that would have a substantial economic and political cost.
The amendment that the Government are bringing forward, on the other hand, allows us to balance our obligations with the need for international competitiveness. Although we must currently prohibit certain outward promotions, we must be able to adapt our rules when to do so becomes appropriate, for example, when EU law and home state regulation have changed as we expect they might do. This comes back to the point that was properly raised by the noble Lord, Lord Stewartby. The opposition amendment allows neither of these to happen.
Thirdly, the opposition amendment lacks the flexibility of the Government's preferred approach, a necessary quality of a regime required to deal quickly with international and technological developments. It will be easier to cut back a wide scope, for example, taking account of general moves to home state regulation of collective investment schemes, than to specify a narrow scope in primary legislation.
If we are to deal with new, and increasingly sophisticated, means of communication, we do not see any alternative to pitching the scope of the prohibition so that we can move to meet the requirements of the times by using secondary legislation. In this way we shall be able to take account of any European moves to increase the range of collective investment schemes which benefit from the product passport (and in respect of which we will have to ensure that outward promotions are prohibited). Even if we took the approach of getting the extent of the prohibition just right as matters currently stand, we would set in stone a system of controls that could be out of date even before the Bill comes into force. I hope that the Opposition will withdraw Amendment No. 252B, particularly given my assurances with regard to secondary legislation and the further thought to be given to the question of "inducement".
Amendment No. 252C has a similar effect to the territorial impact of Amendment No. 252B and I hope that it will not be pressed. Amendments Nos. 252D and 253A would allow FSA rules to override the general promotion prohibition in subsection (1) of the clause in the case of promotions to "specified descriptions of persons" rather than promotions,
"otherwise than to the general public".

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The clause as it stands allows FSA rules to specify persons or groups of persons, so in this sense the amendment adds nothing. Furthermore, it introduces the prospect of exempting promotions that are to the general public. That the prohibition should apply to promotions to the general public—except where the scheme is authorised or recognised—is a cornerstone of government policy on the regulation of collective investment schemes. The current clause achieves this by setting out in subsection (7) precisely what is meant by,
"promotion otherwise than to the general public".
I turn to government Amendment No. 253. Clause 231 contains the basic promotion prohibition for collective investment schemes by authorised persons, and some exemptions from it. The prohibition does not apply to the promotion of authorised or recognised schemes, nor to promotions originating outside the UK unless they are capable of having an effect in the UK
The purposes of the Government amendment are to allow UK firma to remain fully competitive in the international collective investment schemes market; and to allow the territorial scope of the prohibition to take full account of future international and technological developments, for example, in the field of electronic commerce. The amendment enables the Treasury to specify further circumstances in which the prohibition does not apply. In particular, it can specify that the prohibition does not apply to specified descriptions of communications; communications originating in a specified country or territory outside the United Kingdom; those originating in a specified group or description of countries or territories (for example, EEA states); or any communication originating outside the United Kingdom. These are not cumulative; clearly, they are alternatives.
The first case could cover, for example, promotions of specified unauthorised schemes, such as certain venture capital funds originating in the United Kingdom which could not be promoted to the UK public but which are allowed by the regulatory authorities in the target country. An order under this amendment could enable such schemes to raise funds abroad and compete with non-UK schemes in those markets. This order-making power will address the concerns expressed to the Government by industry representative groups such as the British Venture Capital Association over UK schemes' international competitiveness and the ability of UK business to raise money abroad.
The general prohibition applies in relation to promotions of collective investment schemes by authorised persons originating outside the United Kingdom if they are capable of having an effect here. The final three cases mentioned allow the prohibition to be lifted if this becomes appropriate. For example, as I have already said, EU legislation could move to a full home state regime for these schemes, in which case an order specifying communications originating in EU states may become necessary. But as I explained when we debated the general financial promotion rules in Clause 19, the EU has not yet made this move and we
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cannot afford to leave anyone unprotected in the mean time. Until a full home state regime exists in Europe and all member states have adequate regulatory regimes for the purpose, we cannot unilaterally lift all prohibitions on outward promotions.
The final line of the amendment enables the Treasury to repeal the condition in Clause 231 that the prohibition applies only to communications originating outside the UK if they are capable of having an effect here. This may be necessary if an order disapplying the prohibition to all communications from outside the UK became appropriate, making the "having an effect in the UK" condition redundant.
Lord Stewartby: I wish to comment on one or two aspects of the drafting of the clause which has become a little more complicated since the introduction of Amendment No. 253, to which the noble Lord has just spoken.
Clause 231(1) is a blanket statement which the remainder of the clause goes on to limit in a substantial way. It is likely to be limited even more if the Treasury makes orders under the new subsections (5A) and (5B). Subsections (1) and (2) are a single sentence. Subsection (2) is, in many ways, the more important part because the exemptions are a large part of the total. If the language of the clause has not yet reached its final form, perhaps the Minister will consider whether it would be better to run those two subsections together.
The Minister partly answered my second point when he said that the four different categories in paragraphs (a) to (d) of subsection (5B) of his amendment are alternatives. What is meant by,
"a country or territory which falls within a specified description of country or territory outside the United Kingdom".
and how is that not covered by either paragraphs (b) or (d)?
In relation to subsection (3), the Minister gave an explanation of the Treasury's ability to repeal that by order—which I shall have to read tomorrow in the written text—but, again, is this something which is imminent?
Lord Jenkin of Roding: Before the Minister replies, perhaps I may ask him a question. Presumably subsection (5C), to which my noble friend Lord Stewartby referred, will be included in the report to the Delegated Powers and Deregulation Committee. Is it intended that this should be subject to an affirmative or negative resolution procedure? It will change the Bill; in its own way, it is a Henry VIII clause. It would be helpful if the Minister could give an indication of the Government's intentions.
Lord McIntosh of Haringey: Perhaps I may start with the point made by the noble Lord, Lord Jenkin. Yes, of course it will be included in the submission to the Delegated Powers and Deregulation Committee. It is too early to say whether we shall recommend or the committee will require that it should be subject to

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affirmative resolution. With the change from host state to home state regimes, this is a time-limited exercise. The horrific complication of the language which I perfectly well recognise—is required because we are in the middle of that changing process and we have to legislate now.
The noble Lord asked me the significance of subsection (5B) and whether it would be enough to have a specified description of countries. We want to be as precise as we can and aim at recognised groups—for example, all EEA countries. We could, of course, have a specified description but—although still necessary—it would be less helpful than being as precise as we are in paragraphs (b), (c) and (d).
The repeal of subsection (3) is not imminent. Although it is a time-bound process, it is not one in which the end is in sight, or even in which the time-scale is known. The noble Lord, Lord Stewartby, made some interesting points about the drafting of the earlier parts of the clause and about perhaps combining subsections (1) and (2). I should like to think about that to see whether it is feasible. I shall write to the noble Lord about that. I am sure that I will be presented with all kinds of reasons why it is not feasible, but that does not deter me from attempting to explain it to the noble Lord.
Lord Kingsland: I thank the Minister for his very full response to my amendment. It gave me some comfort, but not by any means complete comfort. I shall look at the transcript in Hansard and consider what further initiatives I may take at Report stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 252C and 252D not moved.]
Lord McIntosh of Haringeymoved Amendment No. 253:
Page 119, line 25, at end insert—
("(5A) The Treasury may by order specify circumstances in which subsection (1) does not apply.
(5B) An order under subsection (5A) may, in particular, provide that subsection (1) does not apply in relation to communications—

(a) of a specified description;

(b) originating in a specified country or territory outside the United Kingdom;

(c) originating in a country or territory which falls within a specified description of country or territory outside the United Kingdom; or

(d) originating outside the United Kingdom.

(5C) The Treasury may by order repeal subsection (3).").
On Question, amendment agreed to.
[Amendment No. 253A not moved.]
Clause 231, as amended, agreed to.
Clause 232 [Single property schemes]:
On Question, Whether Clause 232 shall stand part of the Bill?
Lord Jenkin of Roding: Before we decide whether Clause 232 should stand part of the Bill, I should like
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to ask the Minister a question. I apologise to the noble Lord—I should have given him notice of this—but it is a fairly simple question. Clause 232 gives the Treasury power to exempt single property schemes from Clause 231(1). I was aware some years ago that considerable efforts were made to try to "securitise", I think was the expression, individual commercial properties with a view to making them more marketable. My impression at the time was that they never got off the ground; there were no successful moves in that direction. Are the Government anticipating that this power of exemption is likely to be used in the near future? What circumstances have prompted the Government to include this clause?
It seems quite right that they should be exempted as they will be investments directed at a very special class of investor. I can understand that. I hope that normal members of the public will be a bit chary about going into that kind of thing. But none the less, given that that is the case, are the Government contemplating an exemption order fairly soon?
Lord McIntosh of Haringey: This provision has been in legislation in almost identical terms since the Financial Services Act 1986. As the noble Lord, Lord Jenkin, said, it has not worked very well. We have no particular knowledge to suggest that it will work any better in the future, but we thought we should carry forward the provision in case it does work and we need to make the exemption.
Lord Jenkin of Roding: I thank the Minister for that reply.
Clause 232 agreed to.
Clauses 233 and 234 agreed to.
Clause 235 [Applications for authorisation of unit trust schemes]:
Lord Kingslandmoved Amendment No. 253B:
Page 120, line 36, after ("information") insert ("or documents").
The noble Lord said: In moving Amendment No. 253B, I shall speak also to my other amendments in the group.
The amendment relates to the requirement in Clause 236(1)(c) that an application for authorisation of a unit trust under Clause 235 must include a copy of the trust deed and a certificate signed by a solicitor that the trustee complies with the authority's regulations. This requirement, apparently, has its history in the procedures adopted by the Department of Trade and Industry prior to the Financial Services Act. In our view, it would be better and more flexible for the Bill to allow the authority to stipulate its requirements for authorisation under Clause 235(3), rather than including a requirement of this kind, which may not always be appropriate, on the face of the Bill.
Amendments Nos. 254A and 254C relate to the same basic proposition that the UCITS European directive requirement that unit holders must have a right to repurchase their units, which is interpreted by the authority as requiring a redemption date once every two weeks, should only be required to apply to

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UCITS qualifying unit trusts. That would then allow, assuming the authority so permitted, authorised unit trusts with limited redemption rights or redemption rights subject to conditions. An example would be an authorised unit trust established for stakeholder pension purposes, such as a pooled pension investment.
At present, the authority takes the view that an authorised securities fund cannot be established as a pooled pension investment because, in order to satisfy the pension requirements, the investor must accept restrictions on his ability to redeem. An authorised unit trust established as a feeder fund can, it appears, be established as a pooled pension investment. But that adds another fund layer to the structure. It is therefore plainly inefficient. These amendments would allow an authorised securities-type fund to be established as a pooled pension investment with restrictions on redemption consistent with the requirements for pensions. I beg to move.
6 p.m.
Lord McIntosh of Haringey: I do not recognise what the noble Lord saying as relating to Amendment No. 253B, which seeks to add the words "or documents" to "information". I am a little taken aback.
Lord Kingsland: I am speaking to Clause 236, page 121, line 19.
Lord McIntosh of Haringey: That is in the next grouping.
Lord Kingsland: I beg the noble Lord's pardon and indeed the Committee's pardon.
Lord Strabolgi: The amendment before the Committee is Amendment No. 253B.
Lord Kingsland: I thank the noble Lord the Deputy Chairman for that intervention. I have already spoken to that opening amendment. But I am speaking also to other amendments.
Lord McIntosh of Haringey: I shall speak to my amendments in the group and see whether I can keep up with the noble Lord.
Lord Kingsland: We are extremely keen to get on with the Bill.
Lord McIntosh of Haringey: The Front Bench is!
Amendment No. 253B would add the words "or documents" after the word "information". It is unnecessary as the term "information" is used in its general sense and includes documents. "Information" means information whether or not in a document. "Document" means recorded information.
Amendment No. 254A would remove from the authorisation procedure the requirement for a unit trust scheme to submit a copy of its trust deed and certification from a solicitor that the deed complies with the rules. The effect of the amendment would be
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to shift a considerable burden to the FSA and away from the scheme itself. While the Government are keen to ensure that costs of compliance with authorisation and regulation requirements are kept to a minimum, certain precautions have to be taken by the providers of investment products. These should include such basic due diligence as ensuring that the trust deed—at the heart of a unit trust—complies with the rules governing it. This can be done adequately only by an appropriately qualified professional, and it is right that those responsible for the unit trust should ensure that it is undertaken.
Amendment No. 254C reflects amendments raising similar issues that were put forward in another place. As Clause 236(9) stands, one of the requirements that must be satisfied before a unit trust can be authorised is that,
"participants must be entitled to have their units redeemed in accordance with the scheme at a price…related to the net value of the property to which the units relate; and…determines in accordance with the scheme".
The effect of the amendment would be to change t he focus of this authorisation requirement so that a person's entitlement to have his units redeemed would be dependent on what was said in the FSA's rules. It would also move away from the need for there to be an entitlement to redeem units and simply leave it that a person should be "be able to realise" his investment in accordance with the FSA's rules.
As I understand it, the intention here is to draw a distinction between authorised schemes covered by the UCITS directive and those which are not. Perhaps I may deal first with UCITS schemes. It is essential for compliance with the directive that the investor should be entitled to have his investment redeemed on request. For that purpose, realising units on exchange also counts, so the circumstances in subsection (1) must be provided for. In any event, I cannot see why the noble Lord, Lord Kingsland, does not want subsection (10), which provides an additional means of meeting the requirement for authorisation set out in subsection (9). If subsection (10) were deleted, the noble Lord would be reducing people's options for obtaining authorisation.
I turn now to non-UCITS schemes. I have to say that the Government think that the existing wording already provides the kind of flexibility which the noble Lord seeks. All that subsection (9) currently says is that a unit holder must be "entitled" to have his units redeemed. That must be right. The subsection does not say anything about the time within which that entitlement can be exercised, so there is already built into the existing provisions considerable flexibility as to the time within which redemption make take place. It is then for the FSA to decide appropriate redemption periods for any particular type of unit trust scheme. Amendment No. 254C would add nothing to the effect of the existing provision. I hope that that will give the noble Lord some comfort.
Quite apart from the fact that this amendment is unnecessary, it would remove the requirement in the case of an authorised unit trust for the participants to be able to have their units redeemed at a price related

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to the value of a scheme's property. This is the very nature of an authorised trust and a feature that we think is so fundamental that it must appear in primary legislation. It is not sufficient for redemption to be "in accordance with the scheme". The scheme could itself be defective in this sense.
The purpose of the amendment was described in the other place as allowing for the authorisation of non-UCITS schemes—that is, those that are outside the Undertaking for Collective Investments in Transferable securities—because they allow more flexible redemption conditions. However, the amendment would go too far and allow, for example, redemption at inappropriately long intervals. That is inconsistent with the aim of consumer protection. Adequate flexibility exists.
I am not sure whether the noble Lord has yet spoken to Amendments Nos. 254G, 254RA and 254RB, which are in the same group. If he would like to speak to them, I shall then respond.
Lord Taverne: Before the noble Lord, Lord Kingsland, speaks to the other amendments, perhaps I may say that the Minister's reply to the amendments reminds me—I cannot forbear to mention it—of some remarks made by the noble Lord, Lord Hayhoe, in a debate some years ago. He explained that when he first became a Minister of State, during proceedings on a very complicated Finance Bill he duly read out his brief. He was congratulated on the clarity of his exposition and later discovered that he had actually read out his brief from the wrong clause. That throws a certain amount of doubt on the new rule of interpretation whereby one can refer to Hansard in elucidating the meaning of statutes.
Lord Jenkin of Roding: I cannot resist the temptation of reminding the Committee of the occasion when I was debating in another place with the late Lord Lever. He was Financial Secretary and I was a shadow spokesman and precisely the same happened. I moved an amendment. He looked extremely puzzled and said, "Well, that has nothing to do with my reply but I had better give it". I said, "That sounds to me rather like the examination candidate who was asked to describe the principles of the Archimedes pump. After chewing his pencil for some time, he wrote, 'I know nothing about the Archimedes pump, but here is a list of the kings of Israel and Judah—. The Daily Mail, in a leading article, commented under the headline, "Laughter in Committee Room 10".
Lord McIntosh of Haringey: That reminds me of Browning's reply when he was asked, late in life, what was the meaning of a certain poem—whose title I am afraid I cannot remember so I cannot properly trump it. He said:
"When it was written, God and Robert Browning knew what it meant: now only God knows".
Lord Kingsland: I am worried that the same thought might apply to what I am about to say to the next
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amendment! I shall withdraw the amendment, but, first, perhaps I may respond to the Minister's request to say something about my Amendments Nos. 254RA and 254RB—or at least say something about what I think my amendments are about.
Both amendments deal with technical points. They seek to query why the present wording of Clause 255 does not reflect Regulation 24(6) of the draft OEICs regulations. Clause 255 applies the provisions of Clause 141 on action for damages in respect of unit trusts. However, the equivalent provision in the draft OEICs regulations applies the provisions of Clause 141 and, in addition, Clause 367 on injunctions, Clause 369 on restitution orders, Clause 371 on the power of the authority to require restitution and Part XIV in respect of OEICs.
Lord McIntosh of Haringey: I hope I am right in thinking that Amendments Nos. 254RA and 254RB both relate to Clause 250 on page 128, lines 1 and 3. These amendments are unnecessary. The provisions they seek to apply when the authority has given a direction under Clause 250 relating to injunctions, restitution and disciplinary measures already apply as the clause stands.
It is necessary to refer specifically to the actions for damages provisions of Clause 141 because they apply to contraventions of rules, whereas Clause 255 is concerned with contraventions of directions. Without the mention, the Clause 141 provisions would not apply in these cases. The provisions that the amendment seeks to apply, which are to be found in Parts XXV and XIV of the Bill, on the other hand relate to the contravention of requirements. Clause 250 gives the authority power to make directions imposing certain requirements. So the provisions referred to automatically apply.
Lord Kingsland: I am much obliged to the noble Lord for that answer and the others he has given to amendments in the group. I shall read Hansard and reflect on what he has said. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringeymoved Amendment No. 254:
Page 120, line 40, leave out ("further information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application").
The noble Lord said: I have already spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Clause 235, as amended, agreed to.
Clause 236 [Authorisation orders]:
[Amendment No. 254A not moved.]
6.15 p.m.
Lord McIntosh of Haringeymoved Amendment No. 254B:
Page 121, line 14, at end insert—

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("( ) If the Authority makes an order under subsection (1), it must give written notice of the order to the applicant.").
On Question, amendment agreed to.
[Amendment No. 254C not moved.]
Clause 236, as amended, agreed to.
Clause 237 agreed to.
Clause 238 [Procedure when refusing an application]:
Lord McIntosh of Haringeymoved Amendments Nos. 2541D to 254F:
Page 122, line 10, leave out ("refuses") and insert ("decides to refuse").
Page 122, line 12, leave out ("against the refusal").
Page 122, line 14, leave out subsection (3).
The noble Lord said: I spoke to these amendments in the debate on Clause 188 stand part. I beg to move.
On Question, amendments agreed to.
Clause 238, as amended, agreed to.
Clauses 239 to 243 agreed to.
Clause 244 [Alteration of schemes and changes of manager or trustee]:
[Amendment No. 254G not moved.]
Lord McIntosh of Haringeymoved Amendment No. 254H:
Page 125, line 24, after ("Authority") insert (", by written notice,").
The noble Lord said: I spoke to this amendment in the debate on Clause 188 stand part. I beg to move.
On Question, amendment agreed to.
Clause 244, as amended, agreed to.
Clause 245 [Procedure when refusing approval of change of manager or trustee]:
Lord McIntosh of Haringeymoved Amendments Nos. 254J and 254K:
Page 125, line 43, leave out ("refuses") and insert ("decides to refuse").
Page 126. line 2,leave out subsection (5).
The noble Lord said: I spoke to these amendments in the debate on Clause 188 stand part. I beg to move.
Lord Elton: Perhaps I am confused; however, I have the groupings list before me which indicates that Amendments Nos. 254H, 255J and 255K are a separate group. I take it that when the noble Lord says that the amendments were spoken to in relation to Clause 188 stand part, they were caught up, as it were, in spite of the published list. Am I right?
Lord McIntosh of Haringey: I am afraid that there is a mistake in the groupings. The group to which the noble Lord refers should in fact be Amendments Nos. 255H, 255J and 255K which are position amendments in Clause 277. If we were responsible for that, I am sorry.
Lord Jenkin of Roding: I am sure that the noble Lord was not responsible. If he was, we certainly accept his apologies. I find it extraordinarily difficult, going through the groupings list with such a complicated
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system of letters—sometimes three letters after three numbers—to get them all straight in my mind and mark them in the Bill. I cannot help feeling that there must be a better way of doing this. It is astonishingly confusing. If there is only one mistake in the groupings list, that says a great deal about the skill of the Public Bill Office in dealing with these very difficult matters.
Lord McIntosh of Haringey: I do not think that it was the Public Bill Office. It was probably those of us in the department who proposed the grouping wrongly. I think that the numbering itself was correct. I have a knock-down argument against the argument against all these government amendments, but I a m not going to waste it now.
On Question, amendment agreed to.
Lord Saatchimoved Amendment No. 254KA:
Page 126, line 3, at end insert—
("( ) If both the trustee and the manager are given a warning or decision notice, neither of them is to be treated as a third party for the purposes of section 375(2) or 376(2).").
The noble Lord said: We had thought that it might not be necessary to move this amendment in view of later government Amendments Nos. 275L and 275M which propose new clauses setting out the procedure regarding third party rights. However, we have had another look at the new clauses and we believe that it may be necessary after all to table amendments to the new clause introduced by Amendment No. 275L to achieve the effect that intended by our Amendment No. 252KA. That is because there is still a mismatch between the procedures described in Clause 245, which is the proposal to refuse replacement of the manager or trustee, and Clause 248, which deals with the proposal to revoke an authorisation order.
The new clause to be introduced by the Government in Amendment No. 275L will apply to warning and decision notices given in accordance with Clause 248 but, as we read it, will not apply to warning and decision notices given in accordance with Clause 245. I am aware that this is a technical matter. Nevertheless, we should like to understand it better. The provisions relate to the procedures regarding third parties when separate warning notices are given to the manager and trustee of a unit trust scheme. It is not completely clear why the procedure on refusing to replace a manager or trustee should be different from that relating to revocation of authorisation. It may be necessary to table amendments to the new clause on Report, to add references to Clause 245(2) in respect of warning notices, and to Clause 245(4) in respect of decision notices.
Is this the appropriate time to debate Amendment No. 254S?
Lord McIntosh of Haringey: My understanding is that Amendment No. 254KA was debated in the group relating to Clause 188. It is certainly the case that Amendment No. 254S was debated then. I do not have a brief for Amendment No. 254KA, so I ask the noble Lord to give me a rain check. I will advise him before

959
Report—not as to what he should do but whether there is an issue to which he may feel it necessary to refer on Report.
Lord Saatchi: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 245, as amended, agreed to.
Clause 246 agreed to.
Clause 247 [Revocation of authorisation order otherwise than by consent]:
[Amendments Nos. 254L and 254M not moved.]
Clause 247 agreed to.
Clause 248 [Procedure]:
Lord McIntosh of Haringeymoved Amendment No. 254N:
Page 126, line 41, leave out from ("Tribunal") to end of line 2 on page 127.
On Question, amendment agreed to.
Clause 248, as amended, agreed to.
Clause 249 [Requests for revocation of authorisation order]:
Lord McIntosh of Haringeymoved Amendments Nos. 254P to 254R:
Page 127, line 4, at end insert—
("( ) If the Authority makes an order under subsection (1), it must give written notice of the order to the manager and trustee of the scheme concerned.").
Page 127. line 14, leave out ("refuses") and insert ("decides to refuse").
Page 127. line 16. leave out from ("Tribunal") to end of line 18.
On Question, amendments agreed to.
Clause 249, as amended, agreed to.
Clause 250 [Directions]:
[Amendments Nos. 254RA and 254RB not moved.]
Clause 250 agreed to.
Clause 251 agreed to.
Lord McIntosh of Haringeymoved Amendment No. 245S:
After Clause 251, insert the following new clause—
PROCEDURE ON GIVING DIRECTIONS UNDER SECTION 250 AND VARYING THEM ON AUTHORITY"S OWN INITIATIVE
(".—(1) A direction takes effect—

(a) immediately, if the notice given under subsection (3) states that that is the case;

(b) on such date as may be specified in the notice; or

(c) if no date is specified in the notice, when the matter to which it relates is no longer open to review.

(2) A direction may be expressed to take effect immediately (or on a specified date) only if the Authority, having regard to the ground on which it is exercising its power under section 250, considers that it is necessary for the direction to take effect immediately (or on that date).
960
(3) If the Authority proposes to give a direction under section 250, or gives such a direction with immediate effect, it must give separate written notice to the manager and the trustee of the scheme concerned.
(4) The notice must—

(a) give details of the direction;

(b) inform the person to whom it is given of when the direction takes effect;

(c) state the Authority's reasons for giving the direction and for its determination as to when the direction takes effect;

(d) inform the person to whom it is given that he may make representations to the Authority within such period as may be specified in it (whether or not he has referred the matter to the Tribunal); and

(e) inform him of his right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations.
(6) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

(a) to give the direction in the way proposed, or

(b) if it has been given, not to revoke the direction,

it must give separate written notice to the manager and the trustee of the scheme concerned.
(7) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

(a) not to give the direction in the way proposed,

(b) to give the direction in a way other than that proposed, or

(c) to revoke a direction which has effect,

it must give separate written notice to the manager and the trustee of the scheme concerned.
(8) A notice given under subsection (6) must inform the person to whom it is given of his right to refer the matter to the Tribunal.
(9) A notice under subsection (7)(b) must comply with subsection (4).
(10) If a notice informs a person of his right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference.
(11) This section applies to the variation of a direction on the Authority's own initiative as it applies to the giving of a direction.").
The noble Lord said: This was debated with Clause 188 stand part. I beg to move.
Lord Saatchi: I am genuinely curious about the nomenclature of amendments. I wish to understand for my own benefit, having little experience of such matters, why it is necessary to have such complicated designations. They are almost impossible to follow and the confusion felt by members of the Committee testifies to that. Perhaps the Minister can shed some light on the matter.
Amendment No. 254S worries us because the latest set of amendments to Clauses 251 to 255 appear to allow the FSA to exercise its powers of intervention in relation to a collective investment scheme without giving firms a minimum of 28 days in which to make representations. We acknowledge that provision may be necessary in rare and urgent cases but the new clause appears to apply also to non-urgent cases. The wording does not include any test of reasonableness in relation to the period allowed for representations. The

961
changes have the effect of removing for managers and trustees the safeguards provided in Clause 375 in relation to warning notices.
We are puzzled, to say the least, as to why the Government want to make those changes at such a late stage of the Bill.
Lord McIntosh of Haringey: I am grateful to the noble Lord for reading the brief provided by AUTIF because this matter was distinctly debated with Clause 188. If I had not also read that brief, I would not have been able to reply.
The new clause for governing the procedure for issuing clirecticns to managers and trustees of authorised unit trusts requires the FSA to consider if necessary, having regard to the grounds for giving the direction, whether the direction is to have immediate or early effect. That is a stiffer test than requiring the FSA to consider reasonableness.
Earl Russell: The nomenclature of the amendments arises from the fact that it is possible to table amendments after the composition of the original Marshalled List. In a lengthy Bill such as this, people inevitably notice things that they might not have done on first, second, third, fourth or even fifth reading. One could either change the numbering of the amendments already identified, which would cause confusion, or stop the power to table amendments as we go along—which would restrict the power of the House. If amendments are to be added between Amendments Nos. 153 and 154, attaching letters is the only option. It is confusing and perhaps it is the worst system, except for the alternative.
Lord McIntosh of Haringey: There was an attempt a couple of years ago to change to the system in the other place, whereby amendments are numbered according to the order in which they are tabled. I was among those who resisted that change rather fiercely. I believe that it is essential for the proper conduct of business in this House that we go through the Bill exactly in the order in which it is printed. There should not be another climens.on—the date that an amendment is tabled. That would mean going backwards and forwards through the numbers. Of course the lettering system is difficult but it is logical.
Lord Elton: Since the noble Lord saved us from the imposition of such a system, we all owe him a great debt. The present system is very difficult to understand but the other one would have been impossible. To speak in defence of my noble friend on the Front Bench, this amendment may be part of a group that has already been spoken to, but the number of amendments in the groups that come before the Committee is such that those who are not full-time professionals with appropriate staff cannot always be expected to keep up to date with them.
6.30 p.m.
Lord Saatchi: I am grateful to my noble friend and also to the noble Earl, Lord Russell, for setting me straight on the procedure.
On Question, amendment agreed to.
Clause 252 [Procedure: giving directions and varying them otherwise than as requested]:
On Question, Whether Clause 252 shall stand part of the Bill?
Lord McIntosh of Haringey: I have already given notice of my intention to oppose the Question that Clause 252 stand part of the Bill.
Clause 252 negatived.
Clause 253 [Procedure: refusal to revoke or vary direction]:
Lord McIntosh of Haringeymoved Amendments Nos. 254T and 254U:
Page 129, line 18, after ("proposes") insert ("—
(a) to vary the direction otherwise than in accordance with the application, or
(b)")
Page 129, line 20, leave out subsection (2).
The noble Lord said: Amendments Nos. 254T and 254U have already been spoken to in the same group. I beg to move.
Lord Elton: I am now becoming confused. The Minister said that these amendments had been spoken to in the same group. I cannot find Amendment No. 254T in the same group which begins with Amendment No. 254J.
Lord McIntosh of Haringey: It is in the group which begins with the Question whether Clause 188 stand part of the Bill. I shall be more explicit in future.
Lord Elton: The noble Lord refers to the gigantic group. I am grateful to him.
On Question, amendments agreed to.
[Amendment No. 254UA not moved.]
Lord McIntosh of Haringeymoved Amendments Nos. 254V and 254W:
Page 129, line 22, leave out ("refuses") and insert ("decides to refuse").
Page 129, line 25, leave out subsection (4).
The noble Lord said: Amendments Nos. 254V and 254W were spoken to in the group which includes the Question whether Clause 188 stand part of the Bill. I beg to move.
On Question, amendments agreed to.
Clause 253, as amended, agreed to.
Clause 254 [Procedure: revocation of direction and grant of request for variation]:
[Amendment No. 254X not moved.]
Clause 254 agreed to.
Clause 255 [Procedure in cases of urgency]:
[Amendment No. 254 Y not moved.]
On Question, Whether Clause 255 shall stand part of the Bill?
Clause 255 negatived.
Clauses 256 to 258 agreed to.
Clause 259 [Representations and references to the Tribunal]:
Lord McIntosh of Haringeymoved Amendments Nos. 254YA and 254YB:
Page 133, line 34, leave out subsection (5).
Page 133, line 38, leave out subsection (7).
The noble Lord said: Amendments Nos. 254YA and 254YB were spoken to with Clause 188 stand part. I beg to move these amendments en bloc.
On Question, amendments agreed to.
Clause 259, as amended, agreed to.
Clause 260 agreed to.
Clause 261 [Power of Authority to suspend promotion of scheme]:
Lord McIntosh of Haringeymoved Amendments Nos. 254YC and 254YD:
Page 134, line 19, leave out subsections (4) to (9).
Page 135, line 10, at end insert ("and sections (Procedure on giving directions under section 261 and varying them on Authority own initiative) and (Procedure on application for variation or revocation of direction)").
The noble Lord said: Amendments Nos. 254YC and 254YD were spoken to with Clause 188 stand part. I beg to move them en bloc.
On Question, amendments agreed to.
Clause 261, as amended, agreed to.
Lord McIntosh of Haringeymoved Amendment No. 254YE:
After Clause 261. insert the following new clause—
PROCEDURE ON GIVING DIRECTIONS UNDER SECTION 261 AND VARYING THEM ON AUTHORITY"S OWN INITIATIVE
(" .—(1) A direction under section 261 takes effect—

(a) immediately, if the notice given under subsection (3)(a) states that that is the case;

(b) on such date as may be specified in the notice; or

(c) if no date is specified in the notice, when the matter to which it relates is no longer open to review.

(2) A direction may be expressed to take effect immediately (or on a specified date) only if the Authority, having regard to its reasons for exercising its power under section 261, considers that it is necessary for the direction to take effect immediately (or on that date).
(3) If the Authority proposes to give a direction under section 261. or gives such a direction with immediate effect, it must—

(a) give the operator of the scheme concerned written notice; and

(b) inform the competent authorities in the scheme's home State of its proposal or (as the case may be) of the direction.

(4) The notice must—

(a) give details of the direction;

964

(b) inform the operator of when the direction takes effect;

(c) state the Authority's reasons for giving the direction and for its determination as to when the direction takes effect;

(d) inform the operator that he may make representations to the Authority within such period as may be specified in it (whether or not lie has referred the matter to the Tribunal); and

(e) inform him of his right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations.
(6) Subsection (7) applies if, having considered any representations made by the operator, the Authority decides—

(a) to give the direction in the way proposed, or

(b) if it has been given, not to revoke the direction.

(7) The Authority must—

(a) give the operator of the scheme concerned written notice; and

(b) inform the competent authorities in the scheme's home State of the direction.

(8) Subsection (9) applies if, having considered any representations made by a person to whom the notice was given, the Authority decides—

(a) not to give the direction in the way proposed,

(b) to give the direction in a way other than that proposed, or

(c) to revoke a direction which has effect.

(9) The Authority must—

(a) give the operator of the scheme concerned written notice; and

(b) inform the competent authorities in the scheme's home State of its decision.

(10) A notice given under subsection (7)(a) must inform the operator of his right to refer the matter to the Tribunal.
(11) A notice under subsection (9)(a) given as a result of subsection (8)(b) must comply with subsection (4).
(12) If a notice informs a person of his right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference.
(13) This section applies to the variation of a direction on the Authority's own initiative as it applies to the giving of a direction.").
The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 254YF:
After Clause 261, insert the following new clause—
PROCEDURE ON APPLICATION FOR VARIATION OR REVOCATION OF DIRECTION
(" .—(1) If, on an application under subsection (10) or (11) of section 261, the Authority proposes—

(a) to vary a direction otherwise than in accordance with the application, or

(b) to refuse the application,

it must give the operator of the scheme concerned a warning notice.
(2) If, on such an application, the Authority decides—

(a) to vary a direction otherwise than in accordance with the application, or

(b) to refuse the application,

it must give the operator of the scheme concerned a decision notice.

