The
Committee consisted of the following
Members:
Chair:
Hugh
Bayley
†
Brown,
Lyn (West Ham) (Lab)
†
Cash,
Mr William (Stone)
(Con)
†
Cryer,
John (Leyton and Wanstead)
(Lab)
†
Duddridge,
James (Lord Commissioner of Her Majesty's
Treasury)
†
Gardiner,
Barry (Brent North)
(Lab)
†
Glen,
John (Salisbury)
(Con)
†
Gyimah,
Mr Sam (East Surrey)
(Con)
†
Hoban,
Mr Mark (Financial Secretary to the
Treasury)
†
Hopkins,
Kelvin (Luton North)
(Lab)
†
Leslie,
Chris (Nottingham East)
(Lab/Co-op)
Shannon,
Jim (Strangford)
(DUP)
†
Sharma,
Alok (Reading West)
(Con)
†
Williams,
Stephen (Bristol West)
(LD)
Eliot Wilson, Committee
Clerk
† attended the
Committee
European
Committee
B
Thursday
21 October
2010
[Hugh
Bayley
in the
Chair]
Investor
Compensation
Schemes
2.30
pm
The
Chair:
Before we begin, I remind the Committee that the
issue under debate is whether the subsidiarity rule should apply. We
are not here to debate the merits of the investor compensation schemes
directive or other wider European
matters.
Motion
made, and Question
proposed,
That
the Committee considers that the draft Directive to amend the Investor
Compensation Schemes Directive (European Union Document 12346/10) does
not comply with the principle of subsidiarity, for the reasons set out
in the Annex to chapter 7 of the Third Report of the European Scrutiny
Committee (HC 428-iii); and in accordance with Article 6 of
the Protocol on the application of the principles of subsidiarity and
proportionality, instructs the Clerk of the House to forward this
reasoned opinion to the presidents of the European
institutions.—(Mr
Hoban.)
2.31
pm
Mr
William Cash (Stone) (Con):
I am most grateful to you, Mr
Bayley. I note that this is the first time that this procedure has been
used in the British Parliament. It is extremely important that we have
the opportunity—as is provided by protocol 1 of the treaty of
Lisbon, on the role of national Parliaments in the European
Union—to look at questions of this kind and, under protocol 2,
to look at the principles of subsidiarity and proportionality in the
directive’s application. I will come back to that in a
moment.
I
am grateful to the Minister for facilitating what is essentially a
right for national Parliaments; that realism—Euro-realism, if I
may so—is extremely important in the present circumstances. The
Lisbon treaty’s time scale for national Parliaments to submit a
reasoned opinion on a subsidiarity issue is extremely tight. I trust
that before too long there will be appropriate procedures in place to
allow the House expeditiously to take decisions on such
matters.
The
purpose of the investor compensation schemes directive, the merits of
which we are not discussing today as we are concentrating on the
subsidiarity issue, is to ensure compensation for clients receiving
investment services from investment firms, including credit
institutions, in specific circumstances where the firm is unable to
return money or financial instruments held on the client’s
behalf due to its being in default. The directive does not cover
investment risk. The draft directive, document (a), seeks to amend the
investor compensation schemes directive.
The European
Scrutiny Committee, of which I have the honour of being Chairman, has
decided to suspend its consideration of the draft directive pending
receipt of further information from the Government on a number of
issues. So the debate today is not about the generality of the draft
directive, but about a subsidiarity issue identified by the European
Scrutiny Committee.
Document
(b) is a draft reasoned opinion of the House on this matter. For the
benefit of the Committee, and so that my remarks appear on the
transcript, I shall explain the question of subsidiarity, so that the
Committee knows to what the reasoned opinion refers. As I have said,
the question of subsidiarity arises in part from protocol 1 of the
Lisbon treaty. I draw the Committee’s attention to the fact that
a protocol has legal effect, unlike later parts of the treaty. The
preamble to protocol 1, which addresses the role of national
Parliaments in the European Union,
states:
“Recalling
that the way in which national Parliaments scrutinise their governments
in relation to the activities of the Union is a matter for
the particular constitutional organisation and practice of each Member
State”.
It
goes on to
say:
“Desiring
to encourage greater involvement of national Parliaments in the
activities of the European Union and to enhance their
ability to express their views on draft legislative acts of the Union
as well as on other matters which may be of particular interest to
them”.
It
continues by saying that certain provisions have been agreed.
The treaty
then moves on to title 1, which is information for national
Parliaments. It refers to various Commission documents that the
Commission has to forward on publication, as a matter of compulsion, to
national Parliaments. That is how we get the documents that come before
my Committee.
Protocol 2
specifically relates to the question of the application of the
principles of subsidiarity and proportionality. I will not read out the
whole thing, but what I will read out is that as a consequence of the
requirements to provide information, which are set out under article 4,
article 5 moves on to the substance of subsidiarity. I am on the record
as saying that, by and large, subsidiarity has been something of a con
trick. By that I mean that since the Maastricht treaty, which I had the
honour of leading the rebellion against in 1990, or thereabouts,
subsidiarity has been trailed as the great saving grace of the
relationship between national Parliaments and the European
Union.
