Fifth Report
Banking (Special Provisions) Bill
1. This bill, brought from the Commons this morning,
enables the Treasury to make orders in particular relating to
the transfer of securities issued, and the transfer of property
and other rights held, by an authorised deposit-taker. Although
the bill applies to a range of financial institutions, the Government
have announced that their present intention is only to bring Northern
Rock plc into temporary public ownership[1].
2. The bill is expected to be taken through its
Lords stages today and tomorrow. The Treasury provided a memorandum
on the delegated powers in the bill at lunchtime yesterday, printed
at Appendix 1. We regret that they were unable to do so earlier,
but the memorandum well explains the purpose of the bill and each
of the delegations.
Power to transfer securities and property, and
compensation — clauses 1 to 9
3. Each of clauses 3 to 8 (the core of the bill)
contains highly significant order-making powers, subject only
to the negative resolution procedure. Clauses 3, 4, 6 and 8 provide
in certain circumstances for the Treasury by order to transfer
the securities issued by an authorised UK deposit-taker, to extinguish
subscription rights, to transfer the property, rights and liabilities
of such a deposit-taker, and to make further transfers. Under
clause 14, provision under clauses 3, 4 or 6 may be retrospective.
Clauses 5, 7 and 8 enable the Treasury by order to make provision
about compensation or consideration to be payable in each of these
cases. The Treasury's memorandum has persuaded us that these extensive
powers are necessary if the issues are properly to be addressed.
We do not consider the scope of the delegations in clauses
3 to 8 to be inappropriate. This would not have been our conclusion
without the limitation in clause 2(1) and 2(2) and the one year
sunset provision which clause 2(8) applies to the transfer powers
in clauses 3 and 6: we are assisted that we need only consider
the use which the present administration is likely to make of
the powers, as opposed to the use which might be made of them
by any future Government.
4. We do however have concerns about the negative
procedure which applies to each of the powers in clauses 3 to
8. At paragraph 23 of their memorandum, the Treasury explain
the choice of negative procedure for orders under clause 3 on
the grounds that an initial order under that clause will need
to be made "urgently, at short notice, possibly within days
of the circumstances of the particular deposit-taker coming to
the attention of the Tripartite Authorities". They suggest
that an affirmative procedure would "undermine legal certainty
and the confidence of consumers and the markets and could create,
or impact adversely on, existing financial instability" whereas
the negative procedure "leaves no room for doubt as to the
effectiveness of the transfer and other provision made at the
time the transfer order is made". Paragraphs 27 and 41 of
the memorandum adopt the explanation in paragraph 23 in support
of the negative procedure for orders under (respectively) clauses
4 and 6.
5. As respects the powers conferred by clauses
5 and 7 (compensation and consideration), the choice of the negative
procedure is explained in paragraph 35, and adopted in paragraph
47, of the memorandum on the basis that "it is in the interests
of all parties that a compensation order is made as soon as possible
after an initial order" (which transferred securities, or
property, rights and liabilities, or which extinguished subscription
rights), and that "use of the affirmative resolution procedure
would risk creating delay or … uncertainty, to the potential
detriment of those seeking a compensation determination".
In relation to clause 8 (further transfers), the choice of the
negative procedure is supported in paragraph 54 of the memorandum
by the consideration "that it would enable the order to be
made and [the] transfer to proceed quickly".
6. We disagree with the Treasury's reasoning
as to certainty and speed in favour of the negative procedure
for the powers in clauses 3 to 7 and set out our reasons below.
In any event, the scope and significance of each of these powers
is such that Parliament should have the opportunity to debate
each exercise on a Minister's motion: the negative procedure is
inappropriate and we recommend that each of the powers in clauses
3 to 7 should be subject to the affirmative procedure. The negative
procedure is not inappropriate for orders under clause 8.
PARLIAMENTARY CONTROL OF TRANSFER ETC. ORDERS —
CLAUSES 3, 4 AND 6
7. There are usually three stages to the progress
of a negative statutory instrument: first the Minister makes the
instrument; he then lays it before Parliament; and lastly the
instrument comes into force on a day which should be at least
21 days after it was laid before Parliament but, in urgent cases,
may even be immediately after the instrument was made (which is
expected to be the case here). Either House may seek to annul
the instrument within 40 days of its laying but, importantly,
anything done under the instrument before it is annulled remains
done unless and until it can be undone by further legislation[2]:
thus, with the negative procedure, even if one or both Houses
voted to annul an order under clauses 3, 4 or 6 of this bill,
a transfer of property already effected by the order would not
be reversed by that annulment. In contrast, the usual stages
for an affirmative instrument are that the instrument is first
laid before Parliament in draft; the approval of both Houses is
sought and obtained; and finally the Minister makes the instrument
and it comes into force then or on a named day. If Parliament
wishes to have control over the exercise of the transfer powers
in clauses 3, 4 and 6, the draft affirmative procedure is the
only appropriate procedure: any other is ineffective.