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(3) If, on such an application, the Authority decides to grant the application it must give the operator of the scheme concerned written notice.
(4) If the Authority decides on its own initiative to revoke a direction given under section 261 it must give the operator of the scheme concerned written notice.
(5) The Authority must inform the competent authorities in the scheme's home State of any notice given under this section.").
On Question, amendment agreed to.
Clause 262 [Schemes authorised in designated countries or territories]:
Lord McIntosh of Haringeymoved Amendment 254YG:
Page 135, line to, after ("Authority") insert (", by written notice,").
The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.
On Question, amendment agreed to.
Clause 262, as amended, agreed to.
Clause 263 [Procedure]:
Lord McIntosh of Haringeymoved Amendments Nos. 254YH and 254YJ:
Page 136, line 36, leave out ("refuses") and insert ("decides to refuse").
Page 136, line 39, leave out subsection (4).
The noble Lord said: These amendments were spoken to with Clause 188 stand part. I beg to move these amendments en bloc.
Lord Elton: Perhaps I may take this opportunity to suggest that where large blocks of interleaved amendments in the list of groupings have been debated on an earlier day it may be helpful to know the head amendment so that Members can refer back to the appropriate date. At the moment one takes the matter entirely on trust, which one does happily.
Lord Jenkin of Roding: I endorse the observation of my noble friend. I kept all of the earlier lists of amendments and during the course of the morning tried to identify the particular amendments. I ran out of time and enthusiasm and gave it up. I believe that my noble friend's suggestion would be extraordinarily helpful. Perhaps, we should discuss these procedural matters in another forum.
Lord McIntosh of Haringey: I used to be infuriated when Ministers of another government stood up to say that an amendment had already been debated and begged to move it. Sometimes they did not even stand up. It is very good for me that I must continually stand up. I try to give the group in which the particular amendment appeared. I do not know whether there is a method of making that more generally available.
Lord Elton: It should not be beyond the wit of man to print that information on the list of groupings. However, my noble friend is quite correct: this is the wrong forum in which to hold that debate.
On Question, amendments agreed to.
Clause 263, as amended, agreed to.
Clause 264 [Individually recognised overseas schemes]:
[Amendment No. 254 YK not moved.]
Clause 264 agreed to.
Clause 265 [Matters that may be taken into account]:
[Amendments Nos. 254 YL and 254 YM not moved.]
Clause 265 agreed to.
Clause 266 [Applications for recognition of individual schemes]:
Lord McIntosh of Haringeymoved Amendment No. 255:
Page 138, line 32, leave out ("further information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application").
The noble Lord said: This amendment was debated with Amendment No. 155. I beg to move.
Lord Elton: As a matter of interest, I think that we have just passed the middle point of the Bill on the fifth and last day of debate in Committee.
Lord McIntosh of Haringey: Ligne de partage des eaux!
On Question, amendment agreed to.
Clause 266, as amended, agreed to.
Clause 267 [Determination of applications]:
Lord McIntosh of Haringeymoved Amendment No. 255A:
Page 138, line 45, at end insert—
("( ) If the Authority makes an order under section 264(1), it must give written notice of the order to the applicant.").
The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.
On Question, amendment agreed to.
Clause 267, as amended, agreed to.
Clause 268 [Procedure when refusing an application]:
Lord McIntosh of Haringeymoved Amendment No. 255B:
Page 139, line 3, leave out ("refuses") and insert ("decide5. to refuse").
The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.
On Question, amendment agreed to.
Clause 268, as amended, agreed to.
Clause 269 [Alteration of schemes and changes of operator, trustee or depositary]:
Lord McIntosh of Haringeymoved Amendments Nos. 255C to 255E:
Page 139, line 10, after ("Authority") insert (", by written notice,").
Page 139, line 12. leave out ("notified") insert ("given written notice to").
Page 139, line 13, leave out ("the proposal is not approved") and insert ("it has decided to refuse approval").
The noble Lord said: These amendments were spoken to with Clause 188 stand part. I beg to move.
On Question, amendments agreed to.
Clause 269, as amended, agreed to.
Clauses 270 and 271 agreed to.
Clause 272 [Procedure]:
Lord McIntosh of Haringeymoved Amendment No. 255F:
Page 140, line 7, leave out subsection (3).
The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.
On Question, amendment agreed to.
Clause 272, as amended, agreed to.
Clause 273 agreed to.
Lord McIntosh of Haringeymoved Amendment No. 255G:
After Clause 273, insert the following new clause—
PROCEDURE ON GIVING DIRECTIONS UNDER SECTION 273 AND VARYING THEM OTHERWISE THAN AS REQUESTED
(" .—(1) A direction takes effect—

(a) immediately, if the notice given under subsection (3) states that that is the case;

(b) on such date as may be specified in the notice; or

(c) if no date is specified in the notice, when the matter to which it relates is no longer open to review.

(2) A direction may be expressed to take effect immediately (or on a specified date) only if the Authority, having regard to the ground on which it is exercising its power under section 273, considers that it is necessary for the direction to take effect immediately (or on that date).
(3) If the Authority proposes to give a direction under section 273, or gives such a direction with immediate effect, it must give separate written notice to the operator and (if any) the trustee or depositary of the scheme concerned.
(4) The notice must—

(a) give details of the direction;

(b) inform the person to whom it is given of when the direction takes effect;

(c) state the Authority's reasons for giving the direction and for its determination as to when the direction takes effect;

(d) inform the person to whom it is given that he may make representations to the Authority within such period as may be specified in it (whether or not he has referred the matter to the Tribunal); and

(e) inform him of his right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations.
(6) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

(a) to give the direction in the way proposed, or

(b) if it has been given, not to revoke the direction

it must give separate written notice to the operator and (if any) the trustee or depositary of the scheme concerned.
(7) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

(a) not to give the direction in the way proposed.

(b) to give the direction in a way other than that proposed, or

(c) to revoke a direction which has effect,

it must give separate written notice to the operator and (if any) the trustee or depositary of the scheme concerned.
(8) A notice given under subsection (6) must inform the person to whom it is given of his right to refer the matter to the Tribunal.
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(9) A notice under subsection (7)(b) must comply with subsection (4).
(10) If a notice informs a person of his right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference.
(11) This section applies to the variation of a direction on the Authority's own initiative as it applies to the giving of a direction.").
The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.
On Question, amendment agreed to.
Clauses 274 and 275 negatived.
Clause 276 agreed to.
Clause 277 [Power to investigate]:
[Amendments Nos. 255H to 255K not moved.]
Clause 277 agreed to.
Clauses 278 and 279 agreed to.
6.45 p.m.
Clause 280 [Application by an investment exchange]:
On Question, Whether Clause 280 shall stand part of the Bill?
Lord Donaldson of Lymington: I want to speak to Clause 280 because it is the clause which provides for applications to be made for recognition by investment exchanges. A parallel clause, Clause 281, relates to clearing houses.
Anyone considering the Bill will be interested to know the conditions for the recognition of investment exchanges and clearing houses. The answer is provided in part on page 19 of consultation paper 39a. It relates to investment exchanges and states:
"Financial crime and market abuse.
Without prejudice to the generality of sub-paragraph 5(1)"
—which I do not think matters—
"the RIE must ensure that appropriate measures are adopted to prevent market abuse"—
that is a pretty formidable task; nevertheless it states that it must adopt appropriate measures to prevent market abuse, not to make it more difficult or anything like that—
"and financial crime, facilitate their detection and monitor their incidence".
It does not say, and I should like to know, whether it is proposed that an investment exchange or a clearing house, having adopted measures designed to prevent market abuse and financial crime, and having taken measures to facilitate their detection and to monitor their incidence, should do any more about it by way, for instance, of bringing complaints against their members. I assume that the answer is "yes". At a much earlier stage I believed that the FSA was to take this over and I am told that that caused some alarm and despondency. So the load is to be shared.
The difficulty is that market abuse may not be so described in the rules of the exchange or clearing house. Nevertheless, if one looks at Clause 109, and the rules made by the FSA under Clause 109, it will be clear that that is what it is talking about. Even if both

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bodies speak the same words, we still have the problem of double jeopardy. It would be extremely difficult to be certain that to one was prosecuted by both bodies. I know that there is power for the FSA to call in. But if the FSA calls in, the complainant finds himself in an entirely different arena. He finds himself in an arena where there is an appeal to the tribunal.
Perhaps I may remove any misapprehension about the tribunal. We had the same problem with the industrial relations legislation where there was a national industrial relations court. The incoming government of a different political persuasion naturally—I dc, not blame them in any way—wanted to get rid of the idea of a court and called it a "tribunal". However, the constitution was word for word the same. The draftsman simply struck out the word "court" and wrote "tribunal".
Let there be no mistake about it: this is a court. There is a direct appeal—granted, it is restricted—to the Court of Appeal. That means immediately that the court/tribunal s of co-equal status with the initial stage of the High Court, the Queen's Bench Division, or whatever.
Therefore, that is something quite different which, I dare say, the complainant would welcome. However, if it is not called in and he is left with his domestic rules, there is a real risk that the courts will intervene. They may intervene on the basis of the Human Rights Act or on their ordinary historic jurisdiction if they believe that there has been any unfairness in the work of a tribunal. They would not accept the statement, "Oh, well, the person being pursued agreed to the rules", where the rules would affect his livelihood. There are many examples where the courts have moved in in such circumstances.
I do not want the courts to become involved in these issues. Even where people try unsuccessfully to involve the courts, the reputation of the system that we are trying to set up will be damaged. Therefore, I hope that serious thought can be given to the relationship between the disciplinary powers of the investment exchanges and the clearing houses and what is to be done when one has what is, in reality, the same offence falling within the jurisdiction of both.
No doubt it will be said that each investment exchange will be required, as part of its rules, to have an internal appeal procedure, but that is different from being able to appeal to a court with a right to go on to the Court of Appeal. It is probable that as so much is going on no one has time to set out the whole story. However, if thought is being given to the issue, it would be nice to know what it is; and if no thought—or insufficient thought—is being given, it is very much needed.
Lord McIntosh of Haringey: I am grateful to the noble and learned Lord for raising these issues. He has chosen to do so under Clause 280, but has justifiably widened the issues beyond the basis of application for recognition as a recognised investment exchange.
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Raising the issue in such a way enables me to put on the record the relevant content of a letter which I wrote to him yesterday.
Lord Donaldson of Lymington: I have not received it.
Lord McIntosh of Haringey: Well, now, it was sent to him yesterday. Perhaps I may refer to the relevant parts of my letter. I wrote:
"I do not disagree with the points made concerning the possible attitude of the courts in this area. While the disciplinary arrangements of recognised bodies have to be seen against the background of contractual relationships which they enter into with their members, I think that it is indeed possible that the courts would take the view that in certain respects these bodies are exercising public functions. This is particularly so in the light of the extension of statutory immunity to recognise bodies for the first time for things done in the discharge of their functions arising out of obligations to which they are subject under the Act, in particular the recognition requirements. I do not think, though 0that any change to the Fill is necessary either for European Convention on Human Rights reasons or to achieve any changes along the lines outlined in "our letter for policy reasons. In order to be recognised, and thus exempted from the general prohibition, an exchange or clearing house has to meet certain recognition requirements. These will be set out in regulations made by the Treasury, rather than the FSA, under the powers conferred by subsection (1) of Clause 27 of the Bill".
Draft regulations were published for consultation in February last year.
The noble and learned Lord asked whether recognised investment exchanges and recognised clearing houses should be required to have independent tribunals. We are giving serious thought to what the recognition requirements made by the Treasury should say about the right to refer decisions of recognised bodies to an independent tribunal, and in doing so will certainly bear in mind the points that he has made.
It will be possible for the Treasury to provide for recognition requirements which will mean that exchanges and clearing houses must have fair and independent arrangements for dealing with disciplinary proceedings. But the exchanges are also commercial private bodies, which may mean that appeal to the High Court may not be appropriate.
If I have omitted any of the points which the noble and learned Lord made—I probably have—I had better burden him again with more correspondence.
Lord Donaldson of Lymington: I thank the Minister for the letter which I am yet to receive. I am sure that it is most helpful. I am worried about one issue; everything else can be sorted out by regulations. I AM worried because, as far as I can discover, there is no way in which one can move a system from the exchange or clearing house to the tribunal. Not only do I believe that it would be better if that were possible, but it would ensure a degree of consistency which might otherwise not exist. I hope that if regulations are to be made, they will require the investment exchanges and the clearing houses to treat the decisions of the tribunal as binding.
Lord McIntosh of Haringey: On 21st March, at col. 251 of Hansard, the noble and learned Lord pointed

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out that there would need to be a right of appeal from the RIE and RCH tribunals to the financial services and markets tribunal established by the Bill. That is the point he is making today—and that it would require an amendment to the Bill. I agree that if we were to make such a change, an amendment to the Bill probably would be required. However, we do not believe that it is necessary to do that in order to ensure that the RIE and RCH tribunals are fair, impartial and have the necessary degree of independence. We believe that we can achieve that through the recognition requirements—which, of course, brings us back to Clause 280.
Clause 280 agreed to.
Clause 281 agreed to.
Clause 282 [Applications: supplementary]:
Lord McIntosh of Haringeymoved Amendment No. 256:
Page 145, line 43, leave out ("additional information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application").
On Question, amendment agreed to.
Clause 282, as amended, agreed to.
Clause 283 agreed to.
Clause 284 [Liability in relation to recognised body's regulatory functions]:
Lord Kingslandmoved Amendment No. 256A:
Page 146, line 33, at end insert(",reckless or negligent").
The noble Lord said: Part XVIII relates to recognised investment exchanges and clearing houses, called "recognised bodies". Clause 284(1) provides that a recognised body and its officers and staff will not be liable in damages for anything done or omitted in the discharge of that body's regulatory functions unless it is shown that the act or omission was in bad faith.
The amendment concerns the old chestnut of immunity from damages. In the first version of the Bill, the provision provided immunity from liability in damages only to the members of the relevant recognised body. However, the Government subsequently introduced amendments which extended the immunity to claims by all persons. The amendment adds the words "reckless or negligent" to the end of the provision. The next amendment adds to Clause 284(2) the words,
"or was in breach of Community law",
as a further exclusion from the immunity provision.
Some Members of the Committee may recall that in an earlier part of the Bill giving statutory immunity to the authority itself, similar amendments were added to a similar immunity clause. Therefore, the Opposition's approach to the position of recognised bodies with respect to statutory immunity is exactly the same as it has been in relation to the authority.
So far as concerns Amendments Nos. 257B and 257C, Clause 293(1) requires the authority to make arrangements for the investigation of complaints
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about a recognised body. Amendment No. 257B would require the appointment of an independent person to investigate complaints. Amendment No. 257C would add new provisions which would allow the investigator to make recommendations to the authority on the steps, if any, which a recognised body should take to remedy a complaint which is well founded. Specified steps may include the payment by the recognised body of a specified sum to a specified person.
The Committee may recall that, with respect to recognised exchanges, originally the concept was not to give them statutory immunity. However, as I pointed out earlier, the Bill now gives it to them. In those circumstances, it is our contention that at this point it is necessary to inject into the Bill a counterbalance in the form of a genuinely independent complaints investigator who will mirror the independent complaints investigator whom we seek in relation to the authority.
We place very great importance on this amendment and we earnestly hope that the Government will feel inclined to accept it. I beg to move.
7 p.m.
Lord McIntosh of Haringey: Clause 284 gives recognised investment exchanges and clearing houses statutory immunity from liability in damages in respect of anything done or omitted in the discharge of their regulatory functions. I want to emphasise "regulatory functions" because those bodies have commercial functions and there is no immunity from them.
Amendments Nos. 256A and 256B seek to cut back on the scope of the immunity by removing it, first, in cases where the action complained of was reckless or negligent and, secondly, where the body concerned was in breach of European Community law. Of course, we considered similar amendments when we dealt with the statutory immunity of the FSA. The noble Lord, Lord Kingsland, will not be surprised to hear that I cannot accept these amendments any more than I could on the earlier occasion.
So far as concerns Amendment No. 256A, there is a balance to be struck in granting immunity. It must be sufficiently broad to enable the regulatory body to carry out its functions effectively without being inhibited by the threat of litigation. At the same time, it must not restrict unreasonably the ability of those who feel that they have been adversely affected by its actions to seek legal redress. I believe that the formula that we have proposed of allowing actions where the regulator has acted in bad faith, or where this concerns Section 6(1) of the Human Rights Act or through judicial review, strikes the right balance.
Like the FSA, the exchanges will have to take difficult regulatory decisions, sometimes very rapidly and perhaps without all the information about a situation which subsequently will be available. If they needed to be constantly alert to the possibility of an

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action alleging recklessness or negligence, that could seriously interfere with their effective functioning. They need to be able to devote their mind to the proper running of the market and not to be distracted by legal action. That is not only my view; it was the view of the Joint Committee of both Houses which considered the draft Bill.
On one level, Amendment No. 256B is simply unnecessary. The Bill does not, and cannot, override any obligations of European Community law to which the recognised Bodies may be subject. Therefore, there is no need for such an amendment. As I said when we debated the FSA's immunity, the responsibility for ensuring that proper effect is given to the UK's Community obligations is one which rests primarily with the Government. Where it is necessary for regulatory bodies to take action in order to implement a directive, the Government must ensure that relevant action is taken. If they fail to do so, the United Kingdom will be in breach of its Community obligations and the Government will be the proper respondent in infraction proceedings.
That is one reason why Clause 289 gives the FSA a power to give directions to recognised bodies which are in breach of their recognition requirements. If the recognised body was in breach of European Community law, undoubtedly it would be in breach of those requirements. If it did not take action to put matters right, the FSA would be able to make use of that power. However, if for some reason the FSA was reluctant to do that, the Treasury would be able to make use of its power under Clause 389 to direct the FSA to take action in order to ensure that the UK remained in compliance with its international obligations.
Amendments Nos. 257B and 257C deal with Clause 293, which gives the FSA power to make arrangements for the investigation of complaints against authorised bodies. I can understand what lies behind the amendments but still I cannot accept them. They seek to provide in the Bill for matters that we believe should be dealt with in the regulations which we shall make after the Bill comes into force. Those regulations will set out the recognition requirements for recognised bodies.
Clause 293 requires the FSA to make arrangements for the investigation of a complaint which is relevant to the question of whether a recognised body should remain a recognised body. Therefore, if someone felt that a recognised exchange or clearing house had taken action which was not in accordance with the recognition requirements—that is, the basic rules with which exchanges and clearing houses must comply in order to become and remain recognised—he would be able to complain to the FSA. If the FSA felt that that complaint demonstrated that the body did not meet the recognition requirements, it would be able to give the body concerned directions under the powers of Clause 289 or, in an extreme case, to revoke its recognition under Clause 291.
Therefore, the clause deals with complaints of major problems within a recognised body which are
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such that the FSA might be moved to intervene. However, it does not deal (because that is not its purpose) with what might be called "day-to-day" complaints where a person does not allege that the body is not fit to continue to be recognised but, nevertheless, has what might be a legitimate grievance which, rightly, he would expect to be addressed.
Although such complaints would not call into question the continuing recognition of the body concerned, that does not mean that they are not important. Indeed, I believe that it was that type of complaint that the Joint Committee had in mind when it said that the extension of immunity should be conditional on there being an adequate complaints procedure in place in each body. We accepted that recommendation of the Joint Committee. However, rather than put any requirements for complaints procedures on the face of the Bill, we continue to believe that the better way to deal with this matter is through the recognition requirements. This refers back to the point made by the noble and learned Lord, Lord Donaldson.
The draft recognition requirements on which we consulted last year currently require recognised bodies to have in place satisfactory arrangements for the investigation of complaints in respect of the use of their facilities. In due course, we shall review those requirements before we make regulations to bring them into effect. They will ensure that the complaints arrangements which a recognised body will be required to maintain provide for adequate and independent investigation of complaints about how it has acted.
Lord Elton: Perhaps I may intervene because this matter reads across to a letter which the noble Lord, Lord McIntosh, was kind enough to write to me in which he says that,
"wrongful payment due to the negligence of an institution holding clients money in an account held by an authorised person will not make the institution liable, as constructive trustee, under Clause 131(4) of the Bill. The institution has to be acting dishonestly—
legal semantics will no doubt explain how a trustee can be either reckless or negligent and still be honest—
"before liability as constructive trustee is incurred.
There is nothing elsewhere in the Bill to make such an institution liable for negligence. An authorised person who placed their clients money on trust might well have a case for action for negligence".
However, it is the client—I am reading the noble Lord's words. If they seem surprising, I shall read them again.
Lord McIntosh of Haringey: I express concern only because the letter did not refer to recognised investment exchanges; it referred to constructive trusteeship.
Lord Elton: I stand corrected. However, I am trying to address a principle. If I come by the side door. I apologise. What puzzles me is that I believed that the

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Bill set out to provide a complete umbrella over the financial services industry and to protect all the customers or clients of the financial services industry by regulating practitioners in that industry. But here, as my noble friend pointed out, there is a large area where the penalties are not provided to extend that protection to those who may suffer as a result of the negligence or recklessness of the authorised persons.
It seems to me that that runs against the grain of the Bill itself. Before the Minister answers my noble friend in detail, perhaps he will reassure me that that is not against the philosophy of the Bill and that, by some means, clients are still protected and will not have to seek more expensive recourse outside the provisions of the Bill than the Bill itself provides.
Lord McIntosh of Haringey: I thought that that is what I said when I answered the noble Lord, Lord Kingsland, in detail. After all, the existence of a recognised investment exchange or a clearing house is, in a sense, a privilege because, although the FSA is responsible, as the noble Lord, Lord Elton said, for the whole of the financial services market, nevertheless, it delegates some of its responsibilities under certain circumstances to recognised investment exchanges and clearing houses.
It must then ensure—and I thought I spent quite a long time showing how it did so—that there are adequate procedures for the protection of the consumers of the products of those recognised investment exchanges and clearing houses. I made it clear that our view is that they should not be on the face of the Bill but should appear in recognition requirements. I made it clear that we have already published draft recognition requirements to bring that into effect and that, following consultation, we were proposing to bring into effect suitable recognition requirements to cover all those points after the Bill comes into force.
Lord Donaldson of Lymington: I support the Government's reluctance, indeed, refusal, to alter the immunity provisions as contained in the Bill. Members of the Committee must remember that this is a field where there is a lot of money swilling about. While the ordinary man in the street will hesitate, unless he is a lunatic, to start litigating as a tactical manoeuvre, in the financial markets, that is not unknown and the sums of money are so great that there may be very little disincentive for doing so.
Lord Kingsland: The Minister will not be surprised to learn that I am less than happy with his response in relation to all the amendments. Therefore, I have a choice between pressing the point on statutory immunity or pressing the point in relation to an independent investigator. My approach will be to ask leave to withdraw Amendment No. 256A and I shall not press, when we reach them, Amendments Nos. 256B and 257B but I give notice that when we arrive at the point on the Marshalled List, I shall test the opinion of the Committee on Amendment No. 257C relating to the independent investigator.
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There is one other observation that I want to make on the Minister's reply; that is, on the question of European Community law. He said that our amendment on European Community law was not necessary because the state's international responsibility is engaged. But, in fact, I think I am right in saying that the authority, because of its regulatory responsibilities, will be classified in European law as an emanation of the state. There may be circumstances in which individuals will have directly effective rights against the authority. Therefore, the question of immunity in respect of those rights may be important.
Therefore, for clarity—and it may be a matter to which we shall return on Report—I believe that the Government should make the concession for which I have asked in Amendment No. 256B.
7.15 p.m.
Lord McIntosh of Haringey: Before the noble Lord withdraws Amendment No. 256A, I am grateful to him for his notification about Amendment No. 257C. I should say, for the benefit of anybody who may have difficulty with this amendment, that the provisions which we make to deal with the problem raised by the amendment are not provisions which are made now. They were made last year in the draft regulations. Those draft regulations have been the subject of consultation. There has been no dissent from the view expressed that the draft regulations were the right place for that, and I have made clear our determination, or the FSA's determination, to enforce those draft regulations after the Bill is passed.
In case there is any doubt on the matter, the issues covered by Amendment No. 257C are fully covered and have always been fully covered by our provisions.
Lord Kingsland: I hear what the noble Lord says. Of course, those arrangements will not be on the face of the Bill. It is our view that this matter is of such central importance to the matter of checks and balances within the Bill that to have it contained in secondary legislation is not enough. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 256B not moved.]
On Question, Whether Clause 284 shall stand part of the Bill?
Lord Taverne: On the question of whether Clause 284 shall stand part, there is one brief point that I want to make. This clause extends the immunity to recognised bodies. The fact that that immunity is extended in that way rather reinforces the point made by my noble friend Lord Sharman at col. 1781 on the first day in Committee, in which he moved an amendment which proposed that the immunity should be extended to any person who is, or is acting as, a member, officer, member of staff or in the capacity of an agent of the authority.
Indeed, he pointed out that paragraph 6(2) of Schedule 1 provides that:

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"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".
It seems to me that that strengthens the case for extending the immunity to agents. I hope that the Government will bear that in mind when they reconsider the amendment moved by my noble friend.
Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Taverne, for raising that matter. If he refers back, as I thought he was doing, to earlier debates, he will find that we have covered rather fully in debate the points which he raised; that is, both the difference between the regulatory and commercial functions of exchanges. I have forgotten what the second issue was. I was interrupted by my noble friend the Chief Whip, as so often happens, and I momentarily lost attention. I shall read carefully in Hansard what the noble Lord said. If there is any response that it would be helpful to give, I shall give it to him in writing.
Clause 284 agreed to.
Clauses 285 to 289 agreed to.
Clause 290 [Variation of recognition order in relation to recognised nominee]:
Lord McIntosh of Haringeymoved Amendment No. 257:
Page 150. line 2, after first ("it") insert ("reasonably").
On Question, amendment agreed to.
Clause 290, as amended, agreed to.
Clause 291 agreed to.
Clause 292 [Directions and revocation: procedure]:
Lord Kingslandmoved Amendment No. 257A:
Page 151. line 12, at end insert—
("( ) During the period for making representations, the recognised body shall be given access to the information and documents which the Authority has relied on in deciding on its proposed action.").
The noble Lord said: As Members of the Committee are well aware, Clause 292 sets out the procedures before the authority. The authority may give a direction under Clause 289 or may make a revocation order under Clause 291(2). The usual decision notice procedure has not been included in Clause 289. The amendment includes one of the protections provided by that procedure; that is to say, during the period in which representations can he made to the authority. It specifies that the authority should give access to the information and documents upon which it has relied in deciding on its proposed action.
I am at a loss to understand why the procedure has been excluded. In my submission, if someone is under suspicion and an investigation is made and a decision taken to penalise that person, there should be a period between that decision and the imposition of the penalty itself during which the person concerned has access to the documents upon which the decision to
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penalise has been based, because he may well be able to give a satisfactory answer. That is the basis upon which the amendment has been tabled. I beg to move.
Lord Taverne: In our view there is some merit in the amendment and indeed also in Amendment No. 257C, which, I understand, the noble Lord will press to a vote. Regarding the second amendment, we do not believe that this is the right time at which to vote and so we shall abstain.
Lord McIntosh of Haringey: I return to Amendment No. 257A. When the FSA proposes to issue a direction under Clause 289 or to revoke recognition under Clause 291, it must follow the procedures set out in this clause. It must give written notice to the body concerned and, so far as is reasonably practicable, let members of the body know what is going on and publish the notice so that others who might be affected know what is happening. The notice must set out the reasons why the FSA is proposing to take action and draw attention to the right to make representations. The minimum period for representations is two months. The body, its members and those affected may make representations during that period and the FSA must have regard to them in deciding whether to carry out its proposal. It must then inform the recognised body of its decision to make or not make the order.
The procedures set out in the clause ensure that recognised bodies, their members and others affected or potentially affected by an FSA direction or revocation order can make full and proper representations. The noble Lord's amendment provides that when the FSA proposes to give a direction, or to make a revocation order and has given the recognised body notice of its proposal, it must allow the body concerned access to the information and documents on which it has relied in deciding the proposed action. I understand the thinking behind the amendment, but it is both unhelpful and unnecessary.
The purpose of the procedure in Clause 292 is to make the body concerned aware of why the FSA is proposing to take action and to give it the chance to inform the FSA of any information which might lead it to change its mind. Subsection 2(a) is quite clear about the matter. So the FSA cannot simply say, for example, that it is minded to revoke recognition of a body, without giving details of why it proposes to do so. That said, the FSA is not required to make available the actual evidence on which it relied in deciding upon the proposed action, but I do not see why that would be necessary. The FSA may have a great deal of material in its possession which it would be bureaucratic and overburdensome to expect it to have to disclose. The important thing is that it must make available to the body the reasons which led to its decision. The clause already provides for that.

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That is different from a situation in which the FSA is proposing to take disciplinary action against an authorised person, just as recognised bodies themselves are different from authorised persons. In disciplinary cases, the authorised person has the right to refer the matter to a tribunal, so it is right that he should be aware of the evidence that the FSA may be preparing to put to the tribunal and have the chance to comment on it. In the case of recognised bodies, FSA decisions are of a supervisory rather than a disciplinary nature and there is no right to refer matters to the tribunal. That is because, as I have just been saying, recognition is a special privilege giving recognised bodies exemption from the general prohibition. The FSA cannot make conduct of business rules apply to recognised bodies in the same way that it could for an authorised person.
Recognised bodies also have quasi-regulatory functions under the Bill and, as a result, statutory immunity. They are therefore in a different position from authorised persons. We do not believe that it is right, given that position, that they should be able to challenge FSA decisions before a tribunal. That is not to say, of course, that recognised bodies have no recourse against a decision by the FSA which they consider unreasonable. In such a circumstance they could apply for judicial review of the FSA's decision and in that case it would be for a court to say what evidence the FSA was required to disclose.
Lord Kingsland: The Minister will not be surprised to hear that I am not satisfied with his reply, although I do not intend to press the amendment today. The Minister has referred me to Clause 292(2)(a) and (b), but how could the recognised body assess the reasons given for the direction if it cannot look at the underlying evidence? It seems illogical for the authority to give reasons and then, if challenged on them, to refuse to give the evidence upon which it reached its conclusions. This is a matter to which we shall certainly return on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 292 agreed to.
Clause 293 [Complaints about recognised bodies]:
[Amendment No. 257B not moved.]
Lord Kingslandmoved Amendment No. 257C:
Page 151, line 43, leave out subsection (2) and insert—
("( ) The arrangements made by the Authority must provide for the investigator to report to the Authority on the result of his investigation and, if he considers a complaint to be well-founded, to make recommendations to the Authority on the steps (if any) which the recognised body should take to remedy the matter complained of.
( ) If the investigator reports to the Authority that a complaint is well-founded, the Authority may direct the recognised body to take specified steps in response to the investigator's report.
( ) Specified steps may include the payment by the recognised body of a specified sum or specified suits to a specified person or specified persons.
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( ) "Independent" means appearing to the Authority to be independent of the recognised body.
( ) "Specified" means specified by the Authority.").
7.27 p.m.
On Question, Whether the said amendment (No. 257C) shall be agreed to?
Their Lordships divided: Contents, 30; Not-Contents, 73.

Division No. 1

CONTENTS

Anelay of St. Johns, B.

Howe, E.

Attlee,E.

Jenkin of Roding, L.

Blatch, B.

Kingsland, L.

Bowness, L.

Lyell, L.

Byford,B.

Marlesford, L.

Colwyn, L.

Mayhew of Twysden, L.

Courtown, E. [Teller]

Northbrook, L. [Teller]

Cox, B.

Northesk, E.

Dixon-Smith, L.

Onslow, E.

Dundee, E.

Park of Monmouth, B.

Eccles of Moulton, B.

Patten, L.

Elton, L.

Pearson of Rannoch, L.

Flather, B.

Renton, L.

Glentoran, L.

Saatchi, L.

Home, E.

Skelmersdale, L.

NOT-CONTENTS

Allenby of Megiddo, V.

Hilton of Eggardon, B.

Alli,L.

Hollis of Heigham, B.

Amos, B.

Howells of St.David, L.

Archer of Sandwell, L.

Hoyle, L.

Bach, L.

Hughes of Woodside, L.

Bassam of Brighton, L.

Hunt of Kings Heath, L.

Beaumont of Whitley, L.

Jay of Paddington, B. (Lord Privy Seal)

Borrie, L.

Brooke of Alverthorpe, L.

Jeger, B.

Brookman, L.

Lea of Crondall, L.

Burlison, L.

Lipsey, L.

Burns, L.

Macdonald of Tradeston, L.

Carter, L. [Teller]

McIntosh of Haringey, L. [Teller]

Christopher, L.

Clarke of Hampstead, L.

MacKenzie of Culkein, L.

Cocks of Hartcliffe. L.

Massey of Darwen, B.

Craigavon, V.

Milner of Leeds, L.

Crawley, B.

Morris of Manchester, L.

David, B.

Nicol, B.

Davies of Oldham, L.

Pitkeathley, B.

Dean of Thornton-le-Fylde, B

Puttnam, L.

Donaldson of Lymington, L.

Ramsay of Cartvale, B.

Dormand of Easington, L.

Rea, L.

Dubs, L.

Rendell of Babergh, B.

Eatwell, L.

Richard, L.

Farrington of Ribbleton, B.

Sawyer, L.

Faulkner of Worcester, L.

Sewel, L.

Gale, B.

Simon, V.

Goldsmith, L.

Stone of Blackheath, L.

Goudie, B.

Symons of Vernham Dean, B

Gould of Potternewton, B.

Turner of Camden, B.

Grabiner. L.

Uddin, B.

Graham of Edmonton, L.

Walker of Doncaster. L.

Hardy of Wath, L.

Warwick of Undercliffe, B.

Harris of Haringey, L.

Whitty, L.