It
was argued, in a nutshell, that in the case of things that would be
better done at the local level under the rubrics of the European Court
of Justice, the Commission and the other regulatory agencies of the
European Union, there would be arrangements under which subsidiarity
would apply as a matter of law. That has not been the case. There have
been vast numbers of instances in which things that could be done quite
as well by national Parliaments have been done by the hierarchy of the
European Union. However, article 5 of protocol 2 of the Lisbon treaty
states:
“Draft
legislative acts shall be
justified”—
in
other words, they must be
justified—
“with
regard to the principles of subsidiarity and proportionality. Any draft
legislative
act”—
and
that, in this instance, is the investor compensation schemes directive
before the Minister and the
Committee—
“should
contain a detailed statement making it possible to appraise compliance
with the principles of subsidiarity and
proportionality.”
That
appraisal is what our Committee has to carry out, and that is what the
European Scrutiny Committee did. The article continues:
“This
statement should contain some assessment of the proposal’s
financial impact and, in the case of a directive, of its implications
for the rules to be put in place by Member States, including, where
necessary, the regional legislation. The reasons for concluding that a
Union objective”—
that is, a European
Union objective—
“can be better
achieved at Union level shall be”—
again, there is
compulsion; it is
mandatory—
“substantiated
by qualitative and, wherever possible, quantitative indicators. Draft
legislative acts shall take account of the need for any burden, whether
financial or administrative, falling upon the Union, national
governments, regional or local authorities, economic operators and
citizens, to be minimised and commensurate with the objective to be
achieved.”
Given the
existence of the European Union and its legal framework, it is
extremely laudable that those objectives are to be met. The pity of it
is that they are not met as often as they should be. In this particular
case, we have an opportunity, because of the procedures that have been
prescribed, to hold this Committee sitting and to look into the
question of subsidiarity, as the European Scrutiny Committee has
already done.
Under article
6, the protocol goes on to
say:
“Any
national Parliament or any chamber of a national Parliament may, within
eight weeks from the date of transmission of a draft legislative act,
in the official languages of the Union, send to the Presidents of the
European Parliament, the Council and the Commission a reasoned opinion
stating why
it”—
that
is, the national
Parliament—
“considers
that the draft in question does not comply with the principle of
subsidiarity. It will be for each national Parliament, or each chamber
of a national Parliament, to consult, where appropriate, regional
parliaments with legislative
powers.
If
the draft legislative act originates from a group of Member States, the
President of the Council shall forward the opinion to the governments
of those Member
States.”
If
the draft legislative Act originates from the European Court of
Justice, other procedures apply, but that is not what is happening in
this
instance.
In
article 7, the treaty goes on to
say:
“The
European Parliament, the Council and the Commission, and, where
appropriate, the group of Member States, the Court of Justice, the
European Central Bank or the European Investment Bank, if the draft
legislative act originates from them, shall take account of the
reasoned opinions issued by national
Parliaments”.
So
there is a requirement, within the framework of this protocol, for us
to be listened to. Arrangements are then set out for the number of
votes that can be cast in relation to those matters and so
on.
In article 8,
the treaty goes on to
state:
“The
Court of Justice of the European Union shall have jurisdiction in
actions on grounds of infringement of the principle of subsidiarity by
legislative act, brought in accordance with the rules laid down in
Article 263 of the Treaty on the Functioning of the European Union by
Member States, or notified by them in accordance with their legal order
on behalf of their national Parliament or a chamber
thereof.”
That
is the law under which we, for the first time, are looking at this
provision of
subsidiarity.
We
stated in our report about subsidiarity that there is concern that the
provisions in the draft directive to recast the deposit guarantee
schemes directive— document (a)—and the draft
directive to amend the investor compensation schemes
directive—document (c) —to allow a scheme to
require support from schemes in other member states may not accord with
the principle of subsidiarity. Such provisions risk introducing moral
hazard. That is, a scheme could undertake inappropriate, careless or
risky action because it was relying on a fail-safe mechanism. To avoid
introducing moral hazard, it would be better—this is the crucial
point—not to
have recourse to other member states’
schemes, but to have each member state ensure that members of a scheme
take full responsibility for themselves, so that, effectively, each
country should do its own thing in its own
way.
The
report went on to say that as the draft directives stand, they would
not—in relation to this aspect of the proposals—produce a
result that was, in the words of article 5 of the treaty on the
European
Union,
“better
achieved at Union
level”,
so
they do not meet the principle of subsidiarity. We understand that
Sweden’s Riksdag has taken a similar view of the two draft
directives and has submitted reasoned opinions to that effect under
protocol 2 of the treaty on European Union, which I have read out, and
under the treaty on the functioning of the European Union. We also
understand that Germany’s Bundesrat and Bundestag may offer a
reasoned opinion on the draft directive to recast the deposit guarantee
schemes directive. Our report effectively concluded that the documents
remain under
scrutiny.
