Ms
Keeble: The hon. Gentleman is pulling out one paragraph of
a subsection when, as I understand the drafting, all the subsections
apply. It is and, and, and. It is not this one, or this one or this
one. To take out one paragraph and say that it is the be-all and
end-all is quite wrong. It is a misunderstanding of the way that the
legislation is drafted and of all the caveats that have been put in to
safeguard against the misuse of order-making
powers.
Mr.
Gauke: I am grateful for the hon. Lady’s comment,
although I do not agree with her. On the question of safeguards, if she
believes in safeguards in subsection (9), I hope that she
will support amendment No. 120, which inserts a safeguard that the
measures should apply only in the event of a systemic risk. Subsection
(9)
begins: “But
if the Treasury think it
necessary”. —which
is not too great a safeguard, I would suggest—it may make an
order without complying with the affirmative resolution. The order can
be made, but will lapse after 28 days, ignoring recesses. Even if it
does lapse, however, nothing done under it is invalidated. Furthermore,
under subsection (9)(d), nothing is to prevent the making of a new
order, so, conceivably, the Treasury could happily continue making
orders every 28 days—it could get defeated, introduce another
one and so on ad infinitum.
My point to
the hon. Lady is that that is not a set of different conditions, but
the order in which things will happen. First, an order will be made
without affirmative resolution. Secondly, if it lapses after 28 days,
it will be deemed to have been effective before lapsing. That is my
objection: in that period, an order changing primary legislation, which
Parliament will not have considered, will remain law. If she disagrees
with that interpretation, I will happily accept a further
intervention. We
have proposed a new subsection (10)
stating: “No
Order under this section may amend subsections (8) or
(9).”. The
amendment’s purpose is merely to highlight the fact that if
clause 65 can enable the Bill to be amended, it could presumably amend
the safeguard in clause 65(8), which does at least say that
any amendment should be made by affirmative resolution. Presumably,
however, the Government could use the affirmative resolution to scrap
subsection (8), and from then on the negative resolution only would be
used. That does not provide much of a
safeguard. The
clause creates great constitutional difficulties, and we in Parliament
take such matters very seriously. Some in the outside world are
enormously concerned about the way in which the clause injects
uncertainty into the system. We already criticise the Bill for causing
concerns about partial transfers. That is not a theoretical concern:
already transactions are not happening as a consequence. We debated
that on Tuesday, and I think that the Government recognise this issue
and have made some movement on the safeguards contained in the
order-making powers in clauses 42 and 43. However, we have pressed them
for more movement, but we are seeing none on clause 65, which
undermines the certainty that the capital markets require. Clearly,
anything that we can do to try to address that has to be of benefit. It
is a practical issue, and the Government do not appear to be moving.
Depending on what the Minister says, we will be inclined to press some
of our amendments. Unless there is movement, the uncertainty will only
increase. I am afraid that clause 65 is already having a damaging impact
on the competitiveness of the UK capital
markets. Mr.
Breed: I do not want to repeat what the hon. Gentleman
said, but I wish to be associated entirely with his comments on the
clause. He and his colleagues probably went through the same exercise
as we did in attempting to make the clause acceptable by dispelling
some of the obvious problems that it causes owing to lack of
confidence. The amendment is similar to others that we have tabled, in
the sense that we have tried to create some hurdles so as to get an
idea of when those powers will be used. The amendment, as drafted, is
an excellent attempt to do that, and if the hon. Gentleman presses it I
will certainly support
him. As
hon. Members will know, we tabled an amendment to delete the entire
clause, because I find the first few words wholly
unacceptable: “The
Treasury may by order amend the
law”. The
Treasury might well be the fount of all knowledge and wisdom, although
that has perhaps not been so clearly displayed in recent times, but
frankly it is not here to amend the law—we are. I am in
principle against that and so will vote against the clause en bloc if
given the opportunity to do so on stand
part. I
recognise that to a certain extent the clause is written in what we
might call a wartime situation. These are extremely uncertain and
difficult moments, and almost daily we are regaled with even more
horrors of the impending doom and gloom of the next year or two. The
banking industry is still in a state of flux, and I accept that we do
not know that things will settle down to such an extent that those
powers will not have to be used. However, the Bill and those powers are
intended to be enduring, so it is intended to address not only wartime
situations, but peacetime situations. In a future peacetime situation,
such a provision will be wholly unacceptable and have enormous
unintended consequences in the capital markets.
