Ian Pearson: If I may move on, hon. Members may be aware that it is not unprecedented for such powers to be taken to ensure that Bills are fully effective, especially where an entirely new regime is introduced in an area already populated by a complex and interrelated body of primary and secondary legislation and common law.
For example, the Safeguarding Vulnerable Groups Act 2006 provides the Secretary of State with a power to make further provision to give full effect to the Act. That power may be used to amend, revoke or otherwise modify enactments. Another example is section 148 of the Criminal Justice and Immigration Act 2008, which includes a power to make consequential amendments to legislation, including primary legislation, to ensure that the Act is fully effective.
I have informed the Committee of the general circumstances in which the power might be used, but it might help if I provided some specific examples. Of course, it is not possible to provide an exhaustive list, because it is not possible to foresee every circumstance surrounding the failure of any particular bank or which pieces of legislation might be relevant to the resolution. If that were possible, there would be no grounds for taking the power, as we could just put all the relevant changes into the Bill. The following examples are intended to give a flavour of how the Treasury might use the power.
Suppose the business of a failing deposit taker is transferred to a private sector purchaser. In some circumstances, it would be appropriate to modify the provisions of part 16 of the Financial Services and Markets Act 2000, which deals with the financial ombudsman scheme, to ensure that consumers could make complaints to the scheme relating to the failing bank and obtain a remedy from the private sector purchaser.
Another example is that it might be necessary to disapply section 169 of the Companies Act 2006, which provides company directors with the right to protest against their removal, with respect to a bank entering the special resolution regime. Although clause 19 provides a power to remove directors, the power under clause 65 could be used to remove a directors right to protest against that removal.
Mr. Peter Bone (Wellingborough) (Con): That is an extraordinary change in the law that is not mentioned anywhere in the Bill. If that is the Governments intention, why on earth is it not in the Bill?
Ian Pearson: The power to remove directors is certainly in the Bill. In such extreme circumstances, we believe that that is absolutely right and appropriate, and we have debated it.
Mr. Mark Hoban (Fareham) (Con): The Minister said in his remarks that the Government were looking for the power to remove directors right to protest their removal. If he believes that it is important for the Government to deny directors that right, why is it not in clause 19? When we debated the removal of directors under clause 19 in the context of renegotiating their remuneration, he made it clear that directors would retain their normal legal rights in those circumstances.
Ian Pearson: I remember talking about directors maintaining their legal rights, and I will undertake to discuss with officials whether that should be put in legislation.
A further example relates to shadow directorship. It may be necessary in certain circumstances for the Bank of England or the Treasury to give directions to the
Ian Pearson: I want to make a little progress. I shall give some real-life examples of shadow directorships.
Mr. Hoban: My recollection is that provisions are in place already, in the Banking (Special Provisions) Act 2008, to ensure that the Treasury and the Bank of England do not act as shadow directors. If the Ministers concern is genuine, why not replicate that Acts provisions in the Bill?
Ian Pearson: That is probably why I should not have given wayI was going to explain some of that. Hon. Members might be interested to hear that powers to modify legislation were used in many of the recent resolutions under powers provided by the Banking (Special Provisions) Act. For the transfers of Northern Rock and Bradford & Bingley to the Treasury, the shadow directorship provisions of the Companies Acts were disapplied. For the Bradford & Bingley onward transfer, merger law was disapplied, and for the transfer of the Kaupthing accounts, the powers were used to modify insolvency law to create a simplified version of the bank administration procedure.
Stakeholders have made representations arguing that the power undermines the safeguards that we are putting in place for partial transfers.
The power will not be used by the Treasury or others to modify provisions or safeguards in the Bill. That would not be appropriate, and the Government have no intention of using the power in that way.
Mr. Todd: I can see why my hon. Friend hesitated to give way. He makes a persuasive case for the principle of providing for substantial flexibility in the Bill in order to respond to unforeseen events. However, he was not so persuasive on the wording of the clause. Although I shall vote for the clause, if necessary, because I agree with it in principle, we have an opportunity, based on the important qualifications he made in his speech, to sharpen the wording to reassure those concerned about parliamentary accountability and those in the industry about the security of some of the decisions that they might make.
On the point about the position of directors, Members will be aware that clause 19 provides powers to vary service contracts or to remove directors. Clause 65 enables consequential changes to be made to facilitate the resolution. I hope that makes the matter clear but, as I have said, I shall talk further with officials about that matter.
On the point about 28 sitting days, nothing prevents Parliament from holding a debate on an affirmative resolution earlier in the 28-day period following a recess. Legally, and if desired, there could be a period of up to 28 days, but I cannot believe that business managers, if something was controversial, would not want to[Laughter.]
Ian Pearson: I shall now address the amendments, on which I hope that I can reassure the Committee. The issues raised have been dealt with appropriately already in the Bill, but I want to make clear why I do not believe that we should amend the provisions in the manner proposed.
The hon. Member for South-West Hertfordshire proposes, through amendments Nos. 119 and 120, that an additional test be required before the power may be exercisedthat there must be a threat to the
stability of, or confidence in, the UK financial system.
