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In the kind of grave and exceptional circumstances where the powers may be exercised in the future, carefully circumscribed in Clause 2—a recurring theme of my comments from this Dispatch Box is the significance of Clause 2 and the circumscription on the powers reflected in the clause—we would be faced with a serious threat to the stability of the financial system. Let us be clear: a failing bank or building society collapse would create systemic damage to other financial institutions and the UK financial system before there would be any question at all of these powers being used.

We may be faced with this problem at a weekend, in the middle of August or at any time when the House is not sitting. Something may need to be done before markets open the next day and queues form at branches. I have heard it argued on several occasions that other emergency provisions have not sought the exemption that we are seeking today. There is a difference in the industry that we are considering with regard to the legislation. The Committee recognises the significance of confidence in the banking system. Maintenance of financial confidence is of the greatest significance. That is why we have to conceive of action in circumstances such as an emergency is one where we need to act before others in the markets are able to take account of a developing crisis.

I realise that the Delegated Powers and Regulatory Reform Committee did not fully endorse that argument and I find some difficulty in disagreeing with its position. And I accept its proposition in every other set of circumstances that I can think of. But these powers in Clause 2, which are at the absolute

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heart of the Bill, are all about responding to an issue of the greatest financial crisis and the necessity for action prior to markets being able to respond. We may need to complete the transfer of the whole bank to another institution because it is sound and able to absorb the troubled bank, or transfer the deposit book to a sound bank. If we could do so only after the draft order had been debated and approved by both Houses, the damage to the financial system could already have been done.

I hope that the Committee will not consider me to be overly dramatic about this issue, but I am obliged to emphasise the difference between the particular circumstances of the industry which is the subject of this regulation and any other. We saw with Northern Rock last September how quickly events can unfold. The matter would be especially acute if the problem were to arise in the Recess. To recall Parliament is no answer as that would only heighten the drama and increase the level of the crisis. Enabling an order to be made immediately, subject to later confirmation by resolution of both Houses, is not an answer to this point. In the case of a transfer of the deposit book, how would depositors have any certainty that their money would remain with the new sound bank rather than being sent back to the failing one? The answer is that they would not. They would want to withdraw their money to a safer haven, and we would have another run. I put it to the Committee that we cannot contemplate that.

It is because we are dealing with banks and building societies, not something like British Leyland, that we are doing this. We all recall the implications for the British economy as a result of the significant problems at British Leyland, as well as the challenges for the workforce and the community where it was located. I do not decry the significance of British Leyland, but I want to emphasise how very different this legislation is, dealing as it does with banks and building societies. That is why we think it is right for this Bill to use what would otherwise not be appropriate. We ask noble Lords, in considering the report of the Delegated Powers and Regulatory Reform Committee, to balance the clear legal concerns which have been expressed against the real issue of financial stability which is at the heart of this Bill, and the particular importance of confidence as much as legal certainty to the sound operation of the banking system.

We continue to maintain our respect for the committee, and of course we have sought to respond as positively as we can in other areas of its work, but I hope it will be understood that in this particular respect, the Government must dissent from the recommendations of its report. Given that, I hope that the noble Lord will feel able not to press his amendments when the time comes, and instead will support the government amendments. I beg to move.

Lord Goodhart: The role of the Select Committee on Delegated Powers and Regulatory Reform is to advise the House, and not to take part in support of or opposition to any contested amendment. Indeed, I have no authority from the committee to do so. In those circumstances, I am afraid there is nothing that

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I can add to what the committee has already said in relation to the amendment tabled by the noble Lord, Lord De Mauley.

Earl Ferrers: As the noble Lord, the Captain of the Queen’s Bodyguard, introduced the amendment, I thought I detected in his voice a feeling of, “Hooray! Hurrah! This is coming to an end!”. I am sure that the points he has made are very important but perhaps he could help me with one particular point, and then on another one.

Before I come on to the particular point, perhaps I may explain yet again that some of us, of whom I am one, feel that this ought to be a hybrid Bill, because it is dealing in effect with one bank as opposed to all the others. I know that the Government and the noble Lord do not want it to be a hybrid Bill, because that would take up so much time, but as he will realise, the purpose of hybridity is fairness, so that people can have their counsel, put their case, and have it considered. By not making it a hybrid Bill one is deliberately removing fairness. I understand why the Government have done that. We all know that the Bill refers to Northern Rock. But it does so with this caveat that it could refer to anything over the next 12 months.

