House of Commons
|Session 2007 - 08|
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General Committee Debates
The Committee consisted of the following Members:
Alan Sandall, Mick Hillyard, Committee Clerks
attended the Committee
Public Bill Committee
Thursday 13 November 2008
[Mr. Jim Hood in the Chair]
Further written evidence to be reported to the House
BAN 04 Financial Markets Law Committee
Power to Change Law
Mr. David Gauke (South-West Hertfordshire) (Con): I beg to move amendment No. 119, in clause 65, page 32, line 10, at end insert
, where the Treasury is satisfied that not to do so threatens the stability of, or confidence in, the UK financial system.
The Chairman: With this it will be convenient to discuss the following: Amendment No. 155, in clause 65, page 32, line 15, leave out subsection (3).
Amendment No. 120, in clause 65, page 32, line 39, after (8)(b),, insert
in order to protect the stability of, or confidence in, the UK financial systems.
Amendment No. 121, in clause 65, page 32, line 42, leave out from days to beginning in line 44.
Amendment No. 156, in clause 65, page 33, line 1, leave out paragraph (c).
Amendment No. 157, in clause 65, page 33, line 5, at end add
(10) No Order under this section may amend subsections (8) or (9)..
Clause stand part.
Mr. Gauke: It is a pleasure to serve under your chairmanship once again, Mr. Hood. Clause 65 has provoked an enormous degree of concern from outside bodies. Pretty well every outside body that has examined this Bill has objected to it. The clause enables the Treasury by order to amend the law contained in this Bill. It allows secondary legislation to amend primary legislation, which is in itself objectionable. There must be at least a presumption that a clause such as thisoften described as a Henry VIII clauseshould be scrutinised heavily and, ideally, removed, unless there is a very, very strong case for its retention.
Before going into the detail of clause 65 and the amendments that we have proposed to ameliorate some of the difficulties, it is worth highlighting again one of the broader problemsperhaps the most importantcontained within this Bill, which is the degree of uncertainty it creates with regard to some transactions. We discussed at some length the safeguards regarding partial transfers when we debated clauses 42 and 43. As I commented on Tuesday, those safeguards are not necessarily well developed.
It may help if I inform the Committee that since our debate on Tuesday I have had discussions with two lawyers from leading international firms, one of whom told me he was aware of a transaction that was not completed because one party was concerned that the provisions in the Bill created too much uncertainty. The other lawyer told me that she was aware of a transaction that nearly fell through for the same reason. Those cases related specifically to issues of partial transfer but with clause 65, on top of the uncertainty in the Bill as a whole regarding partial transfer, there is uncertainty surrounding the power to change the law by order without proper parliamentary scrutiny. As a practical example of the difficulties this may impose, the lawyers I spoke to have the view that they may need to qualify legal opinion to a client considering a transaction with a UK bank by referring to clause 65. Notwithstanding everything else they may have said about the legal position, there is a risk that the law could be changed very easily by an order. That further complicates the matter. For that practical reason, many outside bodies are concerned about clause 65, as well as for the constitutional reason that Parliament appears to be surrendering its ability to properly scrutinise legislation in that field. Those are strong objections, and I suspect that the Minister will not be able to persuade us that clause 65 is acceptable.
We have made various attempts to improve the Bill and to provide some comfort and certainty to those outside bodies. Amendment No. 119 relates to subsection (1), which is at the heart of the clause. It states that the Treasury has to have regard to the special resolution objectives. That test is insufficiently strong. We propose that in using the exceptional powers the Treasury should, at the very least, be satisfied that not to do so threatens the stability of, or confidence in, the UK financial systems. I dare say that the Minister will point out that the objectives of the special resolution regime touch upon that, but the Treasury merely having regard is not reasonable. The wording is so weak that it seems to attempt to avoid any kind of judicial review of decisions made under the clause. It needs to be toughened up, so that the Treasury is at the very least satisfied that there is systemic risk before using the powers. I would usually say reasonably satisfied, but we have debated that it is not normal to insert reasonable in a provision that applies to a public body. The Treasury should not be able to use the powers as a routine way of trying to improve the legislation. It is the purpose of the Committee to examine and improve the Bill, and it is not appropriate for the Government subsequently to be able to do so, by producing an unamendable order.
Amendment No. 155 relates to subsection (3)yet another objectionable element of the Bill. As the clause stands, an order may make provision that has retrospective effect. Therefore, not only will it be possible to change the law with an order, but that law can be retrospective. I do not need to go into enormous detail to highlight the uncertainty produced by the ability to create retrospective law. Transactions that have been entered into in good faith based on the law as it stands, can be disrupted as a consequence of subsection (3).
