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Lord Bach: My Lords, I mean when there are enough new prison places for prisoners to be able to serve the whole of their sentence. I find it hard to understand why we should be attacked for having had systems that allow for prisoners to be released before they are half way into their prison sentences. When the noble Lord’s Government were in power, they ensured on four quite separate occasions that the same facilities were available for prisoners. In other words,

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the prisoners could be released less than half way through their sentences. I cannot think why his party should suddenly have turned against this.

Baroness Sharples: My Lords—

The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, to be fair, we are in the 24th minute.

Israel and Palestine: Gaza


3 pm

Asked By Lord Sheikh

The Minister of State, Foreign and Commonwealth Office (Lord Malloch-Brown): My Lords, very serious allegations have been made against both Hamas and Israel. We take these very seriously and they must be fully investigated. The Israeli authorities have said that they are investigating specific incidents raised by the aid agencies. We will consider very carefully the results of investigations once they are available. At that stage, the parties and the international community will need to decide on any further action.

Lord Sheikh: My Lords, I thank the Minister for that reply. The people of Gaza have been subjected to collective and indiscriminate punishment by the Israelis, some of whose actions can perhaps be considered inhumane. Israel has used white phosphorus shells, whose use against people is prohibited under the 1980 Geneva Convention, and there may have been incidents whose investigation is likely to find breaches of international humanitarian laws. There have been statements of condemnation—

Noble Lords: Question!

Lord Sheikh: My Lords, will the Government take a lead to facilitate a full and thorough investigation by the United Nations and the Red Cross to determine whether there have been breaches of international laws and to ensure that appropriate remedial action is taken? Will the Minister keep your Lordships’ House advised of progress in this regard?

Lord Malloch-Brown: My Lords, let me assure the noble Lord that my right honourable friend the Foreign Secretary has said in another place that we fully support investigations of these allegations. In the first instance, it is a matter for the International Committee of the Red Cross and the United Nations, both of which are on the ground and both of which have the responsibility for collecting evidence of the different incidents that have occurred. It is also the responsibility of the Government of Israel, as a party to the international laws that govern this—particularly the Geneva Conventions—to make an initial investigation. However, there is no doubt that, if these allegations stand up, they will need to be pursued internationally. These are very serious crimes, if they were committed.

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Lord Turnberg: My Lords, on the investigations that we are discussing today, will the Minister say whether the acts of Hamas in putting children on the front line—a number of us have seen internet clips of Hamas soldiers dragging children into the front line with them—and in shooting at and hijacking UN relief agency trucks can be examined in as great detail as the alleged acts of Israel?

Lord Malloch-Brown: My Lords, as I said in my Answer, there are allegations against both sides—in the case of Hamas, the use of human shields and the indiscriminate shelling of civilian communities inside Israel—so investigations indeed need to examine both sets of allegations. However, I say again that the Government of Israel have made themselves party to the Geneva Conventions and must therefore expect to be judged by them.

Baroness Northover: My Lords, how can we ensure that any inquiry into alleged abuses of international law is independent, robust, public and able to hold any individuals indicted to account?

Lord Malloch-Brown: My Lords, at this stage we must allow the proper procedures to unfold. The international agencies are now at the stage of collecting evidence and presenting it in an initial inquiry by the Israelis themselves. It is premature to speculate how this will unfold but, as I have said, we on these Benches are absolutely determined to ensure that a proper and independent effort is made to arrive at the truth of what happened.

Lord Hannay of Chiswick: My Lords, does the Minister agree that the unsung heroes of this appalling series of events are the UN humanitarian agencies, in particular UNRWA, which have performed their tasks under appalling conditions? Are the Israeli Government co-operating with the UN inquiries into these incidents and the matter of white phosphorous or are they blocking them as they have so often done in the past?

Lord Malloch-Brown: My Lords, I agree with the noble Lord that the men and women of UNRWA and all the humanitarian agencies, including the Red Cross and others, who have been involved during these terrible days in Gaza deserve our greatest respect and support for the heroic work that they have undertaken. On his second point, it is simply too soon to know. There is an obligation on Israel to co-operate. We very much hope that it will live up to that obligation.

Lord Clinton-Davis: My Lords—

The Lord Bishop of Chelmsford: My Lords, does the Minister accept that, while obviously we need an independent and thorough investigation into all allegations of abuses, on this day especially the most important thing is that the international community bends its energies unreservedly to resolving the issues that lie behind this crisis?

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Lord Malloch-Brown: My Lords, I completely agree with what the right reverend Prelate has just said. It is enormously important that we do not get distracted from the core issue, which is to move beyond this ceasefire to a lasting peace. That is a huge hill to climb. It has defeated peacemakers from around the world over many decades. However, now more than ever we have to recommit to the objective of preventing further descent yet again into these terrible periodic bouts of violence in the region.

Lord Clinton-Davis: My Lords, does my noble friend agree—

Baroness Tonge: My Lords—

The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, my noble friend has been trying to get in.

