An overview of aspects of the coalition agreement and the Queen's speech with relevance for commercial lawyers.
The coalition agreement made between the Liberal Democrats and Conservatives and published on 20 May 2010, together with the Queen’s Speech delivered on 25 May 2010, contain a number of proposals of interest to business lawyers. However, the coalition agreement makes it clear that the deficit reduction programme will take precedence over all other measures, so it remains to be seen whether there will be sufficient funding for some of the proposals.
A selection of the key areas for change is summarised briefly below, including practitioner comment and links to more detailed coverage by our online services.
Key proposals in the area of financial services and finance include:
Regulatory reform. The regulatory structure will be reformed to: give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation; create a single agency to tackle “serious economic crime” (this agency will take on the work currently being undertaken in this area by the Serious Fraud Office, the Financial Services Authority (FSA) and the Office of Fair Trading (OFT)). A number of proposals set out in the coalition agreement, which are addressed at improving regulatory standards generally, may also affect the FSA, or any successor regulator(s). The government intends to: introduce a “one-in, one-out” rule, so that no new regulation should be brought in without other regulation being cut by a greater amount; replace “tick-box” regulation with inspections of high-risk organisations "through co-regulation and improving professional standards"; and impose sunset clauses on regulations and regulators to ensure that the need for each regulation is regularly reviewed.
Banking. The government intends to: introduce a banking levy; foster diversity in financial services, promote mutuals and create a more competitive banking industry; ensure the flow of credit to viable SMEs (small and medium-sized enterprises) (consideration will be given to a major loan guarantee scheme and the use of net lending targets for the nationalised banks); and reduce systemic risk in the banking system (an independent commission will be established to investigate the issue of separating retail and investment banking in a sustainable way).
The introduction of measures to tackle unacceptable bonuses in the financial services sector, which will be designed to be effective in reducing risk.
The creation of a free national financial advice service, entirely funded by a social responsibility levy on the financial services sector.
The introduction of consumer protection measures that will, among other things: give regulators new powers to define and ban excessive interest rates on credit and store cards; introduce a seven-day cooling-off period for store cards; require credit card companies to provide better information to their customers in a uniform electronic format to enable consumers to compare deals; and end unfair bank and financial transaction charges.
The relevant bill announced in the Queen’s Speech was the Financial Services Regulation Bill.
Jan Putnis, a partner at Slaughter and May, says: "The apparent abandonment of the Conservative Party's proposal to transfer prudential supervision to the Bank of England removes the very significant uncertainty around how the Bank of England would, armed with these new powers, have interacted and co-ordinated with the other regulators that would have been responsible for conduct of business matters and markets. The coalition's proposal to confer macro-prudential supervision on the Bank of England, and to give the Bank oversight of micro-prudential supervision, is likely to introduce an interesting new dynamic into the policy-making process underlying FSA rules and decisions. It is to be hoped that the legislation will provide as much clarity and predictability as possible about the relationship between the Bank of England and the FSA in this and other respects."
(For more information, see PLC Financial Services Legal Updates “Coalition agreement final version: financial services implications (www.practicallaw.com/6-502-3258)” and “Queen’s Speech 2010: financial services implications (www.practicallaw.com/5-502-3697)”; and PLC Finance Legal Update “Coalition agreement final version: implications for finance lawyers (www.practicallaw.com/0-502-3242)”.)
Key proposals for taxation reform include the following:
A detailed agreement will be sought on taxing capital gains on non-business assets at rates similar to income tax rates, with “generous exemptions for entrepreneurial business activities”. The rate of capital gains tax is likely to increase from 18% to close to 40% (or even 50%) on gains that do not qualify for the entrepreneurial exemptions.
A substantial increase in the income tax personal allowance from April 2011, with the benefit focused on lower and middle income taxpayers. The long-term objective is to raise the personal allowance to £10,000.
The 1% rises in employer and employee National Insurance contributions (NICs) planned by the previous government will go ahead from April 2011, but the employer NICs threshold will increase by £21 per week.
Reform of the corporate tax system by simplifying reliefs and allowances and tackling tax avoidance to reduce headline rates of tax. No detail is provided in the coalition agreement as to how this will be achieved.
A review of small business taxation, including IR35 (a rule to stop the avoidance of tax and NICs by using intermediaries (typically a service company owned by the "employee")). The stated aim is to seek to replace IR35 with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed or restrict labour flexibility.
Possible refocusing of the research & development (R&D) tax credit on hi-tech companies, small firms and start-ups.
A review of the taxation of non-domiciled individuals.
Further details of many, if not all, of the tax measures in the coalition agreement are likely to be released with the emergency Budget on 22 June 2010.
The key relevant bill announced in the Queen’s Speech was the National Insurance Contributions Bill.