Harrison, L.

Wilkins, B.

Hayman, B.

Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.
7.36 p.m.
Clause 293 agreed to.
Clauses 294 to 300 agreed to.
Lord McIntosh of Haringey: I beg to move that the House do now resume. I suggest that the Committee stage begin again not before 8.38 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

NHS Blood Products: Effects of Contamination
7.38 p.m.
Lord Morris of Manchesterrose to ask Her Majesty's Government what further help they are considering for people who were infected with hepatitis C by contaminated NHS blood products and the dependants of those who have since died in consequence of their infection.
The noble Lord said: My Lords, I declare an interest—not a financial one—as Honorary President of the Haemophilia Society.
This debate is about what my noble friend Lord Winston, among other distinguished members of the medical profession, sees as the worst treatment disaster in the history of the National Health Service. My noble friend is a Vice-President of the Haemophilia Society and regrets very much that a commitment which he agreed to before the debate was arranged makes it impossible for him to be here this evening.
The scale of the disaster is still not realised widely enough, even among parliamentarians, and needs to be clearly restated this evening. Already suffering from a rare, lifelong genetic condition that requires continuous medical treatment and for which there is no cure, Britain's haemophilia community has been twice devastated by contaminated NHS blood products. Over 1,200 people with haemophilia were infected by their NHS treatment with HIV and over 4,000 with hepatitis C (HCV). Almost everyone with haemophilia who is now over 14 years of age was infected with one or other of these two life-threatening viruses. Even more sadly and disturbingly, many were doubly infected with both HIV and HCV.
A total of over 700 of those infected with HIV have now died of AIDS-related illnesses. Of the people with haemophilia who were infected with HCV, including some who were co-infected with HIV, figures collected by the UK Haemophilia Doctors' Organisation show that at least 113 have now died from liver disease and liver cancer, both of which are related to end-stage HCV. No official statistics have been published on the HCV-infected haemophilia population, however, and the actual number of HCV-related deaths may be much higher than 113. Thus a haemophilia community of no more than 5,000 people has suffered at least 813 deaths in direct consequence of contaminated NHS blood products.
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Many others are now in very poor health and have lost their jobs, homes and sometimes family, due to their infection. Their most daunting worry is not knowing which of them will develop chronic liver disease and perhaps cirrhosis and cancer of the liver. But regardless of their health now, everyone who is HCV-infected will be unable to secure life insurance except at prohibitive rates, while those with young families and other dependants are denied the peace of mind that goes with knowing that, if they become terminally ill, their dependants will be provided for.
Yet despite the scale of the disaster and in contrast to the lead given by other governments across the world there has been no official inquiry here, nor even a "lookback" exercise to ensure that everyone infected with HIV and/or HCV by NHS blood products has been traced, tested, counselled and treated.
That has to be compared with the rapid response of the Department of Health this morning, for which there has been huge media coverage all day, to the discovery that two surgeons infected with hepatitis C may have passed on the virus to their patients. In this instance a full "lookback" exercise has been mounted that includes letters to patients, local helplines and access to special counselling. Why could not this have been done to help a community that has lost 813 people to blood-borne viruses in the NHS's worst-ever treatment disaster?
Time and again the Haemophilia Society has warned Ministers that time is running out for more and more of those infected with HCV. The virus progresses more slowly than HIV. It can be 20 to 30 years before it becomes active; but when it does it is extremely damaging and dangerous. Within the HCV-infected haemophilia population, many of whom have been infected with the virus for over 20 years, the toll is now becoming apparent. Current medical opinion is that up to 80 per cent of those infected with HCV will develop chronic liver disease; up to 25 per cent may develop cirrhosis of the liver and see it progress to liver cancer.
The previous government accepted that it had a moral duty to help those infected by their NHS treatment with HIV. With all-party support, a financial assistance scheme was introduced which the Macfarlane Trust was set up in 1988 to administer. Some £90 million has been made available in across-the-board payments and hardship grants since then. But nothing has been done for those infected in exactly the same way and at the same time with hepatitis C. This is an injustice the haemophilia community and their supporters on both sides of both Houses of Parliament want the Government urgently to correct.
Both viruses came from the same source contaminated NHS blood products—and the discrimination against those infected with HCV is thus blatant and indefensible. In July 1998 the then Health Secretary, Frank Dobson, rejected the Haemophilia Society's call for financial help for them, arguing that the harm done by their NHS treatment was inadvertent. But Ministers in successive governments have said that the same is true of HIV infection. Frank

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Dobson argued also that the decision to help those infected by HIV was in recognition of the social stigma attached to HIV. But again, ask the haemophilia community and it will give you evidence galore of the stigmatising of people with hepatitis C by those who fear that they too could become infected by contact with them.
The truth is that the last government's setting up of the Macfarlane Trust for HIV-infected people was an official acceptance of moral responsibility for their loss and hardship. They made an exception from normal practice in regard to the NHS and negligence for people with haemophilia who had been infected by the NHS with a life-threatening virus and the present Government, who came to power committed to higher moral standards, must surely do so too.
There is exactly the same moral responsibility for loss and hardship among those infected with HCV. Yet 13 years on they are still waiting for parity of treatment with others in the same small community who were infected at the same time and by the same route.
The NHS was founded on a moral principle in which we on these benches can take special pride. But as my noble friend Lord Winston said in a previous debate I initiated on this issue,
"moral principles…impose obligations and responsibilities. There is a price as well as an advantage in taking the moral high ground".—[Official Report, 5/6/98; col. 673.]
The last government paid that price in the case of HIV infection. The moral promise on which this Government came to power alone commits us to do no less now for those infected in the same way and by the same route with HCV.
I must strongly emphasise that this is not a debate about medical negligence and legal liability for loss and hardship. The last Government made financial help available on an ex-gratia basis without any admission of liability. It was not done from fear of legal action, but because it was the right and just thing to do. Following that precedent, the same step could and should now be taken to help those infected with HCV. Fortunately the mechanism already exists for them to do so. They could extend the remit of the Macfarlane Trust to enable it to provide help for those affected by HIV and HCV alike, a move which would command wide all-party support, both here and in another place, as a fair and long overdue corrective to the inequity that now exists.
It is a cruel irony that, given the family inheritance of haemophilia, at present a dividing line is drawn between brothers, cousins and uncles in the same families, all of whom were infected by contaminated NHS blood products at the same time. But those who were infected with HIV may receive financial help, while those who contracted HCV may not. What could be more demonstrably unjust?
The tragic story of three brothers exemplifies this injustice. All three inherited haemophilia. Two brothers were infected with HIV by their NHS treatment and died of AIDS-related illnesses. They
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received financial help from the Macfarlane Trust and were able to make provision for their families. The third brother escaped HIV but contracted HCV and died of liver failure. For him there was no financial help. He went to his grave unable to make any provision for his family. Each of the three brothers died of the same cause. But one was denied the help given by a government-funded trust to the other two. That contrast in treatment not only suggests but shouts of injustice. And the test of any defence of present policy by anyone is how he or she will convince the mother of these three brothers of its fairness.
Nor is the lack of financial assistance the only injustice. In spite of repeated assurances from Ministers that people with haemophilia would not be denied treatment for HCV, local health authorities in many parts of England—Sunderland, West Hertfordshire and Avon to name but a few—refused to fund their only hope of a cure: a combination therapy of Interferon and Ribavirin. The fact that the National Institute for Clinical Excellence is currently looking at this treatment is seen by the haemophilia community as no excuse for dishonouring ministerial assurances. On the Haemophilia Society's behalf, I now ask health Ministers to issue an urgent instruction to health authorities to make this treatment available in response to clinical need.
Professor Roger Williams, Director of the Institute of Hepatology at the Royal Free and University College Medical School, referring in The Times on 28th March to the widely reported case of the woman in Avon who has been denied treatment with the drug Ribavirin for her hepatitis C infection, pointed out that if the drug had been prescribed for her for the requisite period of six to 12 months, she would have had up to a 60 per cent chance of getting rid of the infection. He wrote:
"With this, liver damage is likely to improve and the risks of long-term liver cancer developing become less…What a ridiculous state of affairs to give inadequate treatment when much better, albeit more costly therapy is available".
That case achieved more media attention than the refusal by one health authority after another, in total violation of ministerial assurances, to make available to people with haemophilia who were infected with HCV their only hope of a cure. It underlines again how much more could have been and could now be done to reduce avoidable suffering in the haemophilia community.
Living with HCV involves uncertainties that can hardly be imagined by those unaffected. Doctors are unable to predict for any individual how the virus will affect their health, how soon they may become ill and how seriously, which creates stress and deep anxiety, more especially for those with family responsibilities.
Research carried out by the Haemophilia Society illustrates the disastrous impact HCV infection has had on the lives of families who were already struggling to cope with a life-long disability. Many have had to reduce or give up work because of the effects of the virus and face a sharp loss of income. Serious problems have been caused for people seeking mortgages once they have been diagnosed with

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hepatitis C. Again, fear of passing on the virus within families creates damaging stress on relationships between parents and children and husbands and wives. Social stigma adds further stress as HCV-infected people are increasingly shunned—even by neighbours, friends and colleagues—because of the virus.
The threat of new variant CJD is a now a further worry. Experts agree that there is no way of guaranteeing that blood products still used in the treatment of haemophilia are free from CJD infection. The Department of Health describes the risk as "theoretical" but fear persists in the haemophilia community that the treatment on which they may rely every day may carry CJD. The Government recognised then anguish by ensuring that children under 16 are treated with recombinant genetically engineered Factor 8 or 9 rather than plasma-derived products. But many older teenagers and young adults over 16 in England are still reliant on plasma products and have no option but to accept the "theoretical" risk. But in Scotland, Wales and Northern Ireland recombinant is being provided for everyone—children and adults alike
When will the Government be ending the injustice of treatment by postcode? What new steps will they be taking to protect the haemophilia community from the threat of variant CJD? What progress is being made towards introducing an effective screening test for CJD or prophylactic treatment against variant CJD through use, for instance, of pentosan polysulphate? With questions like those on the minds of people with haemophilia, it i3 all the more distressing that they are forced to continue the long campaign for justice and recompense for the historic tragedy of contaminated blood.
In none of the parliamentary campaigns I have been closely involved in over 36 years in Parliament—even thalidomide and that for statutory recognition of dyslexia—have I had so strong a sense that no campaigning ought to have been necessary to right so obvious a wrong. Enormous cross-party backing has been given by MPs to motions calling for parity of treatment, not least by many of our present Ministers, including Alan Milburn, the present Health Secretary. As each successive motion has shown, the issue is seen not as one of Right and Left, but of right and wrong. And all of us knew that, given the nod by Ministers, both Houses could end the injustice to HCV-infected patients within an hour. For in truth there is no difference in principle between the claims of those infected with HIV and HCV.
There are many celebrated texts on the wrong of delaying justice. My choice this evening is Magna Carta which famously declares:
"To no one will delay right or justice".
Recognition that justice delayed is justice denied was never more relevant than it is today in the small community for whom I speak in this debate. They hope profoundly that the opportunity provided by this debate will he taken to end the injustice that leaves so many of them doubly disabled and in double despair. But if their striving for equity has to go on, then let no one be in any doubt that go on it will until right is done.
7.54 p.m.
Lord Clement-Jones: My Lords, first, I want to say what a great debt we owe to the noble Lord, Lord Morris of Manchester, not only for raising this issue tonight in your Lordships' House, but also for continuing to raise the issue and campaigning so vigorously on behalf of those whom many of us believe have suffered one of the greatest injustices of recent times.
It is sad to he here yet again asking for justice for those haemophiliacs who contracted hepatitis C in the circumstances outlined so graphically by the noble Lord, Lord Morris. The case today of the two surgeons who are passing on hepatitis C demonstrates and reminds us not only of the severe effects of hepatitis C, but also of the action that can be taken if a vigorous approach is taken by the NHS, and if government have the will to do it.
The noble Lord, Lord Morris, reminded us that nearly 5,000 haemophiliacs in the UK were infected with HCV through contaminated blood products pre-1991, before blood-donor screening was instituted. He also reminded us about the institution by a Conservative government of the Macfarlane Trust in 1988, which since then has been given sums amounting to £90 million to provide compensation to haemophiliacs who contracted HIV through contaminated blood products. In that case, there was no admission of liability; yet the trust was set up; yet the compensation has been provided.
We are reminded by the noble Lord, Lord Morris, that no equivalent provision has been made for those who contracted HCV in similar circumstances. Up to 80 per cent of those infected will develop chronic liver disease; up to 25 per cent may develop cirrhosis of the liver; between 1 and 5 per cent may develop liver cancer. Indeed, as the noble Lord, Lord Morris, also reminded us, 113 haemophiliacs who contracted HCV are estimated to have died from liver disease up to the end of 1999. That figure is expected to rise considerably as the 20 to 30-year progressive phase of HCV nears its end.
In addition to the fact that there is no compensation, there appears to be no national strategy for provision of care for those suffering from HCV. There are few counselling or support services available. There are a number of treatments—they were mentioned by the noble Lord, Lord Morris—which can now be used if they are available. New combination drug treatments are available which have modest success rates, such as Ribavirin and Interferon, but the costs are high. As the noble Lord, Lord Morris, reminded us, they are subject to the classic lottery of postcode prescribing. A number of health authorities, such as Avon, West Hertfordshire, and Sunderland do not provide those treatments at all for those with hepatitis C.
There is also the issue of the use of molecular diagnostic assays to determine a patient's HCV genotype which could determine which combination course to use. If they were available, that would save considerable expense for the NHS.

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But the key argument in this case surrounds the issue of compensation. There have been previous arguments against hasty compensation because of the fear of institutionalising a culture of "claim and counterclaim" in the NHS, if I may quote an Opposition spokesman in the debate in 1988. As recently as 7th March, in a debate in the other place, the Government reiterated their stance that compensation will not be forthcoming. John Denham, the Minister of State for Health, said,
"We concluded that haemophiliacs infected with hepatitis C should not receive special payments".—[Official Report. Commons, 7/3/00; col. 138WH.]
Indeed, government policy appears to be centred around the determination not to breach their general rule that they will provide compensation or other financial help for particular patients or groups of patients only where the NHS or individuals working within it have been at fault. They refuse to consider that HCV infection is a special case, despite the fact that sufferers have to face many of the same problems as those infected with HIV who were judged, by the previous government, to be a special case.
This contrasts with other EU governments, such as that in France, who have provided compensation. Furthermore, it is contrary to the policy of this Government when they themselves were in opposition. A number of quotations could be produced from debates held prior to 1997 in which many Opposition spokesmen made it quite clear that they supported haemophiliacs in these circumstances.
As the noble Lord, Lord Morris, reminded us several times during his speech, this contrasts very strongly indeed with the treatment of those who contracted HIV as a result of similar kinds of blood products. Indeed, many parallels can be drawn between the two viruses: they are both viral infections; both were transmitted to haemophiliacs in the same manner, through infected blood products; both almost certainly lead to debilitating illness, often followed by lingering and painful deaths; it is difficult to predict the viral progression, which leads to fear, insecurity and increased stress in patients; and the drug therapies themselves often bring distressing side effects to patients, occasionally intolerably so.
For both groups, there is a great danger of falling into a poverty trap. Their costs of living increase due to special dietary requirements, very high insurance premiums, but reduced earning abilities as a result of the attendant illness, fatigue and workplace discrimination. Furthermore, both groups of sufferers sometimes encounter difficulties in developing and maintaining relationships. All these factors add to the sense of ostracism from society. Yet despite the similarities between the two viruses, a haemophiliac with HIV has and can receive compensation, while a haemophiliac with HCV cannot.
The essence of tonight's debate, debates on previous occasions, and the entire campaign is a moral one; that of the disparity between the treatment of
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haemophiliacs infected with HIV and those who in very similar circumstances contracted HCV and are not being compensated. As I have said, the Government have stated that they will not provide compensation where the NHS is not at fault. However, that argument falls down because that is exactly what was done by the previous administration in the case of those infected with HIV. The previous government were prepared to compensate those with HIV. The similarity between the predicaments of the two groups is so clear that, in refusing to provide the same level of support, it makes the Government appear, at best, completely cold-hearted and at worst, indefensibly miserly.
The Government's refusal to acknowledge another demand of the campaign, the instigation of a public inquiry, also fails the morality test. Surely the sequence of events that led up to what has been widely referred to as one of the greatest tragedies in the history of the NHS—those were the words of the noble Lord, Lord Winston, and were quoted by the noble Lord, Lord Morris—needs to be closely examined. If the Scottish Executive can take such a course, why cannot the Westminster Government? It should be remembered that this is something that has already claimed more lives than the "Marchioness", Southall and Paddington disasters combined, and it is set to go on claiming lives for many years to come.
It is too simplistic to say, "We did not have the screening technology at the time, therefore there is nothing we could have done about it and so we are not at fault". Doctors predict that the numbers of HCV cases among both haemophiliacs and the general population is set to rise considerably over the next decade, so why do the Government refuse to act at this point?
The Department of Health should stop ignoring the plight of this group and should face the fact that these people are being unfairly penalised. In recent months, the Prime Minister has taken a great personal interest in the health service. It is high time that he responded to the concerns of haemophiliacs and ensured that justice is secured for them.
8.3 p.m.
Earl Howe: My Lords, the noble Lord, Lord Morris, is to be congratulated on having tabled this Question today. The cause about which he has spoken so well and which he brought to your Lordships' House in a short debate nearly two years ago is one that, for reasons that are all too obvious, refuses to lie down. I do not think that any of us should find this surprising.
We are speaking here about a substantial number of people who through no fault of their own have found themselves stricken with a condition that can be disabling and sometimes fatal as a direct result of treatment that they received from the National Health Service. The natural response of anyone who understands the dreadful pain and anguish of those

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with hepatitis C who go on to develop chronic liver disease, cirrhosis or liver cancer, as many have done or will do, is a feeling of profound sympathy. Furthermore, in remembering the sufferers themselves, we should not forget the stress and grief experienced by their families.
In a sense, the emotional reaction that all of us must have is both a help and a hindrance. We want to see these unfortunate people assisted in some way. Yet at the same time we know that when it comes to formulating balanced and practical policies, all governments have a duty to put emotion to one side. That is this Government's difficulty, exactly as it was for the last government, in the face of claims for financial compensation.
We are not talking here about medical negligence. If we were, the matter would be quite straightforward. No one—not the sufferers themselves or the noble Lord, Lord Morris—is saying that the NHS was at fault in the 1970s and early 1980s when contaminated Factor VIII was given to haemophiliacs. As the noble Lord has emphasised, the issue of compensation is essentially a moral one.
It was the moral case of those who had contracted HIV as a result of receiving contaminated Factor VIII that in 197 led my right honourable friend Mr Major—with al1-party agreement—to establish the financial assistance scheme that is now administered by the Macfarlane Trust. In the mid-1980s, the moral case for assisting such HIV sufferers appeared unique and overwhelming. Not only was there a social stigma attached to HIV unlike that of any other disease, but HIV was also invariably the precursor of full-blown AIDS and death. Furthermore, it is much more capable of being transmitted to sexual partners.
In those days, combination therapies were unknown. At the same time, public attitudes towards AIDS were not as understanding or as informed as they are today. I have no doubt that those were the considerations that impelled my right honourable friend, with very considerable compassion and courage, to provide assistance to that group. Because the circumstances were seen as unique, the funding was provided on the basis that it was not to be regarded as a precedent for other no-fault compensation claims. That was always going to be a difficult line to hold.
Successive governments have resisted the principle—in my view, rightly—of an across-the-board system of no-fault compensation for medical accidents in the NHS. The problems that would attach to such a system, were it to be introduced, would be considerable. It would instantly dilute accountability. It would also mean that in one important respect the distinction between negligence and innocent action would become blurred. Furthermore, from a practical standpoint there would be all kinds of problems about proving cause and effect. I have no doubt that at a time when we want to see greater accountability in medicine and greater emphasis placed on quality of treatment,
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anything that might be seen as a tacit acquiescence in poor quality clinical practice would be the wrong way to go.
If the issue of compensation for hepatitis C sufferers is to be resolved in the negative—as I suspect it will be—then I believe that, at the very least, the Government owe it to the victims to provide a detailed explanation of why they have come to this view. I recognise that this is a sensitive and far from easy request to make. That is because it involves drawing comparisons. As we have heard, there are situations where in the same family, and as a result of identical treatment, a person infected with HIV is receiving compensation from the public purse, while another member of the family with hepatitis C is not. We need the Government to say explicitly—if they are going to maintain their current policy—that they do not regard the unique circumstances that surrounded HIV infection in the 1980s as being directly comparable to the plight of haemophiliacs suffering today from hepatitis C.
There is one particular aspect of this issue on which I should be glad of the Minister's comment. Many of those of whom we are speaking suffer not only physical disability but also financial hardship as a result of what has happened to them. Up to now, perhaps not unreasonably, the Government's response to the latter issue has been to point to the existence of the benefits system. But there is, I think, a good argument for looking at the benefits system and asking whether it really meets the case of those who, as a result of medical accidents within the NHS, incur direct additional expense in terms of medication, travel and subsistence costs, special diets and so on. It might be possible to regard such support as quite separate from the question of means. It seems inequitable that we should ask these individuals not only to tolerate the many disadvantages which their condition brings—not the least of which can be a substantially reduced level of income—but also to pay out of their own pockets for the privilege of receiving appropriate treatment.
Unfortunately, though, as we have heard from both the noble Lords, Lord Morris and Lord Clement-Jones, effective treatment is often unavailable. Hepatitis C is difficult to treat, but Interferon and Ribavirin combination therapy was licensed last year and has been shown to clear the virus in about 30 per cent of cases. Many health authorities have decided not to authorise this treatment on grounds of cost. Can the Minister confirm my understanding that this matter has been referred to NICE? It cannot be right that across the country there is unequal access to treatment which, on the face of it, seems like a lifeline for these unfortunate people.
What is really needed is a national service framework covering the management and care of hepatitis C sufferers. Support services, including counselling, are, as we have heard, woefully thin on the ground. At the clinical level it is quite wrong that in some areas of the UK patients have to wait months or years to see a hepatologist or HCV specialist. That sort of delay is bad enough normally, but where the cause

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of the problem is the NHS itself we surely all feel that we owe it to those people to give them the swiftest possible medical attention. Can the Minister say what strategy the Government have to co-ordinate the clinical and support services available to hepatitis C sufferers across the country?
Mention has been made of the inquiry instituted by the Scottish Parliament into the allegation that hepatitis C patients north of the Border continued to receive contaminated blood for a full year after blood purification techniques were introduced in England. I do not wish to debate that matter or pre-empt the inquiry's conclusions. However, can the Minister comment on his Written Answer of 13th October last year? In it he stated that between 1985 and 1987, after viral inactivation by heat treatment for blood and blood products was introduced in England and Wales, 190 vials heated to less than the requisite temperature were sent from Scotland to England and Wales. Can he say how many people, and in particular how many haemophiliacs, were infected from this source?
If it should be found that some individuals have contracted HCV from this source, will the Government review the circumstances in which these blood products were allowed to reach English and Welsh patients? Even if—as I suspect the Minister is unable to give comfort to the noble Lord, Lord Morris, on the question of compensation, for haemophiliacs I hope that he can provide some reassurance on some of the other important issues that have been raised this evening on behalf of this most hapless group of people. I greatly look forward to hearing what he has to say.
8.13 p.m.
The Parliamentary Under-Secretary of State, Department of Health (Lord Hunt of Kings Heath): My Lords, I join other noble Lords in thanking my noble friend Lord Morris for raising this matter. As honorary president of the Haemophilia Society he brings much knowledge and wisdom to your Lordships' House on this issue. As all noble Lords know, he has been a tremendous campaigner for many years. I am sure that we are all in his debt for allowing us to debate some important questions relating to the help that government can give to people who were infected with hepatitis C by contaminated NHS blood products.
My noble friend Lord Morris began by talking of the scale of the disaster. He spoke movingly of the plight of haemophiliacs who received infected blood products before technology could remove hepatitis C infection. I, too, share his concern at what happened. The Government are committed to providing solid, practical help for people with haemophilia inadvertently infected with hepatitis C. We want these people to be well cared for in the NHS; to receive effective support in their communities; and to have better information about how to look after their health.
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I want to take time today to talk in some detail about how the Government plan to achieve this. But, first, I want to respond to the requests made by my noble friend and the noble Lord, Lord Clement-Jones, for the Government to provide financial assistance for people with haemophilia and hepatitis C and their dependants.
As noble Lords will know, when this Government came to office we met the Haemophilia Society and listened to its arguments for a special payments scheme for people with haemophilia and hepatitis C, similar to that in place for HIV. After long and careful consideration, the Government came to the conclusion that a special payments scheme should not be established. Government policy remains that compensation or other financial help to patients is paid only when the NHS or individuals working in it are at fault. As the noble Earl, Lord Howe, suggested, the underlying principles are clear-cut and independently established under common law. They apply to personal injury cases in general, not just those arising from healthcare. The same conclusion was reached by the previous government.
I listened with interest to the point the noble Earl, Lord Howe, made about benefits. In a sense he suggested that we might provide a limited special payment scheme or hardship fund. The Government have considered that also. However, as we do not make payments to other groups or individuals inadvertently harmed by the NHS, the Government believe that the same arguments apply.
How can we be sure that the NHS was not at fault? The fact is that the technology to make blood products free from hepatitis C in sufficient quantities to treat all haemophiliacs in the UK was simply not possible prior to 1985. Even then, it was not until 1987 that there was proof positive of the means of eliminating the virus from these blood products so essential to the lives of people with haemophilia. It must be a matter of deep regret that, before this, many haemophiliacs were inadvertently infected by treatment designed to improve their quality of life. But this is not of itself considered a justification for special payments.
We believe that the financial needs of people whose condition results from inadvertent harm should be met through the benefits system. I know that the Haemophilia Society does excellent work ensuring that people with haemophilia are made fully aware of their benefit entitlements.
As my noble friend Lord Morris has drawn to our attention, comparisons are inevitably made between the decision not to offer special payments to haemophiliacs with hepatitis C and the special payments established in the late 1980s for haemophiliacs with HIV. However, there are significant and real differences between the two situations.
If we think back to the 1980s, HIV had a vast and dramatic impact. It was a source of fear and stigma for all those who became infected with the virus. There was wide-scale public reaction. Here was a new sexually transmitted infection which was rapidly fatal.

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There was no treatment and at that time death from AIDS-related diseases was considered inevitable. HIV and AIDS arrived at a time when people with haemophilia were beginning to receive more manageable treatment with newer blood products—blood products which were much easier to use and more effective and which normalised the lives of haemophiliacs.
The future looked bright. Young people with haemophilia started to pursue education more hopefully, to have families and, in effect, began to lead full and normal lives. When it became evident that blood products were infected with HIV, that bright future faded. It was in this context that special payments were introduced and the MacFarlane Trust was established. This has to be seen as a reflection of those truly exceptional circumstances—the very poor prognosis at that time for people with haemophilia who became infected with HIV.
My noble friend has drawn attention to a family where two members have HIV and receive special payments and a third who has hepatitis C and receives nothing. But HIV and hepatitis C are different. As I mentioned earlier, when the special payments scheme was introduced for people with haemophilia and HIV in the late 1980s, it was in the context of an infection that was considered to be inevitably and rapidly fatal.
In saying this, I am not losing sight of the fact that a number of people with haemophilia and hepatitis C have tragically died from liver cancer and other causes, nor do I ignore the fact that many others have hepatitis C-related illness. That is why we must continue to support the search for new treatments and therapies for hepatitis C. I was asked about that and I shall say more about it in a moment.
The noble Earl, Lord Howe, and the noble Lord, Lord Clement-Jones, referred to the Scottish investigation. This investigation relates to a specific issue to which I have already referred, the circumstances surrounding the development of heat treatment of factor 8 in Scotland in the mid-1980s. It is not a general inquiry into the history of the matter but into the specific issue of the timing and sequence of events in the context of the scientific knowledge at the time.
The noble Earl, Lord Howe, asked about the 190 vials which were imported from the Scottish centre. These were used mainly to treat a number of haemophiliacs on a named patient basis, gaining their consent. It must be recognised that at that time and until 1987 it was not clear from the information available that the treatment might have transmitted HCV. We have asked the Haemophilia Society directors to take part in tracing, counselling and testing any people who may have received these products.
Lord Clement-Jones: My Lords, I apologise for interrupting the Minister in full flow. Is there not a good case to be made for having a similar inquiry in England?
Lord Hunt of Kings Heath: No, my Lords, I do not think so. The best approach is to await the outcome of
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the Scottish investigation. I do not think there is a case for saying that there needs to be an investigation into the English circumstances.
Noble Lords have asked about services. We clearly want the health service as a whole to have good quality, modern, dependent services and we want people with haemophilia to benefit from the improvements in services that we intend to make. In that context, let me turn to one key issue which has been mentioned today, the availability of the latest drug treatments for hepatitis C.
Until recently, the only treatment available for hepatitis C was Alpha Interferon. This had a limited success rate—around 20 per cent—in removing the virus and is not suitable for all patients. However, the use of Alpha Interferon in combination with Ribavirin appears to be significantly more effective, clearing the virus in around 40 per cent of those treated. This combination therapy is now licensed. I can confirm to the noble Earl, Lord Howe, that we have asked NICE to assess this as a matter of urgency. We look forward to receiving its guidance later this year.
Several other therapeutic agents are in development which show great promise—a point raised by the noble Lord, Lord Clement-Jones. Other treatments are being researched such as different combinations of drugs. We hope that the next few years will see significant developments and improvements in the treatments available.
All noble Lords referred to the recent coverage of cases where health authorities have said that they cannot prescribe combination therapy on grounds of cost. I wish to make two points in regard to that. It is important that we do not seek to pre-empt the independence of NICE on the cost-effectiveness of this treatment. To do so would undermine the effectiveness of NICE, which has been set up to put an end to postcode prescribing. In the meantime, I would expect local decisions on providing combination therapy for hepatitis C to be based on the available evidence of clinical and cost effectiveness, taking account of the needs of individual patients.
Both my noble friend and the noble Lord, Lord Clement-Jones, asked about the availability of counselling services. When I met members of the Haemophilia Society last year, they told me that they considered there was insufficient counselling available. We have therefore given careful consideration to how we may help to improve that situation. As a first step, we have asked the UK Haemophilia Centre doctors' organisation to ensure that counselling provision is available and accessible to all haemophiliacs with hepatitis C. This will mean that the facilities at the 22 comprehensive care centres in the UK are available to the smaller haemophilia centres. I hope that that will be a significant improvement.
We are also working with the organisation to collect better data on the number of people with haemophilia infected with hepatitis C. This can be used to support better service delivery and provision. We are also

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talking to the Haemophilia Society and the Manor House Group to see how counselling and support services might be further developed.
The professional groups with an interest in haemophilia have also recommended the development of a set of minimum standards for service delivery. Both the noble Earl, Lord Howe, and the noble Lord, Lord Clement-Jones, asked about how we might develop a national strategy in relation to service provision. I believe that the development of a set of minimum standards would be an effective way of improving counselling provision and other aspects of haemophilia services in the longer term.
With this in mind, the recently formed Haemophilia Alliance has started work on a proposed national specification. This specification will outline the key components of a high-quality haemophilia service, whether this is provided in the larger comprehensive care centres or the smaller haemophilia centres. The Alliance has asked the NHS Executive to circulate information about its work on the service specification through our national networks, and we have done that.
We have also identified haemophilia services as appropriate for specialist service commissioning, and three regional specialised commissioning groups—in London, the west Midlands and the south-east—are looking at designating their services at present. I hope that that combination of measures will help to put haemophilia services at the top of their agendas and support those services in performance managing the services for people with haemophilia in the NHS as a whole.
To underpin the work of the Haemophilia Society, we give an annual grant towards its administration. We also provide individual grants to help with the excellent projects it develops to support people with haemophilia and hepatitis C. For example, over the past two years we have supported a Haemophilia Society project to develop and produce material on hepatitis C for young people, their families and teachers. The booklets are: Living Life to the Full; Alive and Kicking; Being There; and Haemophilia and School. These are available from the Haemophilia Society. All have been highly praised, and rightly so.
We are also funding a seminar for professionals on co-infection with HIV and hepatitis C. That will take place later this year. The Haemophilia Society is developing the programme and arrangements. We are keen to build on our work with the society and I am sure that there will be further projects we can take forward.
Looking at hepatitis C in a wider context, we are aware that it is a significant public health issue. We recognise the need to increase knowledge about the natural history, prevalence, transmission and treatment of hepatitis C. This will ensure that the NHS is equipped to deliver services based on the best scientific and medical evidence available.
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In order to address this, we have commissioned research totalling £1 million. We are currently in the process of investing a further £0.5 million of research money specifically into the area of hepatitis C and injecting drug misuse. This is currently responsible for most new cases of hepatitis C. The research will investigate ways of reducing the incidence, spread and progression of the disease. There is also a trial under way into the possible benefit of treating hepatitis C in the early, mild stage.
I was asked a number of questions concerning the case of the hepatitis C-infected surgeons. We are aware of these incidents. We have worked hard to identify other patients who may have been at risk. Although we believe that the risk to the individual patient will be very small, patient notification allows those who may have been at risk to receive advice and the offer of hepatitis C testing. Any found to be infected can then be referred for specialist assessment and advice.
As part of our programme of measures, we have also funded a group from the Royal College of Physicians, the British Society of Gastroenterology and the British Association for the Study of the Liver to draw up evidence-based guidelines for the management of patients with hepatitis C. These guidelines will form part of NICE's consideration. In addition, we support the work of voluntary organisations working with people who have hepatitis C. I have already mentioned the Haemophilia Society projects. The British Liver Trust, a charity representing all patients with liver disease, has received grant aid for projects to raise awareness of hepatitis C, to produce information leaflets and run a telephone helpline, and to develop its chronic disease self management programme.
My noble friend asked about a "look back" for HCV. He is quite right. There has not been a specific look back study for HCV. That is because the haemophilia centres are regularly attended by people with haemophilia and are tested for the virus. A small number may not have been tested. We have written to the UK haemophilia doctors to ensure that they recall those attending their centres and offer them counselling and, if they wish, HCV testing.
In conclusion, I should like to assure my noble friend of my great sympathy for people with haemophilia who have been inadvertently infected with hepatitis C. I understand only too well the difficult dilemma where treatment and care can lead to harm where none is intended. This is an area of clinical practice that we are determined to address through our investment in quality systems in the NHS. I fully recognise that for people with haemophilia the clock cannot be turned back and we can only consider with great regret what better progress in anti-viral technology might have helped us to avoid.
However, the constructive, forward-looking initiatives we have in hand with the Haemophilia Society and other groups, the ever newer treatments

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for hepatitis C and our overall drive to raise quality in the NHS as a whole should improve the services and support available to haemophiliacs with hepatitis C.
Lord Burlison: My Lords, I beg to move that the House do now adjourn during pleasure until 8.38 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended, from 8.32 to 8.38 p.m.]

