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However, paragraphs (c) and (d) seem odd. If, as paragraph (c) states, the fact that an order has lapsed does not invalidate anything that you have done, by definition virtually everything that you are going to need to do will have to happen very quickly, so you will have done it. Therefore, paragraph (c) is very strange. I take the point about paragraph (d). What is to stop the Government reintroducing an order? Again, in practical politics, it is highly unlikely, but the provision states that if an order lapses it can be reintroduced. If the Government do not put it to a vote, any action taken under it cannot be invalidated and you could keep going round that roundabout time after time.

Lord Davies of Oldham: This is not my amendment, so I am not summing up, but I shall respond. Let us not be too general in our arguments. This power is circumscribed by the earlier parts of the Bill defining the situation in which these powers may be applied. They are limited. Within that framework, the Government

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are seeking a power that will ensure that we can take action on a failing bank that is a threat to the financial system. Within the framework of this legislation, we can take action to deal with an emergency that we cannot describe fully and in detail, but we know the cost of loss of confidence in the financial system. The potential necessity for the authorities to act with great rapidity on a failing bank is the framework within which these powers are sought. There should not be delay because of consideration of other legislation.

Earlier, I introduced into the debate the fact that one or two other Acts of Parliament were passed against a background where it was recognised that they were being introduced in an area where there was existing legislation and that they took precedence over it. I heard what the noble and learned Lord, Lord Lyell, who has a distinguished record in the law, said. I am merely indicating that we are seeking these powers for circumstances that are clearly prescribed in the Bill, and the noble and learned Lord ought not to generalise too far in his representations.

Lord Forsyth of Drumlean: Although I do not like it, I do not have a problem with the Minister’s description of this provision. However, I do not see why it is necessary to be able to extend an order beyond the 28 days. I have particular problem with why, if Parliament chooses not to approve an order, it is necessary for the original decision to stand. As my noble and learned friend pointed out, that seems to create a third area of law that is neither common law nor statute law, but law by ministerial fiat. That seems very dangerous and out of all proportion with the problem. If the Minister could explain why it is necessary to have that, we would be less concerned.

Lord Lyell of Markyate: The Minister was kind enough to refer to what I said, but he said that I was talking in great generalities. We are talking about the banking and financial systems of the United Kingdom, their stability, public confidence in their stability, the protection of depositors and the protection of public funds. I cannot think of anything in relation to the financial system in all its huge and broad effect that is not covered by those phrases. It is not as though we are talking about a narrowly defined structure within which this remarkable power is right. We are talking about the Government’s powers to do anything that they like in the entire world of public and private finance. I am told that that is just a generality, but the Minister’s argument turns on him.

Lord Howard of Rising: Is it possible for the 28-day period to be extended just like that?

Lord Davies of Oldham: When Parliament is sitting, it will consider whether the position is acceptable. If Parliament rejects the order, it is inconceivable that the Government would reintroduce it in defiance of the will of Parliament, so that is not the case. The issue with regard to the continuation relates to an emergency action having been taken and Parliament not sitting within the period. Twenty-eight-day orders are not common, but they are not unknown. They exist because it is recognised that there are actions by authority that

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ought to be subject to early parliamentary scrutiny and concern. That is why they are limited to 28 days. The only circumstances in which there would be an extension would be if they could not be considered in that period.

I am sorry to belabour the point with the noble and learned Lord, Lord Lyell; he knows how much I respect him in these matters. We have dealt with matters with regard to the law in the past. I have never felt that my responses have been entirely satisfactory to him and I feel the same way now. However, I emphasise that we are talking about a power that can be exercised only when a particular institution is entering the special resolution regime. That is the governing position with regard to the other clauses in the Bill. We have clear strategy triggers in the Bill which set up this position. We therefore expect this provision to be exercised only in the most exceptional conditions.