Lord Clinton-Davis: My Lords, enlarging on what the Minister has just said, may I ask what the Government are doing to ensure that the fragile peace can be converted into a durable settlement?

Lord Malloch-Brown: My Lords, let me reassure my noble friend that we are doing as much as we can. The Prime Minister promised naval support to prevent arms smuggling and support for mine clearance. He has committed additional humanitarian assistance and he went at 24 hours’ notice to Egypt and Israel on Sunday to put British support behind a lasting agreement. Again, we should not fool ourselves: it is easier in the Middle East to achieve a ceasefire, difficult though that is, than to tackle the long-standing roots behind a crisis of this kind. But we must do the latter.

Baroness Tonge: My Lords—

Lord Hunt of Kings Heath: My Lords, we have run out of time, I am afraid.

Banking Bill

Committee (4th Day)

3.08 pm

Clause 63: General continuity obligation: property transfers

Amendment 106

Moved by Baroness Noakes

106: Clause 63, page 31, line 14, after “provide” insert “for a period not exceeding 2 years”

Baroness Noakes: Amendment 106 deals with the continuity obligations which can be imposed. Under Clause 63(2), the residual bank and each group company have to provide whatever services and facilities are required for the business of the transferee. There is no

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time limit or other restriction in this clause. The British Bankers’ Association believes that a maximum time limit should be placed on this. The residual bank and its group companies have no right of appeal against a notice that they must provide services, so it is important to ensure that the obligation placed on them is proportionate. The BBA has suggested a period of 12 months on the basis that this is the normal notice period for service contracts entered into commercially. My own amendment is rather more modest because it sets a maximum of two years.

It ought to be possible for the transferee to make its own arrangements for whatever services or facilities it requires. In practice, 12 months should be adequate but, at two years, my amendment provides plenty of time to deal with things like IT systems, property and anything else that is likely to be needed. It seems grossly unfair to the residual bank to make it suffer, perhaps indefinitely, by providing services to the transferee. It is not a question of money, although adequate compensation is necessary, as we shall debate on the next group of amendments. A residual bank needs to concentrate on its own remaining business and not be sidetracked into being a service provider to a transferee which may even be a competitor. I beg to move.

The Financial Services Secretary to the Treasury (Lord Myners): This amendment relates to continuity obligations. It may help if I first provide a brief explanation of how these obligations are intended to work in relation to banking groups. Major financial firms do not tend to operate as single legal persons. Instead they are organised as groups, generally with a single, ultimate parent company and any number of subsidiaries which may be organised into distinct sub-groups. Corporate entities within these groups are connected through shareholdings, but are likely to be connected in other ways as well. Banking groups may have hundreds of group companies. Noble Lords should note that Northern Rock was an unusually simple bank in terms of corporate structure in that the holding company was the deposit-taker and the bank had very few subsidiaries.

There is no general rule about how banks organise themselves, and in particular about where they locate their systems. Some banks’ systems are split between subsidiaries; others are all located in the holding company or a particular subsidiary. For example, the holding company may employ all the group’s employees or a specialist subsidiary may provide IT services to the whole group. As currently drafted, the scope of the special resolution regime is restricted to banks; that is, institutions having permission to accept deposits under the Financial Services and Markets Act 2000. Noble Lords will be aware that I have tabled amendments to extend the scope of the temporary public ownership tool to bank holding companies. But the starting point will be to take action with respect to a bank, if that is practical. Continuity obligations enhance the likelihood of this being possible.

Clauses 63 to 70 provide for these continuity obligations. In particular, the clauses include powers to place general and special continuity obligations following a transfer upon group companies of the failing bank. These

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obligations will be restricted to ensuring that necessary services and facilities continue to be provided to the business that has been transferred. A general continuity obligation arises following a transfer automatically, by operation of law. The intention is that it would be replaced with special and specific obligations as soon as the authorities can determine the precise nature of the services or facilities required. The special obligation gives the authorities powers to create, modify or cancel contracts between a transferee and group companies. Where the transfer involves a property transfer, such that a residual bank is left behind as a distinct corporate entity, the special continuity obligation also extends to the residual bank. But the power is only exercisable in relation to the services and facilities required to operate the banking business effectively.

Let me say something about how the continuity obligations might operate in practice. A transfer of banking business may need to be made on an urgent basis. In this situation, it may not be possible specifically to identify the precise nature of the services and facilities that a bank receives from group companies. Group structures tend to be highly complex, and if there are hundreds of subsidiaries, it may take time to understand the precise nature of all the intra-group arrangements. Hence, on day one a general obligation would arise requiring group companies to provide such services and facilities as are needed to operate the banking business effectively. Then, in due course, and once the nature of the required services could be properly worked out, the power to impose special obligations could be exercised. The Government consider that reasonable consideration should be paid to service providers for any service or facility that they provide to a bank. Through Clause 69, the Bill provides the Treasury with a power to provide further details in secondary legislation on how the authorities will determine this reasonable consideration.