I am surprised that Amendment No. 16 seeks to insert new subsection (2B) into Clause 13. The subsection states:

In other words, if the colour appears white, you pretend it is not white and say it is black. It appears to me that this is conscious and deliberate reasoning by the Government to say, “We do not want hybridity to be part of this. If anyone sees the possibility of hybridity coming up, just tell them that it is not because we have to go on as if it is not hybrid”. I question whether that is a good thing for Governments to put into Bills. Perhaps the noble Lord will explain why that is done.

My next question is of much less concern. In explaining what the amendment is about, the Minister said that it is necessary because action might have to be taken on “certain urgent occasions”. Is that in case something goes wrong in another bank in the next 12 months—another urgent occasion when the Bill’s facilities need to be used? Or is it referring to Northern Rock, in relation to which another order or statutory instrument might need to be laid in the next few months? I would be grateful if the Minister can explain.

Lord Newby: I find myself in an unusual situation regarding these amendments because I am not in complete agreement with my noble friend Lord Goodhart. On major issues in secondary legislation, I agree that one should as a general principle proceed by affirmative resolution. However, this is a very particular situation. One of the main arguments for going for an affirmative as opposed to negative

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resolution is to give Parliament time to think and to debate the issues. We have been thinking about and debating this issue for much longer this week than we ever would if we were simply considering secondary legislation introduced under the affirmative resolution procedure. Therefore, in the narrow case of Northern Rock, is there any advantage to Parliament, or to any of us as individuals, in having a debate on an affirmative resolution, which we could not amend, as opposed to the debates that we have been having this week? Is there or is there not an advantage for Northern Rock and for broader stability in resolving this matter very speedily indeed?

In this case, on balance and somewhat reluctantly, I accept the argument that a negative resolution which enables us to get to the end-point on Northern Rock at the earliest possible moment is desirable. Heaven knows, most of those who have spoken have said that one of the major arguments against the Government’s handling of the case has been their dilatoriness rather than their moving too swiftly.

As for any future circumstance, the likelihood of finding ourselves needing to go through this procedure again during the operation of the Bill is very limited and very unlikely. As discussed earlier, it is useful to have this guarantee—as the noble Lord, Lord Desai, described it—on the statute book, but we do not expect to use it. The Minister talked about what happens if we find ourselves unexpectedly requiring to use it in the depths of August. August, incidentally, is a peculiarly unfortunate month. If you plotted the history of great British economic disasters against calendar months, there would be a huge peak in August. That is undoubtedly the case, and no doubt there is a PhD in it. If we find ourselves, in the first week of August or at any point in that month, with a bank or building society unexpectedly in real difficulties, there will be a significant advantage in being able to move quickly without recalling Parliament. For those reasons we support the Government on this group of amendments.

4 pm

Lord De Mauley: I am grateful for these government amendments but, as I have pointed out before, it is unprecedented for a Government to ignore a recommendation from the Delegated Powers and Regulatory Reform Committee. It is all the more worrying that the Government are resisting the control of transfer orders in Clauses 3, 4 and 6. Even the Minister gracefully admitted that he had some difficulty with that. Although we all understand the ability of the noble Lord, Lord Goodhart, to take sides, his report stands before us.

We have listened carefully to the Government’s arguments for why these orders should remain under the negative procedure and remain unconvinced by them. The Government’s defence of inadequate amendments is another part of their gradual admission of what the Bill is for.

The wider points have been fully covered today by many noble Lords but they are relevant to these amendments, so I hope your Lordships will forgive me if I highlight them one more time. We promised

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that the necessary emergency provisions for the nationalisation of Northern Rock would pass through Parliament by the end of this week and we have now considered the Bill for three consecutive days in both Houses. We on these Benches and our honourable friends down the other end are quite happy to consider it again tomorrow, if necessary, to fulfil that commitment. However, what we have rushed through Parliament has been something completely different. We would almost be justified in rejecting the Bill outright, so far is it from what we were expecting. I hope the Minister and his colleagues in another place will acknowledge that at no point have we threatened to do so, nor have we taken anything other than a genuinely constructive approach to the proceedings.

