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I accept that all these banks need to be run on commercial lines and that they should not be subjected to minute inquiry or interference—something that applies as much to government as it does to Parliament. However, very large sums of public money have been

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invested in these bodies, directly and indirectly, and more stands contingently behind them. Indeed, if the powers of the Bill were used, more public money would be involved. These bodies are not simply the playthings of the Executive; Parliament has a right to information and a duty to keep these bodies under review in terms of information flows to Parliament. Therefore, it is right and proper that there is a defined regime of information flows so that Parliament can be clear about what it is entitled to receive. It seems to me that the Bill is a good place to start, although it is deficient because not only does it not deal with the situations created by the Bill but it does not deal with the situations created by last year’s Act either. I beg to move.

Lord Northbrook: I support Amendment 35 moved by my noble friend Lady Noakes as a mirror image for bridge bank reporting in Clause 80. This seems an eminently sensible measure, as taxpayers’ interests need to be safeguarded. This method seems to be the most practical way of doing so and of reinforcing the code of practice clause.

Lord Davies of Oldham: I am grateful to the noble Baroness and the noble Lord. The answer to the noble Lord, Lord Northbrook, is that the arrangements in Clause 80 are for a bridge bank controlled by the Bank of England, which of course is not directly answerable to Parliament. That is why those arrangements are spelt out in the way that they are. However, this amendment concerns the Treasury. The Treasury is answerable to Parliament, and Parliament can ask Treasury Ministers to report on the activities of a bank in temporary public ownership whenever it wants—on an annual basis, if it wishes. Therefore, the question is: do we need this amendment to the Bill to provide what obviously already exists as an opportunity for the Treasury to be answerable for any bank in temporary public ownership? The Treasury is already answerable for that and Parliament will take its opportunities.

By way of an indication of good faith on this matter, I should say that when Northern Rock was taken into public ownership, it was contended that it should be obliged to provide a business plan, which it did. It did not do so quite as quickly as noble Lords and some Members of the other place might have wished, but I make it absolutely clear that that happened not a year but a matter of months after Northern Rock had been taken into public ownership. The Government were constantly urged to make it a requirement for Northern Rock to provide a business plan and it was duly provided.

The noble Baroness raised the matter of UK Financial Investments. We are reviewing the arrangements for how it will operate and how it will be answerable. We do not foresee there being a legislative requirement in that regard; we think that it will come within the framework of the code of practice. However, I emphasise that we recognise that the authority should be directly responsible to Parliament, just as authorities such as the Treasury are obliged to be answerable at any time. There is a different structure for the Bank of England in relation to the bridge-bank concept because the Bank is not directly answerable to Parliament.



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I am not in any way gainsaying or seeking to disavow the importance of public answerability for the institutions for which public authorities have responsibility. We made it quite clear how we intend to deal with that so far as concerns the Bank of England, and there are further discussions to be had in that regard before our deliberations on the Bill are concluded. However, so far as concerns the noble Baroness’s amendment, the Treasury is of course answerable and can be made answerable at any time. Therefore, the amendment is unnecessary and I hope that the noble Baroness will be convinced that that is so.

Baroness Noakes: I thank my noble friend Lord Northbrook for his contribution and I thank the Minister for his reply. It will not surprise the Minister to hear that I found his response disappointing. It seems to me that it is not sufficient simply to say that the Treasury can be asked for information by Parliament at any time—although the mechanisms for that are quite difficult to tease out—and that nothing needs to be provided in statute. If the Bill were setting up a body, there would be no question but that we would draft into it quite extensive accountability arrangements, including an annual report, annual accounts and the ability of the Secretary of State to direct the organisation to provide whatever information he or the Treasury desired. In my experience, the Treasury insists that those provisions are put into Bills produced by other departments because they are an important element of the financial accountability of those bodies. However, when we get to the Bill that the Treasury writes for itself, it tears all that up. The Treasury will just provide whatever Parliament chooses to get out of it if it can find a mechanism for doing so, or Parliament will get the Chancellor to report “as and when appropriate”, to use the words in the code of practice. That does not seem appropriate for bodies which are not just in public ownership for a few months. Let us not kid ourselves—we had a debate on temporary public ownership on our first day in Committee—we are talking about significant periods of time and significant organisations with large amounts of public money invested in or standing behind them. This Bill, almost uniquely among statutes, creates no accountability arrangements, except the very barest that are found in Clause 80 in relation to bridge banks. I cannot begin to say how pretty unacceptable the Minister’s answer was.