I
ought to explain that, under the procedure that is available to
national Parliaments, they have eight weeks from publication to submit
a reasoned opinion, and if such opinions represent one third of all the
votes of national Parliaments—the bicameral UK Parliament has
two—the Commission has to reconsider its proposal. The deadline
in this case—this is the first example of such an
occasion—is midnight, Brussels time, on 25 October.
The procedure, following our recommendation, is a debate in this
Committee on the motion, and if that motion is agreed, the question on
the motion will be put forthwith on the Floor of the House of
Commons.
Article 4b of
the draft directive provides for an obligatory last-resort borrowing
mechanism between national compensation schemes. As I have just
indicated, the Committee believes that the mechanism did not fulfil
that objective, which is that the matter could be
“better achieved
at Union
level”.
The
argument for this is quite complex, but is set out fully in the draft
reasoned opinion, which is document
(b).
In
brief, the case is that it is likely that the primary objective of the
borrowing mechanism, which is to provide greater protection to
investors and promote investor confidence in investment services, will
not be achieved. That is because such a mechanism could introduce moral
hazard in investment services, and there is a higher risk of a national
scheme underwriting inappropriate, careless or risky investments when
it knows that it can rely on a back-up source of credit. To avoid
introducing moral hazard, it would be better not to have recourse to
other member states’ schemes but instead, as I just said, for
each member state to ensure that members of the investor compensation
scheme take full responsibility themselves.
We argued
that we could not see why, by reason of its scale or effects, action by
the EU in the form of the compulsory borrowing mechanism, as opposed to
separate action by member states, would better fulfil the objective of
giving greater protection to investors and promoting confidence in
investment services. On the contrary, we believe that the proposed
borrowing mechanism may lead to less protection for investors and less
confidence in investment services. This aspect of the draft directive
would not therefore produce a result that was
“better achieved
at Union level”,
and it does not, in our
opinion, comply with the principle of subsidiarity.
I commend the
motion moved by the Minister to the
Committee.
The
Chair:
It is now for the Minister to give the
Government’s view on the
matter.
2.47
pm
The
Financial Secretary to the Treasury (Mr Mark Hoban):
It is
a pleasure to serve under your chairmanship again, Mr Bayley, and it is
also a pleasure to take part in what is for the House of Commons a
novel procedure. I should just like to correct my hon. Friend the
Member for Stone. The equivalent Committee in the other place exercised
its right to issue a reasoned opinion last night, interestingly, not on
this matter, but on a different matter. I believe that the House of
Lords Committee does not have the same concerns about this directive as
the House of Commons European Scrutiny Committee. But it is good that
this process is in place to enable the Committee to express its view
and for the national Parliaments to submit their views to the
Commission.
My
hon. Friend made a point about timing and the eight-week deadline and
the need for this to be submitted by 25 October. My understanding, and
this point was raised last night in the other place, is that the
Commission would wave technicalities to ensure that the voice of
national Parliaments was heard. It would not seek to use those
technicalities to avoid giving due weight to the views of national
Parliaments, which is welcome. I shall say a little bit about the
directive and then deal with my hon. Friend’s concerns about
subsidiarity.
The
original directive was adopted in 1997. It seeks to ensure compensation
for clients receiving investment services from investment firms in
specific circumstances where the firm is unable to return money or
financial instruments that it holds on the client’s behalf
because it is in default. The Government believe that compensation
plays a vital role in ensuring ongoing investor confidence, and the
events during the financial crisis have highlighted the importance of
this. The UK’s Financial Services Compensation Scheme leads the
way in Europe and already goes further in many areas than required by
the directives, such as covering investor losses resulting from
breaches of rules on selling practices and by providing a higher
compensation limit.
Therefore,
the Government fully support the principle of improving EU-wide
investor protection by raising minimum standards of investor protection
across the EU. The Government also support the principle of updating
the directive. Nevertheless, alongside the improvement of EU-wide
investor protection, the Government are clear that national discretion
with regard to compensation limits and the operation of schemes is
crucial. Today we are debating a specific point on subsidiarity within
the directive, but I would like to take this opportunity to emphasise
that the Government are committed to ensuring that the directive does
not cause any weakening of consumer protection, place unnecessary
burdens on the investment industry, or disproportionately affect
investment returns. We believe it is in the interests of investors to
have the freedom to
go beyond the minimum level set out in the directive, to maintain
existing standards of investor protection in the
UK.