These proceedings have been successful in a rather sad way, in that they have finally teased out of the Government their admission that the Bill is not just about Northern Rock but about the whole of the next year, a year in which they are clearly anticipating yet more instability and more crises in the financial sector. I state again, as I stated last night, that it is right and proper that Parliament should be involved in any future decision to nationalise another financial institution. The Government’s claim that they need to be able to instigate another nationalisation on the sly and the provisions that make that possible are far more damaging to the public confidence in our financial sector than any possible parliamentary involvement.

I accept that a normal affirmative resolution procedure may in some cases be too lengthy; however, the DPRRC has, in its customary thorough way, given a perfectly adequate alternative. We will be tabling amendments on Report to put the order-making powers in Clauses 3, 4 and 6 under the same sort of procedure as was implemented in the Northern Ireland Act 2000. That will allow the Chancellor, when he considers it expedient, immediately to make an order overriding the usual draft affirmative procedures, which would remain the default option.

The Minister will no doubt tell us that even this slight involvement of Parliament will make it impossible for the Government to effectively resolve a looming crisis. Is he also telling us that, if the Government had had the powers in the Bill last summer, Northern Rock would have been handled differently?

I have made my position clear. We will return to this issue on Report in the hope that the Government will finally acknowledge that either they are creating a man of straw in order to demand a big stick with which to beat it or they are cynically exploiting Northern Rock in order to grab exceptional powers on the sly.

Lord Davies of Oldham: The noble Lord has distinguished himself by his contributions so far both on Second Reading and in Committee, but his contention in the speech just delivered ill becomes him in light of the argument that I put forward on the Government’s behalf. I hope that that argument will be accepted. How can it be suggested in the wake of the months of assiduous work by the Government to avoid nationalising Northern Rock that they are

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about nationalisation on the sly? If there is one thing of which the Government cannot be accused, it is enthusiasm for nationalising the banking and building society structures.

As I have said on numerous occasions, the Bill’s provisions obtain for only 12 months to bridge the gap between the current position, where we have inadequate legislation to respond to potential emergencies—and I cannot emphasise enough that we are talking about emergencies—and the ability to take necessarily drastic and dramatic action to meet a threat to the financial system, such as a potential run on a bank or building society and the destabilisation of the financial markets.

That is the nature of the emergency addressed in the Bill. The Government do not intend to act when, as we all fervently hope and expect, such an emergency does not materialise in the next 12 months. But how imprudent would it be if we had nothing in place? The reason for the Bill’s temporary nature is that, after the 12 months, after the fullest consultation with the banking and financial sector and all other interested parties, and after the most intensive debate in the other place and undoubtedly in this place too, we are planning to produce a reform of the banking and financial system later in the year. But we presently have a gap in dealing with any potential emergency. We do not foresee using the provisions, but the nature of emergencies is that they cannot be foreseen. Equally, however, it is prudent to be able to cope if an emergency materialises.

As the Committee will recognise, the international financial market is disturbed and troubled. That is why all serious actors on the world stage are bending themselves in taking action to protect the world’s financial structures as best they can and to improve the position over the coming months. It is a challenge that all of us face internationally. It is a challenge that states also face nationally. This is the British Government’s proper response to an emergency that has already occurred with Northern Rock. We are merely being prudent in making provision for our ability to cope, if in fact such an emergency materialises. That is the basis of the Bill. It is why we are saying on this occasion that, if an emergency did occur, it would be different from any other kind of emergency to which the Delegated Powers Committee referred or legislation on which it contributed—because of the sheer shortage of time in which a Government could act.

I recognise the consistency of the noble Earl, Lord Ferrers, in arguing that the Bill should have been conceived of in entirely different terms—that it should have applied only to Northern Rock and been a hybrid measure. If so, our solution to Northern Rock would have related to the somewhat distant future and we could not have dealt with the issue promptly now. In addition, such a Bill would contain no provisions about how to cope with troublesome times if an emergency occurred. We do not anticipate that one will—we cannot foresee any emergency—because, like the rest of the Committee and the rest of the country, we expect this country to get through these troubled times successfully. However, we would be exceedingly imprudent if, given the necessity of

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acting on Northern Rock, we did not at the same time make provision to enable us to cope with any such emergency.