I hear what the noble and learned Lord says: it goes without saying that the rule of law and democratic traditions are the best safeguard for a financial system operating in any society. However, there can be threats to a financial system which have very little to do with the law, the ethics or the ethos of that system. Things can go very badly wrong. They have gone very badly wrong in very recent experience. This Bill seeks to provide, as best we can, that such eventualities cannot recur with regard to a failing financial institution. That is the limiting framework in which these powers will be taken. I hope that he will accept the Government’s good faith in this matter.

Lord Forsyth of Drumlean: I have the greatest respect for the Minister; he is a former Member of the other place and I know that he has great respect for Parliament. However, he has not addressed the fundamental issues. He keeps saying that these extraordinary powers would be used only in exceptional circumstances. However, he needs to explain why he needs them and he has not done so. Granted, there might be exceptional circumstances and, granted, Parliament might be in recess—I take the noble Lord’s point that recalling Parliament is no small matter—but he is arguing for exercising these extraordinary powers in very serious circumstances. Would it not be sensible to take this provision away and think whether it might be possible to achieve his objectives without creating what I believe is an extraordinary precedent in this clause? I cannot believe that it is beyond his wit in guiding his officials to come up with a rather more sensible and less draconian way of approaching the problem, which I quite see could arise where there was a crisis in an institution.

Lord Davies of Oldham: I am grateful for those remarks, although, as ever with the noble Lord, Lord Forsyth, his invitations are to be accepted with care. The thought that I, my officials and my noble friend the Minister would not take note of this significant debate is absurd. Of course we recognise the significance of the points raised. I apologise for my inadequacy in assuaging all doubts. We will consider the matter further, but I hope that the noble Lord will withdraw his amendment today.



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Lord Newby: When the noble Lord considers the matter, might he find that an easy way of dealing with the concerns about the potential abuse of the law would be to delete paragraphs (c) and (d) of subsection (8)?

Lord Davies of Oldham: The noble Lord made a pretty substantial argument to that effect earlier and I will of course consider it.

Lord Howard of Rising: I thank all noble Lords who have spoken in this debate. As we still have the clause stand part debate to come, I beg leave to withdraw the amendment, bearing in mind that I will return to the matter later.

Amendment 125 withdrawn.

6.45 pm

Debate on whether Clause 75 should stand part of the Bill.

Lord Howard of Rising: This clause, as I am sure we have all realised by now, should not stand part of the Bill for two good reasons. The practical one is that it will create serious difficulties for the banking industry. We may dislike the banking industry but it has been, and remains, a contributor to the economy of this country. I spoke about the problems that this clause will create for the banking industry when we debated previous amendments.

The second reason, which we have already touched on, is constitutional. I have spoken to various amendments to Clause 75 but the truth is that the clause should not be in the Bill. However difficult it may be to cope with a serious banking failure, and however much flexibility might be required for that purpose, that is insufficient reason for surrendering the ability of Parliament to call the Executive to account. In spite of what the Minister has said about the powers being very narrow and specific, they are not, as my noble and learned friend Lord Lyell pointed out.

At the risk of repeating myself, let me explain why there is a movement of power from Parliament to the Executive. Subsection (1) of Clause 75 allows any law, except this one, to be amended for the purpose of enabling the powers in Part 1 of the Bill to be used effectively. The definition of “amend” is set out in subsection (4). If one examines the special resolution objectives, for which these powers are to be used, one finds that it does not take much imagination for those objectives to be interpreted broadly enough to allow an unacceptably wide range of laws to be changed. For example, Clause 4(5) provides that objective 2 is to protect and enhance public confidence in the banking system. That means that if there were media speculation and comment on the state of the banking industry or the state of an individual bank, it would be feasible to use this legislation to introduce press and television censorship. Your Lordships may think that this is a little far-fetched, but it is perfectly possible. That is just one example of what could be done under this legislation.