I
turn now to my hon. Friend’s specific point about subsidiarity
in the directive. The Government are strongly of the view that the
principle of subsidiarity is one of the key checks and balances on the
Commission’s competence to propose draft EU legislation, and we
are committed to ensuring that that principle is respected and adhered
to. Officials routinely and rigorously analyse all draft legislative
proposals from the Commission and assess them against the subsidiarity
test. We challenge the application of subsidiarity whenever we feel
that the test has been breached. I value the role played by the
European Scrutiny Committee in this area. It is extremely important
that the new procedures set out in the Lisbon treaty are used, and are
used to good effect, to ensure that the Commission is held to
account.
The
European Scrutiny Committee has expressed concerns about the mutual
borrowing requirement in the directive—specifically, whether
that passes the subsidiarity test. The provision in the
Commission’s proposal would require member states to make 10% of
their scheme’s pre-fund available for lending to other national
schemes, where they have exhausted their pre-fund and raised additional
industry levies. Loans must be repaid within five years, and will
accrue interest at the rate set by the European Central Bank for its
marginal lending
facility.
On
the issue of mutual borrowing, the Government’s position, as I
set out in the explanatory memorandum on the directive, is that we
strongly oppose this provision in the Commission’s proposal. We
do not believe that it is justified to require national compensation
schemes to be made available to subsidise those in other member states.
We believe that funds should have access to alternative forms of
liquidity, just as the UK’s Financial Services Compensation
Scheme has access to loan funding from the Government. Indeed, during
the financial crisis, the FSCS accessed money from the national loans
fund to deal with the resolution of Bradford and Bingley and the
Icelandic banks. We do not believe that the knock-on effects can be
justified by the risks that the directive seeks to
address.
I
want to make it clear to the Committee that the Government’s
position is based on national sovereignty, rather than specifically on
subsidiarity. The Commission has justified its proposal on the basis
that greater harmonisation of investor compensation rules across the EU
is important to improve the functioning of the single market. The
Commission contends that investors need to have confidence that,
irrespective of the jurisdiction in which they want to invest, they
will be compensated for a loss that is covered by the investor
compensation schemes
directive.
For
such compensation to be effective, the relevant scheme needs access to
adequate funds to reimburse investors for all or part of their loss.
The Commission’s proposals on mutual funding are designed to
manage the risk that national schemes may not have sufficient liquidity
to compensate investors. It is that risk, and the impact on the
effectiveness of the single market of that risk not being adequately
managed, that is central to their justification on grounds of
subsidiarity. In other words, without mutual borrowing the single
market would work less effectively.
Therefore,
although we would not dispute the Commission’s general position
that the directive is consistent with subsidiarity, we believe that the
strongest arguments against the Commission’s proposals are those
that are grounded in concerns of national sovereignty and
proportionality, rather than the legal interpretation of subsidiarity.
However, I recognise that subsidiarity does involve a certain amount of
judgment and I will be interested to hear other points on that in the
debate today. It is important that the UK ensures that the Commission
makes a robust case for its judgment on the compliance of future
measures with the principle of
subsidiarity.
In
particular, I note the European Scrutiny Committee’s specific
concern that mutual borrowing may give rise to moral hazards for
schemes. The Committee is concerned that the existence of this moral
hazard might impair the effective functioning of the investor
compensation schemes directive across the EU. In the absence of mutual
funding, such moral hazard would not exist. Therefore, the argument
follows that since mutual funding creates moral hazard, it cannot be
said that this provision is better achieved at an EU level. As it is a
condition of the application of subsidiarity that action is better
achieved at the EU level, the Committee feels that this test has not
been met and that the principle of subsidiarity has therefore been
breached.
As
the Committee is aware, moral hazard occurs when a party insulated from
risk behaves differently than if it were fully exposed to the risk.
Moral hazard would arise in such circumstances if a national
compensation scheme, knowing that it has access to funding from
compensation schemes of other member states, did not take into account
the full consequences and responsibilities of its actions, and thereby
acted less cautiously than it would otherwise.
It is worth
noting that the same argument about moral hazard arises whether a
compensation scheme is funded by guaranteed loans from the Government
or from the mutual borrowing requirement that is set out in the draft
directive. The provision of mutual funding does not, therefore, create
meaningful additional risks of moral hazard that do not already exist
in any compensation scheme that is backed by the Government, as is the
case with the UK’s FSCS. It can be argued that investors will be
prone to taking greater risks if they can be assured of compensation in
the event of a loss. In that case, however, the Government believe that
moral hazard risks are far outweighed by the benefits of investor
protection and confidence, which come from having a scheme in
place.
In relation
to the points raised by the European Scrutiny Committee, on the
specific case of borrowing between national schemes, we consider that
the risk of moral hazard in the Commission proposal would, in any
event, be minimised by the strict conditions imposed on the borrowing
scheme. For example, the scheme must have exhausted its pre-fund and
must have had recourse to additional emergency funding from its levy
payers. Furthermore, a scheme cannot borrow from another scheme while
any loan to another scheme remains unpaid in full. Therefore, a
sufficient degree of moral hazard does not exist effectively to argue
that a breach of subsidiarity has taken place. In our view, it is
difficult to demonstrate, on moral hazard grounds, that action would
not be better achieved at an EU level.