Financial Services and Markets Bill
House again in Committee.
Clause 301 [Investigations by Director General of Fair Trading]:
[Amendments Nos. 257D and 257E not moved.]
Lord McIntosh of Haringeymoved Amendment No. 258:
Page 156, line 36, leave out subsection (4).
The noble Lord said: This amendment was debated with Amendment No. 189. I beg to move.
On Question, amendment agreed to.
Clause 301, as amended, agreed to.
Clauses 302 to 307 agreed to.
Clause 308 [The Society: authorisation and permission]:
Lord McIntosh of Haringeymoved Amendment No. 259:
Page 160, line 41, leave out paragraph (b).
The noble Lord said: I spoke to this amendment with Amendment No. 89. I beg to move.
On Question, amendment agreed to.
Clause 308, as amended, agreed to.
Clause 309 agreed to.
Clause 310 [The core provisions]:
Lord McIntosh of Haringeymoved Amendment No. 259NA:
Page 162, line 5, after ("XII,") insert ("XIV, XV, XVI,").
The noble Lord said: In moving this amendment, I should like to speak also to Amendments Nos. 259PA to 259WAB. This group of largely technical amendments concerns the regulation of insurance business carried on at Lloyd"s. The amendments in this group can conveniently be sub-divided into three topics.
The first topic is the power conferred on the authority to make directions under Clause 309. Such a direction would apply to members of Lloyd's those parts of the Bill—referred to as "the core provisions"—that otherwise apply only to authorised persons.
Clause 310(1) sets out the core provisions. Amendments Nos. 259NA and 259PA add to the list a number of other provisions of the Bill: Part XIV (disciplinary measures); Part XV (compensation
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scheme); Part XIV (ombudsman scheme); Part XXIV (insolvency); and Clauses 371 to 374 (injunctions and restitution). We believe that these amendments complete the list of relevant provisions.
Amendment No. 259QA adds a new subsection to Clause 310 which makes it clear that in exercising its powers to apply a core provision of the Bill to a member of Lloyd's, the authority may modify the way in which the core provisions will apply. The Explanatory Notes gave an example of the practical issues that would arise if every member of a syndicate were required personally to obtain approval for retaining the services of a syndicate underwriter.
Another example might be in the case of the application of the ombudsman or compensation arrangements, where we should expect the FSA to want to specify how those arrangements would interact with Lloyd's internal mechanisms for dispute resolution between policyholders and Names, and compensation in the event of the insolvency of a Name. These are sensible bits of polishing to the provisions of the Bill which I hope will be welcomed.
Amendments Nos. 259SA to 259WA are part of the package of amendments that the Government are bringing forward to improve the FSA's decision-making procedures. Clause 314 gives the FSA powers to impose requirements on former underwriting members of Lloyd's. Former members continue to carry on insurance business until all their liabilities under the contracts that they have underwritten at Lloyd's are discharged. However, rather than requiring such persons to be authorised, which would be excessive, we have introduced these provisions which give the FSA the powers it needs to impose any requirements it considers necessary to protect policyholders.
These amendments make a small number of changes to Clause 314. The clause, which was added to the Bill at Committee stage in another place, already incorporates most of the new features which we are now introducing into other equivalent provisions elsewhere in the Bill. The amendments ensure that the procedures are consistent.
The third package within this group is also about the arrangements for giving the authority appropriate powers over former Names. The Government do not believe, as I said, that it is appropriate for former Names to have to be authorised, but it is none the less necessary for the authority to have adequate powers to protect its policyholders.
Clause 313 enables the authority to make directions that would impose specific requirements on former members. It is, if you like, a form of intervention power. However, it will be sometimes necessary for the authority to impose requirements in the form of rules—that is to say, requirements that apply across the board rather than on a case-by-case basis. Under the current arrangements introduced to apply the powers of the regulator under the Insurance Companies Act 1982, former Names are required to notify the authority of a change of permanent address. The new clause introduced by Amendment No.

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259WAA would give the authority an appropriate rule-making power. The exercise of the power will be subject to the normal procedures that apply to the exercise of other delegated legislative powers in the Bill and include, for example, requirements for consultation and cost-benefit analysis.
Amendments Nos. 259RA and 259WAB are consequential on that amendment as they move the definition of "former underwriting member" from Clause 313 to the interpretation provision (Clause 315), since the definition is now needed for the purposes of Clause 313 and the new clause.
The overall effect of the changes in relation to former members of Lloyd's is to continue the arrangements already provided for under the 1982 Act. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendments Nos. 259PA and 259QA:
Page 162, line 5, after ("and") insert (", XXIV, sections 371 to 374 and Part").
Page 162, line 8, at end insert—
("( ) An insurance market direction may provide that a core provision is to have effect, in relation to persons to whom the provision is applied by the direction, with modifications.").
The noble Lord said: I have just spoken to these amendments. I beg to move.
On Question, amendments agreed to.
Clause 310, as amended, agreed to.
Clauses 311 and 312 agreed to.
Clause 313 [Former underwriting members:]
Lord McIntosh of Haringeymoved Amendment No. 259RA:
Page 163, line 39, leave out subsection (1).
The noble Lord said: I have just spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Clause 313, as amended, agreed to.
Clause 314 [Requirements imposed under section 313:]
Lord McIntosh of Haringeymoved Amendments Nos. 259SA to 259WA:
Page 164, line 24, at end insert—
("( ) The Authority may extend the period allowed under the notice for making representations.").
Page 164, line 33, at end insert—
("( ) If the Authority decides to grant an application by A for the variation or revocation of a requirement, it must give him written notice of its decision.").
Page 164, line 36, at beginning insert ("If").
Page 164, line 37, leave out from first ("notice") to end of line 38 and insert ("decides to refuse the application, it must give A a decision notice.").
Page 164, line 42, at end insert—
("( ) If an application for a variation or revocation of the requirement is refused, the applicant may refer the matter to the Tribunal.
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( ) If a notice informs a person of his right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference.").
The noble Lord said: I have just spoken to these amendments. I beg to move.
On Question, amendments agreed to.
Clause 314, as amended, agreed to.
Lord McIntosh of Haringeymoved Amendment No. 259WAA:
After Clause 314, insert the following new clause—
RULES APPLICABLE TO FORMER UNDERWRITING MEMBERS
(".—(1) The Authority may make rules imposing such requirements on persons to whom the rules apply as appear to it to be appropriate for protecting policyholders against the risk that those persons may not be able to meet their liabilities.
(2) The rules may apply to—

(a) former underwriting members generally; or

(b) to a class of former underwriting member specified in them.

(3) Section 312 applies to the making of proposed rules under this section as it applies to the giving of a proposed direction under section 309.
(4) Part X (except sections 143 to 145) does not apply to rules made under this section.").
The noble Lord said: I spoke to this amendment with Amendment No. 259NA. I beg to move.
On Question, amendment agreed to.
Clause 315 [Interpretation of this Part]:
Lord McIntosh of Haringeymoved Amendment No. 259WAB:
Page 165, line 4, after ("2;") insert—
(""former underwriting member" means a person ceasing to be an underwriting member of the Society on, or at any time after, 24 December 1996;").
Then noble Lord said: I have just spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Clause 315, as amended, agreed to.
Clause 316 [Authority's general duty]:
Lord Fraser of Carmylliemoved Amendment No. 259XA:
Page 165, line 30, leave out ("and in other ways").
The noble and learned Lord said: I understand that I am now speaking to three amendments standing in my name. I shall happily be corrected, but I understand them to be Amendments Nos. 259XA, 259YA and 259ZA. I understand the Minister's desire to gallop towards a conclusion, and the idea of building up momentum is a technique that I readily accept I have previously deployed—
Lord McIntosh of Haringey: Proper consideration of the Bill is essential for this Government.
Lord Fraser of Carmyllie: I am deeply honoured that the noble Lord should have intervened in that way to indicate to me that I can take as long as I wish to over

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this set of amendments. If he is getting up from his place to attract the attention of the Chief Whip, he need not bother. I am not going to undertake anything now that might cause him any concern.
There are a number of points relating to Part XX of the Bill that I should like to explore by means of these three amendments. As I understand it, these provisions were first introduced into the Bill at Report stage in the House of Commons. If that is correct, it seems wholly appropriate that in this Chamber some time should be taken to examine them.
This part of the Bill seems wholly appropriate and I have no fundamental difficulty with it. As I indicated when I introduced the first amendment today, a number of amendments that I have tabled have been promoted by the Law Society of Scotland. This statute will regulate investment on both sides of the Border.
So far as Scottish solicitors are concerned, there is undoubtedly a degree of tension that emerges here, not least because, as solicitors, they are governed principally by the Solicitors (Scotland) Act, and that statute has now passed to the responsibility of the Scottish Parliament. So as they conduct their ordinary business as solicitors, if that is to be changed in any way, it will not be a matter for this House or another place, but for the Scottish Parliament.
That said, it is clear to me that those who carry on investment business north of the Border, whether they are solicitors, bankers or whatever, would be exceedingly alarmed were there to be separate regimes for investment regulation on either side of the Border. I hasten to stress that I have no difficulty with that provision, provided there is the understanding that solicitors in Scotland will be statutorily governed by two separate Parliaments.
What I understood as a relatively simple arrangement has become more complicated over the past week or so. I thought that the Financial Services Authority, as Clause 316 indicates, will be required to keep itself informed about
"the way in which designated professional bodies supervise and regulate the carrying on of exempt regulated activities by members of the profession"
and
"the way in which such members are carrying on exempt regulated activities".
Scottish solicit ors might grumble about having two masters but that would be relatively acceptable.
Such activities are not an incidental matter because unlike solicitors in England, for more than 100 years solicitors in Scotland have not only conveyed houses, concluded contracts and made up wills but have carried out a considerable degree of investment business. They continue to do so, so that is an important aspect of their work,
I now understand that in the regulation of Scottish solicitors' exempt activities, the FSA—using one power or another conferred by the Bill—has put out to tender to a number of organisations the task of regulating solicitors in Scotland that carry on exempt regulated activities. The reasoning behind that is to keep fees down, which is not a bad idea. One of the
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bodies might be the Law Society of Scotland. If that were the arrangement, there would not be any difficulty or exaggerated degree of tension.
Another possibility is that the duties relating to activities that fall within Clause 316(1)(b) might be given to PricewaterhouseCoopers. That is an exceptionally good organisation. I have worked with it in the past and have no complaint about its professionalism in accounting, auditing and consultancy.
The third possibility is that the Law Society of England and Wales might be given responsibility for looking after the exempt business of solicitors in Scotland. If the Minister can assure me that is an off-the-wall proposal and that no decision is likely to be taken to give the ultimate power of regulation or oversight to the English society, I would be immensely reassured. Were such a thing to be proposed, if the Minister has not already heard the rumble of distant thunder, he shortly will.
I am exploring the matter now because I understand that a decision one way or the other is to be taken by 10th April—and I doubt that we will reach Report stage before then. I shall be grateful if the Minister will clarify the issue. I am not sure whether the matter falls within Clause 316(1)(b) or is covered by the power that we have already given the FSA in Schedule 1(6).
As to Amendment No. 259YA, when my noble friend Lord Kingsland moved an amendment not so long ago, the noble Lord, Lord McIntosh, indicated that the word "information" encompassed a wide range of material, not just documents. As one who likes an unencumbered statute book, I believe that anything that can be deleted should be deleted.
My second amendment would require the authority to apply to the courts if it wishes to obtain information. If we were to have the contained arrangement that I first understood to be the basis of Part XX, that might be excessive. If a body, however distinguished, such as PricewaterhouseCoopers—or in Scotland, the Law Society of England and Wales— is to exercise that activity, intervention by a court would seem an appropriate regulation on the possibly arbitrary exercise of power by the FSA.
If the designated professional body—which I understand to be the Law Society of Scotland—found that the arrangements were so elaborate and excessive in their regulatory burden that it wanted to get out, it should have the opportunity to say, "We are not going to permit lawyers in Scotland to carry on investment business any longer. It is too excessive a burden".
Lord McIntosh of Haringey: Oh!
Lord Fraser of Carmyllie: The Minister may grin. One matter that takes up an excessive amount of time at Scottish Law Society AGMs and otherwise is the onerous and proper requirement imposed upon lawyers in Scotland to contribute to a guarantee fund. If the complaint is that the burden of that fund is so heavy, solicitors in Scotland ought to have the opportunity to withdraw by their own hand from that

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activity. The noble Lord may be right—that they have been good at that work and there is no reason for them not to continue being good at it. But if there is an excessive degree of regulatory burden, they should at least be accorded the opportunity to withdraw from such activities themselves.
I am probing as carefully as I can and no Chief Whip needs to be worried about my intentions at this stage—but the fuller the answer that I secure this evening, the less time we will devote to the issue on Report.
9 p.m.
Lord Taverne: I rise to speak to Amendments Nos. 259A, 259B and 259C which in effect delete subsection (7) of Clause 318. The subsection provides exemption from the general prohibition on some activities if they are the only activities carried on by a person. The amendments are directed at the problems faced by solicitor investment managers who may now find themselves at a disadvantage because they are subject to regulation by both the FSA and one of the Law Societies.
For some time a number of firms of solicitors have provided clients with professional investment services. Many clients are retired or elderly people; others act on behalf of relatives, trusts or charities. Those clients look for a seamless legal and financial service so that they do not have to waste a lot of time and money co-ordinating the help of different services. Solicitor investment managers usefully fill a gap in the market because they provide independent financial management integrated with traditional legal services. They provide a personal service, which is perhaps somewhat unusual today, and an important one. Examples of activities that would be regulated in the case of some firms and not others include: acting for clients who are trustees; providing custody service for trust share certificates; acting for clients who are executors of an estate; advising on and arranging transactions to effect bequests in wills; and the provision of custody service of share certificates during the administration period. They also advise clients in divorces and, for example, arrange the disposal of a life policy which is part of a matrimonial settlement.
If those services are regulated by the FSA in some cases and not in others, those firms which are subject to two forms of regulation will have higher costs than those which are not but which carry out exactly the same service. Many firms will be unable to sustain the increased costs compared with their competitors and will close or demerge their investment departments which carry out mainstream investment business in order to remain competitive in their core legal business. That would reduce consumer choice, because at present professional firms provide a distinctive, independent service that is not motivated by commissions. This is a personal service which is provided by a known individual, often against the
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background of a long-term relationship with the client. It would be rather ironic if a Bill which was intended to simplify and streamline regulation had the opposite effect.
Clauses 316 to 323 in Part XXII of the Bill provide that solicitors who conduct investment business as an incidental part of their practice are to be regulated by one of the Law Societies. However, where a firm carries out any mainstream investment business, that business, and any incidental investment business which the firm carries on, is to be regulated by both the FSA and Law Society. The Association of Solicitor Investment Managers believes that the Bill needs to be amended to deal with that anomaly. The association accepts that mainstream investment business should be within the remit of the FSA but that incidental investment business performed by solicitors as part of their legal practice should remain to be regulated by the Law Societies alone. The answer to this appears to be the deletion of subsection (7), which is what these amendments are about. I hope that the Government will give this serious consideration.
Lord Kingsland: As to Amendment No. 259AC, as the Committee must by now be aware, Part XX of the Bill deals with the provision of financial services by the professions. Clause 318 sets out the conditions which must be satisfied by a member of the profession if he intends to avoid the general prohibition against carrying on regulated activities when not authorised to do so. Clause 318(3) requires that the person concerned,
"must not receive from a person other than his client any pecuniary reward or other advantage, for which he does not account to his client, arising out of his carrying on of any of the activities".
The amendment simply adds to the end of Clause 318(3) the words,
"for or on behalf of his client".
We believe that that would narrow down the current drafting and make it much clearer.
Amendments Nos. 260 to 262 amend Clause 319 in Part XX. That clause provides an exemption for the provision of financial services by members of the profession where those are not mainstream financial services and, therefore, are to be regulated (as now) by the recognised professional bodies which are described in the Bill as "designated professional bodies". Amendment No. 262 works on the same basis as the extended definition of "consumer" to include as clients beneficiaries of trusts where the professional is a trustee and provides regulated services. That gives rise to the same issues.
However, what do the Government propose to do in relation to members of the professions who do not carry out regulated activities, properly so called, at all? I am concerned here with law firms, whether UK firms or, perhaps more importantly, non-UK firms, which operate in the United Kingdom and give advice on the commercial terms of an investment transaction. For

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example, they may point out exposures or liabilities and by so doing in effect advise the client to enter into, or not to enter into, a transaction to buy or sell shares. I believe that that is not a regulated activity at all and therefore the exemption provided in Part XX is unnecessary. Non-UK law firms are unlikely to be members of, or regulated by, a designated professional body. American law firms are a very good example of this.
In addition, where a law firm, or indeed an accountancy firm acting as lawyers or accountants and not as corporate finance advisers, negotiates the commercial terms of an agreement for the purchase or sale of shares or options, or the terms of a class of securities, or drafts an optional agreement, it also should not be regarded as carrying on regulated activities, and therefore would not have to seek to fall within this exemption.
As I understand it, some months ago the Treasury were invited to make it absolutely clear that these activities, which are intrinsic to the profession of a corporate finance lawyer or accountant, do not involve the giving of investment advice or the arranging of transactions in the sense meant by the Bill, or the present Financial Services Act. This is particularly important as the authority, in a recent consultation paper on the exemption provided by Part XX, expressly referred to negotiating transactions as non-mainstream financial services so, implying that this activity requires authorisation unless the exemption applies, which it cannot do in the case of non-UK law firms.
Because Parliament cannot effectively debate the terms of the Treasury's regulated activities order which spells out what activities require authorisation, it is important that the Government make clear that advising on, or negotiating the terms of an investment agreement, are not financial services requiring authorisation. They do not relate to the merits of the investment as such but to the merits of the transaction for the acquisition or disposal of the investment; and do not involve persuading people to buy or sell investments because of their investment merits but merely arrange for the negotiation and exchange or execution of documentation for the purpose of sale of investments. Under the Bill that is all currently completely unclear.
The Treasury will presumably make it clear in the regulated activities order. But we cannot allow a debate on the amendment to pass without discussion on the scope of the authorisation requirement in relation to the activities relating to the transaction rather than to the investment itself without making clear that the exemption is needed only where the member of the profession is doing something which is indeed providing investment services.
Lord Fraser of Carmyllie: Before the Minister responds, my noble friend on the Front Bench has
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many qualities but none more subtle than the signal to me that I had failed to mention Amendments Nos. 259AA and 259AB.
Lord Bach: I have the noble Lord down for two more amendments, Amendments Nos. 259AA and 259AB. If I am wrong perhaps the noble and learned Lord will tell me.
Lord Fraser of Carmyllie: It may not be subtle, but it is correct. Amendment No. 259AA is a paving amendment to allow me to introduce Amendment No. 259AB. The point is simple. At present the Bill requires that if anyone earns a commission, it must be accounted for to his client. The amendment proposes the obligation to disclose to the client such a payment in order for the client to decide whether or not he is prepared to continue with the transaction.
I understand that that is the present requirement. If I am correct, and there is an intention to change the provision, it would be useful to know the basis for proposing that change.
Lord Bach: In dealing with the group of amendments, it is right to set out the background. The noble and learned Lord, Lord Fraser of Carmyllie, is right. The Bill was amended in another place on Report to incorporate government proposals under which professional firms which, among other things, are subject to regulation by a designated professional body and which provide financial services as an incidental and complementary part of their professional practice, will not require authorisation by the FSA. One would have thought that, on balance, the professions would have been content with that change to the Bill. Reading between the lines of the speeches to the amendment, noble Lords probably are content. The problem is that it is not always the contentedness that is demonstrated when amendments are moved.
I deal, first, with the amendments moved and spoken to by the noble and learned Lord, Lord Fraser of Carmyllie. Under Clause 316(4) each designate body must co-operate with the authority by the sharing of information and in other ways in order to enable the authority to perform its functions under Part XX. The noble and learned Lord, Lord Fraser, in his Amendment No. 259YA is proposing that the authority, for the purposes of obtaining this information, apply for an order from the court which will detail the information sought, the person to whom it is to be provided and the timescale in which it should be given. Additionally, a designated professional body which complies with such an order should not be liable in any court for any damages arising from breach of contract or tort or any obligation in restitution.
We believe that the amendment is unnecessary. Recognised professional bodies under Schedule 3, paragraph 6, to the Financial Services Act 1986 are subject to an identical requirement to co-operate with the Financial Services Authority,
"by the sharing of information and otherwise".

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Clause 316(4) merely replicates the existing regime which, I understand, has not caused significant difficulty for bodies representing professional firms. I hope that the noble Lord will not move that amendment.
With regard to Amendment No. 259XA, which proposes the deletion of the words "and other ways" in subsection (4), it is important that the designated professional body's co-operation should not just be limited to the sharing of information, however wide it may be drawn, as there are other ways of co-operating. We should keep the terms of that co-operation as broad as possible in order to ensure that the provision is as effective as it can be. As I have said, the position of professional bodies in this respect will be no different from the position of professional and other bodies recognised under the 1986 Act.
In Amendment No. 259ZA, the noble and learned Lord, Lord Fraser, proposes to add the words:
"if a designated professional body wishes to cease to be designated for the purposes of this Act, it may request the Treasury to revoke its designation as a designated professional body and the Treasury shall comply with such a request".
This is clearly a complicated issue as members of a professional body which ceases to be designated will require FSA authorisation in order to offer financial services to their clients. We will need to make sure that proper arrangements are in place to cover this situation to ensure that consumers receive the right level of protection where professional firms are engaged in regulated activities.
We cannot easily foresee a situation where a designated professional body would request to have its designated status revoked. However, if that situation arose, the Government would need to assess whether it is appropriate to meet the professional body's request in the light of all the circumstances. There should be no obligation imposed on the Treasury to accede to a professional body's request automatically, given the complexity of issues that such a situation would no doubt create. I hope that the noble Lord will reflect on that answer. Of course, I understand that these are probing amendments dealing with a part of the Bill which has only recently come into existence.
I shall do my best to answer the broader question that he asked. I understand that no tender has yet been sought, but the duties to which he referred could not be delegated to the English Law Society. It could not be given such powers. I also understand that the authority can delegate the monitoring of authorised persons, which could include solicitors carrying on non-mainstream business. That comes under Schedule 1, paragraph 6(2), to the Bill. However, the FSA would retain ultimate responsibility. There are no powers to delegate under Part XX. I realise that that is not an entirely satisfactory answer to the issue he raised tonight. Therefore, having read Hansard, I should like to write to him with, it is to be hoped, a more full answer.
I turn to the two amendments spoken to by the noble Lord, Lord Taverne, who seems concerned that professional firms which offer mainstream financial
1008
advice may be subject to a double regulation by their respective professional body with regard to its provision of professional services and by the authority with regard to its provision of financial services. He fears that that might produce an undue regulatory burden on them.
Firms which conduct mainstream financial services and whose activities are not covered by exclusions set out in the draft regulated activities order will require permission from the authority to carry out both mainstream and ancillary financial services. That is on the basis that it is in the interests of consumers that an authorised firm's overall fitness to conduct financial services be assessed in the light of its activities as a whole. However, it does not follow that the authority must necessarily apply any additional burdens in respect of the non-mainstream business of authorised professional firms. They will be expected to act in accordance with their statutory duties, including the need to have regard to considerations of proportionality and competition.
The FSA indicated in one of its consultation papers, The FSA's regulation of professional firms, published in October last year, that, with regard to the provision of non-mainstream activities, it proposes, in line with the degree of risk attaching to such business, a differentiated and, where appropriate, less burdensome regime. I do not know whether those words have any comfort for the noble Lord in relation to his amendment.
I believe that his second amendment deals with subsection (5), as opposed to subsection (7), but I do not believe that he addressed that particular point in what he said to the Committee. I ask him to consider what has been said and to withdraw the amendment tonight.
I now come to the one Front Bench opposition amendment and link that with the two remaining amendments of the noble and learned Lord, Lord Fraser. First, the noble and learned Lord, Lord Fraser, proposed Amendments Nos. 259AA and 259AB, amending Clause 318, to enable professional firms to retain commissions and other benefits resulting from the introduction of their clients to third parties. Under the clause as amended by the amendment, the professional firm would still be required to disclose the commission if the firm is to benefit from the Part XX exemption.
We are not happy with this particular amendment. Commission sharing may well be appropriate in relation to authorised professional firms. However, we believe that in relation to professional firms which carry on exempt regulated activities, it is right and proper, and that firms should be barred from retaining any commission obtained from IFAs in return for referring their clients to them. We believe that, in any event, that prohibition is in line with a professional's general obligation to act in the best interests of his client where the professional is not a mainstream provider of financial services. In such cases, the source of third-party advice should be determined solely by reference to the client's needs. We believe that that is a

1009
small price to pay for the benefits bestowed by Part XX exemption. Those benefits are fairly substantial. Therefore, we oppose the noble and learned Lord's amendment.
Amendment No. 259AC in the name of the noble Lord, Lord Kingsland, proposes to insert,
"for or on behalf of his client",
at the end of subsection (3). As I understand it, this is a drafting amendment and we are grateful to the noble Lord for his attempt to improve the drafting of the Bill. He obviously believes that Clause 318(3) is unclear as to whether the regulated activities which give rise to the pecuniary award or advantage must be those carried on for or on behalf of a client. We do not agree. We believe that it is clear enough, and it is unlikely that a court would construe the clause any differently. Therefore, for the moment, that remains a matter of difference between us.
I turn to Amendments Nos. 260 and 262A in the Government's name. They allow the authority to give directions in respect of the exemption to the general prohibition which is allowed to professional firms for which regulated activities are a non-mainstream activity. Amendment No. 260 brings Part XX into line with procedures set out in other parts of the Bill. It is a "tidying-up" amendment. It will require that any direction given must be published in a way best calculated to bring it to the attention of the public. It allows the authority to charge a reasonable fee for providing a copy of the direction and requires the authority to give without delay a copy of any direction to the Treasury. Those requirements will ensure consistency of procedure between directions given under Clause 319 and those given under Clauses 309 and 311, both of which are in respect of Lloyd's.
Lastly, I turn to Amendment No. 262A. This government amendment proposes that a new clause be added after Clause 323. Under this new clause, where professional firms describe themselves as professional firms carrying out exempt regulated activities or hold themselves out in a manner which indicates that they are such persons, they will be subject to a similar offence of holding out to that set out in Clause 22.
Clause 22 creates an offence of falsely describing oneself or holding oneself out as authorised or exempt in relation to a particular regulated activity. Professional firms are not subject to that offence with the result that there is currently nothing in the Bill to prevent a person holding himself out as being a member of a designated professional body nor, where a person is a member of a designated body, is there anything that prevents that person from holding himself out as being entitled to exemption under Part XX at a time when he is disqualified.
It follows that it is necessary to rectify that problem. We believe that our amendment does that. As such, it is an important, even if technical, amendment and I commend it to the Committee.
Lord Fraser of Carmyllie: First, I thank the noble Lord, Lord Bach, for the courtesy and care with which he has responded to the amendments. Furthermore, I
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thank him for the acknowledgement that he has given that it is appropriate for us to explore these matters on Part XX because these provisions were first introduced into the Bill on Report in another place. I assure him that I have no intention of pursuing the amendments further at this stage.
I may wish to return on Report to the amendment on accounting and disclosure. But otherwise, I am most grateful to the noble Lord for his explanation of the thinking behind the proposals. I am grateful to him also for the confirmation that what I indicated in opening is broadly speaking correct. If my recollection is accurate, I said that it was under paragraph 6 of Schedule 1 that I understand that there may be a derogation or devolution of some power by the authority to another body.
I understand that that is a slightly delicate matter at present because it may be an issue for administrative decision and not for legislative consideration at this time. But the Government really should think very carefully about and reflect on that pattern of activity. It seems that the power of monitoring is to be given to the Law Society of England and Wales which may find that some part of investment activity by a Scottish solicitor must then be referred to the FSA which, in turn, requires the Law Society of Scotland to suspend, fine or whatever it does to that Scottish solicitor. The Government really do not appreciate what risk they are taking in the devolutionary arrangements which are presently in place.
I am grateful to the noble Lord for his offer to write to me. But I ask the Government to think about this very, very carefully indeed unless they wish to introduce a degree of instability into the recent constitutional arrangements. Having said that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 259YA not moved.]
Clause 316 agreed to.
Clause 317 [Designation of professional bodies]:
[Amendment No. 259ZA not moved.]
Clause 317 agreed to.
Clause 318 [Exemption from the general prohibition]:
Lord Tavernehad given notice of his intention to move Amendment No. 259A:
Page 166, line 27, leave out ("(7)") and insert ("(6)").
The noble Lord said: I am not sure that I fully followed the Minister's reply but at this time of night one's mind is not as clear as it might be.
I do not believe that the Minister really answered the point that there is this distinction between firms which carry out mainstream activities only—and it is perfectly reasonable that they should be regulated by the Financial Services Authority—and those where an investment activity is carried on incidentally to the other legal activity. In the latter cases, there appears to be double regulation. Companies are now demerging or closing down because they find that to be an excessive burden. I am sure that that is not what the Bill is intended to achieve. It is intended to achieve a

1011
streamlining and simplification of regulation, not an increase in regulation. For that reason, I hope that the Minister will reconsider the matter. We shall look at what he says, but we may well return to the matter on Report.
[Amendment No. 259A not moved.]
[Amendments Nos. 259AA to 259C not moved.]
Clause 318 agreed to.
Clause 319 [Directions in relation to the general prohibition]:
9.30 p.m.
Lord McIntosh of Haringeymoved Amendments Nos. 260 to 262:
Page 167, line 14, at end insert—
("( ) A direction under subsection (1) must be published in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
( ) The Authority may charge a reasonable fee for providing a person with a copy of the direction.
( ) The Authority must, without delay, give the Treasury a copy of any direction which it gives under this section.").
Page 167, line 29, after ("use,") insert ("have used or are").
Page 167, line 34, at end insert—
("( ) If a member of a profession is carrying on an exempt regulated activity in his capacity as a trustee, the persons who are, have been or may be beneficiaries of the trust are to be treated as persons who use, have used or are or may be contemplating using services provided by that person in his carrying on of that activity.").
On Question, amendments agreed to.
Clause 319, as amended, agreed to.
Clauses 320 to 323 agreed to.
Lord McIntosh of Haringeymoved Amendment No. 262A:
After Clause 323, insert the following new clause—
FALSE CLAIMS TO BE A PERSON TO WHOM THE GENERAL PROHIBITION DOES NOT APPLY
(" .—(1) A person who—

(a) describes himself (in whatever terms) as a person to whom the general prohibition does not apply, in relation to a particular regulated activity, as a result of this Part, or

(b) behaves, or otherwise holds himself out, in a manner which indicates (or which is reasonably likely to be understood as indicating) that he is such a person.

is guilty of an offence if he is not such a person.
(2) In proceedings for an offence under this section it is a defence for the accused to show that he took all reasonable precautions and exercised all due diligence to avoid committing the offence.
(3) A person guilty of an offence under this section is liable on summary conviction to imprisonment for a term not exceeding six months or a fine not exceeding level 5 on the standard scale, or both.
(4) But where the conduct constituting the offence involved or included the public display of any material, the maximum fine for the offence is level 5 on the standard scale multiplied by the number of days for which the display continued.").
On Question, amendment agreed to.
Clause 324 agreed to.
Schedule 17 agreed to.
Clauses 325 to 330 agreed to.
Clause 331 [Auditor or actuary's access to books etc.]:
Lord McIntosh of Haringeymoved Amendment No. 263:
Page 173, line 32, leave out ("thinks") and insert ("reasonably considers").
On Question, amendment agreed to.
Clause 331, as amended, agreed to.
Clauses 332 to 336 agreed to.
Clause 337 [The record of authorised persons etc.]:
Lord Saatchimoved Amendment No. 263A:
Page 176, line 8, at end insert—
("( ) approved persons within the meaning of section 63(13);").
The noble Lord said: In moving the amendment I shall speak also to Amendment No. 263B. The Committee will be delighted to hear that these are possibly the simplest amendments that we have discussed in the whole of Committee stage. I hope that the Government have no difficulty with them. Part XXIII requires the FSA to maintain certain public records. The items of information which the records must cover are defined in Clause 337(1) paragraphs (a) to (h). However, in that list there is no requirement for the FSA to keep a record of approved persons; in other words, the individuals approved to be employed by authorised persons. Amendments Nos. 263A and 263B simply require records of approved persons to be kept, covering the name of the approved person—the people working in the company—and the name and address of the authorised person—the company itself—for which the approved person performs a controlled function. I beg to move.
Lord Bach: Clause 337 requires the FSA to maintain a public record of certain categories of person. Of greatest importance will be the record of authorised persons, since it will enable consumers to check that the firm with which they are dealing is authorised. It includes also a number of other people and bodies subject in one way or another to oversight under the Bill, such as recognised investment exchanges. The two amendments so briefly and well spoken to by the noble Lord, Lord Saatchi, would impose requirements on the authority to maintain a public record of persons approved under Part V to perform particular functions. We do not believe that that is necessary. Clause 337 does not limit the information that may be included in the public record; it simply sets out the minimum that must be made publicly available.
I understand that the authority hopes to set up a record containing relevant information about approved persons. However, it has some concerns about the practicalities of setting up a public record of approved persons, at least in the early days. The other persons referred to in subsection (1) will, for the most part, already be established and included on the current register. It should be reasonable to expect the public record to be in good shape when this provision

1013
comes into force. It is not reasonable to think that the public record of approved persons, which will be quite different from the records currently available—where indeed they are available—can be up and running quite as quickly.
If the authority overcomes those difficulties and establishes a public record of that information, there will be a further question of how easy it will be to keep it up to date. That too will be of real concern to the authority, given that the information will need constant revision. Changes to the entries for the other persons mentioned in subsection (1) will not change on anything like such a regular basis, and so the concerns will not arise.
We are not persuaded that the need for the public register is so great in the case of approved persons. While we would expect consumers to take reasonable care to ensure that the firm with which they deal is an authorised person or within one of the other categories specified in subsection (1), we would normally expect them to want to check on a regular basis that employees of such firms have been approved under Part V. The concepts of approval and authorisation are different, as are the consequences of acting without the necessary regulatory consent.
However, the authority intends to seek to make publicly available information of the kind sought by the noble Lord. If it overcomes the practical difficulties that I have attempted to describe, we are sure that it will do so in the way suggested, but we cannot place on the authority an obligation that it may not be able to fulfil. I invite the noble Lord to withdraw his amendment.
Lord Saatchi: I am pleased to hear that the Minister is willing to encourage the FSA to keep such records. I am surprised that, after all this time, this vast organisation finds it impossible to publish a record of the names of the people whom it regulates, particularly as one of its main functions is to provide reassurance to the public that people who are authorised persons or approved persons are people with whom it is safe to do business. Therefore, I find it strange that the FSA cannot cope with the administrative burden of compiling a list of names of those whom it regulates. We shall probably return to this issue. I am slightly taken aback by the answer.
Lord Elton: Can the Minister be specific as to what the difficulty is? As almost everything is done electronically nowadays, surely when somebody is approved and the computer has the correct program, that name will appear on the public list on the website. Now that we have done away with paper, I believe that instantaneous publication is possible and that there is no difficulty.
Lord Bach: I fear that the noble Lord is much too optimistic. Approved persons are employees and they change on a regular basis. Apart from that, I have nothing to add fo the reply that I have given.
Lord Sharman: Perhaps the Minister can clarify this matter. It is surprising that the FSA cannot maintain
1014
such records. It must know who these individuals are as it is responsible for approving them. Professional bodies do not seem to find it a great problem, so I cannot believe that it is insurmountable.
Lord Elton: I see that the noble Lord is not inclined to answer that point, so I shall try to tempt him further. If an approved person cannot practise without approval, he cannot practise without the knowledge of the authorising body, and the authorising body cannot give approval without knowing who the individual is. Therefore, I believe that my question is relevant. In typing out the information, "You have approval", one can cause it to appear in a public list at the same time as it is put in the letter to be posted. I accept that all computers have difficulties—none more so than the ones with which I am concerned personally. I hope that I have now given the noble Lord a chance to reply to the question.
Lord Bach: I do not believe that I am going to satisfy the noble Lord with an answer tonight. Difficulties are involved. There would be the need to include details of the person, the employer, the functions that he carries out and the type of regulated activities. At present, all that is just not possible. I could give an unrealistic answer and suggest that it was, but it is not. It is for that reason that we do not accept the amendment.
The Earl of Home: Before my noble friend replies, I must declare an interest as chairman of Coutts & Company. I am puzzled by this. We have all that information on our files and it is available to the FSA on a regular basis. I cannot see why any institution cannot tell the FSA when someone comes or goes.
Lord Bach: I have heard the debate. The FSA will read it. It may be that we shall hear more about this matter before the Bill finishes its course in this House.
Lord Saatchi: That is not the answer that I was expecting and I have not said what I expected to say. The Minister's reply is so unsatisfactory and inexplicable that I should like to test the opinion of the Committee.
9.41 p.m.
On Question, Whether the said amendment (No. 263A) shall be agreed to?
Their Lordships divided: Contents, 24; Not-Contents, 57.