I said that it was a probing amendment because on its own it is nothing like good enough to deal with the accountability requirements that come out of this Bill and the hangover from the actions taken under the Banking (Special Provisions) Act 2008. I believe that all those need to be dealt with. As it is a probing amendment I will not divide the House, but I will look at it again and will probably bring back a more comprehensive amendment reflecting a proper approach to parliamentary accountability that the Treasury might expect of other departments in a similar circumstance. With that, I beg leave to withdraw the amendment.

Amendment 35 withdrawn.

Clause 13 agreed.

Clauses 14 to 16 agreed.



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Clause 17: Effect

Amendment 36

Moved by Baroness Noakes

36: Clause 17, page 8, line 29, leave out subsection (3)

Baroness Noakes: I shall also speak to Amendment 61. These are probing amendments to Clause 17, which deals with the effect of share transfer orders or instruments, and to Clause 34, which deals with the effect of property transfer instruments.

We have no fundamental problem with the clauses but seek clarity on their extent. In each case the amendments would delete subsections (3) of the relevant clauses, which state:

“A transfer takes effect despite any restriction arising by virtue of contract or legislation or in any other way”.

The subsections were debated in another place but I am not clear that there was an unambiguous meeting of minds during those exchanges, so I will have another go. The debate in the other place centred on the meaning of “in any other way” and the interaction between the subsections and European law and the ECHR. My honourable friend David Gauke argued that “in any other way” must mean common law because there was nothing else beyond contract and legislation. The Minister said that the Government did not want to get into any arguments about what subsection (3) might mean but gave no illustration of what “in any other way” might mean if it was not common law. Can the Minister today go any further than that, or does the extent of “in any other way” relate to common law?

Will the Minister say whether the subsections override European law and the ECHR, or will any transfer remain subject to challenge if it is asserted that a transfer is in contravention of EU law or the convention? I think that in Committee in another place the Minister said that the Bill was compliant with both because it was proportionate and so on, but that has no bearing on whether the actions taken under the Bill will be immune from challenge under EU law or the convention. Will the Minister confirm that notwithstanding the wording of the subsections the Bill does not override EU law and convention rights?

Some confusion has arisen because the Government have chosen to make an explicit reference to EU law in Clause 35, but have chosen not to do so in Clauses 17 and 34. I hark back to what my noble friend Lord Stewartby, who is no longer in his place, said earlier—that you always look for differences between different parts of a Bill and try to tease out whether the differences are intended to be substantial and convey meaning. It has been put to us by one of the major law firms that the refusal by the Government to universalise Clause 35—by referring to EU law—to the rest of the Bill is a recipe for legal doubt and uncertainty. I hope that the Minister will clarify that.

6.15 pm

Will the Minister also respond in terms of competition law? Do the Government intend that these subsections could override domestic competition law? We know

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that they have had to take special powers to allow the takeover of HBOS by Lloyds TSB, notwithstanding the objections of the Competition Commission. Do these subsections allow a sale to a private sector purchaser in defiance of competition law? Do they avoid the need for the Government to do what they had to do in the case of Lloyds TSB, which was effectively to rewrite competition law in those instances? The Minister will appreciate that the full meaning of these clauses may be important if transfers under this Bill are made in due course so it is important to have clarity of meaning. I hope that the Minister can enlighten the Committee. I beg to move.

The Financial Services Secretary to the Treasury (Lord Myners): Before addressing Amendment 36 I shall touch on a couple of other points. The noble Baroness told the Committee about her loss at the odds of 25:1 in a horserace yesterday. As things are quite quiet at the Treasury I had the chance to look at the runners in yesterday’s races, in which a number of horses lost at 25:1. I concluded that the horse she probably backed was called Present Orientated, which fell at Folkestone in the Westenhanger handicap chase.

Baroness Noakes: The horse is called Silver Wager. It started at 50:1 and was even more unlikely to win, and indeed did not win.