The Government
will continue to argue strongly against mutual borrowing on policy
grounds. Rather than introduce mutual borrowing schemes, member states
should have access to liquidity through reliable sources of short-term
funding, just as the FSCS can access loan funding in the event of major
failures. We have been vocal on that issue in working groups and there
has been little support for the Commission’s provisions from
other member states. We will continue to push those arguments in
Brussels.
That
should not detract from the importance of careful scrutiny of the
proposal. I re-emphasise my support for the European Scrutiny
Committee’s exercising its role in the examination of the
directive, despite the fact that the Government do not agree with the
grounds on which the motion has been put forward. I encourage the
Committee to use the new provisions in the Lisbon treaty to support the
Government’s efforts to ensure that EU institutions are held to
strict account for their interpretations of the subsidiarity
principle.
2.57
pm
Chris
Leslie (Nottingham East) (Lab/Co-op):
As the Minister has
said, it is noteworthy that we are embarking on new and perhaps
historic procedures regarding reasoned opinion. I have a number of
points to make and questions to ask him on procedural matters, as well
as on subsidiarity.
As a novice
in European scrutiny, the first thing that strikes me is that the
motion in the name of the Minister appears in a form that suggests that
he felt that the directive did not comply with the principle of
subsidiarity. The Minister’s speech, however, has essentially
rebutted the subsidiarity argument, which suggests that he had policy
disagreements—touching on the national sovereignty
point—for genuine reasons. We are here to discuss subsidiarity,
so it strikes me—perhaps because of the novelty of the procedure
that we are embarking on—that it would have been more useful to
have had a motion in the name of the Member who is heading up the
Committee concerned. Perhaps there is some rationale that I am missing.
It would be useful for the ordinary Member who reads the motion to get
a clear sense of the Government’s position. There is always
justification for the way in which such things are set out, but I find
it difficult to understand that, so perhaps the Minister will
explain.
Mr
Cash:
I will deal with that shortly, because what the
Minister said is inconsistent with the way that the motion is set
out—I agree with the hon. Member for Nottingham East on that. I
do not resile for one minute from the fact that it is a matter of
subsidiarity, and I am the Chairman of the European Scrutiny Committee.
I will explain in my concluding remarks why the question of national
sovereignty is somewhat presumptive in this case. I will come to the
reasons in a moment, because we have not yet got to the sovereignty
issue. This is merely a draft directive, which has not even gone to the
Council of Ministers.
Chris
Leslie:
I am sure that Members on both sides would flock
to the Committee, either in their own right or as observers, were the
motion in the name of the hon. Gentleman. However, we have a motion in
the Minister’s name, yet the arguments put were to the
contrary.
In respect of
the position taken by Her Majesty’s loyal Opposition, I feel
that we have a duty to look at the question from the perspective of
consumers and customers. They will be making the deposit and the
investment, and we need to ask ourselves what is in their best
interests. From there, questions arise about the level at which policy
is best made. The hon. Member for Stone has talked about the way that
the subsidiarity protocols were framed. Can such issues be sufficiently
dealt with at member state level? By and large, we believe that they
can. As a large country and a sovereign nation, we can deal relatively
adequately with such issues, and the Financial Services Compensation
Scheme has been leading the way across many parts of the
world.
There are
aspects, however, where I can see the benefit of cross-border
co-operation, particularly across the European Union. The mutual
borrowing argument raises such questions. I can see the merit in having
some safeguard to prevent an uneven playing field, where we would end
up with a hotch-potch of different protection schemes, from one border
through to another. There is some virtue in being able to iron out
anti-competitive arrangements. That opens up the whole pre and
post-funding argument about how to provide such compensation schemes,
and the extent to which companies would shop around from country to
country—where they set up would depend on such
arrangements.
The issue
rests more in policy than in the issue of subsidiarity. On page 21 of
the bundle, the Commission has tried to justify why the subsidiarity
point does not necessarily apply. The cynic in me would ask if this is
a way for the Government, with a nod and a wink, to say to venerable
Back Benchers such as the hon. Gentleman, “We understand that
you object to this sort of pro-European activity, and we will try to
resist the measures by going along with the subsidiarity
argument”, rather than fronting up disagreements on policy at
the European level and rebutting the case for the directive there,
which may upset international relationships. That is my cynical view. I
may be wrong; but on the other hand, I may be
right.
Mr
Cash:
I absolutely assure the hon. Gentleman 100% that I
have had no communication whatever from the Minister, or from any other
member of the Government on that question. We based the decision on our
judgment, because we have to take account of the legal or political
importance of documents from which flow the application of the
protocols that I mentioned earlier, relating to subsidiarity. We have
expressed our view and we are not resiling from it. We are glad that
the Government consider that the draft directive does not comply with
the principle of subsidiarity, and we will rest at
that.
