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6 pm

Lord Higgins: Does the noble Lord realise that if he reads Hansard tomorrow he will find that what he just said does not make sense?

Lord Davies of Oldham: I will try to be more succinct. I am trying to express that the authorities have to act at extremely short notice. We want them to have the powers to act in what is regarded as an emergency position with regard to a failing bank. In acting in those terms, they cannot be bound by legislation which constrains that legislation which is constructed to deal with more normal circumstances. We have debated one illustration for some time and I realise that I will not convince Members of the Opposition on this matter very readily. With regard to pensions, I indicated why we might not seek to interfere with the rights of the individual pensioner or to act along the lines of pension legislation requiring consultation with trustees, which might take months to effect, when action could be taken in the fairly immediate short term or the action is bound to fail.

All I am arguing is that this is broadly the position as regards Clause 75. We cannot spell out every circumstance of every emergency because they are not foreseeable. From past practice, we have seen the necessity for rapid action. But, by definition, I do not have an

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example to quote under the special resolution regime because we have not had it. But we are trying to anticipate how we would deal with an emergency position. In those circumstances, it might be necessary for us to be able to act in the way in which the clause envisages.

Lord Higgins: The noble Lord seems to want to take powers to deal with a situation which he cannot envisage. He cannot give a single example of what the powers might be needed for and it is unwise to give the Government these powers to deal with any situation when they cannot envisage an example.

Lord Davies of Oldham: We are governed by the objectives of the Bill, the operation of the special resolution regime and the definition of the emergency. The noble Lord will freely concede that. If he is saying, “But you do not have a specific instance of a crisis to which this Bill might relate”, of course we do not. We are trying to anticipate how we defend the public interest in the future. That is bound to fall foul of the noble Lord’s request that I quote past examples chapter and verse.

Viscount Eccles: Does there not come a point when the attempt to get two belts and three pairs of braces is going too far? If, for example, this clause did not exist and the Treasury were to do something needing to be done at speed—I think we all accept that time will be of the essence—if it turns out that under existing law it has made a mistake, it will be a matter of compensation. It will not be a matter for which anyone will be hung, drawn and quartered. The problem with Clause 75, headed “Power to change law”, is that it is going too far.

Lord Davies of Oldham: I will be brief, but if the noble Viscount thinks that we are going too far and that we should not guard ourselves against financial collapse, I hope he has carefully calculated the cost of our inability to protect the financial system in recent months.

Lord Northbrook: Will the Minister confirm that Clause 75(3) was used for Northern Rock and Bradford & Bingley?

Lord Davies of Oldham: I have accepted that point. I was seeking to illustrate that we were obliged in operating with regard to Northern Rock to act in a way which affected other legislation and that the Northern Rock position formed an element of emergency. But there was no retrospective quality to it and I have withdrawn that point.

Viscount Eccles: I do not think that the point the Minister made to me was right. We had a Statement yesterday. I cannot see why not having Clause 75 would prevent the FSA, the Bank of England and the Treasury proceeding to put a bank into the special resolution regime. However, some challenges might follow from that which would have to be met and dealt with.

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Lord Newby: The noble Viscount, Lord Eccles, seems to be saying that the Government should not have this provision but that they should have the rest of the Bill; that they would act in a way which was in breach of the law, but that would not matter very much because people would take the Government to court and to the extent that they had broken the law, they would have to pay compensation. That is a very bizarre way to proceed.

Viscount Eccles: It may appear to the noble Lord, Lord Newby, to be a bizarre way to proceed, but it probably will happen anyway. Nothing that anyone can do will make it certain that every possibility has been thought of. There may be challenges to some of the things that have been done. Surely, in a democracy, it is impossible to give yourself, as I have said before, so many belts and pairs of braces that you will never suffer a challenge.

Lord Newby: I absolutely agree. One of the issues that we have been grappling with is, to a certain extent, the decision on how much should go in the Bill. As a general principle, I wear a belt.

Lord Howard of Rising: I do not accept the Minister’s argument on retrospective legislation. Before going further, will he answer the practical question on how banks would be able to get clean legal opinions when Clause 75(3) allows retrospective legislation?