Lord Myners: I am not sure that I can use that horse’s name to lever into my next point so I shall stick with Present Orientated; I do not have the smoothness and skill of my noble friend Lord Mandelson, of Foy and Hartlepool. The noble Baroness asked a question in the light of my noble friend’s Statement earlier in which he mentioned the Bill and its amendments. I believe that he was referring to a group of amendments that I tabled on Monday starting with that numbered 174A in the Marshalled List, which will modify Clause 225 to enable the scheme that he announced.

I shall return to the matter in hand. Clauses 17 and 34 make provision in relation to the effect of a share or property transfer instrument or order. The purpose of the clauses is to ensure that a transfer of property is effective in law and takes place in spite of any restrictions that might otherwise exist. The subsections of each of these clauses which the amendments would remove are drafted in deliberately broad terms. As the noble Baroness said, that drew some discussion when the clauses were reviewed in another place.

Once the authorities have decided to intervene in the public interest to resolve a failing bank and the necessary general and specific conditions have been met, the Government consider it appropriate that a transfer should take effect despite any restriction. That is to maximise the chances of a successful resolution, in so far as is appropriate and feasible. For example, a counterparty’s contract with a bank may stipulate that the counterparty needs to provide consent for the contract to be transferred from the failing bank to any other person. In normal commercial conditions this is a sound provision. However, bearing in mind the conditions in which the authorities may need to exercise

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the transfer powers, it would be impossible for all the necessary consents to be gained before the transfer. As such, it may not be possible to transfer the contract on which the transferee may need to rely, which would undermine the authorities’ ability to resolve a failing bank in the public interest.

Similarly, without the provisions, private sector transferees may be deterred from seeking to acquire a failing deposit taker, as they may perceive there to be a significant execution risk attached to the transfer. Indeed, a transfer to a private sector purchaser will not be possible unless commercial counterparties are certain that they will obtain complete control over the property, rights and liabilities transferred to it. Thus it is vital that provision can be made to make clear that a transfer takes effect notwithstanding any restrictions in contract or legislation, or in any other way, and that the transfer may, if specified in the instrument or order, take effect free from any trust, liability or other encumbrance. I believe that that answers the questions posed by the noble Baroness.

I remind the Committee that the Government are putting in place a suite of safeguards to protect counterparties, and these of course still stand. In particular, Clause 48, which we will debate in detail in due course, provides for protections for set-off, netting and security interests. For those reasons I hope that I have demonstrated the importance of the provisions, and that the noble Baroness will feel able to withdraw the amendment.

Baroness Noakes: I hate to disappoint the Minister, whom I thank for his attempt at a reply, but he did not answer a single question, so I do not know how he could possibly think that he answered my questions. He set out the purpose of the clause which, as I said in my opening remarks, I support and understand, but I raised some specific points about subsection (3), which he did not address.

The three points that I raised were, first, whether the words “in any other way” in subsection (3) had meaning beyond common law. Secondly, I raised the issue of EU law and the European Convention on Human Rights and pointed out in particular that Clause 35, but not Clauses 17 and 34, referred to European law. I referred to the view of a leading law firm in the City of London that that is a recipe for doubt and uncertainty and asked specifically for a statement on the interaction with EU law and the convention rights. Thirdly, I asked about the impact on competition law. I am sorry to say that the Minister did not answer a single one of those points. He simply read out a speaking note that assumed that I was going to say something else.

Lord Myners: Then let me endeavour to be more specific and granular. The purpose of the phrase “in any other way” is primarily to include common law, but there are other examples—for instance, the terms of a trustee arrangement. On EU law, I confirm that the Bill cannot override Community law and a transfer in breach of the convention rights could be declared unlawful on judicial review. Thirdly, on the issue of competition law, the clause could not of itself be used

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to override competition law, but that may be necessary in certain situations, and we will return to those issues in the debate on Clause 75, on which noble Lords have already said that they intend to focus later in Committee.

Baroness Noakes: I am very grateful to the Minister for responding to my specific queries. Perhaps he could also respond on why Clause 35 makes specific reference to European law, but neither Clauses 17 nor 34 do? That is the particular point that has been put to us by a City firm of lawyers: that the non-reference in Clauses 17 and 34 is a recipe for confusion, so why not universalise the reference?