Division No. 2

CONTENTS

Alexander of Weedon, L.

Glentoran, L.

Astor of Hever, L.

Home, E.

Attlee, E.

Howe, E.

Blatch, B.

Hunt of Wirral, L.

Bowness, L.

Jenkin of Roding, L.

Byford, B.

Kingsland, L.

Dixon-Smith, L.

Lamont of Lerwick, L.

Elton, L.

Lyell, L.

Fraserof Carmyllie, L.

Northbrook. L. [Teller]

1015

Northesk, E.[Teller]

Sharman, L.

Saatchi, L.

Skelmersdale, L.

St. John of Fawsley, L.

Taverne, L.

NOT-CONTENTS

Alli, L.

Howells of St Davids, B.

Amos, B.

Hoyle, L.

Archer of Sandwell, L.

Hughes of Woodside, L.

Bach, L.

Hunt of Kings Heath, L.

Bassam of Brighton, L.

Irvine of Lairg, L. (Lord Chancellor)

Borrie, L.

Brooke of Alverthorpe, L.

Jay of Paddington, B. (Lord Privy Seal)

Brookman, L.

Burlison, L.

Lea of Crondall, L.

Carter, L. [Teller]

Lipsey, L.

Christopher. L.

Macdonald of Tradeston, L.

Clarke of Hampstead, L.

Mclntosh of Haringey, L. [Teller]

Cocks of Hartcliffe, L.

Crawley, B.

MacKenzie of Culkein, L.

Currie of Marylebone, L.

Massey of Darwen, B.

Davies of Oldham, L.

Milner of Leeds, L.

Dean of Thornton-le-Fylde, B.

Morris of Manchester, L.

Dormand of Easington, L.

Pitkeathley, B.

Dubs, L.

Ramsay of Cartvale, B.

Falconer of Thoroton, L.

Rendell of Babergh, B.

Farrington of Ribbleton, B.

Richard, L.

Faulkner of Worcester, L.

Sawyer, L.

Gale, B.

Simon, V.

Goldsmith, L.

Stone of Blackheath, L.

Gould of Potternewton, B.

Symons of Vernham Dean, B.

Harris of Haringey, L.

Turner of Camden, B.

Harrison, L.

Warner, L.

Haskel, L.

Warwick of Undercliffe, B.

Hayman, B.

Whitty, L.

Hilton of Eggardon, B.

Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.
9.51 p.m.
[Amendment No. 263B not moved.]
Clause 337 agreed to.
Clause 338 [Restrictions on disclosure of confidential information by Authority etc.]:
Lord McIntosh of Haringeymoved Amendment No. 264:
Page 178, line 15, at end insert—
("( ) a competent person appointed by the competent authority under section (Appointment by competent authority of persons to carry out investigations);").
On Question, amendment agreed to.
Clause 338, as amended, agreed to.
Clauses 339 to 342 agreed to.
Lord Bachmoved Amendment No. 265:
After Clause 342, insert the following new clause—
AUTHORITY'S DUTY TO CO-OPERATE WITH OTHERS
(" .—(1) The Authority must take such steps as it considers appropriate to co-operate with other persons (whether in the United Kingdom or elsewhere) who have functions—

(a) similar to those of the Authority, or

(b) in relation to the prevention or detection of financial crime.

(2) Co-operation may include the sharing of information which the Authority is not prevented from disclosing.
(3) "Financial crime" has the same meaning as in section 6.").
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The noble Lord said: On behalf of my noble friend I should like to move Amendment No. 265. This amendment will place a duty on the Financial Services Authority to take such steps as it considers appropriate to co-operate and share information with other bodies or persons. These bodies or persons can be in the UK or elsewhere, as long as they have a function broadly similar to that of the Financial Services Authority or they have a role in relation to the prevention or detection of financial crime.
The amendment carries forward the provision in paragraph 5 of Schedule 7 to the Financial Services Act 1986 which places a similar duty on the authority. I am sure that this amendment will be welcomed by noble Lords opposite, given the remarks made by the Opposition in another place about the need for effective information sharing and co-operation in order to combat financial crime. I beg to move.
Lord Fraser of Carmyllie: As the noble Lord has anticipated, this amendment is welcome. While looking at the legal luminaries ranged on the Government Back Benches behind the noble Lord, I should like to ask one question. Although the clause is desirable, does the noble Lord believe that subsection (2) adds anything to the provision? Does it not add only somewhat otiose, redundant and unnecessary verbiage to the Bill?
Lord Jenkin of Roding: My query concerns the relationship of this clause to the Data Protection Act. When the 1986 Act just referred to by the noble Lord was introduced, the Data Protection Act was not on the statute book. However, that Act carries all kinds of restrictions on what may be disclosed. Are all the details simply swept up in the phrase, "not prevented from disclosing"? If that is the case, it seems to me that those are only a very few words to cover what may be a large swathe of information. I should be grateful for a little clarification on this point.
Lord Hunt of Wirral: It would be most helpful if the noble Lord could give some consideration to the European dimension here. As he will know, a wide range of moves are presently taking place in the European Union to try to take further steps in the prevention and detection of financial crime. I hope that this new clause will enable that kind of cooperation to gather strength. However, a problem may arise in that each national jurisdiction still retains its own individual rights to prosecute.
As regards financial crime which crosses a number of boundaries, it would be helpful if the Minister could mention the latest discussions on this matter within the European Commission and the European Union. I believe that this clause will fit in neatly with some of the initiatives being taken at the present time.
Lord Bach: I am grateful to noble Lords who have taken part in this short debate. Perhaps the best way I can answer the noble and learned Lord, Lord Fraser of Carmyllie, is to invite him to consider the comments of his noble friend Lord Jenkin of Roding as to why

1017
subsection (2) is necessary. It concerns, among other things, the Data Protection Act. I am afraid that I cannot satisfy the noble Lord, Lord Hunt, tonight, although we both considered this problem for many hours on Sub-Committee E in relation to fraud in the Community and Community funds. I hope that I may consider his remarks and write him a short letter on the latest position on this matter as far as the Treasury is concerned.
Lord Elton: I hope that we may receive a rather longer letter on what information the authority is prevented from disclosing. I do not think that what the noble Lord said about the intervention of my noble friend Lord Jenkin of Roding relates to what my noble friend said. He said that there is substantial legislation preventing the disclosure of information by all kinds of people. All the measure we are discussing states is not that that is to be disregarded but that it is to be enforced. It states that the authority may give whatever information it is allowed to give. That comes close to being otiose. We are being required to use that word too often with regard to this Bill.
Lord Bach: If e purpose of subsection (2) is to make clear that the authority is not obliged to disclose information which it is under an obligation not to disclose. That can be information on a wide variety of matters; for example, matters which come under the protection of the Data Protection Act. I think that is about as far as I can take it this evening.
Lord Elton: That is why I prefaced my remarks by inviting a letter. However, I think that it will be a fairly long letter.
On Question, amendment agreed to.
Clauses 343 to 345 agreed to.
Lord McIntosh of Haringeymoved Amendment No. 266:
After Clause 345, insert the following new clause—
AUTHORITY'S POWERS TO PARTICIPATE IN PROCEEDINGS: TRUST DEEDS FOR CREDITORS IN SCOTLAND
(" . —(1) This section applies where a trust deed has been granted by or on behalf of a debtor who is an authorised person.
(2) The trustee must, as soon as practicable after he becomes aware that the debtor is an authorised person, send to the Authority—

(a) in every case, a copy of the trust deed;

(b) where any other document or information is sent to every creditor known to the trustee in pursuance of paragraph 5(1)(c) of Schedule 5 to the 1985 Act, a copy of such document or information.

(3) Paragraph 7 of that Schedule applies to the Authority as if it were a qualified creditor who has not been sent a copy of the notice as mentionec in paragraph 5(1)(c) of the Schedule.
(4) The Authority must be given the same notice as the creditors of any meeting of creditors held in relation to the trust deed.
(5) A person ap3ointed for the purpose by the Authority is entitled to attend and participate in (but not to vote at) any such meeting of creditors as if the Authority were a creditor under the deed.
1018
(6) This section does not affect any right the Authority has as a creditor of a debtor who is an authorised person.
(7) Expressions used in this section and in the 1985 Act have the same meaning in this section as in that Act.").
The noble Lord said: Amendments Nos. 266 to 271 make technical changes to bring this part of the Bill into line with Scots bankruptcy law—about which I know nothing! Amendment No. 272 is a drafting change resulting from earlier amendments to Part VII of the Bill.
Amendment No. 266 is necessary because in England, Wales and Northern Ireland insolvency law provides that an individual who is unable to pay his debts may apply to the court for a moratorium during which he may prepare a proposal to his creditors for settlement of his debts. While this is in force the person is protected against the presentation of a bankruptcy petition.
If an authorised person wished to enter into such an arrangement this would clearly be of interest to the FSA. Therefore Clause 345 gives the FSA various rights in these circumstances, including the right to be heard by the court when the authorised person applies for such a moratorium.
Scotland has a separate law of bankruptcy which makes no provision for individual voluntary arrangements. It does, however, provide for a broadly equivalent procedure: that is to say, a voluntary trust deed for creditors within the meaning of Section 5(4A) of the Bankruptcy (Scotland) Act 1985. The purpose of the trust deed is to allow a person who cannot pay his debts to hand over his assets to a trustee, who will then arrange a settlement with his creditors as an alternative to sequestration in the courts. I hope that the noble and learned Lord, Lord Fraser, will agree that that is an accurate summary of the situation.
The new clause after Clause 345 is intended to provide the FSA with similar rights in respect of voluntary trust deeds entered into by authorised persons in Scotland as it has in respect of individual voluntary arrangements in England, Wales and Northern Ireland.
Amendments Nos. 267 to 271 are also concerned to ensure that the FSA has equivalent rights in Scotland as in the rest of the UK. Clauses 360 and 361, which these amend, deal with the FSA's rights in respect of the bankruptcy or sequestration of authorised persons. In England, Wales and Northern Ireland it is possible to take bankruptcy proceedings only against individuals. In Scotland, however, it is possible to take bankruptcy proceedings against other kinds of entities, such as partnerships, under Section 6 of the Bankruptcy (Scotland) Act 1985. These amendments ensure that the FSA has the same rights in respect of such persons as it does in respect of individuals.
Amendment No. 272 makes a drafting change to Clause 363, which deals with the insolvency of insurance companies. This is necessary to take account of amendments we have made to Part VII of the Bill. I beg to move.
10 p.m.
Lord Fraser of Carmyllie: I compliment the Minister on what he has said. I took the 1985 Bill through another place. His recollection of its terms is infinitely greater than my own.
On Question, amendment agreed to.
Clauses 346 to 359 agreed to.
Clause 360 [Insolvency practitioner's duty to report to Authority]:
Lord McIntosh of Haringeymoved Amendment No. 267:
Page 188, line 13, at end insert—
("( ) "Individual" includes an entity mentioned in section 361(1)(c).").
On Question, amendment agreed to.
Clause 360, as amended, agreed to.
Clause 361 [Authority's powers to participate in proceedings]:
Lord McIntosh of Haringeymoved Amendments Nos. 268 to 271:
Page 188, line 19, at end insert ("; or
(c) under section 6 of the 1985 Act for the sequestration of the estate belonging to or held for or jointly by the members of an entity mentioned in subsection (1) of that section").
Page 188, line 22, after ("individual") insert ("or entity").
Page 188, line 29, at end insert ("or entity").
Page 188, line 39, at end insert—
("( )"Entity" means an entity which—

(a) is, or has been, an authorised person; or

(b) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.").

On Question, amendments agreed to.
Clause 361, as amended, agreed to.
Clause 362 agreed to.
Clause 363 [Continuation of long term business while in liquidation]:
Lord McIntosh of Haringeymoved Amendment No. 272:
Page 190, line 6, leave out ("Schedule 2C to the 1982 Act") and insert ("Part VII").
On Question, amendment agreed to.
Clause 363, as amended, agreed to.
Clauses 364 to 366 agreed to.
Clause 367 [Injunctions]:
Lord McIntosh of Haringeymoved Amendment No. 273:
Page 192, line 4, at end insert—
("( ) In the application of subsection (6) to Scotland—

(a) in paragraph (a)(ii) for "which the Authority has power to prosecute under this Act" substitute "mentioned in paragraph (a) or (b) of section 384(1)"; and

(b) in paragraph (b) omit "which the Secretary of State has power to prosecute under this Act".").

The noble Lord said: In moving Amendment No. 273, I shall speak also to Amendments Nos. 274 and 275.
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This part of the Bill gives the FSA and the Secretary of State rights, in certain circumstances, to take out injunctions or interdicts against persons carrying on financial services business and to seek restitution orders against persons engaged in such business. These amendments make technical changes to bring these provisions into line with Scots law.
Clauses 367, 369 and 371 each include a power to take action when a person commits, or may be about to commit, offences created under other legislation which the FSA or the Secretary of State has the power to prosecute—in other words, the offence of insider dealing or an offence under the money laundering legislation.
So far as concerns England, Wales and Northern Ireland, this is satisfactory because the FSA and the Secretary of State have such prosecution powers. In Scotland, however, neither the FSA nor the Secretary of State has powers to prosecute these or any offences because the Lord Advocate is the sole prosecuting authority. The amendments are intended to take account of this by making direct reference to subsection (1) of Clause 384, where the offences which the FSA has the power to prosecute are set out. I beg to move.
On Question, amendment agreed to.
Clause 367, as amended, agreed to.
Clause 368 agreed to.
Clause 369 [Restitution orders]:
Lord McIntosh of Haringeymoved Amendment No. 274:
Page 193, line 39, at end insert—
("( ) In the application of subsection (9) to Scotland—

(a) in paragraph (a)(ii) for "which the Authority has power to prosecute under this Act" substitute "mentioned in paragraph (a) or (b) of section 384(1): and

(b) in paragraph (b) omit "which the Secretary of State has power to prosecute under this Act".").

On Question, amendment agreed to.
Clause 369, as amended, agreed to.
Clause 370 [Restitution orders in cases of market abuse]:
Lord Kingslandmoved Amendment No. 274A:
Page 194, line 6, at end insert—
("( ) in a case within paragraph (b) of that subsection, to whether the person concerned intended, or might reasonably be presumed to have intended, to commit market abuse;").
The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 274B. Clause 370 allows the court to impose restitution orders in cases of market abuse. The amendment seeks to bring in the element of intent. It follows the wording which the Government themselves introduced in the case of penalties. We want that to apply equally to restitution because that can be just as open-ended as a financial penalty. The "presumed to have intended" language is to help with proving the intention.

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I turn now to Amendment No. 274B. Clause 371 is concerned with the power of the authority to apply restitution in accordance with Clause 370, which, as we have seen, allows the court to impose restitution orders in cases of market abuse. This amendment also seeks to bring in the element of intent. I beg to move.
Lord McIntosh of Haringey: Where someone has engaged in market abuse Clause 370 allows the courts to order restitution to be paid to those who have lost out as a result of the abuse. Clause 371 gives the FSA itself a similar power to make restitution orders where the market abuse has been engaged in by an authorised person.
In deciding how much it is just for the abuser to pay by way of restitution, the courts and the FSA have to have regard to extent of the loss or other adverse effect. These amendments would require the courts or the FSA to have regard to the extent to which the market abuse was intended, or might reasonably be presumed to have been intended. I am afraid that this is something which I cannot accept. Intent is not a necessary feature of market abuse. We debated this point when we were considering Part VIII of the Bill. The reason for this is clear: the damaging effects of an abuse do not depend on the state of mind of the person concerned, but on the impact it has on markets and consumers. As the noble Lord, Lord Grabiner, said most succinctly when we debated the market abuse provisions last week,
"the strength of the clause as drafted is that it would oblige people, where appropriate, to err on the side of caution. It means: 'If there is a risk that your conduct may be likely to produce the result that you fall foul of the abuse provisions, you had better beware"'.
He went on to say that he had great difficulty,
"in understanding any justification for saying to those grown-up, sophisticated people that nothing short of intention will do".—[Official Report, 21/3/2000; co1.216.]
I entirely agree with those points.
The same arguments as regards intent apply in the case of restitution as they do in the case of the market abuse penalty provisions—indeed, more so. That is not to say that intention or recklessness is irrelevant in the case of market abuse penalties where deterrence is the key concern. There are degrees of culpability, and the fact that someone may have intentionally engaged in abuse is relevant to this. That is why Clause 114, which deals with the FSA's policy on the amount of penalties which can be imposed for abuse, requires the FSA to take into account the extent to which the behaviour was deliberate or reckless.
The situation with restitution is quite different. A restitution order is intended to restore any loss which may have been incurred by others as a result of the abuser's actions. The position here is the same as with breaches of FSA rules which lead to loss for consumers. A failure, for example, to observe a rule which results in a loss to consumers may not be something which an authorised person intended to do;
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however, it would be wrong if in such circumstances the consumer could not get his or her money back. I have to oppose the amendments.
Lord Elton: I am no doubt mistaken, but what puzzles me is that the noble Lord refers to restitution, and indeed the rubric of the clause refers to restitution orders. Restitution has nothing to do with punishment; it is about paying back someone who has lost something. However, at the end of subsection (1)(a) is the word "or". The subsection states that,
"The court may, on the application of the Authority, make an order under subsection (2) if it is satisfied that a person has engaged in market abuse and … that profits have accrued to him as a result; or"—
The restitution order appears to be penalising the person or organisation, whether or not the offence has been deliberate, for doing something to his or its own benefit.
Subsection (1)(b) relates to loss suffered by other persons. But it appears from paragraph (a) that there is no need for loss to have been suffered by other persons; merely that the gains have been made improperly. I suppose it can be said that, if someone has gained something improperly, there must have been a loser. But in this case it seems that it is not necessary to identify the loser; otherwise, why are the two factors not linked by "and" rather than "or"?
Lord McIntosh of Haringey: The noble Lord has answered his own question.
Lord Elton: I asked why the provisions are not linked by "and", in which case there would have to be a loser as well as a gainer; whereas with the use of the word "or", there is a gainer in paragraph (a) and a loser in paragraph (b), and they are separated by "or".
Lord McIntosh of Haringey: The noble Lord did answer his own question. He said that if someone has made a profit, someone has made a loss: that is within paragraph (a). The other option is complementary and not otherwise.
Lord Elton: It does not feel very complementary at the moment. If I buy a motor car, there is a profit for the person who made the motor car and there is no loss to me, unless I have been overcharged. It is perfectly possible to make profits without there being losers. I still maintain that this is a very puzzling piece of drafting.
Lord McIntosh: It is not necessary for someone to make a profit from abuse. The important thing is that someone may make a loss, and that may occur under the provisions of either, not necessarily both, of the paragraphs. If I crash my car when I am driving carelessly and I demolish the wall of someone's house, should I only be liable to pay for restoring half the wall because I did not intend the damage? It does not make sense. These amendments are about the amount of

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restitution. They suggest that it should be governed by intent; we are saying that it should not be governed by intent but by the loss.
Lord Kingsland: I think the point my noble friend has expressed so eloquently is that the word "restitution" is used here to cover in law both the notion of restitution and the notion of compensation. Compensation compensates someone for a loss suffered as a result of someone else's action; restitution relates to any improper profit that a person might have made as a result of that action, even if another person suffered no loss.
What my noble friend is saying is that there might be circumstances in which a person not only commits an action which causes loss to someone, and is therefore liable to compensation, but also profits from that action; and in those circumstances, under the rules proposed by the Government, he ought both to compensate and to restitute. My noble friend is saying that the clause does not allow for that; it only allows a person to pay restitution or compensation. Of course, it is possible that I have misunderstood my noble friend; but I believe that is what he was saying.
Lord McIntosh of Haringey: The provision does not say anything of the sort. It says that these are not mutually exclusive circumstances in which there might be a need for restitution. Perhaps I may give examples. Someone might not make a profit from abuse but it might cause loss to others. In the Sumitomo scandal, for example, the abuser actually lost money. The abuse procedures would now catch him; the existing law does not. The profits may have been made at the expense of those of other market users, even if—strictly speaking—there was no loss. It is clear from subsection (8) that restitution must be either to a person from whom the profits enjoyed by the abuser arose or to the person who lost. In the first case there will have been profits earned at the expense of someone else; in the second, an actual loss. Both are covered by the amendment.
10.15 p.m.
Lord Elton: If the clause contains a provision that is purely punitive, the question of intent is not put out of court by the Minister's arguments. He said that with restitution, the question of intent does not arise. The Minister, having backed into a wall while driving carelessly, would have to pay the full sum of repairs, whether or not they were caused intentionally. I accept that, but the drafting of Clause 370(1)(a) makes it clear that there can be cases where profits have accrued and one or more persons have not suffered loss. They are isolated by the word "or". That being the case, the implication is that there are cases where people may not suffer loss as a result of pure profit. We are saying that a person, having acquired profits improperly, should be punished for so doing—and that if it is a
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question of punishment, intent is relevant to the quantity of the punishment. That is all that I am trying to say. I am sorry that it is so difficult to get that across.
Lord McIntosh of Haringey: Then the noble Lord is criticising the Opposition amendments, not the Bill—which is clear that either profits have accrued or someone has suffered loss. One or the other, not both. If the word "and" were used, it would have to be both—and that would be restrictive. It has nothing to do with restitution, which is to make up a loss. A loss could either be a real loss or a diversion of profits from one person to another. I do not see the difficulty.
Lord Borrie: The noble Lord, Lord Elton, is right to refer to the word "or". There are situations in which no individual can establish and prove, as a matter of cause and effect, that he has suffered loss as the result of a market abuse. However, there are situations where someone guilty of market abuse has obtained profits as a result and ought to be required to disgorge them—even though no individual can establish a precise loss. The general body of market users relevant to the situation would enjoy the benefit under the later subsection. That seems a perfectly good provision.
Lord Elton: I find the noble Lord more persuasive than the Minister. I do not say that in any pejorative sense because I do not wish to annoy either of them. I am content with the Minister's remarks in regard to my difficulty.
Lord Kingsland: In the circumstances, I shall read the Minister's comments carefully in Hansard. Intent is a big problem for us in this Bill, not only in relation to this issue but to market abuse. We shall return to it on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 370 agreed to.
Clause 371 [Power of Authority to require restitution]:
[Amendment No. 274B not moved.]
Lord McIntosh of Haringeymoved Amendment No. 275:
Page 195, line 25, at end insert—
("( ) In the application of subsection (5) to Scotland, in paragraph (b) for "in relation to which this Act confers power to prosecute on the Authority" substitute "mentioned in paragraph (a) or (b) of section 384(1)".")
On Question, amendment agreed to.
Clause 371, as amended, agreed to.
Clause 372 [Warning notices]:
Lord Bachmoved Amendment No. 275RA:
Page 195, line 31, leave out subsection (3).
The noble Lord said: This group contains a number of further amendments to clarify the warning notice and decision notice procedure and provide a more consistent approach to the rights of third parties. Dealing shortly (I hope) with each amendment,

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Amendment No. 275TA in Clause 375 responds to points raised by members of the Opposition in another place and requires a warning notice to state the action which the authority proposes to take. We believe that that is already implicit in the Bill but agree that it is better to put the matter beyond doubt.
Amendment No. 275XA in Clause 375 enables the authority to extend the period for making representations. This will allow the authority to respond to any legitimate difficulties that the person concerned may have in making his representations within the period specified. The existing provision is too restrictive in this respect.
Amendment No. 275YA deletes the words "carry out its proposal" in subsection (4) of Clause 375. Those words give the impression that the authority can give effect to its proposal at the end of the warning notice stage. That is not the Government's intention. We propose to substitute the words,
"give the person concerned a decision notice",
to make clear that the next stage is for the authority to issue a decision notice. Alternatively, the authority may decide to issue a notice of discontinuance.
Amendment No. 275D in Clause 376 is a highly significant amendment. Its effect is to restrict the action that the authority may then go on to include in a decision notice. It must be action that is taken under the same part of the Bill. Thus, a proposed financial penalty under Part XIV may be reduced or replaced with a public statement, but the authority cannot move from, say, a warning notice that proposes disciplinary action under Part XIV for a breach of rules to a decision notice which raises allegations of market abuse under Part VII. The authority needs some flexibility, but the person concerned is entitled to the protection of the proper notice procedures being followed: a set of proceedings begun for one purpose should not be the subject of a complete change of character half-way through.
Amendment No. 275G in Clause 376 makes clear that, having issued a decision notice, the authority can agree with the person concerned to substitute a different decision notice. This will enable the person to settle a case without pursuing a reference to the tribunal, although he will not lose the right to refer the matter just because he has agreed a different action with the authority. This ensures that there is the necessary flexibility in the procedure to achieve sensible outcomes to cases without requiring the person or the authority to incur unnecessary costs. It also enables the authority to state clearly if, for example, the grounds put forward in support of a reference to the tribunal cause it to believe that a lower penalty than originally proposed is appropriate. In such a case the person concerned can agree to the serving of a further decision notice while continuing to contest even the reduced penalty, which means further clarity for everyone.
This is not a device to enable back room deals to take place. We are conscious of the need for transparency, on which the Joint Committee had very clear views. Even if a deal is struck on the steps of the
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courthouse, the final stage in the process will still be the issuing of either a final notice or a notice of discontinuance. If it is a final notice, the authority will be under the same obligation as under the existing provisions of the Bill to publish appropriate information about the decision reached. If the end result is a notice of discontinuance, publication may take place only with the consent of the person concerned.
The new clause on third party rights, Amendment No. 275L, rationalises the existing provisions dealing with the rights of third parties identified in warning or decision notices in a way that is prejudicial to them. These provisions were designed to deal with cases where there is some wrong-doing alleged on the part of a third party who is not himself the subject of action by the FSA. For instance, in disciplinary cases under Part XIV, it was felt that action might he taken against a firm for reasons which implied that there had been some failing by one of its directors or employees; or in market abuse cases, where other parties might well have been involved in the transactions giving rise to the allegation that market abuse has been engaged in.
The provisions give third parties, who are identified in prejudicial terms in the reasons for a warning or decision notice, the right to receive a copy of the notice, and to make representations or refer the matter to the tribunal in the same way as the person who is the subject of the FSA's proposed action. We took the view that although these rights create an administrative burden for the FSA, they are necessary to give the third party the right to defend himself against any implied blame arising from the reasons given for the action. Thus the new clause on third party rights will apply to a wide range of disciplinary-type cases. This is the effect of the other new clause which sets out the application of the clause on third party rights. This applies the third party rights to a large number of cases.
We also propose to apply these rights where it is proposed to cancel an authorised person's permission under Part IV. We shall table a further amendment to this effect when we table our amendments to that part on Report. However, we do not consider it appropriate to impose these requirements for the more routine types of regulatory decision, where the matter at issue is not some wrong-doing, but whether conditions are met, or consumers' interests are at risk. Thus they do not apply to refusals of applications, variations of permission, or approval or imposition of requirements on such permission or approval, whether under Part IV or some other part of the Bill.
As a consequence a number of provisions in other parts of the Bill, such as Clauses 372(3) and 373(3) in respect of restitution under Part XXV, can be omitted. That is the effect of the consequential amendments, Amendments Nos. 275RA and 275SA. Some other similar provisions earlier in the Bill will also need to be removed in due course Amendments Nos. 275VA, 275WA and 275E are further consequential amendments to Clauses 375 and 376 which reflect the new clause on third party rights. I beg to move.
10.30 p.m.
Lord Kingsland: We have no amendments in this group. However, I have some views on the government amendment, if I may be allowed to express them.
Clauses 375 and 376 set out the procedural requirements relating to warning notices and decision notices. These include giving the firm or approved person subject to the notices access to the evidence on which the FSA relied. However, in our submission, these parties should also have access to any helpful evidence even though the authority may not want to surrender it. Under English law, this is required in criminal cases, but—so the Government tell us—not in civil cases.
However, two recent European Court of Justice cases held that the specific protections in Article 6.3 are only examples of the "fair hearing" requirement in Article 6.1 and that these included the right to see all the evidence unless, in a public interest immunity case, the court itself saw it first. Those cases are respectively, Rowe and Davis v. the United Kingdom, Jasper v. the United Kingdom, and Fitt v. the United Kingdom, the judgments in all those cases being delivered on 16th February 2000.
As regards Amendment No. 275G, the Government propose to add three new subsections, (8), (9) and (10), on page 198, line 6. The purpose of the amendment is, to us, unclear. It appears to give the authority the ability to issue, with the consent of the firm or the individual concerned, a second "further" decision notice modifying the effect of the first decision notice.
If the purpose of that is to allow the FSA and the recipient scope to renegotiate the terms of the disciplinary action after the issuance of the first decision notice, we would have no difficulty with it in principle. However, we would be concerned if the procedure were to be used to exert pressure on firms or individuals to rescind their decision to refer the matter to the tribunal. Can the Minister confirm that these amendments do not have the effect of diluting the existing safeguards provided under Clauses 375 and 376?
As regards Amendment No. 275J, the Government have introduced a new clause about decision notices. As I understand it, they are setting out the provision which we want; which is, that the authority cannot issue a notice for payment until the time for referral to the tribunal has passed without a reference, or, if there is a reference, until it has been finally disposed of.
However, there seems to be no provision to the effect that the existing notice for payment provisions do not apply; in particular, the provision of a notice for payment of a market abuse penalty (I refer to Clause 118) and the notice for payment of restitution (1 refer to Clause 374). The new clause provides only that the FSA must issue a final notice in all decision notice cases. However, it seems that there is nothing to stop the authority acting on a decision notice given under earlier clauses such as those I have mentioned. Clause 202 is now deleted, but it related only to notices for
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payment of a penalty imposed under Clause 199—and the fact that it has been deleted does, indeed, imply that the new clause has not ousted the existing clauses.
As regards Amendment No. 275K, I do not understand why the person who has received a warning or a decision notice cannot publish it. Surely at the very least he should be allowed to publish it to his legal advisers or accountants. That ought to be an easy matter for the Government to deal with.
Amendment No. 275L has the effect that the defendant's right to see evidence is excluded in relation to both Clauses 51 and 52. I can see no reason why in such cases the firm should not be entitled to have access to the authority's evidence. In addition, it may as a consequence be intended that the authority should not be required to keep the investigation separate from the enforcement function. Again, I can see no reason why that should be the case. It is those two consequences of being supervisory-type decisions which should not be allowed to apply in relation to Clauses 51 and 52.
The Government have indicated in their note to amendments that they want to have a short form authority enforcement procedure in what they call "supervisory-type decisions". These are decisions where they believe that a more flexible procedure is required, which in particular allow the authority's decision to take effect on a specified date, including the date on which the notice is served. The fact that the notice is referred to the tribunal does not appear to affect that. Why are the Government including among the supervisory-type decisions the authority's decisions to vary permissions and impose requirements under Part IV in relation to Clauses 51 and 52? I can well see why an immediate decision is needed in the case of Clause 53, which gives the authority power to exercise its own-initiative power to cancel or amend a permission (or to impose a requirement or prohibition, which again acts as a limitation on the permission) on its own initiative without having to comply with its due process.
In that case, there will be, ex hypothesi, a danger to consumers. However, there is no such emergency in the two other cases where the authority makes decisions in this context. The first is in Clause 51, where the firm has approached the authority and the authority wants to refuse the application. Here, clearly, there can be no question of any need to exercise the power "with immediate effect". In addition, the authority is given the right to exercise its own-initiative power to cancel or change a firm's permission where the emergency situation in Clause 53 does not apply.
The exercise of the own-initiative power may be very prejudicial to the firm, as it will stop it carrying on a particular type of business which it currently carries on, or impose on it what may be substantial limitations on the way that it can carry on its business. As there is no threat requiring the authority to exercise its own-initiative power "with immediate effect", it seems to me, at any rate, that there is time to go through the proper procedures.