Chris
Leslie:
Yes, but direct communication is not always
necessary between Government Members. I expect the osmosis school of
understanding to apply sometimes, but Labour Members are always of a
like mind without our necessarily having to speak to one another.
[
Interruption.
] At least, that is my
understanding. As the motion will come before the House, although
without a substantive debate, for the time being I would like to
reserve our position on the question—not necessarily opposing
the motion, but not necessarily supporting
it—and take further soundings about whether the reasoned opinion
holds water legally. We would also like to inquire further into whether
the measures are in the best interests of the consumer, because there
are arguments on both sides. We need to take more steps, rather than
fewer, in the best interests of the
consumer.
Kelvin
Hopkins (Luton North) (Lab):
On a point of order, Mr
Bayley. Are we making speeches or asking questions of the
Minister?
The
Chair:
We are making speeches. Although there is normally
a one-hour question session in European Committees, I am advised by the
Clerk that under the procedure that we are using for the first time
today there is no question session. All the available time is for
debate.
3.7
pm
Kelvin
Hopkins:
Thank you, Mr Bayley, and it is a pleasure to
serve under your chairmanship. I had not intended to make a speech, but
it is clear that there is a slight difference of view between the Chair
of the European Scrutiny Committee—of which I have the great
honour of being a member—and the Minister.
I have always
been concerned about subsidiarity. The hon. Member for Stone has called
it a con trick, but perhaps it was a political device to get through a
particularly difficult time in the development of the European Union.
Anything that can give subsidiarity some definition is good, and
occasional challenges under the subsidiarity rule give it some meaning.
If it is simply on the European statute book as a decoration that is
never used, that suggests that it was only a device to get through a
difficult political time for the European Union. I hope that it was not
and that it is meaningful.
The Minister
suggests, as I understand it, that the Government do not really want to
press the subsidiarity argument; they say that it is a matter of
national sovereignty and policy. My fear, however, is that if the
motion is not carried—I will certainly vote in support of
it—once Ministers have got rid of the technicality, they will be
able to negotiate in the Council of Ministers and give away whatever
they want, whereas a subsidiarity decision is more tricky for the
Government to deal with. In the end, an agreement may be reached, but I
want to put in place a significant hurdle that the Government and the
European Union must clear in making their case. I do not want to see
this brushed to one side and Ministers doing a deal at the Council of
Ministers and returning with it all washed
up.
Mr
Cash:
This matter has not been referred to since we began
debating, but as I have pointed out, the Swedish Riksdag has also taken
exactly the same position. There is reason to believe that politicians
in Germany are also concerned about subsidiarity, because they have
also put in reasoned opinions.
Kelvin
Hopkins:
I thank the hon. Gentleman for those points. As
at least one other member state has already made a decision on those
grounds, there can certainly be no harm in the British doing the same
thing. I want subsidiarity to be tested to ensure that it is
politically meaningful and not just for decoration. There are
historical precedents of authoritarian regimes that were essentially
dictatorial, but they had all sorts of elaborate democratic niceties
that were pretty meaningless.
The Soviet Union is a classic example. I remember studying the Russian
constitution when I was a student. Created in Stalin’s time, it
had wonderful, elaborate democratic provisions for local authorities
and elections and for people to speak their mind and so on, but the
real decisions were made in Moscow by Stalin and his
people.
I
want to see democracy that is meaningful. I want the participation of
member states in the European Union to mean democratic consent by the
member states and not be simply political decoration, with decisions
made behind closed doors in the Council of Ministers. The measure is a
good way of perhaps testing subsidiarity, to give it meaning, focus and
definition. That is one good reason for going ahead with it. However, I
trust the Chair of the European Scrutiny Committee and what he said. It
is not an area in which I have expertise. I have the average
layperson’s intelligent observations, but that is not expertise.
I wish to support the motion, and I hope that other members of the
Committee will support it,
too.
Mr
Cash
rose—
The
Chair:
Does anyone else wish to
speak?
3.12
pm
John
Cryer (Leyton and Wanstead) (Lab):
I was not going to, but
I think I will, Mr Bayley. It is always a pleasure to serve under your
chairmanship. I want to echo what my hon. Friend said. I have always
felt that the European Union specialised in window dressing, of which
subsidiarity is an outstanding example. In all the years that I have
attended public meetings, held surgeries and knocked on
doors—things that we all do in our constituencies—I have
never on any occasion had anyone say to me, “What I really want
to talk about is subsidiarity.” The reason for that is the
obscure way in which the EU works—it is byzantine. There are not
clear lines of
accountability.
We
are all held to account at election time when we must go to our
electorates and say, as we all do, “That is my record. If you
think I have done a good job, re-elect me. If not,
don’t.” When Tony Benn was an MP, he said there were five
tests that we should ask anyone with political power. I will try to
remember them: “What power have you got? Who gave it to you? On
whose behalf do you exercise it? To whom are you accountable?”