Dominic Stuttaford, a partner at Norton Rose LLP, says that: “We are told that major changes to corporation tax reform are on the way but it would be very helpful to know the detail. While there are some areas that do need reforming and simplification is a good thing, I wonder whether now is a suitable time to embark on it and how long it will all take. We do need a period of stability given the number of changes in the last few years. It would be helpful to have more detail so we can see what is being planned.”
(For further information, see PLC Tax Legal Updates “Coalition agreement final version: further tax measures (www.practicallaw.com/9-502-3247)” and “Queen’s Speech 2010: tax implications (www.practicallaw.com/0-502-3685)”.)
The coalition agreement contains a number of proposals relating to pensions, including:
Phasing out of the default retirement age, and a review to set the date at which the state pension age starts to rise to 66 (although it will not be sooner than 2016 for men and 2020 for women). The rules requiring compulsory annuitisation at 75 will be abolished.
Exploration of the potential to give people greater flexibility in accessing part of their personal pension fund early.
Simplification of the rules and regulations relating to pensions to help reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees. The government will work with business and the industry to support auto-enrolment (the coalition agreement makes no mention of the timing of the introduction of employer duties, a point on which the Conservatives and the Liberal Democrats both disagreed with the previous government).
Restoration of the earnings link for the basic state pension from April 2011, with a “triple guarantee” that pensions will be raised by the higher of earnings, prices or 2.5%.
Commitment to establishing an independent commission to review the long-term affordability of public sector pensions, while protecting accrued rights.
All three main parties had stated that they would support defined benefit schemes by considering ways to encourage risk sharing, but this is not mentioned in the coalition agreement. Also not discussed is tax relief on pension contributions.
Ian Wright, a partner at Mayer Brown International LLP, comments that: “Taken in the round, the government’s proposals on pensions seem to be a step in the right direction towards ensuring good quality pension provision continues, but only at this stage a small step. The government has promised action to simplify the mass of complex pension legislation. Everyone agrees with simplification but the brakes on it have not changed: a desire to make sure there are no losers (which is a good reason) and paranoia about how the industry will exploit any relaxation (a bad reason).
“The writing was already on the wall for phasing out the default retirement age. Employers may find this difficult to deal with, especially if employees do not feel they have sufficient pension savings to retire comfortably. The challenge for the employer is to develop HR systems that avoid the working life of all its employees ending badly.
“Greater flexibility for people in accessing part of their pension savings early does seem to work in other countries, and this might encourage some individuals to save more for their retirement, but it also undermines the provision of income in old age. We do not know what the conditions for access will be but it seems unlikely they will simplify life for existing schemes.
“Sorting out means-testing so that pension saving is worthwhile for low earners, and resolving the horrendous mess about high earners, would make more of a difference for the longer-term.”
The key relevant bill in the Queen’s Speech was the Pensions and Savings Bill.
(For further information, see PLC Pensions Legal Updates “Coalition agreement final version: pensions implications (www.practicallaw.com/2-502-3255)” and “Queen’s Speech 2010: pensions implications (www.practicallaw.com/3-502-3698)”.)
While the coalition agreement does not provide a huge amount of detail on the government’s employment policies, it sets out a number of proposals that have an impact on this area, including to:
Review employment and workplace laws, for employers and employees, to ensure they maximise flexibility for both parties while protecting fairness and providing the competitive environment required for enterprise to thrive.
Encourage shared parenting from the earliest stages of pregnancy; this will include a system of flexible parental leave.
Extend the right to request flexible working to all employees. It is not clear at this stage if this will be phased (as advocated by the Conservatives in their manifesto), or immediate (as advocated by the Liberal Democrats in their manifesto).
Promote equal pay and take a range of measures to end discrimination in the workplace. As part of this, the government will look to promote gender equality on the boards of listed companies.
Limit the application of the Working Time Directive (93/104/EC) (the Directive) in the UK. This presumably refers to the ability to opt-out from the Directive.
Support the national minimum wage.
Introduce various reforms in public sector employment, including various pay reforms, new protections for whistleblowers, and the right for public sector workers to form employee-owned co-operatives and bid to take over the services they deliver.
Establish a commission to consider a British Bill of Rights (incorporating and building on the UK’s obligations under the European Convention on Human Rights).
The key issue for employment lawyers over the next few months is likely to be implementation of the Equality Act 2010 (2010 Act), and there is no reference to the 2010 Act in the coalition agreement (for background, see News brief “Making equality a reality: how to comply with the new rules (www.practicallaw.com/2-502-3571)”). While the Liberal Democrats broadly welcomed the 2010 Act, they would have liked the previous government to have done more. The Conservatives, meanwhile, have previously indicated that they would review the way that the 2010 Act is brought into effect and possibly make some changes to it.