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I believe that Amendment No. 275N is in the next group. Therefore, I shall pause for appropriate reflection.
On Question, amendment agreed to.
Clause 372, as amended, agreed to.
Clause 373 [Decision notices:]
Lord Bachmoved Amendment No. 275SA:
Page 196, line 1, leave Out subsection (3).
The noble Lord said: I was fascinated and intrigued by the expert analysis of this field by the noble Lord, Lord Kingsland. I believe that he strayed into one or two amendments that are not in this group. He will forgive me if I d 3 not reply to every one of the excellent points that he made. I should certainly need to look at Hansard for a long time before I could answer him satisfactorily. However, I shall do my best in terms of one or two—
Lord Kingsland: I understand entirely that the Minister may feel unable to reply to Amendment No. 275J. I could not find it in the group. Indeed, I could not find it anywhere in today's groupings. It may well be that the matter was dealt with on a previous Committee day However, in the context of the set of amendments, I felt it appropriate to deal with that point.
Lord McIntosh of Haringey: We understand that it was debated with Amendment No. 241N.
Lord Kingsland: In saying what I said, I by no means felt that I was necessarily in the right. The Minister has pointed out that, indeed, it has already been debated. I understand entirely that the Minister does not want to repeat what he said previously.
Lord Bach: I do not, and the noble Lord made the point that Amendment No. 275N is in the next group and will no doubt be answered.
Amendment No. 275G is in this group. It concerns the opportunity for the authority to vary a decision notice that does not dilute anyone's rights because it is subject to requirement for consent. As regards final notices, we have previously said, and I repeat, that they will replace the Part V and Part VIII penalty notice provisions. We shall oppose those provisions on Report.
The Government's amendments to Clause 377 apply the separation requirement to supervisory decisions as well as those subject to warning and decision notices. That is the extension we thought that the Opposition sought, although the nature of those decisions requires some limited provision for urgent circumstances.
I guarantee that I shall look carefully at the other comments and questions which the noble Lord asked during his response to the amendments which I moved and shall write to him in due course.
On Question, amendment agreed to.
Clause 373, as amended, agreed to.
Clause 374 agreed to.
Clause 375 [Warning notices:]
Lord McIntosh of Haringeymoved Amendment No. 275TA:
Page 196, line 25, at end insert—
("( ) state the action which the Authority proposes to take;").
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 275UA:
Page 196, line 28. leave out paragraph (c) and insert—
("( ) state whether section (Access to Authority material) applies; and
( ) if that section applies, describe its effect and state whether any secondary material exists to which the person concerned must be allowed access under it.").
The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 275ZA, 275A, 275C, 275N, 275NA, 275NB and 275NC. They are not all government amendments, but would noble Lords opposite prefer me to deal with their amendments now or wait until they have spoken to them? I am in their hands.
Lord Kingsland: We should be delighted if the Minister would speak to these amendments as well as to the government amendments. It will save a lot of time.
10.45 p.m.
Lord McIntosh of Haringey: I recognise Amendment No. 275A tabled by noble Lords opposite. It goes too far, but as my colleagues said in another place when responding to an identical amendment, we have been considering further amendment to the provisions concerning access to the evidence relied on by the FSA.
That further consideration was prompted by representations made to us by the Law Society after the Bill had been introduced in another place and was already being debated in Committee there. The concern of the Law Society was that the FSA could, if it was minded to do so, selectively rely on evidence, such as expert witness statements, that pointed in different directions.
We accepted that point, and have been actively engaged in finding a solution. The result of those considerations are the amendments before the Committee. In all those cases to which the full disciplinary-type procedure applies— which includes market abuse, cancellation of permission, issuing a prohibition order and all those types of decision to which my noble friend Lord Bach referred in relation to third party rights—we are proposing a considerable enhancement to the right of access.
Not only will there be a right of access to the evidence the FSA is relying on, but there is in addition to be a right of access to material that the FSA has considered in arriving at its decision or which it has obtained in the course of investigating the matter and which it considers might undermine its case.

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That test is modelled on the disclosure rules that apply in criminal proceedings—I am not getting any attention from the crowded Opposition Front Bench—under the Criminal Procedure and Investigations Act, though adapted to reflect the fact that the FSA is not simply an investigatory or prosecuting body, but one with broad supervisory responsibilities. The FSA will potentially hold a large amount of evidence in relation to an authorised person that could be said to relate to the matter covered by a notice without being particularly germane to it.
It would be excessively bureaucratic if the FSA were required to assess all the information it might hold for various purposes which may be said, in some loose sense, to relate to a matter covered by a warning notice. That is why the secondary material which must be considered for granting access is deliberately restricted to matters considered by the FSA in taking the decision or obtained in the course of investigating the matter with which the notice is concerned. Without that, the extensive access requirements that we are proposing would hopelessly disadvantage the regulator.
I wish to make it clear that we would not normally apply such onerous access requirements to a regulatory body and we certainly do not regard that as a precedent for other areas. But we are conscious that the FSA is a body exercising a necessarily wide range of powers and we are sensitive to the concerns that have been expressed. We have concluded, therefore, that an approach modelled on the criminal procedures is appropriate and justified here. However, it would not be appropriate or desirable to extend those rights across the full range of FSA decisions. The disclosure rules on which they are modelled are designed for cases where there is some mischief alleged. That translates readily enough into market abuse and the various disciplinary powers.
We propose also to extend those rights where the FSA is proposing to take the ultimate step of cancelling a person's authorisation under Part IV or approval under Part V or to issue a prohibition order under Part V or Part XX. But we do not consider it appropriate or desirable to apply those rights to the majority of supervisory decisions, many of which will be relatively routine, or to the determination of applications for new or increased permission or approval, recognition or authorisation. In those cases the FSA is not judging whether X has done Y, but whether the FSA is satisfied that X meets standard Z.
Applying the rights of access to all those decision-making procedures would be excessive and would unduly interfere with the ability of the FSA to respond prudently and sensitively to the very different circumstances which different supervisory cases will present. I should add that the rights of access will apply at both the warning and decision notice stages—a further enhancement on the position under the Bill as it stands—because we have no wish to deprive a person of the opportunity to see the evidence in order to assess whether or not to refer the matter to the tribunal,
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irrespective of whether the person had previously taken the opportunity in order better to inform their representations.
We have also made provision dealing with the issues of public interest immunity and commercial sensitivity, as we said in another place that we would. Finally, we have provided that the third parties whose interests may be prejudiced by the reasons given in a warning or decision notice will also enjoy rights of access to the relevant evidence.
I turn to Opposition Amendments Nos. 275NA, 275NB and 275NC which focus on an important and interesting aspect of the new, wider access rights set out in the new clause. Subsection (2) ensures that the FSA is able to consider how similar or comparable cases have been dealt with in order to ensure proper consistency in its proposed actions and penalties, without thus opening up sensitive commercial details about other businesses to scrutiny by the subject of the action currently proposed. If action is being taken against a person X, it is no business of X's whether or not similar action was previously taken against another person, Y.
Indeed, the action in the earlier case may not have been pursued, in which case it would be unfair to reveal details of what had been proposed to another person without consent. I can see that noble Lords opposite appreciate that thinking, but they propose through Amendment No. 275NA that there should be a right of access to the material considered for comparative purposes so long as the material can be made available without disclosing the other person's identity. I cannot agree. Even if it was sufficient not to disclose Y's identity—and in many cases I doubt whether that would be sufficient to avoid revealing sensitive information about identifiable other persons—I do not accept that X has any business knowing what was or was not decided in the case concerning Y. I certainly do not see the need to require the FSA to give access to such material, which could involve a lot of additional cost in terms of editing documents.
There will, however, be considerable material in the public domain to assist X in determining whether the action proposed is in line with general FSA policy and practice. First, where the FSA proposes to impose a financial penalty under Parts VIII or XIV it will be required to have regard to its published statement of policy. The tribunal will also be able to refer to the relevant statement, and the person subject to the proposed decision, X, will be able to refer to it too.
Secondly, if the action against Y proceeded, and any consideration by the tribunal or higher court has been completed, details of the case would have been made public under the new clause on final notices and X would have access to those details. If the action was still subject to reference to the tribunal it would hardly be right to disclose any details about it, anonymous or not.
Finally, the FSA has already proposed that from the bringing into force of this legislation, the FSA annual report will include accounts of enforcement action taken, including in particular details on cases settled or

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determined by the tribunal; financial penalties imposed and costs awarded; and significant judgments by the tribunal.
Amendment No. 275NB simply says that subsection (2) does not prevent the FSA from providing a summary of the principal characteristics of those cases, Let me assure the noble Lord, Lord Kingsland, that as currently drafted, subsection (2) does not prevent that. As I have indicated, we expect that the FSA will publish some information along those lines in its annual reports.
Subsection (3)(b) enables the FSA to withhold material where providing access would be unfair given the likely significance of the material to the current case, weighed against the potential prejudice to the commercial interests of another person.
Again, the Opposition suggest that there should be a requirement to permit access to the material if the identity of the other person or persons could be withheld. That goes too far. The FSA is required to come to a conclusion about the fairness of providing access to the material. If the material can be made available in a way that is not unfair, the FSA should do so. However, requiring the FSA to provide access where, despite withholding the identities, it is still unfair to do so, would be wrong.
So again I cannot accept this amendment. The necessary discretion is already provided for. Overriding it may lead to unfair and unintended results. In resisting these amendments, I have sought to make clear that I am not disagreeing with the noble Lords that the FSA should consider whether the objections against disclosure can be satisfactorily overcome, but the new clause strikes the right balance already. I beg to move.
Lord Kingsland: This time my intervention will be mercifully telegraphic. The Government have provided that in certain cases the authority may refuse access to particular material, for example, material subject to legal privilege and where access would be unfair. That is set out in the Government's notes under the heading "Access to Authority Material".
Earlier this evening I referred to the Rowe and Davis case in which judgment was handed down in February this year. In that case we see that even public interest immunity certificates cannot make the hearing fair if evidence is withheld. However, in two other cases involving the United Kingdom that were brought before the European Court of Human Rights—Jasper and Fitt—the court held that the hearing could be fair even if evidence was withheld under public interest immunity certificates provided that, as I understand it, the judge sees the evidence and the defence is told that evidence is being withheld and is given a summary of it.
Am I entitled to conclude that that is intended to happen if the authority holds back evidence? Will the authority notify the defendant that it is withholding
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evidence and give the reasons for doing so? As the Government understand it, is that the current position?
Lord McIntosh of Haringey: I believe that to be the case.
Lord Kingsland: I am much obliged.
On Question, amendment agreed to.
The Deputy Chairman of Committees (Lord Lyell): I have to inform the Committee that, if Amendment No. 275ZA is agreed to, I shall not be able to call Amendment No. 275A in the name of the noble Lord, Lord Kingsland, although I believe he has spoken to it already.
Lord Bachmoved Amendments Nos. 275VA to 275ZA:
Page 196, line 29, leave out subsection (2).
Page 196, line 36, leave out ("or copied").
Page 196, line 37, at end insert—
("( ) The Authority may extend the period specified in the notice.").
Page 196, line 39, leave out ("carry out its proposal") and insert ("give the person concerned a decision notice").
Page 196, line 40, leave out subsection (5).
On Question, amendments agreed to.
Clause 375, as amended, agreed to.
Clause 376 [Decision notices]:
Lord McIntosh of Haringeymoved Amendment No. 275B:
Page 197, line 5, leave out (", or not to take,").
The noble Lord said: This amendment was debated with Amendment No. 274N. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 275C:
Page 197, line 6, after ("relates") insert—
("( ) state whether section (Access to Authority material) applies; and
( ) if that section applies, describe its effect and state whet her any secondary material exists to which the person concerned must be allowed access under it;").
On Question, amendment agreed to.
Lord Bachmoved Amendments Nos. 275D and 275E:
Page 197, line 10, at end insert—
("(1A) If the decision notice was preceded by a warning notice, the action to which the decision notice relates must be action under the same Part as the action proposed in the warning notice.")
Page 197, line 11, leave out subsections (2) and (3).
On Question, amendments agreed to.
Lord McIntosh of Haringeymoved Amendment No. 275F:
Page 197, line 36, leave out subsections (5) to (7).

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On Question, amendment agreed to.
Lord Bachmoved Amendment No. 275G:
Page 198, line 6, at end insert—
("(8) The Authority may, before it takes the action to which a decision notice ("the original notice") relates, give the person concerned a further decision notice which relates to different action in respect of the same matter.
(9) The Authority may give a further decision notice as a result of subsection (8) only if the person to whom the original notice was given consents.
(10) If the person to whom a decision notice is given under subsection (8) had the right to refer the matter to which the original decision notice related to the Tribunal, he has that right as respects the decision notice under subsection (8).").
On Question, amendment agreed to.
Clause 376, as amended, agreed to.
Lord McIntosh of Haringeymoved Amendment No. 275H:
After Clause 376, insert the following new clause—
NOTICE OF DISCONTINUANCE
(" .—(1) If the Authority decides not to take—

(a) the action proposed in a warning notice, or

(b) the action to which a decision notice relates,

it must give a notice of discontinuance to the person to whom the warning notice or decision notice was given.
(2) But subsection (1) does not apply if the action proposed in a warning notice was the refusal of an application made by the person to whom the notice was given.
(3) A notice of discontinuance must identify the proceedings which are being discontinued.").
The noble Lord said: This amendment was spoken to with Amendment No. 241N. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 275J:
After Clause 376, insert the following new clause—
FINAL NOTICE
(" .—(1) If the Authority has given a person a decision notice and the matter was not referred to the Tribunal within the period mentioned in section 124(1), the Authority must, on taking the action to which the decision notice relates, give the person concerned and any person to whom the decision notice was copied a final notice.
(2) If the Authority has given a person a decision notice and the matter was referred to the Tribunal, the Authority must, on taking action in accordance with any directions given by—

(a) the Tribunal, or

(b) the court under section 128,

give that person and any person to whom the decision notice was copied a final notice.
(3) A final notice about a statement must—

(a) set out the terms of the statement;

(b) give details of the manner in which, and the date on which, the statement will be published.

(4) A final notice about an order must—

(a) set out the terms of the order;

(b) state the date from which the order has effect.

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(5) A final notice about a penalty must—

(a) state the amount of the penalty;

(b) state the manner in which, and the period within which, the penalty is to be paid;

(c) give details of the way in which the penalty will be recovered if it is not paid by the date stated in the notice.

(6) In any other case, the final notice must—

(a) give details of the action being taken;

(b) state the date on which the action is to be taken.

(7) The period stated under subsection (5)(b) may not be less than 14 days beginning with the date on which the final notice is given.
(8) If all or any of the amount of a penalty payable under a final notice is outstanding at the end of the period stated under subsection (5)(b), the Authority may recover the outstanding amount as a debt due to it.").
The noble Lord said: This amendment was spoken to with Amendment No. 241N. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 275K:
After Clause 376, insert the following new clause—
PUBLICATION
(" .—(1) Neither the Authority nor a person to whom a warning notice or decision notice is given or copied may publish the notice or any details concerning it.
(2) A notice of discontinuance must state that, if the person to whom the notice is given consents, the Authority may publish such information as it considers appropriate about the matter to which the discontinued proceedings related.
(3) A copy of a notice of discontinuance must be accompanied by a statement that, if the person to whom the notice is copied consents, the Authority may publish such information as it considers appropriate about the matter to which the discontinued proceedings related, so far as relevant to that person.
(4) The Authority must publish such information about the matter to which a final notice relates as it considers appropriate.
(5) But the Authority may not publish information under this section if publication of it would, in its opinion, be unfair to the person with respect to whom the action was taken or prejudicial to the interests of consumers.
(6) Information is to be published under this section in such manner as the Authority considers appropriate.
(7) "Notice of discontinuance" means a notice given under section (Notice of discontinuance).
(8) "Consumers" means person who are consumers for the purposes of section 129.").
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendments Nos. 275L and 275M:
After Clause 376, insert the following new clause—
("Third party rights and access to evidence
APPLICATION OF SECTIONS (THIRD PARTY RIGHTS) AND (ACCESS TO AUTHORITY MATERIAL)
Sections (Third party rights) and (Access to Authority material) apply to—

(a) a warning notice given in accordance with section 56(1), 62(3), 66(1), 88(1), 116(1), 200(1), 248(1), 272(1), 322(1), 335(2) (whether as a result of subsection (1) of that section or section 242(1)) or 372(1);

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(b) a decision notice given in accordance with section 56(3), 62(4), 66(4), 88(4), 117(1), 192(3)(a), 201(1), 248(2), 272(2), 322(3), 335(3) (whether as a result of subsection (1) of that section or section 242(1)) or 373(1).").

After Clause 376, insert the following new clause—
THIRD PARTY RIGHTS
(" .—(1) If any of the reasons contained in a warning notice to which this section applies relates to a matter which—

(a) identifies a person ("the third party") other than the person to whom the notice is given, and

(b) in the opinion of the Authority, is prejudicial to the third party,

a copy of the notice must be given to the third party.
(2) Subsection (1) does not require a copy to be given to the third party if the Authority—

(a) has given him a separate warning notice in relation to the same matter; or

(b) gives him such a notice at the same time as it gives the warning notice which identifies him.

(3) The notice copied to a third party under subsection (1) must specify a reasonable period (which may not be less than 28 days) within which he may make representations to the Authority.
(4) If any of the reasons contained in a decision notice to which this section applies relates to a matter which—

(a) identifies a person ("the third party") other than the person to whom the decision notice is given, and

(b) in the opinion of the Authority, is prejudicial to the third party,

a copy of the notice must be given to the third party.
(5) If the decision notice was preceded by a warning notice, a copy of the decision notice must (unless it has been given under subsection (4)), be given to each person to whom the warning notice was copied.
(6) Subsection (4) does not require a copy to be given to the third party if the Authority—

(a) has given him a separate decision notice in relation to the same matter;

(b) gives him such a notice at the same time as it gives the decision notice which identifies him

(7) Neither subsection (1) nor subsection (4) requires a copy of a notice to be giver to a third party if the Authority considers it impracticable to do so.
(8) Subsections (9) to (11) apply if the person to whom a decision notice is given has a right to refer the matter to the Tribunal.
(9) A person to whom a copy of the notice is given under this section may refer to the Tribunal—

(a) the decision in question, so far as it is based on a reason of the kind mentioned in subsection (4); or

(b) any opinion expressed by the Authority in relation to him.

(10) The copy must be accompanied by an indication of the third party's right to make a reference under subsection (9) and of the procedure on such a reference.
(11) A person who alleges that a copy of the notice should have been given to him, but was not, may refer to the Tribunal the alleged failure and—

(a) the decision in question, so far as it is based on a reason of the kind mentioned in subsection (4); or

(b) any opinion expressed by the Authority in relation to him.

(12) Section (Access to Authority material) applies to a third party as it applies to the person to whom the notice to which this section applies was given, in so far as the material which the Authority must disclose under that section relates to the matter which identifies the third party.
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(13) A copy of a notice given to a third party under this section must be accompanied by a description of the effect of section (Access to Authority material) as it applies to him.
(14) Any person to whom a warning notice or decision notice was copied under this section must be given a copy of a notice of discontinuance applicable to the proceedings to which the warning notice or decision notice related.").
On Question, amendments agreed to.
Lord McIntosh of Haringeymoved Amendment No. 275N:
After Clause 376, insert the following new clause—
ACCESS TO AUTHORITY MATERIAL
(" .—(1) If the Authority gives a person ("A") a notice to which this section applies, it must—

(a) allow him access to the material on which it relied in taking the decision which gave rise to the obligation to give the notice;

(b) allow him access to any secondary material which, in the opinion of the Authority, might undermine that decision.

(2) But the Authority does not have to allow A access to material under subsection (1) if the material is excluded material or it—

(a) relates to a case involving a person other than A; and

(b) was taken into account by the Authority in A's case only for purposes of comparison with other cases.

(3) The Authority may refuse A access to particular material which it would otherwise have to allow him access to if, in its opinion, allowing him access to the material—

(a) would not be in the public interest, or

(b) would not be fair, having regard to—

(i) the likely significance of the material to A in relation to the matter in respect of which he has been given a notice to which this section applies; and

(ii) the potential prejudice to the commercial interests of a person other than A which would be caused by the material's disclosure.

(4) If the Authority does not allow A access to material because it is excluded material consisting of a protected item, it must give A written notice of—

(a) the existence of the protected item; and

(b) the Authority's decision not to allow him access to it.

(5) If the Authority refuses under subsection (3) to allow A access to material, it must give him written notice of—

(a) the refusal; and

(b) the reasons for it.

(6) "Secondary material" means material, other than material falling within paragraph (a) of subsection (1) which—

(a) was considered by the Authority in reaching the decision mentioned in that paragraph; or

(b) was obtained by the Authority in connection with the matter to which the notice to which this section applies relates but which was not considered by it in reaching that decision.

(7) "Excluded material" means material which—

(a) has been intercepted in obedience to a warrant issued under any enactment relating to the interception of communications;

(b) indicates that such a warrant has been issued or that material has been intercepted in obedience to such a warrant; or

(c) is a protected item (as defined in section (Protected items)).").

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The noble Lord said: This amendment was spoken to with Amendment No. 275UA. I beg to move.
Lord Kingslandmoved, as an amendment to Amendment No. 275N, Amendment No. 275NA:
Line 10, after ("A") insert ("unless it is possible to provide this material without disclosing the other person's identity").
The noble Lord said: I have not spoken to these amendments and I am delighted to do so now. Amendments Nos. 275NA, 275NB and 275NC are our amendments which to seek to amend the new clause in Amendment No. 275N. They would require the authority to disclose additional information which the authority could withhold under subsections (2)(a) and (b) of the new clause, and under subsection (3)(b). Amendments Nos. 275NA and 275NC concern information which can be disclosed without identifying the person concerned—that is to say, a person other than the person against whom the authority action is being taken. I beg to move.
11 p.m.
Lord McIntosh of Haringey: I spoke to these amendments, with the agreement of the Opposition Front Bench, at inordinate length. But clearly we are not meeting each other in debate. Perhaps I can undertake to write to the noble Lord or even meet him to discuss the details, in the light of what I said at length and what he said rather more tersely.
Lord Kingsland: I am happy to read what the noble Lord said in Hansard. If I feel that I need a further reaction from the noble Lord, I shall send him an appropriate signal. I beg leave to withdraw the amendment.
Amendment No. 275NA, as an amendment to Amendment No. 275N, by leave, withdrawn.
[Amendments Nos. 275NB and 275NC, as amendments to Amendment No. 275N, not moved.]
Amendment No. 275N agreed to.
Clause 377 [The Authority's procedures]:
Lord McIntosh of Haringeymoved Amendment No. 275P:
Page 198, line 9, after ("of") insert ("—
( ) supervisory notices; and
( )")
The noble Lord said: In rising to move Amendment No. 275P I shall be more cautious. I shall speak to the government amendments and let the Opposition move their amendments. We can vary these procedures as it suits us. I shall speak to Amendments Nos. 275Q, 275R, 276, 276ZA and 276AA at the same time.
Clause 377(2) requires the authority to have procedures designed to ensure that the final decision giving rise to a warning or decision notice is taken by someone not involved in gathering the evidence. This subsection was introduced in response to a recommendation of the Joint Committee that the Bill
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should enshrine the role envisaged for the FSA's "Enforcement Committee". It deliberately leaves open the form that this separation must take, so as not to set the FSA's current administrative procedures in stone. It is right that it should be able to change them from time to time in the light of experience and in line with best administrative practice.
As Clause 377 is currently drafted, this separation requirement would apply only to decisions which give rise to a warning notice and a decision notice. This covers disciplinary type decisions and decisions to revoke authorisation, approval and so forth, and decisions to refuse (or not fully grant) applications.
The Government's Amendments Nos. 275P, 275Q and 275ZA apply the important principle of separation also to supervisory decisions such as decisions to vary Part IV permission. I believe that that goes beyond what was required to meet the concerns of the Joint Committee, but they should be all the more welcome to the Committee for that.
However, this extension raises new issues. We are all conscious of the need to ensure that the authority is able to act speedily when necessary in order to ensure that consumers are not put at risk. That concern has lain behind many of these procedural changes. Amendment No. 275R therefore allows the authority's procedures to provide for a supervisory decision to be taken by an appropriately senior person within the authority even though he may have been involved in some way in gathering the evidence, if this is necessary in order to avoid harm to the interests of consumers which might be caused if the decision was delayed whilst it was considered by a separate person.
It is of course important that this should not mean that decisions are taken by someone unsuitable within the authority. Accordingly, the amendment goes on to provide that the person must be of a level of seniority appropriate to the importance of the decision, and this level of seniority must be specified in the published procedure on which the authority is required to consult by Clause 378.
The "supervisory notice" category is defined by Amendment No. 276AA to cover notices issued in relation to decisions taken to intervene in relation to a collective investment scheme under Clause 250; to suspend promotion of an overseas collective investment scheme under Clause 261; to intervene in relation to an overseas scheme under Clause 273; or to impose a requirement on a former underwriting member of Lloyd's under Clause 314.
We will bring forward amendments at Report to extend that to include the procedures applicable for varying an authorised person's Part IV permission, for discontinuing or suspending the listing of any securities under Part VI, or for imposing requirements under Part XIII on an incoming firm. We did not insert the references to these new clauses at this stage because some of the new clauses themselves need to be added on Report.

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The remaining government amendment in this group, Amendment No. 276, is a minor drafting point. I beg to move.
Lord Kingsland: I shall respond to what the Minister has said on Amendment No. 275R, while my noble friend Lord Saatchi will speak to our Amendment No. 276A.
As regards Amendment No. 275R, this amendment inserts a new subsection, subsection (2A) in Clause 377. It sets out a requirement that the authority must determine the procedure it is to follow in relation to the giving of warning and decision notices, to which are now added supervisory notices as defined in Amendment No. 276AA.
The most important part of this procedure is that the decision that gives rise to the obligation to give a notice is to be taken by a person not directly involved in establishing the evidence on which the decision has been based. In other words, the investigatory function is to be separated from the enforcement function. As I understand it, Amendment No. 275R will provide an exception to this principle. The exception will be that in the case of supervisory notices, the decision to issue the notice can be taken by the same person investigating, if the authority thinks that this is necessary in order to protect the interests of consumers, and if the person taking the decision is of a sufficiently senior level.
I can see the sense in this procedure, which the Government have indicated will apply only where it is necessary for the authority to act swiftly in emergencies. However, although the authority may need to take the enforcement decision quickly, I think that it would be perfectly appropriate to urge the Government also to provide that, once the enforcement decision has been taken, a separate senior official of the authority should review that decision internally and be empowered to reverse it. Presumably the emergency would then be over and therefore the normal procedures would apply, albeit retrospectively.
I emphasise that our Amendment No. 276A is still needed. It relates to Clause 377(9) which provides that the FSA's failure to follow its published procedures does not invalidate the notice given. In other words, the person who decided to issue the notice could be the same person who investigated the circumstances, even though new subsection (2A), which we have discussed, does not apply.
I understand that the Government have justified subsection (9) by saying that it is needed to correct clerical and miner inaccuracies; this is because they do not want the whole regulatory procedure to be invalidated for this reason. However, there is no limitation to clerical or other minor errors. That is why we must insist that the provision applies only if the failure is not material and does not, as it were,
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prejudice the person who receives the notice. This seems to me to play fair with both the authority and the defendant.
Lord McIntosh of Haringey: It may be helpful if, before the noble Lord, Lord Saatchi, moves the opposition amendment, I respond to the point that has been made about Amendment No. 275R. The noble Lord has made what appears to me to be a perfectly legitimate point. He has recognised the need for swift action in such cases and has suggested that subsequently there should be a review by another senior person. Perhaps I may say, first, that we are referring only to supervisory cases here, not to regulatory cases.
Nevertheless, I should like to think about the practicality of the noble Lord's suggestion for a review. Without making any commitment at this stage, perhaps I may talk to him further on the matter between now and Report stage.
Lord Kingsland: I am most grateful to the Minister for that intervention.
Lord Saatchi: I wish to speak to Amendment No. 276A. Clause 377 requires the FSA to set out procedures in relation to the giving of warning notices and decision notices. In particular, the clause separates the people who investigate from the people who decide on enforcement, which is as it should be. However, subsection (9) then allows the FSA to ignore its own procedures, which is not as it should be. So far, the Government have refused to delete subsection (9) or limit it to situations where the firm is not unduly prejudiced. The Government, I believe, think that subsection (10) solves our problem. However, we disagree because we find that that works only if the authorised firm appeals. Therefore our amendment seeks to deprive the FSA of the right to ignore its own procedures except in minor clerical cases.
Lord McIntosh of Haringey: I shall respond to Amendments Nos. 276YA and 276A. Subsection (9) of Clause 377 does not excuse the FSA from the need to take care in following its published procedures. It is important that these procedures are transparent and fair. It is also important that people can rely on their being followed.
However, subsection (9) is needed in order to ensure that the tribunal procedures, which are designed to test out the merits of the decision, cannot be hijacked by lengthy arguments on prior procedural details. For example, it would be ridiculous if a person could argue that some minor deviation in the way that a notice was drafted meant that the notice was ineffective, that the tribunal could not determine the merits of the case and that the whole procedure had to be started afresh. It would be worse still if this meant that the person was able to ignore an important supervisory notice that varied his permission or otherwise required him to behave, or refrain from behaving, in a certain way.

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In this latter situation, the arguments might potentially not be raised at the appropriate time, but months or even years later when the FSA sought to take further action against a firm which had ignored an earlier FSA decision. We would not want a minor clerical error in the drafting of a notice to be the ground for reopening a decision.
As the Government explained in another place, where the FSA has failed to follow its procedures, the appropriate course is for the tribunal to proceed to hear the case, exercising its unfettered discretion to consider the merits of the FSA's decision.
The tribunal is a first instance tribunal. The tribunal's own fair procedures should rectify any failure by giving the person a fresh chance to have a fair hearing. It is right that its consideration should overtake the FSA's consideration, including any earlier procedural errors that may have been made by the FSA. Subsection (10) makes that explicit.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendments Nos. 275Q, 275R and 276:
Page 198,1ine 11, leave out ("a warning notice or decision") and insert ("any such").
Page 198, line 13, at end insert—
("(2A) But the procedure may permit a decision which gives rise to an obligation to give a supervisory notice to be taken by a person other than a person mentioned in subsection (2) if—

(a) the Authority considers that, in the particular case, it is necessary in order to protect the interests of consumers; and

(b) the person taking the decision is of a level of seniority laid down by the procedure.

(2B) A level of seniority laid down by the procedure for the purposes of subsection (2A)(b) must be appropriate to the importance of the decision.").
Page 198, line 14, leave out ("publish") and insert ("issue").
The noble Lord said: I beg to move Amendments Nos. 275Q to 276 en bloc.
On Question, amendments agreed to.
[Amendment No. 276YA not moved.]
Lord McIntosh of Haringeymoved Amendment No. 276ZA:
Page 198, line 27, leave out ("warning notice or decision").
On Question, amendment agreed to.
[Amendment No. 276A not moved.]
Lord McIntosh of Haringeymoved Amendment No. 276AA:
Page 198, line 29, at end insert—
("( ) "Supervisory notice" means a notice given in accordance with section—

(a) (Procedure on giving directions under section 250 or varying them on Authority's own initiative)(3), (6) or (7)(b);

(b) (Procedure on giving directions under section 261 or varying them on Authority's own initiative)(3), (6) or (7)(b);

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(c) (Procedure on giving directions under section 273 or varying them on Authority's own initiative) (3), (7)(a) or (9)(a) (as a result of subsection (8)(b)); or

(d) 314(2) or (4).").

On Question, amendment agreed to.
Clause 377, as amended, agreed to.
Clause 378 agreed to.
Clause 379 [Misleading statements and practices]:
[Amendments Nos. 276AB and 276AC not moved.]
Clause 379 agreed to.
Clauses 380 and 381 agreed to.
11.15 p.m.
Clause 382 [Offences by bodies corporate etc.]
Lord Kingslandmoved Amendment No. 276B:
Page 201, line 13, leave out ("in") and insert ("constituted under the law of").
The noble Lord said: As the Committee is aware, an English limited partnership is not a legal entity and therefore each partner is treated as committing an offence committed by any of them while acting as a partner. Subsection (3) therefore provides for exemptions. The amendment makes sense of subsection (3). Conversely, it is ridiculous to think that there are exemptions for partners of any partnership provided only that the offence is committed in England.
So far as concerns Amendment No. 276C, subsection (4) is the opposite of subsection (3). It surely relates to a Scottish limited partnership, which is a legal entity. This is why the liability provisions are set out in the same language as those for a body corporate in subsection (1). Again, it does not make any sense that any kind of partnership will have its partners liable on this basis provided only that the offence is committed in Scotland. I beg to move.
Lord McIntosh of Haringey: These amendments seek to replace the definition of a partnership "in" England or Scotland with the formula of a partnership "constituted under the laws of" England or Scotland.
I am grateful to the noble Lord for bringing forward these amendments. I can see that there might be some confusion as to whether what is being referred to in subsections (3) and (4) is the "nationality" of the partnership—that is, whether it is constituted under English, Scots or Northern Ireland law—or the territory in which the offence may have been committed.
Unfortunately, I am unable to accept the amendments as they stand. Although they would leave the Bill in a form which might cover partnerships formed in any part of the UK, they would not cover a partnership constituted under the laws of a foreign state. Since it is possible for such partnerships to do business in the UK, and to commit offences in the UK, it is clearly necessary that the Bill should enable us to deal with such persons.