The final question is the most important one: “How do we get rid
of you?” When I was previously the MP for Hornchurch, I went
round saying that a bit too much, and people took me at my word and
kicked me out in 2005. But there we go—we go through such
experiences. However, the key test is that Members can be removed from
Westminster. The Chancellor of the Exchequer, a Minister or any us can
be removed. In the European Union, it is not like that. The real
decisions are made by the European Court of Justice and by people in
the Commission. They are not people who are
accountable.
Like
my hon. Friend the Member for Luton North, I will support the motion,
but I feel that the direction of the European Union is generally
towards centralisation. Federalism is a misnomer—it is
centralisation. I hope that the motion will have some effect, but I
suspect that in the broad scheme of things it will
not.
The
Chair:
I was about to remind the hon. Gentleman of the
matter under discussion, but that was a good contribution.
Mr. Bill Cash?
3.14.
pm
Mr
Cash:
I am grateful to you, Mr Bayley. I am fascinated by
the Minister’s remarks. No doubt I will have an opportunity to
talk to him about it later, but I certainly did not talk about it with
him before, as the hon. Member for Nottingham East implied. He did not
necessarily dispute that I had not had direct words, but implied that
somehow or other the message had got through. It is simply not the
case. Our Committee has taken this view based on advice from our legal
advisers. We have weighed up the situation and come to a conclusion.
Indeed, the Minister states, unequivocally, in his name,
“That
the Committee considers that the draft Directive to amend the Investor
Compensation Schemes Directive…does not comply with the
principle of
subsidiarity”.
Well,
there we are. We have an unusual circumstance, but that does not alter
the fact that our Committee is charged by Parliament with arriving at
what is of political or legal importance. It is not for the Government
to make that assessment—it is for us to do that. The Government
can have a view on that, but it does not follow that this Committee
would take a contrary view on the issue. The Government seem uncertain
about whether the motion they have put their name to is the direction
in which they want to go in the Committee.
I have no
doubt at all that we will resolve that as we move along, but I want to
make one important point—we have already got certain directives
which are in effect. I will not—you will be sure to constrain
me, Mr Bayley, if I do—go into the merits of the deposit
guarantee schemes directive, as amended, because it will take up the
time of the Committee unnecessarily. The Committee is considering the
draft directive, which recasts the deposit guarantee schemes directive.
That is before us and is currently not in law. The reason that it is
not in law is that it has not been agreed in the Council of Ministers.
It is still pending scrutiny by our Committee.
In fact, the
Minister—not that I am suggesting that he would do
so—would have no right to go to the Council of Ministers while
the directive is still pending scrutiny by the European Scrutiny
Committee, because of the scrutiny reserve arrangements. Had he gone to
the Council of Ministers—I do not suggest for one moment that he
would have—and voted for, and agreed, this directive in its
draft form, he would have to answer to the European Scrutiny Committee,
if our Committee still held the draft directive under reserve. That is
why we are having these proceedings. That is based not only on our
assessment of what is politically or legally important, which the House
has charged us to do and on which we have made a report, carefully and
over a period of time, but on advice from our legal adviser and the
Committee’s judgment and conclusion that there is a subsidiarity
issue. As we commenced these proceedings, that appeared to be a view
shared by the Government. However, I want to move off that
point.
Chris
Leslie:
I would like to hear the hon. Gentleman’s
view on the anomaly whereby the motion appears in the name of the
Minister, who made a series of points that were contrary to what the
motion says.
The
Chair:
Order. There is an anomaly there. I have been
discussing with the Clerk whether there is an anomaly, because under
Standing Orders the motion
must be in the Minister’s name, rather than the Committee
Chairman’s name. That is required by Standing Orders. It would
not be right for the Committee to discuss Standing Orders, but if the
two Front Benchers could stay behind for a couple of minutes after the
Committee, I would welcome their views, whether they are similar or
different, so that I can report to the Chairmen’s Panel on how
the first of this type of European Committee
went.
Chris
Leslie:
I am grateful; that would be extremely welcome. It
is an important point, because the Minister’s troops rally to
the Committee and take their lead from the fact that his name is on the
motion.
Mr
Cash:
While we are having this discussion—this will
be interesting, and no doubt the Procedure Committee and others can
look at it—there is a potential answer to the anomaly described:
the treaty does not say only “national Parliaments”,
but
“chamber of a
national Parliament”.
My spontaneous reaction
is that for the purposes of these proceedings, with regard to the
application and construction of protocol 2 and the reasoned opinion
procedure—as seen through the eyes of the European institutions
and the treaty of Lisbon, which made the amendment—for
“chamber of a national Parliament” we can read
“European Scrutiny Committee”. That is possible; I am not
saying it is the answer, but it may
be.
The
Chair:
Order. Let us get back to the
issue.
Mr
Cash:
This is a draft directive for the reasons I have
given. I have tabled early-day motion 871 with some very distinguished
people—the chairman of the 1922 committee, former Cabinet
Ministers and others—relating to European competencies. It is a
powerful motion about the whole question of economic governance and the
sovereignty of the UK
Parliament.