CERTAINTY AND URGENCY: PARLIAMENTARY PROCEDURE
8. The Government suggest that the negative procedure
provides certainty in respect of the transfer of property under
this bill. But there would be considerable scope for confusion
and uncertainty if an order was then annulled: the transfer would
have happened but everything in consequence of it would be stopped
in its tracks. The uncertainty of possible annulment would also
exist for 40 days after the date of laying. In contrast, the draft
affirmative procedure could provide absolute certainty very quickly:
a draft instrument could even be laid on the day of Royal Assent
and its affirmative resolution sought the following day, subject
to the business managers finding time and the House agreeing to
suspend Standing Order 73 (which provides a scrutiny reserve for
the Joint Committee on Statutory Instruments).
9. Affirmative instruments cannot be laid when
the House is in recess, an observation made by the Government
in their memorandum in justification of the negative procedure.
Although the Government have said that they only intend to exercise
these powers now, in relation to Northern Rock plc, the powers
will remain general powers for one year and those in clauses 3,
4 and 6 could need to be exercised urgently over the next 12 months.
If the House takes this view, section 7(4) and (5) of the Northern
Ireland Act 2000 provides a possible model for coping with such
a situation: orders under that Act proceed as draft affirmative
instruments unless the Secretary of State declares that it is
expedient for the order to proceed as a made affirmative instrument.
If adopting this model, the House could further reduce the Secretary
of State's discretion by limiting this facility to periods when
either House was adjourned for more than four days.
COMPENSATION ARRANGEMENTS — CLAUSES 5, 7 AND
8
10. Whereas instruments under clauses 3, 4 and
6 might need to be made with some urgency, we see no case for
urgency in making the compensation provision under clauses 5,
7 and 8: indeed the bill specifies that the power is to be exercised
within three months of the transfer or extinguishment. The bill
sets no framework for the compensation, leaving questions of principle,
mechanisms and appeals to the delegation. The question of compensation
is thus likely to be of such interest to the House that instruments
under clauses 5, 7 and 8 should always proceed as usual draft
affirmative instruments.
HYBRIDITY OF ORDERS UNDER CLAUSES 3 TO 7
11. Neither the bill nor the memorandum mentions
Northern Rock plc or the question of possible hybridity of instruments
under the bill. Where a bill affects a specific private interest,
in a manner different from other private interests of the same
class, special parliamentary procedures apply to the passage of
that bill. In short, the procedure enables the persons or bodies
affected (e.g. shareholders) to petition the House about the way
they are affected, and to be heard by a Committee of the House:
the Crossrail Bill is a hybrid bill and the Select Committee on
the Crossrail Bill is currently hearing petitions on that bill.
This bill has been drafted to apply to authorised deposit-takers
(rather than to Northern Rock plc) to avoid the question of hybridity:
paragraph 22 of the memorandum.
12. In this House (but not in the Commons), similar
special procedures apply to hybrid draft affirmative statutory
instruments, to give those who would be adversely affected by
an order the opportunity to petition against it[3].
The same does not apply to negative instruments, which are subject
to no special procedure. The memorandum does not address this
point, but the negative procedure seems so obviously inappropriate
for several of the powers in the bill as to raise the possibility
that the avoidance of the hybrid instruments procedure might have
been a further reason for the Government to propose the negative
procedure for these powers. If the House wished to have the
control over the exercise of the powers in clauses 3 to 7 which
the draft affirmative procedure would provide, but without the
prolonged proceedings of the hybrid instruments procedure, it
could insert a "dehybridising provision" into the bill:
such a provision was last before the House in a Government amendment
to clause 3 of the Building Societies (Funding) and Mutual Societies
(Transfers) Bill last session[4],
now section 3(8) of that Act.
Tax consequences — clause 10
13. The power at clause 10 for the Treasury to
vary the effect of a relevant tax is not inappropriate and is
rightly subject to negative procedure in the House of Commons
only.