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I can assure the noble Lord, Lord Kingsland, that we are aware that there is a problem and that we intend to bring forward amendments which will deal with the problem he has identified.
Lord Kingsland: I can hardly believe it. I think that is four in a row. I am very much obliged to the Minister.
Lord McIntosh of Haringey: Let me assure the noble Lord that I went further this time than I went last time.
Lord Kingsland: I am extremely happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 276C not moved.]
Clause 382 agreed to.
Clauses 383 to 388 agreed to.
Lord McIntosh of Haringeymoved Amendment No. 276D:
After Clause 388, insert the following new clause—
GIBRALTAR
(" .—(1) The Treasury may by order—

(a) modify Schedule 3 so as to provide for Gibraltar firms of a specified description to qualify for authorisation under that Schedule in specified circumstances;

(b) modify Schedule 3 so as to make provision in relation to the exercise by UK firms of rights under the law of Gibraltar which correspond to EEA rights;

(c) modify Schedule 4 so as to provide for Gibraltar firms of a specified description to qualify for authorisation under that Schedule in specified circumstances;

(d) modify section 258 so as to make provision in relation to collective investment schemes constituted under the law of Gibraltar;

(e) provide for the Authority to be able to give notice under section 258(2) on grounds relating to the law of Gibraltar;

(f) provide for this Act to apply to a Gibraltar recognised scheme as if the scheme were a scheme recognised under section 258.

(2) The fact that a firm may qualify for authorisation under Schedule 3 as a result of an order under subsection (1) does not prevent it from applying for a Part IV permission.
(3) "Gibraltar firm" means a firm which has its head office in Gibraltar or is otherwise connected with Gibraltar.
(4) "Gibraltar recognised scheme" means a collective investment scheme—

(a) constituted in an EEA State other than the United Kingdom, and

(b) recognised in Gibraltar under provisions which appear to the Authority to give effect to the provisions of a relevant Community instrument.

(5) "Specified" means specified in the order.
(6) "UK firm" and EEA right" have the same meaning as in Schedule 3.").
The noble Lord said: I gave notice of this amendment in the Second Reading debate. This is a new clause which has been introduced to take account of several matters arising from Gibraltar's status within the European Economic Area.
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The provisions of the treaty relating to the right of establishment and the freedom to supply services apply to Gibraltar. However, Gibraltar is not a separate member state in its own right, but its nationals have rights to passport into other member states on the basis that it is part of the UK for these purposes.
Because of this unique status, there is no Community obligation to provide the passporting mechanism between the UK and Gibraltar. However, it has been the established policy of the previous Government and of this one to provide for an "internal passport" between Gibraltar and the UK for the activities covered by the passport directives, as and when we are satisfied with the relevant regulatory standards in Gibraltar. The clause provides the necessary mechanism for this. It carries forward existing provisions (subsection (1)(a)) in the relevant regulations which give the Treasury the power to extend the passport arrangements to Gibraltar firms which are covered by one of the single market directives.
At present, if they comply with the relevant notification procedure, Gibraltar insurance companies are allowed to passport their services into the UK. Similarly, Gibraltar credit institutions are allowed to passport into the UK for the provision of banking services. But this does not yet extend to investment services; investment firms have not yet been granted the right to passport into the UK. The Gibraltar insurance companies and credit institutions which benefit from this passport will continue to do so. Further passport rights will be granted as and when we are satisfied with the relevant regulatory standards in Gibraltar. As now, the passport will be optional and not an exclusive route to authorisation. Gibraltar firms will still have the option of seeking Part IV permissions.
The clause also enables the Treasury to enable firms from other EEA states which have exercised passport rights to branch or provide services into Gibraltar to then exercise those rights in relation to the United Kingdom proper without going through the full directive notification requirements. The phrase "or otherwise connected with Gibraltar" ensures that the power is broad enough to cover such firms. Without this, we might be in breach of our obligations under the directives.
The clause also gives the Treasury the power under subsection (1)(b) to extend the application of Schedule 4 so that a Gibraltar firm can exercise treaty rights if it is authorised by the Gibraltar competent authority and the relevant conditions in Schedule 4 are met. Subsection (1)(c) gives the Treasury the power, by order, to extend the application of Part III of Schedule 3 in relation to the exercise by UK firms of rights to establish branches or to provide services into Gibraltar in accordance with the equivalent provisions under Gibraltar law.
Subsection (1)(e) enables the Treasury to modify the provisions of Clause 258 so that the authority can refuse to admit a collective investment scheme from

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another member state if the way in which it proposes to market its units is incompatible with requirements imposed in Gibraltar in the general good. This is necessary to accommodate the possibility that a collective investment scheme from another member state may acquire an automatic right to sell units in Gibraltar once it is recognised by virtue of Clause 258. The clause will confer no new rights on Gibraltar firms until the relevant powers are exercised, but existing rights will continue. I beg to move.
Lord Elton: I am sure that this is welcome in Gibraltar. My only concern is with subsection (3) and the definition of "Gibraltar firm", which means,
"a firm which has its head office in Gibraltar or is otherwise connected with Gibraltar".
That seems to be a term almost without boundary. It could have a partner living in Gibraltar; it could have a branch office in Gibraltar; it could have been, as my noble friend put it, elsewhere constituted or incorporated under the law of Gibraltar. I wonder whether there is anywhere in the Bill, or there is going to be anywhere in the Bill, a more precise definition of what this means.
Lord McIntosh of Haringey: I have attempted, but clearly not successfully, to set this out. The clause enables the Treasury to enable firms from other EEA states which have exercised passport rights to branch or provide services into Gibraltar to then exercise those rights in relation to the United Kingdom proper without going through the full directive notification requirements. The phrase "or otherwise connected with Gibraltar" ensures that this power is broad enough to cover such firms. Without this, we might be in breach of our obligations under the directives.
On Question, amendment agreed to.
Clause 389 agreed to.
Lord Saatchimoved Amendment No. 276E:
After Clause 389, insert the following new clause—
("City Code
STATEMENTS OF POLICY: CITY CODE
.—(1) Subject to subsection (2), the Authority may adopt a policy that it will not exercise its powers under sections 113, 120, 368 and 370 in respect of conduct which is not in conformity with the City Code except following a request by the Panel that the Authority consider whether to exercise all or any of these powers.
(2) Subsection (1) does not apply in respect of behaviour which satisfies the condition in section 109(2)(a).
(3) The Authority may adopt the following policy in respect of the exercise of its powers under section 368(1) to (3), namely that, in any case where the Authority is of the opinion that—

(a) any application or proposed application by the Authority for any order or interdict under that section, or

(b) the making, confirmation or continuance of any order or interdict made under that section,

may materially affect the timetable or outcome of an offer to which the City Code applies, the Authority shall consult the Panel—
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(i) before making or proceeding further with the application, and

(ii) (in any case where the Authority forms such opinion after an order or interdict has been made) before making any further representations to the court seeking the confirmation or continuance of the order or interdict.

(4) Where the Authority has adopted a policy within subsections (1) or (3), such policy shall be recorded in a statement issued under this section and the provisions of section 114(6) to 114(8) shall apply to a statement issued under this section.
(5) The Authority shall not exercise its powers under sections 113, 120, 368 and 370 in a manner which is not in accordance with any statement of policy issued under this section.
(6) The provisions of this Act which refer to the Panel or to the City Code shall not be construed as imposing any statutory duty on the Panel and no such duty shall be imposed on the Panel by reason of anything done or not done by the Authority or the Panel under or in connection with such provisions.
(7) Neither the Panel nor any person who is, or is acting as, a member, officer, member of staff or agent of the Panel is to be liable in damages for anything done or omitted which is or may be connected in any way with the exercise or purported exercise of any duty, power or function of the Authority under this Act unless the act or omission is shown to have been in bad faith.
(8) In this section—
"conduct which is not in conformity with the City Code" means conduct of a person which, in the opinion of the Panel, does not conform with the responsibilities imposed on that person by the City Code (as applied by the Panel);
"offer" has the meaning given in the City Code, as determined by the Panel.").
The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 276F. The amendments concern the Panel on Takeovers and Mergers. Amendments Nos. 277A and 277C add consequential definitions of the City code and the panel to the definitions contained in Clause 392. I gather that the Treasury says that it does not want the FSA's powers to intervene in cases of market abuse to be fettered in any way by the takeover panel. The reason given is that it is believed that in the regulation of market abuse, self-regulation has failed and needs to be replaced by statutory regulation. These amendments would avoid the FSA being drawn into takeover regulation, which I am told is an outcome that Treasury officials and the FSA say they desire, and they would eliminate the danger of possible damage by the unintended consequence of regulatory overlap between the two bodies.
I cannot dispute that there have been significant failures in the self-regulation of financial services—famously, in the case of the insurance markets. Meanwhile, the Takeover Panel's non-statutory regulation of takeovers, which at its heart includes the regulation of behaviour which creates a misleading impression or distorts the market, has been effective. That is widely recognised in the City. I also acknowledge the view that the current legal framework under the Criminal Justice Act has been ineffective in deterring or punishing the misuse of unpublished information. But our amendments would not impact in any way on the manner in which the new FSA market abuse regime would address that.

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The Treasury says that it does not want to create the unusual situation of a non-statutory body being responsible for deciding in respect of certain abuses whether and when action could be taken under a statutory regime. It is true that, while the panel does not have statutory functions, it nevertheless has statutory recognition; for example, as a body to which disclosures may be made under Section 180 of the Financial Services Act 1986. It also has statutory underpinnings; for example, through the endorsement of the takeover code under Section 47A of the same Act. The courts have taken the view that the panel performs a public duty. In due course, when the European takeover directive is adopted and implemented in UK law, the panel will, like the FSA today, be a private body with statutory functions.
Therefore, we believe that the best way to safeguard effective takeover regulation while also enabling the FSA to administer the market abuse regime consistently across all markets, is to amend the Bill in two ways: first, behaviour which complies with the takeover code would not constitute market abuse—that is, it would be a safe harbour; secondly, in cases of non-compliance with the takeover code, the panel would have the ability to pass serious cases to the FSA based on criteria and parameters which should be pre-agreed between the panel and the FSA, for the FSA to consider whether market abuse had occurred and whether to take further action. But other than in those circumstances, the FSA would not intervene directly. That is what our Amendments Nos. 276E and 276F achieve. I beg to move.
Lord Borrie: The Government should consider this amendment in a positive way. The Bill as drafted may well adversely affect the effectiveness, credibility or authority of the Takeover Panel and the City take-over system that hay operated for some 30 years. The difficulty with the Bill as drafted is that there is an overlap between the market abuse powers of the Financial Services Authority under the Bill and the role of the Takeover Panel under the self-regulatory code which has operated to ensure fair and equal treatment and that best business standards are observed during a takeover. Under the terms of the Bill, many breaches of the code will also amount to market abuse.
The great advantage that many people have seen of the code system over the years is that it is flexible and speedy, and it enables decisions which are made speedily to be both binding and final. The virtues of those factors were, for example, recognised by the Court of Appeal in the well known Datafin case in 1986. I am sorry that the noble and learned Lord, Lord Donaldson, who presided over that court is not in his place. Briefly, the courts then decided that they were not, for good reason, willing to intervene contemporaneously with anything to do with a take-over while the bid was being conducted. They would intervene, in the courts' own words, historically but not contemporaneously, so that the matter could be determined on a rapid basis. That decision, some 14 or 15 years ago, forestalled the very bad possibility of tactical litigation in which a party to a bid might use
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judicial review proceedings simply as a ploy, which was not helpful to anyone concerned. The virtues of self-regulation have been recognised by the present and past Governments in their relationship with and attitude towards intended European Union directives from Brussels.
If the panel's decision is no longer binding and final because somebody could seek—for meritorious or unmeritorious reasons—a different decision from the FSA, the virtues of speed and finality could be lost. If the authority, without any statutory power, were to leave things to the panel and reject claims of market abuse, the FSA could be subject to judicial review on the ground that it has improperly fettered its own discretion. The Bill gives the authority discretion. It does not have a statutory power to exercise a self-denying ordnance. The amendment would add a useful self-denying ordnance.
Even if the Government do not think that the drafting is precisely right, the amendment recognises the principle of trying to avoid a duality of authority and the risks of tactical litigation—which would put the clock back after many years in which governments and the courts have recognised the present system as useful.
11.30 p.m.
Lord Taverne: The letter that I assume we have all received from the Director-General of the Takeover Panel makes a persuasive case. The amendments seem to meet the problems set out in that letter—to which the noble Lord, Lord Borrie, referred. I hope that the Government will take account of them but I trust that the amendments as drafted are not the last word. It took me a long time to understand what was being said, for example, by Amendment No. 276F—which lacks the eloquence that is generally present in the Bill.
Lord Elton: As an ex-member of the panel, I endorse the remarks of the noble Lords, Lord Borrie and Lord Taverne. I ask the Government to pay close attention to the case made by my noble friend Lord Saatchi.
Lord McIntosh of Haringey: We have certainly paid close attention to the case that has been made. I had the pleasure of meeting the Director-General of the Takeover Panel and his colleagues with my noble friend Lord Richard. Also, a number of meetings have taken place between the panel and Treasury officials.
There is not too much between us. Neither we nor the FSA want the authority pulled into the tactical manoeuvring of parties to takeover battles. It is important that the interests of shareholders are not unnecessarily affected during takeover bids. That can be achieved through the FSA's enforcement policies and code of market conduct. The amendments acknowledge that there may be times when it will be appropriate for the FSA to intervene during or after a takeover, to take action against those who have engaged in or are engaging in market abuse.
Broadly speaking, these amendments would allow the FSA to adopt a policy that in takeovers it would take action in market abuse cases only where the Takeover Panel requested it to do so. The panel has

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indicated that it would, for example, seek to involve the FSA where its own rulings were not complied with or it believed that a penalty might be merited. Given that all sides acknowledge that there will be occasions when it is appropriate for the FSA to take action under its market abuse powers, the key question is: who should take that decision? We firmly believe that the decision in a particular case should rest with the statutory regulator charged by Parliament with the responsibility to tackle market abuse across the board.
The fundamental theme of the Bill is that all financial regulation, including self-regulation, should be brought within the umbrella of the Financial Services Authority. We cannot accept that it is right for the FSA to adopt a policy of exercising its market abuse powers in the case of a takeover only on the say-so of the panel. We are setting up the FSA as the single statutory regulator of the financial services industry. What the FSA does is conditioned by the objectives and principles given to it by Parliament, among them the protection of consumers and the maintenance of market confidence. In the area of market abuse we are giving it new powers to protect the financial markets and extending its reach to cover both regulated and unregulated persons. Together with that, it has statutory powers of investigation which enable it to compel people to answer questions.
While the Takeover Panel does a satisfactory job in regulating the conduct and process of takeovers, it is a very different body. The remit of the panel is much narrower than that of the FSA and is concerned with the interests of the shareholders of companies involved in takeovers—and why not? That is perfectly reasonable. There are good reasons for maintaining the current non-statutory approach to the regulation of takeovers. We want the process to be as quick and efficient as possible. But as far as concerns market abuse, the last word should rest with the body to which Parliament has given the job of tackling it. There are interests at stake other than those of the shareholders and the various parties to a takeover: the interests of other market participants and the market as a whole. Concerns about fairness and efficiency are at the heart of what we are doing.
Having said that the issue is narrower than may have appeared from the debate which has taken place, I hope that the Committee will not pursue the amendment and will allow the FSA, the Treasury and the Takeover Panel to continue the discussions which are in course at the present time.
Lord Northbrook: Can the Minister say whether there may be a conflict of interest in a case where a company which is subject to a takeover bid appeals to the FSA after the Takeover Panel has made an adjudication? That may be a more disadvantageous situation than the previous regime where the Takeover Panel makes a judgment. The whole regulatory framework may be more complicated, leading to delays in bid situations.
Lord McIntosh of Haringey: I entirely agree with the noble Lord. We do not want the dual responsibilities to be exercised in such a way that one party plays one off against the other, or appeals from one to the other. That is what the current discussions between the Takeover Panel and the FSA are about.
Lord Elton: This is a complex and important matter. I hope that my noble friend will be able to provide noble Lords with an opportunity to debate this matter at a later stage when we are not quite as tired and anxious to conclude, as I am for one.
Lord Saatchi: I am grateful to all noble Lords on all sides of the Committee who have supported these amendments. We shall return to this matter at Report stage. This issue is much too important to debate at a quarter to 12, and perhaps we shall have another opportunity to debate it at a later stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 276F not moved.]
Clauses 390 and 391 agreed to.
Lord McIntosh of Haringeymoved Amendment No. 277:
After Clause 391, insert the following new clause—
("Limitation on powers 10 require documents
PROTECTED ITEMS
.—(1) A person may not be required under this Act to produce, disclose or permit the inspection of protected items.
(2) "Protected items" means—

(a) communications between a professional legal adviser and his client or any person representing his client which fall within subsection (3);

(b) communications between a professional legal adviser, his client or any person representing his client and any other person which fall within subsection (3) (as a result of paragraph (b) of that subsection);

(c) items which—

(i) are enclosed with, or referred to in, such communications;

(ii) fall within subsection (3); and

(iii) are in the possession of a person entitled to possession of them.

(3) A communication or item falls within this subsection if it is made—

(a) in connection with the giving of legal advice to the client; or

(b) in connection with, or in contemplation of, legal proceedings and for the purposes of those proceedings.

(4) A communication or item is not a protected item if it is held with the intention of furthering a criminal purpose.").
The noble Lord said: Amendment No. 277 was debated with Amendment No. 89. I beg to move.
On Question, amendment agreed to.
Clause 392 [Definitions]:
[Amendments Nos. 277ZA and 277A not moved.]
Lord McIntosh of Haringeymoved Amendment No. 277B:
Page 207, leave out line 46.
The noble Lord said: This amendment was debated with Amendment No. 226D. I beg to move.
On Question, amendment agreed to.
[Amendment No. 277C not moved.]
Lord McIntosh of Haringeymoved Amendment No. 278:
Page 208, leave out lines 32 and 33.
The noble Lord said: This amendment was debated with Amendment No. 168. I beg to move.
On Question, amendment agreed to.
Clause 392, as amended, agreed to.
Clauses 393 to 396 agreed to.
Clause 397 [Controller]:
[Amendment No. 278A not moved.]
Clauses 397 to 400 agreed to.
Clause 401 [Privileged communications]:
On Question, Whether Clause 401 shall stand part of the Bill?
Lord McIntosh of Haringey: I gave notice in the debate on Amendment No. 89 that I should oppose the Question that Clause 401 shall stand part of the Bill.
Clause 401 negatived.
Clause 402 [Consequential and supplementary provision]:
Lord Kingslandmoved Amendment No. 278B:
Page 214, line 3, leave out subsection (4) and insert—
("(4) No provision of this Act other than section (Imposition of restrictions or requirements by the Treasury) restricts powers conferred by this section.").
The noble Lord said: In moving the amendment, I speak to Amendment No. 278D. Amendments Nos. 278B and 278BA are, I think, consequential and supplementary provisions. On Amendment No. 278C, it is our view that the Treasury should be made subject to the same objectives as the authority. Only that will enable persons successfully to lobby the Treasury not to impose the authorisation requirement where that is not necessary to protect investors and to provide exemptions from the financial promotion regime.
Amendment No. 278D would require the Treasury to consult when exercising its power to make regulations or orders under the Act. Noble Lords are probably aware that a similar amendment was tabled previously in relation to particular powers of the Treasury to make orders. If the authority wishes to make rules, it has to go through a consultation procedure. But the Treasury does not have to do so. Many believe that it should have to undergo the same procedure. I beg to move.
Lord Bach: The new clause introduced by Amendment No. 278C is concerned with the constraints on the Treasury when exercising its delegated legislative powers conferred by the Bill.
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Amendment No. 278D takes a slightly different route but essentially that, too, is directed at restricting the exercise of powers by the Treasury.
I understand the thinking behind Amendment No. 278C. It is certainly not the Treasury's practice or intention to make regulations that are not necessary for a particular purpose, nor to make regulations that would in any way seek to damage competition, competitiveness or innovation. However, the difficulty with a provision such as this is that its effect cannot really be determined until the powers under the Bill are being exercised. For example, there could be a difficulty if we were required by EC directives or treaties to include within the regulated activities order something that we were not entirely persuaded on consumer protection grounds merited being subject to regulatory burdens.
From time to time, we all know that unforeseen circumstances arise that need to be dealt with. By their nature, we cannot predict what these will be or when they will arise. However, the Bill states clearly, so far as possible, what the relevant powers to make regulations and orders are for and how they are to be used. Many of the powers are very narrow in scope.
Amendment No. 278B is a consequential amendment to Clause 402 to ensure that the restrictions that would be introduced by Amendment No. 278C would apply equally to orders under Clause 402.
I hope that I can give the noble Lord reassurance about Amendment No. 278BA. I shall be plain and up-front about it. Part of the reason for having a provision along the lines of Clause 402—it is a fairly common Bill provision—is to enable the government of the day to cope with things that could not have been envisaged at the time the legislation was enacted, or matters of such detail that it would have been inappropriate for them to feature in a Bill. That is particularly important in a Bill of this length and complexity which is designed to enable the effective regulation of dynamic and diverse markets.
Amendment No. 278D seeks to impose on the Treasury obligations to consult on draft secondary legislation. Members of the Committee will be well aware that the Treasury has undertaken a number of consultation exercises on its proposed exercise of powers under the Bill. However, we must not lose sight of the reason for subjecting the authority to consultation and cost-benefit requirements. That reason is because the Bill will confer on the authority delegated powers to make legislative provision without parliamentary scrutiny. Of course, the same is not true in the case of the powers conferred on the Treasury. Secondary legislation will be made subject to parliamentary scrutiny. Therefore, we argue that the amendments are unnecessary. Normal parliamentary procedures provide adequate protection. I hope that the noble Lord will consider my reply and not press his amendments tonight.
11.45 p.m.
Lord Kingsland: I shall do precisely what the Minister has asked me to do. I shall consider what he said and shall not press the amendment tonight. I beg leave to withdraw it.
Amendment, by leave, withdrawn.
[Amendment No. 278BA not moved.]
Clause 402 agreed to.
[Amendment No. 278C not moved.]
Clause 403 agreed to.
[Amendment No. 278D not moved.]
Clause 404 [Parliamentary control of statutory instruments]:
Lord Bachmoved Amendment No. 278E:
Page 214, line 15, after ("(d)") insert (", (Open-ended investment companies)(5)").
On Question, amendment agreed to.
Lord Bachmoved Amendment No. 278F:
Page 214, line 22, after ("(4)") insert ("or (4A)").
The noble Lord said: The Government have tabled amendments in response to one of the recommendations of the Delegated Powers and Deregulation Committee. Clause 36 confers on the Treasury a power by order to exempt persons from the general prohibition under Clause 17. An exempt person would not, therefore, need to be authorised to carry on regulated activities.
The Bill as it stands would make an order under Clause 36 subject to the negative resolution procedure. The effect of the amendments is to require an affirmative resolution procedure in one of two cases. The first case is the first order made under the powers in Clause 36. This will ensure that there is opportunity for a proper debate on the persons who are to be exempted from regulation at the time the Bill is brought into force. A second case, which was not a matter that the Delegated Powers and Deregulation Committee addressed, is when the Treasury makes a further order under Clause 36, the effect of which is to remove an exemption. We believe that an affirmative resolution procedure should additionally apply in that case because the effect of such an order is to extend the scope of regulation.
The proposals therefore parallel the procedures that would apply to the making of the first order, defining "regulated activities" under Clause 20, and subsequent orders which add new activities. We thank the Delegated Powers and Deregulation Committee for the valuable role it has played in scrutinising the delegated legislative powers conferred by the Bill. That committee made a number of helpful recommendations which the Government were pleased to accept. I beg to move.
On Question, amendment agreed to.
Lord Bachmoved Amendment No. 278G:
Page 214, line 35, at end insert—
("(4A) This subsection applies to an order under section 36 if—
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(a)it is the first order to be made, or to contain provisions made, under that section; or

(b) it contains provisions restricting or removing an exemption provided by an earlier order made under that section.").

On Question, amendment agreed to.
Clause 404, as amended, agreed to.
[Amendment No. 279 not moved.]
Clauses 405 and 406 agreed to.
Clause 407 [Minor and consequential amendments, transitional provisions and repeals]:
Lord Bachmoved Amendment No. 280:
Page 215, line 16, at end insert—
("( ) Schedule 18A makes transitional provisions.").
The noble Lord said: Amendments Nos. 280 and 281 are the first of the transitional provisions that we have introduced to the Bill. Amendment No. 280 is a paving provision to introduce new Schedule 18A regarding transitional provisions. Amendment No. 281 is the start of the transitionals schedule. It inserts into the Bill provisions which deal with the transition from the current regulatory structure under the Financial Services Act 1986 to those to be established under the Bill.
Under the 1986 Act, the authority has responsibility for recognising the self-regulating organisations for the purposes of Section 8 of the Act and Schedule II to the Act in relation to friendly societies. It also has a continuing responsibility in relation to the supervision of organisations which are recognised under those provisions. Firms are able to carry on investment business on the basis of an authorisation conferred by the 1986 Act on persons who are members of an SRO recognised under the Act.
The transition to the new regulator is, of course, well under way. Responsibility for banking supervision was transferred to the authority in 1998. Responsibility for the supervision of insurance was transferred in 1982 and has been contracted out to the authority by the Treasury. Similarly, the authority is supporting the Building Societies Commission, the Friendly Societies Commission and the Registry of Friendly Societies in relation to credit unions in performing their statutory functions, again, on a contractual basis. The authority has also entered into arrangements with the three self-regulating organisations—PIA, IMRO and SFA—for which it performs many functions, also under contract. The staff of those organisations have already transferred, for the most part, to the FSA.
The need for a transition provision of this kind is particular to the recognised SROs. To a large degree, it is a result of the legal status of those organisations. Provision is needed because they are self-regulating organisations, the members of which are the regulated community. As the date for the commencement of the Bill approaches, there will be an increasing need for the authority to be able to exercise close control over the affairs of those organisations so as to ensure the smooth handling of the final stages of the transition. The authority will need to be able to do that

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consistently with the provisions of the 1986 Act, which currently do not envisage the kind of relationship that will be required It is also important that the directors of the SROs do not do anything that puts them in breach of their statutory obligations; for example, under the Companies Acts.
This provision will help to achieve what is needed. It will, for example, with the consent of the SROs, allow the authority to begin to appoint directors to those companies so that it can better co-ordinate the transition from the old system to the new. I beg to move.
On Question, amendment agreed to.
Clause 407, as amended, agreed to.
Schedule 18 agreed to.
Lord Bachmoved Amendment No. 281:
After Schedule 18, insert the following new schedule—
("SCHEDULE 18A TRANSITIONAL PROVISIONS AND SAVINGS
Self-regulating organisations
1.—(1) No new application under section 9 of the 1986 Act (application for recognition) may be entertained.
(2) No outstanding application made under that section before the passing of this Act may continue to be entertained.
(3) After the date which is the designated date for a recognised self-regulating organisation—

(a) the recognition order for that organisation may not be revoked under section 11 of the 1986 Act (revocation of recognition);

(b) no application may be made to the court under section 12 of the 1986 Act (compliance orders) with respect to that organisation.

(4) The powers conferred by section 13 of the 1986 Act (alteration of rules for protection of investors) may not be exercised.
(5) "Designated date" means such date as the Treasury may by order designate.
(6) Sub-paragraph (3) does not apply to a recognised self-regulating organisation in respect of which a notice of intention to revoke its recognition order was given under section 11(3) of the 1986 Act before the passing of this Act if that notice has not been withdrawn.
(7) Expenditure incurred by the Authority in connection with the winding up of any body which was, immediately before the passing of this Act, a recognised self-regulating organisation is to be treated as having been incurred in connection with the discharge by the Authority of functions under this Act.
(8) "Recognised self-regulating organisation" means an organisation which, immediately before the passing of this Act, was such an organisation for the purposes of the 1986 Act.
(9) "The 1986 Act" means the Financial Services Act 1986.
Self-regulating organisations for friendly societies
2.—(1) No new application under paragraph 2 of Schedule 11 to the 1986 Act (application for recognition) may be entertained.
(2) No outstanding application made under that paragraph before the passing of this Act may continue to be entertained.
(3) After the date which is the designated date for a recognised self-regulating organisation for friendly societies—

(a) the recognition order for that organisation may not be revoked under paragraph 5 of Schedule 11 to the 1986 Act (revocation of recognition);

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(b) no application may be made to the court under paragraph 6 of that Schedule (compliance orders) with respect to that organisation.

(4) "Designated date" means such date as the Treasury may by order designate.
(5) Sub-paragraph (3) does not apply to a recognised self-regulating organisation for friendly societies in respect of which a notice of intention to revoke its recognition order was given under section 11(3) of the 1986 Act (as applied by paragraph 5(2) of that Schedule) before the passing of this Act if that notice has not been withdrawn.
(6) Expenditure incurred by the Authority in connection with the winding up of any body which was, immediately before the passing of this Act, a recognised self-regulating organisation for friendly societies is to be treated as having been incurred in connection with the discharge by the Authority of functions under this Act.
(7) "Recognised self-regulating organisation for friendly societies" means an organisation which, immediately before the passing of this Act, was such an organisation for the purposes of the 1986 Act.
(8) "The 1986 Act" means the Financial Services Act 1986.").
On Question, amendment agreed to.
Schedule 19 [Repeals]:
Lord Eltonmoved Amendment No. 282:
Page 268, line 9, at end insert—

("1977 c. 46.

The Insurance Brokers (Registration) Act 1977.

The whole Act.")

The noble Lord said: I should be very unpopular if I spent long on this amendment. I tabled it in a spirit of inquiry as it seemed to me that the current legislation which we are discussing now makes the apparatus set up under the Insurance Brokers (Registration) Act 1977 superfluous. Since I tabled it, I understand that the Government are of the same mind and are intending to repeal that Act.
I am glad that they have this opportunity to do so because, while it was still active, it was a difficult anomaly in the self-regulatory field in which I acted and I should not wish that anomaly to persist and annoy in years to come. I shall listen with great interest to the Minister's reply.
Lord Bach: I would like to thank the noble Lord, Lord Elton, for moving this helpful amendment. I can assure him that the Government are happy to accept the amendment in principle. He may have been told that before the amendment was called. Indeed, the Government have already announced their intention to repeal the 1977 Act as part of their reform of the financial services regulatory structure. However, I would ask that the matter is not pressed further at this stage.
The council is a statutory body, and it is therefore necessary to make provision for dealing with its abolition in statute. However, there are certain transitional matters arising from repeal that we need t o ensure are adequately addressed. We will need, in particular, to consider whether we need to make provision to deal with any assets and liabilities that the council may have, and to deal with any contracts or litigation that arise.

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I hope the Committee will understand that the final shape of transitional and consequential provisions depends on the substantive provisions in the Bill. My noble friend's officials are currently discussing the associated transitional issues with the council. Those issues are complex but they are technical rather than substantive. However, the Government accept the point in principle and will bring forward appropriate amendments as part of their package dealing with repeals. Once again, we express our thanks to the noble Lord.
Lord Elton: I am grateful to the noble Lord. If he nods, I take it that the amendments will be brought forward in this Bill on Report or at Third Reading. In that case, I am happy and satisfied to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 19 agreed to.
Clause 408 agreed to.
House resumed: Bill reported with amendments.

Business
Lord Carter: My Lords, before my noble friend Lord Bach moves the Motion, perhaps I may apologise to the House for having to take these important orders so late at night. In particular, I thank the noble Baroness, Lady Blatch, for her forbearance and patience in waiting. We entered the House together in 1987 and we have followed each other's careers with interest ever since.
The noble Baroness has been a Minister and she will know that the business does not always proceed as smoothly as Chief Whips and Opposition spokesmen would like. I really am grateful to her for her co-operation in taking these orders at the end of business for reasons outside my own control, which I have explained to her, and for her patience in waiting to deal with them. Again, I thank the noble Baroness.

Education (Student Loans) (Repayment) Regulations 2000
11.58 p.m.
Lord Bachrose to move, That the draft regulations laid before the House on 17th February be approved [11th Report from the Joint Committee].
The noble Lord said: My Lords, these regulations will introduce a new system for the repayment of student loans. They will provide for the collection of repayments through the tax system. The level of repayments will be linked to levels of income.
These regulations are the first dealing with the repayment of student loans to be made under Section 22 of the Teaching and Higher Education Act 1998. They were laid before Parliament on 17th February and have been considered by the Joint Committee on
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Statutory Instruments. They were considered by the other place on 8th March. We apologise for the delay in bringing the regulations before the House. Our intention was to have done so towards the end of last year, but the drafting of the regulations raised a number of difficult issues.
The regulations introduce three important changes to the present system of student loan repayment. They bring in, first, a new repayment threshold of £10,000 per year; secondly, a liability to repay 9 per cent of income above that level; and, thirdly, the collection of repayments through the tax system.
Perhaps I may briefly draw the House's attention to the main aspects of the regulations. Part I includes their extension to the United Kingdom, where they confer powers on the Board of the Inland Revenue. Part II contains general provisions, including liability to repay from 6th April after a borrower has completed or left higher education; when loans will be cancelled; and when borrowers will be entitled to a refund of repayments. Part III deals with recovery through self-assessment for tax. Borrowers, who are required for tax reasons to submit a self-assessment tax return, will be liable to repay 9 per cent of total annual income over £10,000, including any taxable unearned income in excess of £2,000. Provisions in that part of the regulations describe also which sources of income will be excluded from that liability.
Part IV covers recovery by employers, which is the main part of the regulations, as most recovery of student loans will be carried out by employers. Loan repayments will be collected and accounted for by employers in the same way as for income tax and national insurance. Deductions will be based on 9 per cent of a borrower's earnings over £192 per week, or £833 per month, which is equivalent to £10,000 per year. Part V gives the Secretary of State powers to recover student loans from borrowers who are not resident in the UK for income tax purposes.
The new arrangements will in time affect large numbers of graduates and employers. We have therefore consulted extensively. An employers group helped the Inland Revenue to identify ways of keeping additional work for employers to a minimum, and with a range of technical issues. My department held a 10-week public consultation. The regulations require employers to undertake a new activity, but the additional work has been kept to a minimum and the effect on employers generally is gradual. A regulatory impact assessment, lodged in the Libraries of both Houses, sets out the impact on employers, as well as the benefits of the new scheme.
We took particular note of the points raised in relation to small businesses and have agreed, importantly, to conduct a review of the impact on small firms after the first year of the scheme. We shall consider any additional help if the impact on small businesses is found to be unduly burdensome. In planning the introduction of the new arrangements, my department and the Inland Revenue have ensured that borrowers and employers have been kept well informed.