At the
minimum, we should be looking for such provisions to endure for a
limited period, and a two or three-year sunset clause would at least
give us the opportunity to review how those powers have operated, and
to look, hopefully in a more measured way, at the financial landscape
at the time to see whether those rather draconian powers continue to be
necessary. I accept that there has been a valiant attempt to establish
a clearer sense of when those powers will be used, but as it stands I
still find the concept of the Treasury amending the law by order
unacceptable, so I will support the amendment if it is pressed and vote
for the removal of the clause on stand
part. 9.30
am
Ms
Keeble: I shall be brief. Aside from some of the
specifics, there is an important general point to be made. As the scale
and nature of the crisis has unfolded over the past year, one of the
things that we have seen is how very fast-moving and innovative the
industry is. The legislation attempts to give a statutory framework for
dealing with the problems in an orderly way, but there might be a
slight culture clash with a fast-moving and innovative industry
because, despite the best will in the world, drawing up legislation is
by nature a slow and cumbersome process. Unless we have such a
provision
to enable the Treasury to adapt to changing and perhaps unforeseen
circumstances, we will be passing legislation that might be fit for
purpose for the last crisis but which will not enable the Treasury to
deal with the next one. Although I have many reservations about
governmental order-making powers, I think that something of that kind
is needed in the circumstances.
Amendment 119
would add to subsection (1) the
words “where
the Treasury is satisfied that not to do so threatens the stability of,
or confidence in, the UK financial
system”. However,
the subsection already includes that proviso, because it refers back to
the special resolution objectives set out in clause 4(4) to clause
4(8), which we have already discussed at some length, and agreed on.
They cover exactly the kind of points that, I think, the hon. Member
for South-West Hertfordshire intends amendment No. 119 to
cover.
There is also
a restriction on the powers. There are not unfettered powers for anyone
in the Treasury to do whatever they feel like. There is a discussion of
the general purpose of the exercise of the powers, and which powers can
be used. Of course there will always be a need for close scrutiny, and
perhaps a suspicion that the Government are using powers to do what
they want, without having thought things through clearly in the
legislation. However, the clause starts with the general objective,
which is more or less what the hon. Gentleman has set out in his
amendment, then it defines the powers that can be used and the general
purposes. It narrows things down to provide the democratic and
parliamentary scrutiny, then it narrows them down further to set out
some of the process that should be
used. The
issue that must, of course, be dealt with is that the industry will
say, “This creates uncertainty. We need more reassurances that
the powers will not be used perversely.” Governments are not
supposed to do that anyway. That applies to any order-making powers,
and there are legal processes for challenging perverse decisions.
However, it may be helpful if my hon. Friend the Minister can further
explain the thinking about the circumstances that are relevant, or the
assurances that the industry might need to make it clear that the
powers, which are necessary, would be used only in realistic
circumstances.
As a general
point, it was appalling that hon. Members were in recess and nothing
could happen while economic circumstances changed, and that events that
would most affect our constituents unfolded while we were not here. We
could not engage in any scrutiny. Also, we knew that if anything were
to be done, it would need primary legislation. We all know how
cumbersome that is. I welcome the fact that the Government would have a
range of powers at their disposal. We have had the chance to discuss
that, and there is provision for accountability to Parliament, and for
proper scrutiny. Such powers are never particularly welcome, but the
hon. Gentleman’s amendments are covered, and his concerns dealt
with, and what remains is for my hon. Friend to give the industry some
assurances about some of the
circumstances.
The
Economic Secretary to the Treasury (Ian Pearson): I hope,
indeed, to give assurances to the industry and to others who follow
such matters closely, and to clarify the situation for hon.
Members.
I
want first to explain why clause 65 is needed, and then I shall discuss
the amendments. Banks often comprise complex, multi-jurisdictional
corporate entities. As financial markets continue to develop, the trend
is set to increase. Furthermore, many of the provisions of the special
resolution regime interact and sit alongside complex financial
services, banking, company and insolvency law. The special resolution
regime, which, I remind members of the Committee, is a new legislative
device, provides the authorities with powers to act with respect to
failing banks.