Lord Davies of Oldham: Let me emphasise the fact that we are trying to deal with circumstances which we cannot forecast in precise terms, but we have to ensure that the authorities can act effectively. To illustrate, what if a bank was facing rapid deterioration, the authorities were intending to act, and a fraud was discovered? They would then have act at extremely short notice to effect a transfer. The issue of due diligence would have to follow because action would have to be taken in such a way to ensure that confidence is sustained; otherwise the transfer would not be effected and the concept of the resolution regime would collapse. Under normal circumstances, of course the operation would not continue if there was a potential problem with the law, but it might be that the public interest is served by the effective continuation of the operation and resolution of the position, with the other factor being dealt with subsequently.

Does the power undermine clear legal opinion? No, it does not. It will not be used to modify the provisions of the Banking Bill, and the Treasury will not use it to amend the legislative safeguards provided. We are not taking a power to interfere arbitrarily with the legislation. When Ministers were pressed in a similar discussion in the other place, the Government amended the Bill to ensure that that could not happen. The Government are working hard with stakeholders and market participants to design appropriate safeguards to cover the real problem of partial transfers, the nub of a very difficult situation. We are of the view that it would not be appropriate for this clause to be used to amend the safeguards we are putting in place. We are responding on whether a clear legal opinion on this legislation should be developed, and we defend Clause 75.

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Lord Howard of Rising: Can the Minister confirm that this clause would not be used to change contract law?

Lord Davies of Oldham: As the noble Lord knows, I am no lawyer. I am therefore reluctant to leap to the Dispatch Box with a categorical response. We were pressed in the other place on how we would use the clause, and we gave the assurance that I am repeating now. The Treasury has no intention of using the clause to amend the legislative safeguards which the Bill provides for the procedures. I hope the noble Lord will accept that that is about as far as he can press me on the matter.

Lord Forsyth of Drumlean: I have listened carefully to the Minister’s argument for the clause—that it is needed for unforeseen circumstances which he cannot describe to the Committee. Given that his argument rests on the premise that something which he cannot describe might arise where these powers might be needed, how can he give a commitment in respect of the Bill? If his argument is founded on that principle, how can he selectively choose?

Lord Davies of Oldham: As I indicated, we were pressed on this in the other place and we sought to establish that we have not introduced the clause in order to give an overriding power to amend and disregard other aspects of the Bill. I am seeking to reinforce that assurance. The special resolution regime and its safeguards are set out in this legislation. When an emergency arises in a complex legal environment, it may be necessary for the authorities to act in accordance with this Bill, which will then be an Act, even if it runs counter to other legislation that was conceived in rather more normal times. That is the nature of the emergency of failing financial institutions, and it forms the basis of this legislation. I am sure that the noble Lord, on principle, supports it.

Lord Howard of Rising: The noble Lord has given us his usual brilliant and long explanation, but it is completely unsatisfactory. I will be returning to the issue on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 122 withdrawn.

Amendments 123 and 124 not moved.

6.15 pm

Amendment 125

Moved by Lord Howard of Rising

125: Clause 75, page 38, line 42, leave out subsection (8)

Lord Howard of Rising: Amendment No. 125 seeks to leave out Clause 75(8). Subsection (8) proposes that orders can be made under this clause without the need for them to be laid before Parliament for 28 days, not counting periods of dissolution, prorogation and adjournment. To deal with difficult and unforeseen

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circumstances, Clause 75 seeks immense powers, including the power to change laws as set out in subsection (1), and to amend them retrospectively, as we have just been discussing. Whatever one’s views of these powers, the only way in which they could possibly be acceptable is if they have to be approved by Parliament. It is unacceptable that these immense powers should be used without the consent of Parliament.