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The draft regulations before the House will enable the Government to introduce a fairer and more effective system for recovering student loans. It will become an integral part of our new student support system. I beg to move.
Moved, That the draft regulations laid before the House on 17th February be approved [11th Report from the Joint Committee].—(Lord Bach.)
Baroness Blatch: My Lords, I thank the Chief Whip, in his absence, for his kind remarks earlier. I hope that the House will forgive me, even at this late hour, if I say that I am somewhat puzzled. First, I agreed to debate these regulations some weeks ago on a Friday. They were pulled, or withdrawn—whatever the word is—because the noble Baroness, Lady Blackstone, could not he present. She is not present this evening, so I find it extraordinary that the debate could not have been carried out on that day as arranged.
Secondly, the Minister has just said that everyone has been kept informed. I might say everyone except myself. As the Shadow Minister for Education in this House, I have not been kept informed at all. Thirdly, I find it absolutely extraordinary that we have just had a statement from the Minister without a single mention of a report which I discovered had been released only by reading about it in a newspaper this morning—the report of the Scottish Fee Support Review. It slipped out yesterday.
On a daily basis I receive missives from the Department for Education and Employment, glossy brochures—usually with a foreword from the Secretary of State—photographs, illustrative drawings and massive supporting press releases. However, interestingly the Quigley report, which we have debated many times and asked when it is likely to be published, came out without a single press release, in an absolutely plain cover, with not a photograph in sight and absolutely no notification to me as the chief Opposition spokesman on this issue.
I notice that the Liberal Democratic Benches are completely empty for such an important subject.
This matter is not only highly controversial, but has also been the subject of votes in this House. Votes have been won by this House when the matter has gone backwards and forwards between the two Houses; and yet the Government have seen fit not to give any publicity, as far as this House is concerned, in relation to this order, other than to lay it down technically yesterday.
The recommendation completely vindicates the stand that we took on the issue of the Scottish anomaly. The Government have not only lost this battle, but they have decided to concede it. When did that happen? When did the Secretary of State take that decision? They say that the Scottish Executive has also conceded the battle. When?
If this report was produced only yesterday, when did the meetings take place; who decided the outcome; and who was informed about them? I understand that the Secretary of State for Education and Employment, David Blunkett, welcomes the publication of the
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report that looks into the fees for students from England, Wales and Northern Ireland who, in their fourth year, study in Scotland. The Quigley report recommends that Scotland should meet the cost of exempting such students from paying tuition fees in that year. The Scottish Executive has accepted that recommendation; and Mr Blunkett welcomes the report and congratulates George Quigley and other members of the committee on their thorough examination of all the relevant issues. Although the Government accept the recommendations addressed to them in the report, there has been not a word from the Minister tonight about that.
The report has been somewhat overtaken as the anomaly has changed in that Scottish students in Scotland will not pay fees at all. They will have no obligation to pay fees up front, but when they have completed their degrees and are earning above a determined threshold, they will make a graduate contribution. So a completely different system and a completely new anomaly now exists.
It would be helpful to know exactly where the order fits into the report that has been laid, totally unannounced, before the House and the effect of the changes that have taken place in Scotland which create yet another anomaly between Scottish students and English, Welsh and Northern Ireland students. Is the concession whereby Scottish students in Scotland do not pay tuition fees, other than a graduate contribution when they have completed their degrees, enjoyed by EU students, but not by English, Welsh and Northern Ireland students, or is that concession exclusive to Scotland? If that is the case, why has it not been extended to EU students when the original concession was deemed to be a legal obligation that had to be extended to such students?
Given the short notice that I have had in regard to these orders, I find it extraordinary that the order states that it will come into force on 1st April. I am told that the DfEE was unaware of that—it had thought the date would be in the middle of April—and that it forgot to tell us until less than 48 hours ago that it had decided to go ahead with these regulations now as they come into force on Saturday.
I am sure that the noble Lord will agree that they are shatteringly complex. There are six or seven A4 pages of fairly close type just explaining the order, let alone reading the legalese of it. The Bill itself was passed in 1998. The orders were laid before Parliament in February 1999, which is more than a year ago. These matters should have been discussed weeks ago, as they were in the Commons. But, as I said, the Minister pulled out simply because the noble Baroness was unable to be here. Yet suddenly, in extremely indecent haste, we have to deal with this order past midnight on a Thursday night.
I now deal with some of the detail of the Bill. The noble Lord may not be familiar with it because he was not party to the detailed discussions on it. We still regard the threshold of £10,000 as being very low indeed. For someone with that income it represents 20 per cent which they would be ordered to repay. It

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would be helpful to know from the Minister what is the present average national wage and the degree to which £10,000 falls below it. My understanding is that the debt is cancelled at the age of 65 and not, as previously, as the age of 50 or after 25 years. The marginal tax rate, for example, for a person earning £15,000 a year will be considerable. It would be helpful to know in percentage terms what that would be.
The noble Lord said that there had been a great deal of consultation with employers and that the impact on them would be minimal. We have not seen joined up government in the past three years from this Government. Each department is putting burdens on the employer. Family tax credits and so many other benefit systems are for the employer to sort out and no one else. This measure is just one more burden on the employer.
It is not just a question of taking this matter in isolation and saying that it will not impact very much on employers. It would be very helpful to know what the combined burden from all the Bills passing through Parliament will mean to employers. Has there been a costing and, if so, what is it? Has there been a financial appraisal? I have not seen one. When I was asked to take these orders at short notice I asked whether I could receive all related material. I have received nothing but the orders, other than picking up the Quigley report on my own.
If employers need not know the size of an employee's loan, how will the employer know when to cease taking payments from an ex-student? It is extraordinary that an employer need not know the extent of the loan. It would be helpful to know how the employer is expected to second guess that.
When this matter was discussed in another place the honourable gentleman, Mr Wicks, referred to the Inland Revenue, which would send a notice to employers to inform them that they have an employee who has a student loan and when repayments should start. What system will be used by the Inland Revenue to know where a student is working? For example, there are addresses and names. Many students have similar names. They do not always return to the home address. Frequently, they go to another address in another part of the country. What will be the system for keeping tabs on those students when they move away? Will it be the job of the Inland Revenue, the local authority, the ex-institution or a government department? How will that work?
Out of interest, will the £10,000 threshold for repayment be uprated for inflation as time passes? It would also be helpful if the noble Lord were able to explain how the two different systems—the Scottish and the English systems—will be dealt with by the Inland Revenue. Scotland is not charging fees for its students. It is charging a graduate contribution that will be paid when the student has completed a degree. Yet in England fees will be paid on an annual basis, including for the fourth year. So those are two completely different systems and yet we have a UK-wide Inland Revenue system which will have to operate separately and differently for different
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students. As we know, there are Scottish students who live in England and Scottish students who live in Scotland, and they will be treated differently.
Again, the noble Lord made no reference at all to the fact that we have the Bill as it is passed as an Act; we have the Act as it will be changed by the Quigley Report, because we now know that the Scottish Executive agreed it and the Secretary of State agreed it; and we also have the changed situation as a result of the recent Scottish Parliament decision.
Postgraduate students were referred to again by Mr. Wicks. The information he gave is interesting in relation to postgraduate courses. A postgraduate teacher-trainee does not pay fees. The UK Government exempted postgraduate teacher-trainees from paying for what would be their fourth year; they do their degree in three years and for the year in which they do their PGCE they will not be paying fees at all. What does the reference mean therefore when it says that PGCE students will be exempt from fees? They are already exempt from fees.
Yet another announcement that was made this morning by the Secretary of State for Education—again to Radio 4 in the morning but not to Parliament—was that postgraduate students in their fourth year doing their teacher-training year are to be given a grant of £6,000, and an extra £4,000 if at the end of that time they become employed in a school. I will point out an anomaly which I regard as grossly unfair. In this country there are around 24,000 schools, almost 20,000 of which are primary schools. Predominantly, the teachers who teach in our primary schools do four-year Bachelor of Education courses. The postgraduate courses are mainly taken by those people who go into secondary school teaching. Is it fair that the bulk of the teachers who teach in United Kingdom schools, and certainly in English, Welsh and Northern Ireland schools, will receive no relief for their fourth year, yet their fellow teachers who teach in secondary schools and do a fourth-year PGCE will not only be exempt from paying fees, but will have a grant of £6,000 followed by another grant of £4,000 if and when they receive a teaching job? I regard that as pretty unfair and extremely anomalous for our primary school teachers.
I understand that penalties levied by the Inland Revenue will be pretty severe. Given the complexity of the system—I have never seen anything quite so complex—it is possible that there will be students who default on their repayments simply because they do not understand the system. We know that there will also be those who can pay but wilfully will not pay. It is important that some sensitivity is exercised by the Inland Revenue and local authorities when considering the degree of wilfulness in terms of defaulting on repayment. When the system is in full swing it will affect up to 1 million students, almost all employers and almost all families. It is extremely important, therefore, that that issue is addressed. The Government are talking about a slow start and a slow build-up; but each year it will grow quite quickly.

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The next issue relates to overseas students. Some overseas students will be UK-resident students who, at the end of their degree course, go and work abroad; there will then be the overseas students who come into our UK universities and at the end of their courses return to their country of origin. Given that only a small section in Part V of today's order mentions overseas students, it would be helpful to know the mechanism used to trace such students. At col. 7 of the Standing Committee's deliberations of 8th March, Mr. Wicks stated:
"To help ensure compliance, a borrower who does not supply evidence of income may be liable to repayments based on a notional income, set at twice UK national average earnings".
I have already asked the Minister what are the national average earnings. It seems to me that twice that level will represent a very sizeable income to deem to be notional. It will affect many students who simply disappear from this country and go abroad. Are they to be set a notional income and will this debt pile up behind them?
I understand that practically the first task students must complete before they go abroad is to inform the Inland Revenue that they are going abroad. I do not know if any noble Lords present have had a son or daughter prepare to leave the country, but I certainly have. My son left to undertake research in Japan. I know that the last thing on his mind was to let the Inland Revenue know what he was doing. He was much more preoccupied with the practical business of moving from the UK to another country. If he had forgotten to inform the Inland Revenue, what would be the penalty?
How will the payments be managed? How will they be enforced if these people simply disappear into the ether in other countries? What about European Union students? Although they reside in more neighbourly countries, how will they be traced?
A number of questions were asked of the Minister in another place, but they were not answered for lack of time. I shall ask them now because the Government have had a long time to think about the matter and I have no doubt that they have all the answers. If a student works in a foreign regime that is subject to a double taxation agreement, would the deduction of a loan repayment be regarded as a payment and reduce his net income?
Perhaps I may also refer to part-time and seasonal earnings. A student's income could fall below the £10,000 threshold in the course of a year. In that case, if he could produce a self-assessment form, could he reclaim some of the loan repayments he had already made? If not, his income might be reduced to an unacceptably low level. How will the repayments of self-employed students be calculated? Furthermore, how will they be phased? Their income may fall under Schedule B, which is taxed in the current year, or under Schedule E, which covers income from a trade and is taxed in the preceding year. Which will be used to calculate the deduction? Can the Minister confirm whether the £10,000 income will be upgraded each year in respect of average earnings?
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Will the cut-off point for freedom from debt at pensionable age be set at 60 for women and 65 for men, or is it to be set at 65 for both? In paragraph 15(6) relating to capital receipts, will the unearned income under £2,000 that is to be disallowed include capital receipts? Paragraph 36 of the order covering deduction for employers makes it clear that an attachment of earnings order for income tax is a priority, but what will happen if an attachment of earnings order for income tax is already in place as well as one for another purpose? I am thinking of payments to the Child Support Agency, for example. What priority will be given to the loan? Whatever happened to phase 3 of the plans to sell the student loans portfolio? What are the most up-to-date drop-out rates from our universities?
The noble Lord will by now have guessed that not only am I pretty dissatisfied at having to respond to these orders at such late notice—given the reason that the noble Baroness could not be present on a previous occasion—but I am also extremely angry that we have had to undertake our own detective work to sort out Quigley and understand what it says. We have had to discover the information the Secretary of State had already decided not to give out in a press release, when almost anything that happens at the DfEE is released to the press. I have to say that if the department has good news to tell, one gets it quickly. However, if it is bad news it is hidden under a stone.
Lord Glentoran: My Lords, I want to wear my Northern Ireland hat. I attended the debate about the fees. None of the Unionist Peers is able to be present. I am sure that they knew nothing about the Quigley report and probably knew little about the measure that we are discussing.
The Quigley report was published on 29th March, some 24 hours ago. Perhaps I should declare an interest in as much as Sir George Quigley is a personal friend of mine. The Quigley report contains a number of recommendations. Recommendation 3 concerns Northern Ireland. It recommends,
"that Northern Ireland should consider how best to ensure that its students are not disadvantaged by the deficiency of higher education places in the province".
It clearly makes the point that Northern Ireland students will be disadvantaged in this respect. As I understand the position, the Secretary of State has accepted that recommendation, has done a U-turn, and is now agreeing to some fee concessions. I want to be told whether Recommendation 3 in the Quigley report still applies or whether it has been covered in the announcement of the Secretary of State earlier today, or, rather, yesterday, as we are now into Friday.
I believe that the Secretary of State said that the fee concessions for fourth year students will apply for those starting in 2001. That makes no sense whatever. It is quite ridiculous. I believe that the position in Scotland has changed anyway and there are now to be no fees in Scottish universities. What will the fee structure for Northern Ireland students comprise for the first three years? I can see absolutely no conceivable reason whatsoever why this concession should not apply to those who joined Scottish

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universities in 1998, 1999 or 2000. Why should they be disadvantaged? This is total and utter government rubbish! I see no reason why students in Northern Ireland and elsewhere who are subject to the ridiculous law that was passed—on which a U-turn is now being done—should suffer.
I want absolute clarification of the position for students in Northern Ireland. What fees will they pay for the first three years? What will be the concessions? Why should students who joined Scottish universities in 1998, 1999 and 2000 be disadvantaged in this way?
Lord Bach: My Lords, I am grateful to other noble Lords who have spoken in this debate. I remind noble Lords that today we are discussing student loan repayments; we are not discussing tuition fees. Although it is, of course, legitimate to broaden the debate, I am sure the House will forgive me if I concentrate on—
Baroness Blatch: My Lords—
Lord Bach: My Lords, perhaps I may just finish my first point before I am interrupted. I hope that the House will forgive me if at this hour of the night I concentrate on what we are supposed to be discussing; namely, student loan repayment regulations. But before I do so, I remind the noble Baroness, Lady Blatch, that when she criticises by implication the Minister for not being present when she was available two weeks ago, the Minister was in Lisbon on government business. I was not on government business but I was not available. That must have been the reason that this measure was not discussed on that day.
Having said that, I echo the words of my noble friend the Chief Whip in thanking the Opposition and particularly the noble Baroness for her courtesy in agreeing to discuss these measures tonight. I apologise to her for the lateness of the hour at which they are being debated. However, I hope that she will consider that any criticism she made of my noble friend the Minister was misplaced in this context. I see that she wishes to interrupt.
Baroness Blatch: My Lords, I wish to raise two issues on both of those points. First of all, the noble Lord reminds us that we are talking about repayments and therefore chides us slightly for talking about fees. It is some of the fees that are being repaid. It is what students borrow—that is, fees and maintenance grants—that they have to repay. One cannot talk about repayments unless one talks about the source of the borrowing.
Secondly, I did not schedule the Friday we are discussing. The Government Whips Office did so on the basis of the Minister being present. That was not my fault. The matter was then withdrawn because the Minister was not there. It clearly stated on the face of the order that the matter should be dealt with by 1st
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April, in which case it should have been rescheduled fairly quickly after the cancellation of the business that day.
Lord Bach: My Lords, I am grateful to the noble Baroness. We do not want to go any further over spilt milk. However, I insist that what we are talking about are loans which students have taken out for maintenance. The issue that has been raised at considerable length concerns tuition fees—and I cannot see the relevance of tuition fees to this particular order.
Let me try to answer briefly some of the questions that have been raised. I am astonished by the noble Baroness's attack so far as concerns the Quigley report. As I understand it, there was a Written Answer yesterday in the Hansards of both this House and the other place which dealt with the Quigley report. I hasten to say—I am sure the noble Baroness will agree—that it is an excellent report, which we welcome. Sir George and his committee have done a thorough job. No doubt the next time that the noble Lord, Lord Glentoran, sees Sir George he also will congratulate him on a job well done in looking at the issue of whether students from England, Wales and Northern Ireland studying in Scotland should continue to make a contribution to their tuition fees in their fourth year.
The Government accept the recommendations addressed to the issue. As the noble Baroness reminded us, the Scottish Executive has also accepted the recommendation that it should meet the net costs of the tuition fees of students from England, Wales and Northern Ireland in their fourth year in Scottish universities. The Scottish Executive has accepted the recommendation because, as the committee pointed out, it is the Scottish universities which receive the benefit of those fees and which would suffer if those students were deterred from studying by the extra year's fees. The committee was clear that this was not a matter for the Secretary of State.
I shall move on now to try to answer some of the questions raised by the noble Baroness. The current average national wage is some £21,000 per annum. However, I should point out that the new system we are setting in place by this order is income-based. It is contingent and sensitive. If someone does not obtain or receive £10,000 a year, he or she will not be repaying any loan that they owe. If they fall below £10,000 in the course of a year, they will not have to repay any loan while they remain earning less than £10,000 a year.
Under the old scheme, repayments were over a fixed period and were not income contingent; the amount of the repayments was determined by the size of the loan, not the level of income. That was the previous position. We believe that the advantages of the new scheme are shown by the fact that if the same fixed-term repayments were kept for new loans, a borrower with a loan of £10,000, for example, and an annual income of £20,000 would be repaying £2,000 a year. Under these arrangements that person would be

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repaying £900 a year. A liability to repay £2,000 would be reached under our scheme only when earnings exceeded £32,000.
The noble Baroness asked a number of questions arising out of the order being discussed in another place. I suspect that she has not yet seen—there is no reason why she should have—a letter sent to her honourable friend Tim Boswell, MP, from my honourable friend Malcolm Wicks. It deals with a number of the points she raised and I shall make sure that she is sent a copy of the letter forthwith.
Let me deal briefly with the question of students who go abroad. Borrowers outside the UK tax system who fail to give the Student Loans Company the information for which it asks or who do not make repayments may incur penalties. For example, failure to provide information may mean that the company will increase the amount of interest. Noble Lords will know that the amount of interest charged in the normal way is inflation linked. The rate of interest charged on repayments not paid can increase to three times the normal rate of interest. Continuing failure to make repayments may mean that the debt is accelerated, which means that the Student Loans Company can seek a court order for the full repayment of the loan in a single payment. Any problems that we have under this new system will not be new to the Student Loans Company because there have been problems under the old system as well.
I was asked how employers will know when to stop collecting the money. The Inland Revenue will tell them when to stop. I was asked how the Inland Revenue will know when students move. It will use the national insurance card number that former students have. The Inland Revenue and the Student Loans Company monitor that. Of course there will be some minor costs for employers in operating the scheme. But even for the smallest employer we do not believe that the amount will be very great in the scheme of things. We are determined to look again in a year's time to see whether it has been a real burden on business and on employers. If it has, no doubt we will consult and consider what to do about that.
Finally, the current drop-out rate for students is about 18 per cent. That figure has remained fairly consistent for some time.
Baroness Blatch: My Lords, before the noble Lord sits down, I asked a great many more questions. I am assuming that I will receive answers in writing to any questions that were not answered by the noble Lord in his response. Do I take it now that in order to receive information I have to look up Hansard each day to see whether something has been produced from the DfEE? That is not consistent with the way in which I have been receiving information from the DfEE. As for the letter—if there is a letter in existence—as I was dealing at such short notice with the regulations, I was told by the Whips' Office that officials would provide me with all relevant information and papers. Those were not forthcoming. I am interested to know that people who are earning £10,000 are to be hounded in this way and that if they default on payments inflation is to be
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added at three times the level. I find that a rather severe way to deal with people on such low incomes. But if that is the Government's way with students, so be it.
My noble friend Lord Glentoran has not had an answer to his question about students who started in 1998, 1999 and 2000.
Lord Bach: My Lords, before the Question is put, perhaps I may ask the noble Baroness this. Is she saying that Conservative Party policy is to be against the principle behind the regulations?
Baroness Blatch: No, my Lords. I am saying that the threshold for paying back under our system was 75 per cent of the national average wage, which is a great deal more than £10,000.
Lord Glentoran: My Lords, I have not had answers to the questions I asked. I want to know why students from Northern Ireland who started in 1998, 1999 and 2000 should be penalised. Why does this fee exemption start for those who join in 2001?
Lord Bach: My Lords, I shall write to the noble Lord with the answers to the questions that he asked during the course of the debate, which is now over.
On Question, Motion agreed to.

Foundation Subject (Amendment) (England) Order 2000
12.37 a.m.
Lord Bachrose to move, That the draft order laid before the House on 24th January be approved [7th Report from the Joint Committee].
The noble Lord said: My Lords, the draft order creates, under Section 354(6) of the Education Act 1996, a new national curriculum foundation subject of citizenship in key stages 3 and 4 from the start of the school year 2002. It gives schools, under Section 354(4)(a), the power to offer pupils the opportunity to study any modern foreign language in addition to offering them the opportunity to study one or more of the official languages of the European Union under the foundation subject of modern foreign languages from the start of the school year 2000. It changes the designation of the foundation subject of art to one of art and design from the start of the school year 2000.
The proposals set out in the order were included in the consultation on the review of the national curriculum during last summer, along with non-statutory guidelines for personal, social and health education and citizenship at key stages 1 and 2 and for PSHE at key stages 3 and 4. They received support during the consultation, and final versions (subject of course to parliamentary approval) were sent to all schools in November in handbooks containing the revised national curriculum.
The Foundation Subject (Amendment) (England) Order 2000 is the first stage of a two-stage process. The next stage will be to lay orders under Section 356(2) of

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the Education Act 1996 to give effect to the revisions to the programmes of study for existing national curriculum subjects—from the start of the school year 2000—and to the new programmes of study and attainment target for citizenship at key stages 3 and 4—from the start of the school year 2002.
We believe that the changes are needed, and that they are sensible. We are renaming art as "art and design" to better reflect the essential relationship of art and design, recognise the importance of the creative industries in the economy, and highlight the role of design in stimulating creativity in industry and commerce. We are reducing the number of attainment targets from two to one to simplify assessment and to integrate the practical and theoretical aspects of the subject. A new eight-level scale will clarify and support progression. And we have reintroduced a programme of study for art and design into the primary curriculum, to give teachers a clear framework for teaching.
The change to the modern foreign languages will allow greater flexibility for schools. European Union languages will have priority, as before, with two recent additions—Finnish and Swedish. So long as the offer of an EU language is made, any other modern language can be taught. It will be for schools to decide whether a language can be taught effectively according to the programme of study, and whether suitable assessment or examination is available. We are dropping the restriction on schools to offer only additional modern foreign languages from a prescribed list to allow a much wider range of languages to be taught in schools. That will be especially helpful in areas where there are large concentrations of pupils who may wish to learn non-EU modern foreign languages. It better reflects the changing needs of our society and pupils, and gives schools the flexibility they need to react to local demand. I should emphasise that the requirement is for a modern foreign language to be taught. Schools are free to offer Latin and so on, but as well as, not instead of, a modern foreign language.
Our plans for citizenship are part of a broader curriculum development. Citizenship in key stages 1 and 2 will be part of new non-statutory guidelines for personal, social and health education which take effect in 2000. But at key stages 3 and 4, we see a need for more distinct statutory provision to reflect the greater emphasis on community involvement, critical thinking and informed discussion within the programme of study. The statutory provision for citizenship as a new foundation subject in secondary schools will take effect from the start of the school year 2002. We have published the details almost three years early so that schools have plenty of time to build up their practice.
Our plans for citizenship have been known for some time. The support for them expressed during the consultations on the national curriculum review builds on the public support which followed the final report of the national advisory group on education for
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citizenship and the teaching of democracy in schools in September 1998—a project which had cross-party support here and in another place.
That is not surprising. Citizenship education is much needed and long overdue. Modern society is complex and fast-changing. Citizenship will help pupils to understand the world in which they live, how it works and how decisions are made. It will provide opportunities for them to develop the aspirations and the skills needed to make a positive difference to their own lives and the lives of their schools and communities through greater knowledge and understanding of politics and contemporary moral and social issues and a chance to have a real say and exercise real responsibility.
The value of citizenship education is recognised by schools, most of which already provide some teaching in this area. The programme we have developed will build on and extend that. It is flexible and will allow schools to make the most of what they do already: to teach different aspects to different depths and to be innovative in their approach.
The draft order will improve the entitlement it offers to all pupils. I beg to move.
Moved, That the draft order laid before the House on 24th January be approved [7th Report from the Joint Committee].—(Lord Bach.)
12.45 a.m.
Baroness Blotch: My Lords, my understanding is that this is a devolved issue for Wales, yet the Government have seen fit to make some recommendations. They do not represent much of a change but why are they in the order at all if the issue is devolved?
There is art, but not with design, in the Welsh list. The Government may answer that that is a devolved matter, but so too is the whole order. Why are there any national curriculum recommendations? Why is language a matter for stages 3 and 4 for England but only for key stage 3 for Wales? There is citizenship for England, but not for Wales. There is something strange in the way that the order is set out.
I recognise that it is entirely legitimate to present a national curriculum order for England, but why are all the arrangements for Wales not being dealt with by the Welsh Assembly?
The explanatory note states that the order-making power relating to modern foreign languages is being changed and that an order no longer needs to specify a modern foreign language. The Government cannot have it both ways. They cannot say that the order gives priority to European languages. The programme of study does so but that is a different matter. The legally binding article is the order, so there is real inconsistency. It would be helpful to know the reason.
According to the Minister, the order does not change priorities in respect of EU languages. What does that mean? The programme of study refers to one or more of the official working languages of the EU

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and states that non-EU languages can be offered only when secondary to an EU language. If that is legally binding, why is it not part of the order?
The situation is not the free-for-all that the Minister suggested. The Secretary of State has control over languages and will produce the list. We do not know whether the schedule will be the existing one or whether it will be changed. It would be helpful to know.
Schools are free to choose other languages, but if there are no syllabuses, set exam papers, or assessment procedures, there is no choice. When I was a Minister with responsibilities for education, there was constant pressure to remove languages from the list because so few pupils studied them and producing assessment procedures and setting examination papers involved unacceptable cost. It is a chicken-and-egg situation. If there are few student takers, the syllabuses disappear. If one wants to introduce new subjects, there will be the cost of syllabuses, of setting examination papers, and of assessment procedures. Who would incur those costs without knowing whether there would be any takers? How will that aspect be dealt with by the Government?
The Minister in the other place claims that citizenship is too important to be left to chance. What will be displaced that is less important in the curriculum? One cannot introduce a new foundation subject unless something goes. The unacceptable answer in the other place was, "All the other subjects are more or less prescriptive". Something will have to go. What exactly will slip?
Is citizenship a subject to be taught in addition to personal, social and health education? There is a great deal of overlap one with the other. Does one subsume the other, or do they continue to be separate subjects? Whether they are separate or combined, what percentage of curriculum time in schools do the Government suggest should be taken up to cover these matters, given that all children will have to study them?
It would be helpful to hear from the Government about the need for regionalism to be given such a high profile. In whit way does it fit in with the Government's focus on regional policy; and is it at the expense of strengthening communities? We know from the Learning and Skills Bill, which has just passed from this House to another place, that there is a definite movement away from community and locally-based groups to the regions. It would be helpful to know whether what is proposed here is another way to reinforce that agenda.
I am sure the noble Lord agrees that this is not an easy subject for teachers to deliver. As to that, is role play by students to be advocated? I refer, for example, to the sex guidelines, which is another sensitive subject. Certainly, sexuality is to be dealt with in one or other subject. In paragraph 4.4 we are told:
"Teachers can avoid embarrassment and protect pupils' privacy by always de-personalising discussions [on these sensitive issues]. For example, role play can be used to help pupils 'act out' situations. Case studies with invented characters, appropriate videos, and visits to theatres in education groups can all help
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pupils discuss sensitive issues and develop their decision making skills in a 'safe' environment. Some of these methods are listed below".
The guidelines go on to list them. It will be helpful to hear from the Minister whether it is envisaged that that will be the case.
Very substantial training will be required. A serious subject is to be introduced into the curriculum which covers a wide variety of aspects of life as young people mature into adulthood. How will teachers cope, especially when they deal with very sensitive and controversial issues? It is not an easy task. Are teachers to be judgmental or non-judgmental? What is the advice of the Government to teachers about that? Do they have any views on how the subject is to be delivered?
If there is to be no lengthening of the school day, what is to be sacrificed within the curriculum? What are the resource implications, and the source of funding, for this subject? Teaching mutual respect and understanding is one thing, but to deal with a plethora of political and highly controversial issues is another. I believe that a great deal of advice to teachers and governors, and information to parents, will be required as to how these issues are to be handled. For example, the Government have to an extent focused on marriage. In the sex guidelines there is an equality of focus on other lifestyles alongside marriage in terms of recognising their significance.
Where matters to do with sexuality—that is, lifestyles—as opposed to sex education, are covered in one or other of these subjects, how is the right of parents to withdraw their children dealt with? Is it likely that because sex education will be acceptable to parents their children will not be withdrawn? However, if sexuality is dealt with in a way that is unacceptable to parents, but it is covered with other subjects, where will the right of parents to withdraw their children then lie?
I agree with my honourable friend James Clappison in another place, who, when discussing these matters, said at col. 10 on 9th February 2000 in Standing Committee that,
"it would have been better if the guidelines had said more about what unites this country and binds us all together and about our common history and sense of nationhood, rather than about the things that set us apart".
He went on to say more of the same.
Out of interest, focus groups were used extensively by the Government on the question of citizenship. What a pity that public opinion focus groups were not heeded in relation to Section 28 and the sex guidelines.
Lord Bach: My Lords, I am grateful to the noble Baroness for her comments. However, I listened in vain to hear whether she supported the order in principle. Criticisms there were a-plenty, but if positive or helpful comments were made about the order, I must have missed them.
I deal with some, if not all, of the issues the noble Baroness raised. As regards Wales, the foundation subject order that was before the House does not

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change the law in Wales. The order is drafted in such a way as to amend the law in relation to England, and merely clarifies what the law is in Wales. The passing of the order does not involve legislating in relation to Wales. The order has been drafted and amended in consultation with legal advisers at the Welsh Assembly. They have no difficulty with the order and are in the process of drafting their own order to mirror our provisions.
As regards foreign languages, the noble Baroness may have missed the point. We are giving a greater potential choice. We are dropping a prescribed list. We are making it possible—we give power at least—for any foreign language to be taught. It does not take away from the importance of learning an EU language as well. That still remains. But any foreign language may now be taught provided there is the ability and willingness to teach it. The power relates to teaching any foreign language. That is an improvement, and something that I should have hoped that the noble Baroness would acknowledge.
The noble Baroness raised the point about what will give way to the teaching of citizenship. The noble Baroness will know that many schools already find time to teach citizenship in their busy programmes. We think that the revised national curriculum has a rather sharper focus, and that the citizenship programme has a somewhat light touch and is flexible. The time needed will depend on the approach taken by individual schools, many of which are already covering aspects of the order.
There are no plans to extend the school day, but we recognise that there is a wide variation in the length of time pupils are taught in schools. Although some schools have increased the length of time for which pupils are taught, many have not, or are providing less than the required minima. As levels of taught time can have a significant effect on the quality of the curriculum, we have decided to review the whole issue
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of taught time and to issue new guidance. Notwithstanding this, schools should, as a matter of good practice, review their taught-time arrangements.
I hope that the noble Baroness will forgive me if I do not go down the avenue of discussing sex education, education about sexuality, or Section 28 tonight. I think that this House has heard quite enough about that for the time being. I commend the order to the House.
Baroness Blatch: My Lords, before the noble Lord sits down, there is an inconsistency between his remarks and those of his colleague in another place, and what the order and the programmes of study say.
In Standing Committee in another place, the Minister said at col. 5 on 9th February:
"European Union languages will have priority, as before, except that there are two recent additions—Finnish and Swedish. As long as the offer of an EU language is made, any other modern language can be taught".
The order refers to any modern language. It does not refer to any European language. The noble Lord has said that schools will be entirely free to choose a modern language, but the programme of study states that one or more of the official working languages of the EU and non-EU languages can be offered only when secondary to an EU language. Who is right?
Lord Bach: My Lords, the order does not change the priority for EU languages. Schools must offer pupils the opportunity to study one or more of the official working languages of the EU. Non-EU languages count as a foundation subject only when offered with a working language of the EU. The order will remove the restriction on which additional languages schools can offer their pupils. If the noble Baroness will look at Article 2(4) of the order, she will see how "modern foreign language" is defined.
On Question, Motion agreed to.
House adjourned at one o'clock.