Those are not
banks that are functioning successfully and in normal conditions. They
are banks that are sufficiently failing to meet the general conditions
for intervention and which it is in the public interest to resolve. It
is inevitable that there will be conflicts between the public interest
objectives and resolving a bank in severe financial distress. Moreover,
the provisions of legislation are designed to work in relation to a
normally functioning business.
In the
absence of a power to amend legislation, as set out in clause 65, there
is a material risk that the authorities may not be able to fully effect
a transfer, which could impact on the effectiveness of the powers taken
in the Bill. That could have adverse implications for financial
stability or public funds, which would not be in the public
interest. The
purpose of the power is to provide the Treasury with the means to
modify legislation to enable the powers of the SRR to be used more
effectively. That is set out in subsection (1). However, it is not a
general power to amend legislation; it is targeted and limited. In
particular, the power may be used only to facilitate the use of one of
the stabilisation options. Therefore, the scope of the power is
severely constrained to amending legislation, which affects the
resolution of banks under the SRR.
In broad
terms, there are two ways in which this power can be used. The first
way would be for the Treasury to make a specific amendment to a piece
of legislation for the purposes of making effective the resolution of a
specific bank. The amendment would apply only to the specific bank. It
would be localised to the particular resolution. It would not apply to
any other bank, or any other banks in respect of which the powers of
the special resolution regime were
used. The
second way would be for the Treasury to make an amendment to
legislation that applied to all resolutions or a class of resolutions
carried out under the SRR. For example, the power could be used to
disapply a particular provision of the Companies Acts in relation to
bridge banks. That would then apply in each resolution in which the
Bank of England used the bridge bank tool. It will not apply to other
banks. It
is envisaged that that form of modification will be made in the light
of resolution experience. For example, it might become clear that a
certain provision of legislation is an impediment to resolution in
general, and so it is beneficial to disapply it for all subsequent
resolutions. The ability to make such amendments limits the need for
resolution-specific amendments, and ensures that the tools of the
special resolution regime may be future-proofed as the financial
markets and banks develop over time.
Regardless of
how the power is used, the modification may apply only to a bank
subject to the stabilisation option. Modifications do not apply to any
other bank. So, for example, the power could not be used to take action
with respect to banks participating in any aspect of the
recapitalisation process. As no stabilisation power has been used or is
proposed to be used on those banks, clause 65 is not
applicable. There
is also an appropriate level of parliamentary scrutiny of the use of
the power, which is subject to the affirmative resolution procedure.
However, in situations of urgency, the Treasury may make the order
subject to the 28-day procedure. That is because there may be
circumstances in which a transfer needs to be made at extremely short
notice, and it is necessary to modify aspects of legislation to make it
effective. Any prior requirement for each House to approve a draft
order in such circumstances before it may come into force would cause
delay, during which time the Treasury would be unable to take the
necessary steps to address the failing bank. That could potentially
lead to severe disruption in the financial markets, place public funds
at unacceptable risk, and exacerbate financial
instability.
Ms
Keeble: Can my hon. Friend confirm that if the power goes
through the affirmative procedure, because of the way in which the days
are counted and our recesses fall, it could take some months to get an
order through? That would be completely counter-productive in light of
the speed needed for many of these
processes.
Ian
Pearson: My hon. Friend makes a good point. The hon.
Member for South-West Hertfordshire raised it in relation to amendment
No. 121. He suggested that the 28-day clock would start ticking only
when Parliament returns after the recess. That is not the case.
Parliament can call a debate immediately after the recess, or a
decision could be taken to recall
Parliament.
Mr.
Gauke: I take the point that the debate could happen
straight after the recess—as the Minister said, there is a
28-day clock—but the measure ignores
“periods of
dissolution, prorogation or adjournment of either House for more than 4
days”. It
would ignore the recess. The 28-day limit imposed by subsection (9)
runs only when the House is sitting, does it
not?
Ian
Pearson: That could be the case, but it is equally true
that the clock does not have to start ticking then, and the debate does
not have to be within 28 days. My understanding is that it is perfectly
possible for Parliament to debate it immediately after a recess, and I
think that that is what would happen in normal
circumstances.
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