Sarah Gregory, a partner at Baker & McKenzie LLP, states that: “The commitment of the government to reform of employment law is to date at high level only: the detail will be where it counts. Issues of particular interest to employment lawyers are the promised phasing out of the default retirement age (see “Pensions” above), the implementation (in full, in part or not at all) of the reforms to discrimination and equal pay law in the Equality Act 2010 and the commitment to extend the right to request flexible working to all employees.”
(For further information, see PLC Employment Practice Note “Coalition government: implications for employment law (www.practicallaw.com/9-502-3134)”.)
One of the key proposals in the coalition agreement that has implications in this area is the reform of civil liberties, including:
The abolition of the ID card scheme, the National Identity register, the next generation of biometric passports and the Contact Point Database.
The extension of the scope of the Freedom of Information Act 2000 to provide greater transparency.
The adoption of the protections of the Scottish model for the DNA database.
The review of libel laws to protect freedom of speech.
The introduction of safeguards against the misuse of anti-terrorism legislation.
An increase in the regulation of CCTV.
The termination of the storage of internet and email records "without good reason".
The establishment of a commission to consider a British Bill of Rights (incorporating and building on the UK’s obligations under the European Convention on Human Rights).
A ban on the use of powers in the Regulation of Investigatory Powers Act 2000 by local authorities.
According to Marc Dautlich, a data protection and privacy partner at Olswang LLP: "Under the previous government's approach to issues such as storage of communications records, the privacy wags used to say it was a case of "You'll never talk alone". It will be interesting to see whether the coalition's approach on these issues changes that."
In the telecommunications field, the coalition agreement contains measures to enable the rapid roll-out of super-fast broadband across the UK, including in remote areas. Rob Bratby, a telecoms partner at Olswang, says: "The coalition's proposals on broadband roll-out are welcome so far as they go, but it is not clear that the measures proposed in relation to opening up access to BT's network will be sufficient to deliver their broadband objectives. Whilst the industry has welcomed the withdrawal of the £6 per year “broadband tax”, it is not clear that the market alone will be able to finance universal broadband roll-out. One disappointing area is the lack of a concrete plan to progress spectrum auctions in the 800 Mhz (digital dividend) and 2.6 Ghz bands and to address spectrum refarming of 900 Mhz. The lack of concrete proposals in this area has the risk of delaying mobile broadband."
There is, however, no mention of the Digital Economy Act. John Enser, a media partner at Olswang comments: "The Lib Dems were committed to repealing the Digital Economy Act, whilst it was passed with Conservative support. This is potentially an area for contention between the coalition partners, therefore."
(For more information, see PLC IPIT & Communications Legal Updates “Coalition agreement final version: implications for IP, IT and communications (www.practicallaw.com/0-502-3223)” and “Queen's Speech 2010: implications for IPIT & Communications (www.practicallaw.com/6-502-3692)”.)
Key announcements that may affect competition policy and regulation include the following:
Merger control. The government has indicated that it will carry out a review of the merger control rules. The Liberal Democrat manifesto stated that "we will restore a public interest test so that a broader range of factors than just competition can be considered by regulators when takeovers are proposed".
Banks. The government will "bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry". It will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way. The commission will have one year to report (see also “Financial services and finance” above).
Retail competition. The government intends to try to "ensure a level playing field between small and large retailers by enabling councils to take competition issues into account when drawing up their local plans to shape the direction and type of new retail development". This seems to provide support for the competition planning test recommended by the Competition Commission following the groceries market investigation. In addition, the government will introduce, as a first step, an Ombudsman in the OFT who can "proactively enforce" the Grocery Supply Code of Practice and "curb abuses of power, which undermine farmers and act against the long-term interest of consumers".
Media. The government intends to "impose tougher rules to stop unfair competition by local authority newspapers". It will also "enable partnerships between local newspapers, radio and television stations to promote a strong and diverse local media industry".
Energy and the Office of gas and electricity markets (Ofgem). The government states that it "will reform energy markets to deliver security of supply and investment in low carbon energy, and ensure fair competition including a review of the role of Ofgem" (see also “Property and environment” below). There is no express mention of the Conservative manifesto pledge to transfer Ofgem's competition and consumer powers to the OFT, although presumably this will form part of the review.
(For more information, see PLC Competition updates “Coalition agreement final version: competition and regulatory implications (www.practicallaw.com/9-502-3266)” and “The Queen’s Speech 2010: competition and regulatory implications (www.practicallaw.com/0-502-3671)”.)
Key announcements that may affect the areas of property and environment include the following:
Planning. The government will replace the Infrastructure Planning Commission with a democratically accountable fast-track process for major infrastructure projects, replace Regional Development Agencies with Local Enterprise Partnerships, and abolish Regional Spatial Strategies. It will introduce a simple, consolidated national planning framework covering all forms of development and setting out national economic, environmental and social priorities.
Housing. The government intends to review the effectiveness of raising the residential stamp duty land tax threshold for first-time buyers.