Amendment No. 120 to subsection (9) is similar to amendment No. 119. Generally, orders under clause 65 will be made by affirmative resolution. It should, of course, be by such resolution, to the extent that it is acceptable for orders to be made in that way. The subsection allows the Treasury to make orders other than by affirmative resolution, but there is no higher test as to when those orders can be made; it is not necessary that there be a need to protect the stability of, or confidence in, the UK financial systems or that there is systemic risk. The amendment seeks to address that.
The Government also propose that they should be able to make an order in such circumstances during a parliamentary recess. The order would not need to be ratified for 28 days, not counting the period during the parliamentary recess, so it is perfectly possible that the Government could change primary legislation in August by an order that would not be ratified until the House returned in October.
Ms Sally Keeble (Northampton, North) (Lab): How does the hon. Gentleman propose that special measures should be taken? An awful lot of the problems with Northern Rock, and other problems this year, unfolded while Parliament was in recess, and we had to kick our heels because the Government did not have the powers set out in the Bill. How does he propose to deal with crises that occur during our long recess?
Mr. Gauke: The powers do not necessarily require a crisis in order to be used. If it is a genuine crisisin which circumstances there may, at a push, be a case for such provisionsParliament should be recalled, and we should scrutinise the measures properly. What we cannot have is a period of several months every year when there is no parliamentary input.
Ms Keeble: I agree with the hon. Gentleman about the recall, but does he propose that primary legislation should be used? As we have seen, that takes a long time.
Mr. Gauke: I do think that primary legislation should be amended by primary legislation. I disapprove of Henry VIII clauses. We are talking about the ability to amend primary legislation by an order that may occur while Parliament is in recess, with no opportunity for Parliament to take a view at the time, and the subsequent retrospective ratification of that decision, possibly some months later. If we are talking about a genuine crisis, Parliament should be recalled. Indeed, one could argue that Parliament should be recalled much more frequently than it is. If we need to change primary legislation because we face a systemic risk, of course Parliament should be there to debate it. I am grateful to the hon. Lady for agreeing with that in her comments.
Stewart Hosie (Dundee, East) (SNP): Reluctant as I am to agree with the Government on almost anything these days, there is a serious point about the legislation. The hon. Gentleman will recall that in the Northern Rock shambles, one of the difficulties that it faced was the argument that it could not achieve a weekend takeover when it was alleged that there was an early bid from Lloyds TSB. Surely the measures are meant precisely to facilitate immediate action in such circumstances, notwithstanding the difficulties of our being in recess for a prolonged period. Surely that is part of the process.
Mr. Gauke: But the purpose of the Bill is to create the framework for the authorities to act quickly. If the primary legislation is produced properly, we should be in a position to give the authorities the flexibility to deal with crises, yet what we have here is essentially a suggestion that maybe we have not got the Bill right at all, that we might need to make changes as we go along and that every time we face a new crisis we will just make a quick change by way of an order. I fear that that suggests that the Government are not entirely confident with the legislation as it stands.
Mr. Colin Breed (South-East Cornwall) (LD): Is it not really an admission of the potential failure of all that we have been doing here? Frankly, clause 65 would obviate almost everything else that we have been discussing for the past few weeks, because it would allow it to be changed. Unless we can tighten the clause up considerably to apply to very specific circumstances, leaving it as it is would be wholly inappropriate.
Mr. Gauke: What is proposed is far too broad, even if we recognise that not every piece of legislation is perfect. To accept these provisions, as they currently stand, will create uncertainty. So there is a practical effect. As the hon. Gentleman says, the purpose of these Committee proceedings is to ensure that the Bill is right and not to enable legislation to be easily changed subsequently.
Mr. Mark Todd (South Derbyshire) (Lab): I have some sympathy with the hon. Gentlemans argument, but it would be extraordinary arrogance on the part of the Government and members of the Committee if they thought that they had produced conclusive answers to a problem that had not been foreseen 12 months ago, and for whichthis deserves a lot of criticismvirtually no planning had taken place. Some realism on the need for flexibility and the opportunity to think afresh would be welcome.
Mr. Gauke: As always, the hon. Gentleman makes a thoughtful point. If there is something wrong with the primary legislation, let Parliament look at it again properly. Clause 65 essentially enables the Treasury to make orders that come into effect potentially long before Parliament has the opportunity to address them. Amendment No. 121 highlights the issue of the recess and the long period of time that may elapse between the passing of the order and an opportunity for Parliament to scrutinise it.
Let me also highlight one of the issues contained within subsection (9)(c), which amendment No. 156 seeks to delete. Even if Parliament eventually gets a chance to scrutinise this change in legislation and to debate an order that has been passed before it has had an opportunity to debate and vote on it, the lapse of such an order
does not invalidate anything done under or in reliance on the order before the lapse and at a time when neither House has declined to approve the order.
That seems a very curious state of affairs. Not only can the Government change primary legislation by an order, but they can change it by an order that has not been debated by the Committee. Furthermore that order can have had effect for two or three months, even though, when Parliament does have an opportunity to vote on it, it defeats it. That is an extraordinary situation to be in.
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