Financial assistance to building societies: modification
of enactments — clause 11
14. Clause 11 enables the Treasury by order to
make such modifications of "any enactment" as they consider
appropriate for or in connection with facilitating the provision
of relevant financial assistance by the Bank of England to building
societies. "Relevant financial assistance" is financial
assistance (as widely defined in clause 15(1)) provided for the
purpose of maintaining the stability of the financial system in
the United Kingdom. Under clause 15(1) "modifications"
includes omissions, additions and alterations and under clause
11(4) the order may disapply any statutory provision or apply
to building societies statutory provisions which would not otherwise
apply. There is no time limit on the exercise of the power to
make orders (the sunset provision in clause 2(8) does not apply
to this power) and the orders are subject only to negative procedure.
So wide a power cannot be justified, even if the affirmative
procedure were applied.
15. The memorandum states that the purpose of
the power is to enable the Treasury to remove any legislative
obstacles to the Bank giving financial assistance to building
societies. Though the Treasury intends to make an order under
clause 11 as soon as possible, the changes are also said to be
made "purely as a precaution". Clause 11 appears to
have little direct connection with the preceding clauses in the
bill and no reason is given why the provisions which require modification
(rather than merely examples) could not have been specified in
the bill. Paragraph 62 of the Treasury's memorandum mentions sections
1 and 2 of the Building Societies (Funding) and Mutual Societies
(Transfers) Act 2007 and sections 6(7) and 7(7) of the Building
Societies Act 1986. In each of those cases the enactments which
may be modified (other than purely consequentially) are specified
in the primary legislation itself, and in the case of the 1986
Act the power is only to modify in respect of particular types
of assets or liabilities. Orders under the provisions in sections
1 and 2 of the 2007 Act are subject to affirmative procedure.
The memorandum (paragraph 64) seeks to justify negative procedure
by reference to the Treasury's intention not to use the power
in clause 11 to make direct textual alterations to primary legislation.
But, in our view, the definition of "modifications"
in clause 15 enables them to do so; and even if it did not, the
non-textual alterations that could be made could be just as significant.
We recommend that, unless clause 11 is amended to specify precisely
those enactments which may be amended (for example if the list
in clause 11(3) were to be exhaustive), it is inappropriate and
should be removed from the bill; and that orders under clause
11 (if it remains in any form) should be subject to the affirmative
procedure. We note that clause 12 provides a facility for
consequential amendment of any enactment.
Supplementary and consequential provision —
clause 12
16. Clause 12 enables the Treasury by order subject
to negative procedure to make supplementary, incidental, consequential,
transitory, transitional or saving provision for the purposes
of the bill. Subsections (2) and (3)(a) enable such an order,
in particular, to disapply to a specified extent any statutory
provision or rule of law, to provide for any statutory provision
to apply with specified modifications, or to make provision for
a moratorium on the commencement or continuation of proceedings
or other legal processes.
17. The Treasury explain that they consider the
negative procedure to be appropriate for orders under clause 12
"as the power does not allow textual or other amendments
of primary or other legislation". But clause 15(1) defines
"modifications" to include "omissions, additions
and alterations", and "statutory provision" to
mean "any provision made by or under an enactment (whenever
passed or made)". Accordingly, subsection (2)(b) would indeed
appear to enable the amendment of provisions of past and future
Acts, subject only to the constraint in the closing words of subsection
(1); and we regard a power to disapply enactments to a specified
extent (subsection (2)(a)) as no less a Henry VIII power than
one that confers express power to amend them.
18. Subsection (2)(a) also allows for the disapplication
of any rule of law, to such extent as may be specified in the
order. No justification is advanced in the memorandum for this
power (in effect) to suspend areas of the common law as it would
otherwise apply in cases affected by the bill. Subsection (3)(a)
enables an order to provide for the imposition a moratorium on
proceedings or other legal process. The Treasury explain (paragraph
69 of the memorandum) that the use of the power might be justified
'where serious instability is present' to prevent recourse to
legal remedies which might otherwise be available to, for instance,
the depositors of funds. While we do not regard either of these
delegations as necessarily inappropriate in the present context,
we consider each to be an unusual delegation to subordinate
legislation, and we draw both provisions to the attention of the
House so that it may be satisfied that their retention in the
bill is adequately justified by the Minister. Moreover, we recommend
that the exercise of the powers conferred by clause 12 to modify
or disapply enactments should be subject to the affirmative procedure.
1 HC Deb 18 February 2008 col 25. Back
2
Section 5(1) of the Statutory Instruments Act 1946. Back
3
The most recent was the West Northamptonshire Development Corporation
(Area and Constitution) Order 2004 (SI 2004/3370). Back
4
12th Report, 2006-07, paragraph 2. Back
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