If
I may say so, I was fascinated by the speed with which the Minister
brought forward the idea of national sovereignty. I was delighted to
hear him, because my Committee is holding an inquiry into the
compatibility of the assertions of the EU in the context of the
sovereignty of the UK Parliament. We hope to have a full, deep and
wide-ranging inquiry into the compatibility, and I say that for a
reason. That is not a diversion, because the Minister has said that, as
far as he is concerned, the issue raises the question of national
sovereignty. When the House deals with matters relating to legislation
emanating from the EU, there are always questions of national
sovereignty. However, the question of declaration 17 of the treaty of
Lisbon is highly important, because the Government are bringing forward
proposals for a reaffirmation, statement or declaration—we have
not seen the wording—relating to parliamentary sovereignty in an
EU Bill. I will not go down that route by any means, but I wish to make
an important point: declaration 17 of the treaty of Lisbon declares
that so-called “well settled case law” of the European
Court of Justice, including cases such as Costa v. ENEL,
Handelsgesellschaft, Simmenthal and a range of others, in which the
EU—
The
Chair:
Order. I must steer the hon. Gentleman. It is a
question of whether the subsidiarity rule, as proposed by the
Committee, should apply to the directive; wider issues of UK policy in
relation to the EU are not open to discussion in the
Committee.
Mr
Cash:
Perhaps policy is not for discussion, but the
Minister referred to national sovereignty. Declaration 17 clearly
states that the European Court and its jurisdiction supersedes the
constitution of the UK, and, therefore, until a decision is taken
turning a directive, through majority voting by the Council of
Ministers, into a legislative Act, the question of national sovereignty
does not arise in relation to the draft directive. That is all I need
to
say.
The
Chair:
As the motion stands in the Minister’s name,
I invite him to
reply.
3.24
pm
Mr
Hoban:
I find it very odd to have moved a motion when I
disagree with the arguments underpinning it, so I will happily take up
your offer, Mr Bayley. What makes the situation more bizarre is that my
hon. Friend the Member for Stone and I agree that the mutual funds
borrowing provisions are wrong, albeit for different reasons. That is
another peculiarity of the
process.
I
urge my hon. Friends on the Committee to vote in favour of the motion.
It is important that Parliament expresses its view on it. It does not
in any way contradict the position that the Government have taken,
which is another odd situation, but the Government can have one view
and the Committee can have a different one. We want to encourage a
pluralist Parliament in which different views can be expressed, and
this is a good way of achieving that. I am sure that when we improve
the procedure, we will get to a point where we can get away from this
slightly odd challenge of holding two separate views at the same time
and in the same position. We will deal with that in due course. It is
important that Parliament’s view and that of the European
Scrutiny Committee are expressed, using the options that there are in
the Lisbon treaty.
My hon.
Friend the Member for Stone said that the German Parliament is sending
reasoned opinions on the investor compensation schemes directive. I
understand that the reasoned opinions issued by the Bundestag and the
Bundesrat relate to the deposit guarantee schemes. However, the federal
chamber has written to the Commission in response to this directive to
ensure that schemes across the EU are adequately funded, and not on the
grounds of subsidiarity. To reassure my hon. Friend, when officials and
I debate these directives, we make it very clear that we cannot take a
decision on them until the European Scrutiny Committee has completed
its work. We respect the parliamentary process in full.
I can assure
the hon. Member for Nottingham East that my hon. Friend the Member for
Stone and I have not had any discussions about the matter. The hon.
Gentleman will know from his previous experience in Parliament that my
hon. Friend is known for his robust, independent views and is not
easily swayed by Ministers, so I am not sure that I would bother
trying, even if I wanted to.
In conclusion,
I encourage hon. Members to support the motion. I do not agree with the
arguments made by the European Scrutiny Committee. Indeed, my own
explanatory memorandum submitted to the European Scrutiny Committee
says that we believe that the directive is consistent with
subsidiarity, but I am happy for the Committee to ensure that the views
of the European Scrutiny Committee are made known to the relevant
European
institutions.
Question
put and agreed to.
Resolved,
That
the Committee considers that the draft Directive to amend the Investor
Compensation Schemes Directive (European Union Document 12346/10) does
not comply with the principle of subsidiarity, for the reasons set out
in the Annex to chapter 7
of the Third Report of the European Scrutiny Committee (HC
428-iii); and in accordance with Article 6 of the Protocol on the
application of the principles of subsidiarity and proportionality,
instructs the Clerk of the House to forward this reasoned opinion to
the presidents of the European
institutions.
The
Chair:
Before we close the proceedings, I would just say
that, as we have been told by the hon. Member for Stone, this is the
first time a Commons Committee has used this procedure. I thought the
debate was remarkably good—one of the best I have ever heard in
a Committee. I congratulate everybody on the manner in which they have
proved the
way.
3.27
pm
Committee
rose.