3.15 pm

In the amendment, the noble Baroness, Lady Noakes, proposes that there should be a two-year limit on a general continuity obligation. I entirely agree with the sentiment of the amendment. The authorities shall work to ensure that a general continuity obligation is replaced with a special continuity obligation as soon as possible. It is the intention of the authorities that a continuity obligation will be in place only until it is feasible to arrange for servicing arrangements to be separated or replicated so that the group of companies and the transferee may operate on a stand-alone basis.

However, I do not believe it is advantageous to set out a time constraint on the face of the Bill. In general, the Government consider that it is not desirable to set out explicit time limits on the face of the Bill, primarily for reasons concerned with flexibility, as the noble Baroness cited when discussing previous amendments. We believe that it is important to have the flexibility to respond on a case-by-case basis. As I have described it is the Government’s intention that a general continuity obligation would be replaced by a special continuity obligation as soon as is practicable. I hope the fact that the Government have set out detailed provisions on the face of the Bill for such special continuity obligations makes clear the intention to use them.

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I also remind the Committee that the authorities must have regard to the special resolution objectives in their actions under the special resolution regime and ensure that their actions are proportionate. Therefore I hope that the noble Baroness will feel able to withdraw her amendment.

Viscount Eccles: I was not quite clear about the Minister’s reasoning for the present state of the law not being sufficient for the purpose.

Lord Myners: It is appropriate for the avoidance of doubt that the continuity obligation and its durability are clear. In earlier discussions your Lordships’ House emphasised the importance of continuity of service. We have an absolute goal to ensure that where the special resolution is used, continuity of service to the customers of banks is maintained. We wish to avoid there being any doubt at all about a bank’s ability to continue to receive the necessary support from other group companies on which it has depended.

That said, I repeat that I am entirely aligned with the sentiment expressed by the noble Baroness when she was speaking to her amendment. However, I hope that the provisions we have made and the comments I have addressed to the Committee will provide the necessary comfort to her.

Viscount Eccles: Does the Minister think that the newco—that is, the company with the assets transferred into it—has a duty towards the resco in respect of continuity?

Lord Myners: The company which the noble Viscount refers to as the newco—the transferee—would have certain duties of care to the transferor, and those duties are captured by the clauses on continuing relationships and the reasonableness of the price paid. This is certainly not designed to allow the transferee in any way to abuse the transferor. There is a duty, but it is not a legislative duty beyond the one relating to reasonable consideration for services provided. There is a duty, but it is not a legislative duty beyond the one related to reasonable consideration for services provided.

Baroness Noakes: When the Minister spoke I realised that I had tabled my amendment under the wrong clause; it should have been in Clause 64, not Clause 63. I wonder whether the Minister might like to answer this question. He spoke in terms of a general continuity obligation not lasting more than two years. I had meant to draft provision for a specific continuity obligation lasting for not more than two years. The point is that the residual organisation should not be put in the position of being a service provider to the transferee for ever and a day. I wanted to focus on that. Perhaps the Minister can answer that and possibly save me from having to bring this back on Report.

Lord Myners: I shall seek to answer the noble Baroness’s point. I think that the principles I articulated continue to apply and be relevant. I find it difficult to envisage a circumstance in which a continuing continuity obligation, be it general or specific, is likely to need to

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run for more than two years. However, one cannot rule out such a possibility when it relates to very complex IT systems that support retail banking and are at times housed in another part of the larger organisation. I urge the noble Baroness to take comfort from the fact that I share her view that there should be an appropriate and early separation, but not to the point that it places at risk the ability of the transferee—or newco, as the noble Viscount, Lord Eccles, described the company.

Lord Higgins: Are not some of these IT systems likely to be indivisible? In that case, may there not be a need for a continuing continuity arrangement if the system is to work?

Lord Myners: That may well be the case. As I said yesterday, I was a director of Coutts. I was also a director of NatWest, but well before it became part of the Royal Bank of Scotland. The IT systems at NatWest at that time seemed to have been written in the Stone Age and our ability to make any meaningful changes to the customer service provision was constantly obstructed by what was known as BOLT—I do not know what that stands for. The noble Lord is right that legacy systems supporting the sheer volume of data which a large bank requires are not simply lifted out. In the new world of smaller computers and systems it is probably not quite as difficult as it was for many systems, but it is precisely for that reason that we think it would be wrong to put a time limit into legislation.

Baroness Noakes: I thank the Minister for explaining what he had in mind, and I am grateful for his opinion that the arrangement should not last a long time. On the point about legacy systems raised by my noble friend Lord Higgins, we would not expect them to have to last a long time, simply because people today have to survive dealing with their own systems. I suspect that it would be unsatisfactory for a transferee to be dependent on its former home to provide its services over a long time. The natural instinct should be to drive away. I am grateful for what the Minister said. As I mentioned, the British Bankers’ Association is exercised about this. I shall ask it to read what the Minister said in Hansard and advise me whether it continues to have a concern.

Amendment 106 withdrawn.

Amendment 107

Moved by Baroness Noakes

107: Clause 63, page 31, line 21, leave out “reasonable consideration” and insert “such consideration as would be expected in arrangements concluded between parties dealing at arm’s length”

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