If an order is made under Clause 8 at the beginning of the Summer Recess, there will be no need for it to be considered by Parliament for nearly four months. That is bad enough, but subsection (8)(d) allows a new order to be made if an order under this legislation lapses. As far as I can see, there will be nothing to stop new orders being made ad infinitum, thereby making a nonsense of the requirement for parliamentary approval. Furthermore, paragraph (c) provides that any action taken under an order which is not subsequently approved by Parliament is not invalidated. In fact, the approval or disapproval of Parliament would no longer matter. Power would have been transferred from Parliament to the Executive. I hope that that is not the Government’s intention, and I have no doubt that the Minister can confirm the position. However, it is what the proposed legislation says that matters, as it is the legislation that provides the criteria for government action. If the criteria were simply the comments made by Ministers in Hansard, then incidents such as an old man being arrested for intervening at a Labour Party conference or a lady being prevented from reading out the names of the fallen in Iraq would never have occurred. There are many other examples of the misuse of legislation.

I urge the Minister to consider most carefully this amendment, so that we do not fall into the trap of providing a future unknown Government with the power to override Parliament and create a form of totalitarian society. Aside from the constitutional issue, subsection (8) adds to the difficulties of banks being able to enjoy certainty in their legal arrangements. If the Treasury can make an order without the consent of Parliament, it will almost certainly mean that any legal opinion given to banks in the course of their business will have to be qualified. That qualification may well mean that this Committee’s good work on enabling set-off and netting arrangements, so that a clean legal opinion can be given, has been wasted. I beg to move.

Lord Higgins: Can the Minister tell us whether there is any precedent in legislation for a clause of this sort? Although it seems to allow orders to be made and subsequently to lapse, what is done in the mean time and without approval can apparently persist just the same. I cannot recall, in the past 40 years or so, seeing a clause of this sort, or statutory instruments being allowed to be used in these ways.

Lord Davies of Oldham: I recognise that this is a challenging area for legislation, but we are seeking to deal with a challenging situation. The Government think that this provision is important because there may be circumstances in which a transfer needs to be made at very short notice indeed. It is therefore necessary to modify aspects of legislation in order to make it effective. We are talking about emergency circumstances.

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In such circumstances, any prior requirement for each House to approve a draft order before it came into force would cause delay during which time the authorities would not be able to address the emergency of the failing bank. The repercussions of this might be disruption in the financial markets. It might place public funds at unacceptable risk, and it might exacerbate financial instability. Surely recent experience has taught us that this is a real possibility. Events move quickly, and the authorities have to act quickly.

Of course I accept the Opposition’s criticisms that this does not fall into the pattern of straightforward, normal legislation. It seeks to deal with potential emergency circumstances. Under the envisaged 28-day procedure, however, the order will be subject to a full debate in this House and the other place. It will need to be affirmed by resolutions in both Houses in exactly the same way as the draft affirmative procedure. The only difference is that instruments under the former procedure can come into force earlier. I could understand noble Lords’ reservations about this power if the Bill were about normal circumstances and Clause 75 related to normal circumstances. However, we are dealing—might be dealing—with issues of such significance and such emergency that prompt action by the authorities is necessary. That is why this provision is in the Bill.

Lord Higgins: I asked a simple question about whether there is any precedent whatever for the form of words that we see here relaxing the normal arrangements made. Given the form of words, an order can be made—one understands that it may be urgent—and then lapse. However, the clause says that, meanwhile, the situation that was created remains the same. It is left, so to speak, hanging in time without anything attached to it. That will not help the noble Lord. He will have got the urgency, but then the order will have lapsed, and what he wanted to achieve will not have happened except in that particular period of time. He will have achieved nothing in the long term.

Lord Davies of Oldham: On the contrary, one of two situations may obtain. It may be that Parliament reaches a judgment that the action was unnecessary and unjustified, and the action therefore lapses; or it may be that Parliament considers the authorities to be completely justified in the action that they took. Those two situations are the subject of parliamentary judgment. Of course it will happen after the authorities have acted, but Parliament often reaches its judgments in just such a way. Parliament does not dictate to the Government and the authorities: it keeps their actions under scrutiny and provides the legislative base on which they act. That is what the Bill seeks to do.

Lord James of Blackheath: Does the Minister agree that the hazard in the signing of a statement of affairs in this situation is enormous and carries with it a penalty of a seven-year summary sentence? In the circumstances, will the Government expect and require that any statement of affairs supplied in this matter—bearing in mind the speed at which they are likely to have been produced and the risk of hazards increasing—will always be required to be signed by at least one licensed insolvency practitioner as an endorsement?