Lord Myners: I would like to give the noble Baroness a clear and detailed answer. With her agreement, I will do that in writing and therefore ask that she withdraw the amendment on the basis that when she comes to consider the matter ahead of Report, she will be informed by my response to the point that she raised, having had it drawn to her attention by a leading City legal firm.

Baroness Noakes: I am most grateful for the Minister's reply and of course accept that assurance. I think that this is the first time that we have had an exchange when he has said that he will write to a noble Lord to explain a point. Perhaps I may be clear that we are on a very tight timetable between Committee and Report, so it requires the Minister to be tough with his officials in getting answers out quickly.

Lord Myners: I will put my head in the noose and commit to have that letter with the noble Baroness by tomorrow afternoon.

Baroness Noakes: That is beyond expectation; I am grateful to the Minister. I beg leave to withdraw the amendment.

Amendment 36 withdrawn.

Clause 17 agreed.

Clauses 18 and 19 agreed.

Clause 20: Directors

Amendment 37

Moved by Baroness Noakes

37: Clause 20, page 9, line 33, at end insert—

“( ) No action by the Bank of England or the Treasury under subsection (1) or (2) shall have the effect of removing or modifying existing contractual rights of directors.”

Baroness Noakes: Amendment 37 adds a new subsection to Clause 20, which deals with directors. I can completely see why Clause 20 is thought to be necessary. It will save a lot of fuss and bother if directors of a bank which is dealt with by the Bank of England by way of a transfer to a private sector purchaser or a bridge bank, or by the Treasury taking

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it into temporary public ownership, can be got rid of or their terms altered by one simple instrument. My amendment is designed to limit the impact of such changes. It states that an action by the Bank or the Treasury under the clause does not remove or modify existing rights.

It may be easiest if I pose some questions to the Minister to see whether my amendment is necessary. What happens if the Bank of England or the Treasury decides to remove some bank directors using Clause 20? Are those directors entitled to make claims against the bank for breach of contract, including any early termination provisions included in those contracts? What happens if the Bank of England or the Treasury decides to change the conditions of a bank director, so that he is paid less or loses an entitlement to a bonus? Would the director still be entitled to pursue a constructive dismissal case in appropriate instances and, if he proved his case, could he be awarded damages? Could bonuses that have been earned in accordance with existing contracts be removed before payment without any right of action against the bank?

I am aware of the public anger directed towards banks as a result of the credit crunch. Much of that anger is justifiable, but public anger should not be allowed to affect legal rights. In many instances, agreements will have been reached with directors—we have seen instances of that in recent times—but that will not always be the case, especially if one or more directors is aggrieved by what they perceive to be premature or unnecessary action by the tripartite authorities.

In addition, if the clause could overrule existing contractual rights, there is the little matter of European law and the Human Rights Act, which does not allow rights to be taken away just like that. In that context, I note that the noble Lord, Lord Myners, has signed the customary human rights declaration for the Bill.

I have put some specific questions to the Minister to try to discover how Clause 20 interacts with pre-existing rights. On that basis, I beg to move.

Lord Newby: Without wishing to cast myself in the role of the representative of public anger, I very much hope that the clause indeed allows directors who, for example, had very significant bonuses attached to their contracts of employment not to receive them if they have driven the bank for which they were directors into the ground and it has been forced into public ownership.

6.30 pm

Lord Myners: On the basis that I was rather slow in getting to the point on the previous amendment, perhaps I may try to make amends by saying that I think that the noble Lord, Lord Newby, will be pleased with my answer when I get to it.

Clause 20 provides that a share transfer instrument or order may enable the Bank of England or the Treasury to appoint or remove directors. It also provides that the instrument or order may confer on the Bank or the Treasury the powers to vary or terminate the service contracts of directors. Such provision gives the authorities the necessary power to put appropriate management into place once control of the failing

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bank has been transferred. It is, of course, critical that the deposit taker has a board of directors with the appropriate expertise to manage the business. However, in the period immediately preceding the transfer, members of the board may have resigned, the existing board may not have the necessary expertise, or it may no longer be appropriate or suitable to run the bank. The conditions that have occurred prior to the clause becoming relevant surely give rise to questions about competence, appropriate skill and the worth of these people to the bank.


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