Greenhouse gas emissions reductions. The government will push for the EU to support an increase in the EU emission reduction target to 30% by 2020 (currently 20%). It will introduce a floor price for carbon and make efforts to persuade the EU to move towards full auctioning of emissions trading system permits. The government will reduce central government carbon emissions by 10 % within 12 months.
Carbon capture and storage. The government intends to establish an emissions performance standard to prevent coal-fired power stations being built unless they are equipped with sufficient carbon capture and storage (CCS) capacity. It will continue public sector investment in CCS technology for four coal-fired power stations.
Renewable energy. The government is seeking to increase the target for energy from renewable sources, subject to the advice of the Climate Change Committee. It will establish a feed-in tariffs system in electricity and maintain banded Renewable Obligation Certificates.
Green investment. The government will create a green investment bank.
Nuclear. The government has agreed a process that will allow the Liberal Democrats to maintain their opposition to nuclear power. The government will complete the drafting of a national planning statement and put it before Parliament for approval. A Liberal Democrat will speak against the national planning statement but Liberal Democrat MPs will abstain from voting.
Energy efficiency in building. The government will retain energy performance certificates but scrap home information packs.
Energy supply. The government intends to reform energy markets to deliver security of supply and investment in low-carbon energy and to ensure fair competition, and will review the role of Ofgem. It will also establish a smart grid and roll out smart meters.
Transport. The government will mandate a national recharging network for electric and plug-in hybrid vehicles. It also intends to establish a high-speed rail network and will replace air passenger duty with a per-flight duty.
Relevant bills announced in the Queen’s Speech include the Energy Security and Green Economy Bill, which the government states will deliver a national programme of energy efficiency measures to homes and businesses.
Caroline May, a partner at Norton Rose LLP, states that: “The government’s proposals in the area of the environment are unsurprising and there is some continuation with the previous government’s environmental proposals. The government has stated that it is committed to major change in areas, such as green growth and decarbonisation; however, there is really nothing in the coalition agreement suggesting any radical change. There is, however, a lack of detail and therefore a lack of certainty around many of the proposals.
"The lack of clearly defined policy will be frustrating for industry, which will require some certainty to allow for forward planning and investment. This is particularly the case for emerging technologies, such as carbon capture and storage. There is a clear issue with nuclear power due to the Conservative and Liberal Democrat parties’ divergent policies. There is also no mention of the CRC Energy Efficiency Scheme, and how the government views its implementation. It remains to be seen whether blue plus yellow equals green.”
(For more information, see PLC Property Legal Updates “Coalition agreement final version: property implications (www.practicallaw.com/4-502-3235)” and “Queen’s Speech 2010: implications for property (www.practicallaw.com/9-502-3657)”, and PLC Environment Legal Updates “Coalition agreement final version: environmental implications (www.practicallaw.com/6-502-3263)” and “Queen’s Speech: May 2010 environmental implications (www.practicallaw.com/6-502-3480)”.)
Many of the proposals set out in the coalition agreement and the Queen’s Speech, if implemented, will have a significant impact for local government and those working in the public sector; in particular, proposals to:
Grant a power of general competence to local authorities.
Reform the local government finance system.
Remove the ring-fencing of local government finance.
Abolish comprehensive area assessments.
Make significant changes to the planning system.
Relevant bills announced in the Queen’s Speech include:
The Decentralism and Localism Bill. This proposes to devolve greater powers to councils and neighbourhoods and give local communities control over housing and planning decisions.
Freedom (Great Repeal) Bill. This will include proposals to strengthen the accountability of bodies receiving public funding (see also “Intellectual property, information technology and communications” above).
Public Bodies Bill. This proposes to: reduce the number and cost of quangos; give ministers the powers to abolish, merge or transfer quangos back into government departments; and review the functions of all quangos every three years (as opposed to every five years).
There are also bills dealing with education, health, police reform and social responsibility.
"Local government and devolution to local communities is high on this government's agenda, and features heavily in both the coalition agreement and the Queen's Speech" says Mark Greenburgh, a partner at Wragge & Co LLP. "Mayoral City Regions, revised finance structures and general power of competence are genuinely exciting. There are of course some unanswered questions: what about Best Value? Will the Lyons recommendations on Council Tax and NNDR (the National Non-Domestic Rate) be dusted down? And what about employment and pension arrangements both within the public sector when a service is subject to outsourcing/partnering? Whatever the answer, we are sure of plenty of legislation, and change. Will local authorities rise to the challenge?"
(For more information, see PLC Public Sector Legal Updates “Coalition agreement final version: local government implications (www.practicallaw.com/7-502-3494)” and “Queen’s Speech 2010: local government implications (www.practicallaw.com/3-502-3684)".)
Sources: The Coalition: our programme for government; Queen’s Speech 2010 home page.