Lord Eatwell: My noble friend referred, as did many noble Lords, to the new legislation on banking supervision that we expect to see after this temporary legislation goes into the sunset. Will he consult his colleagues and consider whether, when that legislation is introduced, there should be a joint pre-legislative committee, as there was with the Financial Services and Markets Bill eight years ago? That would greatly facilitate the consideration of such legislation and the speed with which it could be passed. Will he take that back for consultation?

Lord Davies of Oldham: As ever, my noble friend produces a timely representation. I have been at pains to emphasise the need for the most extensive consultation before that legislation is prepared. That extends to ensuring that parliamentary consideration of it is sufficiently adequate and at its most effective. As my noble friend said, that might involve a pre-legislative committee—we have seen the advantages of that in relation to a number of previous Acts of Parliament, including the legislation to which he referred. I take that point on board with a degree—I use appropriate body language—of enthusiasm.

Earl Ferrers: I asked the Minister whether he would be good enough to explain why, in an Act of Parliament—at least, the proposal is that this should be an Act of Parliament—it is suggested that if something appears to be hybrid, it should be treated as not being hybrid. That seems to be like saying that you should tell a lie.

Lord Davies of Oldham: It does not involve telling a lie but it introduces a complex concept, which the noble Earl is right to identify. He will recognise that we need to make orders with regard to one institution; namely, Northern Rock. The Bill is a general Bill with powers that go beyond the issue of Northern Rock, but we will have to act on the issue of Northern Rock. In moving such orders, we must avoid falling into the trap of hybridity. As has been indicated, that involves a range of difficulties. That is why the clause is expressed in the way that it is; it is not because of deceit but because of the need to enable a general Bill to deal with a specific problem. We all know that a great deal of this general Bill is about the specific problem of Northern Rock.

Lord Goodhart: There is nothing particularly novel or unusual about including a dehybridisation clause. It was last used, as we said in our report, in the Building Societies (Funding) and Mutual Societies (Transfers) Act, which was passed in the previous Session.

Lord Davies of Oldham: If that was an intervention before I had sat down, I am unduly grateful for it.



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Lord Mayhew of Twysden: Before the Minister does sit down, may I make a request that does not stem from the degree of learning that we have just heard from the noble Lord, Lord Goodhart? The Minister has insisted that the purpose of these powers is limited to some unforeseen although not perhaps unforeseeable emergency during the lifetime of the Bill within the sunset clause. The request that I am about to make comes from the decision that the Law Lords can have regard to what has happened in Parliament when determining the proper purpose of the Bill. In the light of that, is he prepared to give an express undertaking on behalf of the Government that these powers will not be used, save in the circumstances that he has envisaged time and again today and yesterday? He may not be able to give that express undertaking at the moment, but will he secure it at some later stage of the Bill?

Lord Davies of Oldham: I will take steps should the opportunity present itself.

I have been assured that my arguments, which were based on Clause 2 all the way through, are sufficient. I have argued the case for the necessary restrictions within Clause 2 about when the power is employed. That is sufficient to meet the noble and learned Lord's point. I know that we have been talking about the particular part of a potential order, but if the Committee does not mind I will refrain from trying to produce the multisyllabic word that the noble Lord, Lord Goodhart, used with such facility. We are proceeding with the order on the basis of past precedent and the Government will need to make orders with regard to Northern Rock.

The reason I am hesitating is that the noble and learned Lord is well versed in the law and I am not a lawyer. I am also conscious of the fact that what people say from the Dispatch Box, particularly when questioned on the future interpretation of the law, is of the greatest significance. If the noble and learned Lord will forgive me, I will not present the issue further except to say that all the way through we have made it clear that Clause 2 has the restrictive features that guarantee that it is related only to the most obvious financial emergencies.

Lord Mayhew of Twysden: If his arguments are sufficient for the purpose that I have raised, what would the Government lose by giving an express undertaking?

Lord Davies of Oldham: Not very much, except that I was lacking the confidence to respond to him in quite that way. I give that explicit undertaking.

Lord Forsyth of Drumlean: Is the Minister saying that Pepper v Hart will apply in determining hybridity?

Lord Davies of Oldham: I am somewhat stretched on that issue. Let me explain the purpose of this amendment. We are discussing here only the question of the orders. We may need to make an order which, as the noble Earl, Lord Ferrers, pointed out, would have a hybrid quality—namely; it would apply to only one institution. I have merely established the case for that.


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