I remind the Committee that the initial transfer will have met the general and specific conditions for action as provided by clauses 7, 8 and 9. Those are high hurdles. As my hon. Friend the Member for Northampton, North pointed out they have to be within the terms of the objectives in clause 4. The fact that the conditions are met for the initial intervention gives the authorities warrant to take the necessary steps to resolve the bank. Given those points, I believe the amendments are unnecessary and, indeed, otiose, as the matter is already covered as part of the Bill.
Amendments Nos. 121, 156 and 157 relate to the procedural provisions of the clause. Amendment No. 157 proposes that the powers provided by the clause may not be used to amend the procedure for making an order under the clause. As I have already said, it is not the Governments intention to amend the provisions of the Banking Bill using that power. It would not be appropriate, nor would the power be construed to have that effect. In particular, secondary legislation cannot be exercised to expand the scope of its enabling powers, and so lift itself up by its bootstraps. I hope I have provided reassurance to Members that this amendment is unnecessary too, as the power cannot be used in the manner about which they are concerned.
Amendment No. 156 suggests that if an order should lapse, the provisions of the order should be invalidated. The amendment removes a standard provision that provides that things done under orders not later affirmed by parliamentary resolution remain valid. The amendment would introduce a high element of risk to using the power. That particularly applies if an order was made under the clause in relation to a transfer of property or securities to a private sector purchaser. In such a situation, a potential acquirer would in all likelihood not be willing to take part in the transaction, given the risk that provisions of the orderwhich could, for example,
Amendment No. 121 makes a technical change to the nature of the 28-day procedure. We have already discussed that and I do not consider it appropriate. Parliament must be given adequate opportunity to approve the resolution.
Amendment No. 155 proposes that the order made under clause 65 may not take retrospective effect. Although the Government recognise that this is a broad power, we consider it an important part of the clause. Retrospective provision may be required in circumstances where a transfer has occurred with particular swiftness, which, as recent events have shown, is perfectly possible. Given the incredibly complex affairs of banks, it may not be possible to identify each and every precise statutory barrier in any given circumstance before making a transfer. For example, if it were necessary to amend a statutory provision that threatened to impede a property transfer, an unacceptable level of legal uncertainty would be likely to arise if the change did not have effect simultaneously with the property transfer. In a fast-burn situation, the due diligence to identify the impediment may not be completed until after the transfer has taken place. For those reasons, it is considered necessary to make retrospective provision from the date of the transfer. I hope my explanations have provided Members with sufficient assurances as to why clause 65 is necessary and should not be amended in the ways they propose.
There are two other points I should like to make. The first is to stress that the Treasury can only amend the law through a statutory instrument that can be struck down by Parliament. Therefore, it is only with Parliaments agreement that we can exercise this power. The Treasury may only amend the law in circumstances when the special resolution regime powers need to be used more effectivelyto stress again the limited nature of the use of the power.
Having reflected on the debate, I want there to be certainty, and for banks to obtain unqualified legal opinions from advisers on their legal rights under contracts across the piece, as the British Bankers Association said in its submission. We are consulting on the partial transfer safeguards, and I hope that my explanations today on the limited nature of clause 65 will be helpful in making clear to the Committee how the clause might be applied. I will, however, ask the expert liaison group whether any changes could be made to this needed clause, to strengthen legal certainty, and if judged necessary I will bring forward amendments on Report.
Mr. Gauke: First, I address the comments made by the hon. Member for Northampton, North on the test in subsection (1). The Minister also touched on the matter. Both he and the hon. Lady referred to clause 4the special resolution objectives. My concern has not been assuaged; the current wording does not address it and therefore my amendment is not otiose. The test for a change to the law is merely that there is regard to the special resolution objectives. I accept that the various tests in clause 4 and elsewhere need to apply to the use
having regard to the special resolution objectives.
I accept that narrows the scope of the test if it has to apply to the use of stabilisation powers, and that the safeguard is also in subsection (2). The Minister elaborated on that, and I accept that it is somewhat helpful. However, it is nothing like as strong a test as that which we propose in amendment No. 119, or for that matter amendment No. 120. That test is specifically to focus on systemic risk, which is the most important objective. The change in the law has to meet that test. I am therefore not persuaded by the Governments arguments.
The hon. Member for Northampton, North pointed out that primary legislation is cumbersome. It is, up to a point, but let us not forget that we put the Banking (Special Provisions) Act through both Houses in two days. Primary legislation can move more rapidly when it needs to.
I now turn to the Ministers comments. His examples were not persuasive for two reasons. First, as my hon. Friend the Member for Fareham pointed out, if the Minister has specific examples in mind, why are they not in the Bill? The Minister may say that they are not exhaustive, but even if they are not, and even if the Minister is convinced that clause 65 has to remain in the Billalthough we are not persuaded that it shouldif there are areas where the Government think they will need flexibility, let us debate them now, and make provision in the Bill. The Ministers examples were not particularly helpful to his case.
The second reason why the Ministers examples were not helpful is that they highlighted the significant matters that we could be talking about. If we are talking about the withdrawal of the usual protections available to directors employment rights, that matter, or at least the framework for it, is sufficiently serious to be dealt with in primary legislation. I do not think that I was present for the Committees debate on directors employment, but if the Minister was arguing that those protections will still existthe point alluded to by my hon. Friend the Member for Farehamyet at a subsequent stage of proceedings he was arguing that the Government are retaining the flexibility to remove those protections by order, it seems quite a serious point.
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