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Lord Davies of Oldham: If I am going to bob up and down and answer every question, I shall be fairly vigorous. I shall take that point on board.

Lord Lyell of Markyate: The Committee will appreciate that we are in somewhat uncharted waters—and in a sense the Government are using that argument. They are saying, “Here we are without a chart. We might think it desperately important to do something immediately and we must be allowed to do it”. But we live in a country which is governed by the rule of law, and it is important to go back to those basic principles. The legislation provides that we should give the Government powers which they will not have until they choose to lay an order. So they can act on something which is not the law until they instantly state that it shall be the law and until Parliament has had a chance to consider it.

The Minister said that Parliament may think that it was a good idea and approve it, which is all well and good. However, if Parliament said that it was a very bad idea and disapproved it, it would still remain the law. Consequently the Government will be able to rule absent of anything which is the law in the way that we understand it. We understand law to be either the common law or statutory law, but this will not be statutory law except by completely changing the notion of our statute so as to enable the Government to do what they like. The danger, which we ask the Government to reflect on, is that it will lead to a great deal of concern and lack of confidence.

My noble friends asked whether it would be possible for people to get sensible legal advice on what is likely to happen, and the legal profession and others elsewhere will be racking their brains in trying to decide what kind of circumstances the Government will use. No doubt in coming days the newspapers will come up with some suggestions, and the Treasury may think up suggestions which it has not at the moment passed to Ministers. However, there is a danger of uncertainty in the financial world and there are real strengths in government according to law.

It is questionable whether the problem we are in is due to a lack of powers for the Government immediately to do as they like. It is certainly not my impression that the mess we have gotten into—whether it be partly global, partly local, or partly to do with this country—is a result of the Government not being able to snap their fingers and have something done. There is therefore a strong argument for sticking to our constitutional principles, which are embodied in the European convention. The convention is mentioned as something that we should seek to abide by, at least in regard to property rights and so on—so far, so good—but we must remember that it is in many ways a safety net. Until now we have lived in a country with higher standards than that, and we are proposing to abrogate those standards. That is why we are asking the Minister to think again.

Lord Forsyth of Drumlean: My noble and learned friend has put far more eloquently and with far more knowledge of the law the points that I wanted to put to the Minister on my reading of the clause. I am

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trying to think of circumstances that might pertain to it. These are the powers of a medieval monarch; this is Alice in Wonderland stuff, where the law is what I say it is if I am the Executive and, if Parliament subsequently disagrees with me, that is tough. That is how it was. If the Minister is not able to give us an example, the clause seems disproportionate; it seems a very big sledgehammer indeed and creates a horrendous precedent. I wonder whether the Minister might not go back to his officials, who are obviously enthusiastic about ensuring that they cover all the bases, and consider whether it might be possible to achieve the objectives without going quite so far in what is nothing more than a grand by-pass of Parliament clause with considerable consequences.

On my reading of this, it is possible to keep running the order over a recess, as my noble friend said from the Front Bench. If there is some dire emergency—some dire national crisis—that requires immediate action, it is possible to recall Parliament. If the order provides for 28 days, I do not see why it is necessary to have this renewal of the period, which effectively means that Ministers can govern by fiat, secure in the knowledge that there is no accountability whatever. Not only is there no certainty, but there is no accountability. This is the most extraordinary clause. I can only think that it was written by officials who had perhaps not given sufficient concern to the role of Parliament and, as my noble and learned friend said, to the importance of maintaining the rule of law, which is fundamental to our whole way of life.

6.30 pm

Lord Newby: There are more or less acceptable bits of subsection (8). If you are bringing a bank into the regime at the beginning of August and feel that you have to use some of the powers in Clause 75, you would do it under an order and, as paragraph (b) of subsection (8) states, you have 28 days after Parliament returns to get the order approved. That does not seem draconian or untoward; it seems sensible. In reality, the likelihood of Parliament being recalled purely to approve an order under this clause is not practical politics.

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