 House of Commons |
Session 2007 - 08 Publications on the internet General Committee Debates Banking Bill |
Banking Bill |
The Committee consisted of the following Members:Alan
Sandall, Mick Hillyard, Committee
Clerks † attended the
Committee Public Bill CommitteeThursday 13 November 2008(Morning)[Mr. Jim Hood in the Chair]Banking BillFurther
written evidence to be reported to the
House BAN
04 Financial Markets Law Committee
Clause 65Power
to Change
Law 9
am 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 this—often described as a Henry VIII clause—should 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 problems—perhaps the most
important—contained 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.
There is a concern in capital markets that the UK could be left with a
regulatory regime that will enable the authorities to interfere in
transactions, leaving some creditors worse off than they would be
otherwise.
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 crisis—in which
circumstances there may, at a push, be a case for such
provisions—Parliament 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. 9.15
am
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. Gentleman’s 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
which—this deserves a lot of criticism—virtually 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.
|
| |
| ©Parliamentary copyright 2008 | Prepared 14 November 2008 |