There are many occasions, as I commented when speaking to Amendment 125, where the law has been broadly interpreted to suit government requirements. I

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am sure that your Lordships can think of many instances where the Government have used their power in a way not thought of when particular legislation was introduced.

Subsection (3) of Clause 75, as we have already discussed, allows for retrospective legislation. The difficulty that the clause creates for banks has already been pointed out but, again, it is possible to interpret the clause very broadly. The law in Great Britain gives citizens the ability to go about their business, secure in the knowledge that there is a clear set of rules on what is allowed and what is not. They have the protection of the rule of law, as my noble and learned friend pointed out. In a democratic society, it is unthinkable that this certainty of where one stands within the law can be removed at will.

Subsection (8), as we have already discussed, enables Parliament to be completely ignored when the power is used to amend the law and to change it retrospectively. I remind your Lordships that subsection (8)(b) effects this by allowing 28 days for an order to be approved by Parliament; if the order lapses, subsection (8) allows a new order to be made. The Minister said that if the order were rejected by Parliament, it would be unlikely to be re-presented. That does not mean to say that the Government could not allow the order to lapse and then simply introduce it again so that, by stringing a number of 28-day periods together, they could ignore the views of Parliament.

Subsection (8)(c) states that, even if an order is disapproved of by Parliament, nothing is invalidated that was done under it. Together, subsections (1), (3) and (8) enable the Government to ignore Parliament completely—subsection (1) by allowing the law to be amended, subsection (3) by allowing retrospective change of the law, subsection (8) by allowing orders to be made at will and subsection (8)(c) by allowing for the force of the law to apply to an order even if it lapses. But it is for Parliament to approve legislation; it is not for the Executive to change Parliament’s decisions at will and without its approval. However much flexibility is required to deal with banking stability, that does not justify sacrificing the supremacy of Parliament and all that that can entail.

In any event, if a serious problem arose, there is nothing to prevent Parliament from being recalled, as my noble friend Lord Forsyth suggested. To say that it is difficult and expensive to recall Parliament and that, for that reason, one should surrender democracy, is absurd. The Northern Rock legislation was pushed through both Houses far more quickly than any deal formalising a bank coming into the special resolution regime could possibly be signed, sealed and delivered.

Clause 75 turns upside down centuries of effort and sacrifice to create a free society governed by the rule of law and the democratic process. Even by the standards of this Government in recent years, Clause 75 is appalling. It is shocking that it has even been introduced to Parliament.

Lord Lyell of Markyate: I support what my noble friend has said from the Front Bench. I recognise, as the Government say, that we are in very difficult waters, but they are made more dangerous by abandoning these profound and longstanding principles, particularly regarding retrospection. I ask the Government to think

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most carefully again. The matter is bound to arise in the press before the Bill has finished its course. It is extraordinary that the Minister has not been able to think of a single example. People will think of examples. They will probably also see that there are other ways of resolving them, as my noble friend Lord Eccles said so eloquently a few minutes ago. Therefore, this is the moment to ask the Government to say that they will take stock. We are sure to come to this on Report. Before then, we need to know that we will be given much more satisfactory answers before we can allow the matter to proceed.

Lord Davies of Oldham: I thought that we had exhausted all the arguments before we reached the clause stand part debate, but I suppose that reiteration never did anybody any harm. The noble Lord, Lord Howard, effectively summarised all the points that have been made thus far.

Perhaps I may make one or two things absolutely clear. The banking industry has not expressed its concern about the clause in the terms which were depicted in the noble Lord’s contribution. We have been in extensive consultation with the industry. It was concerned that the clause might override the safeguards on partial transfers that we had put in place. We responded by amending the Bill so that we cannot do that—that provision is contained in subsection (4)(a). If the banking industry has the concerns that noble Lords have suggested—after all, it is an interested party—we await such representations.

Lord Forsyth of Drumlean: This is nothing whatever to do with the banking industry. The Bill of course affects the banking industry; this is to do with the role of the Executive and their accountability to Parliament and the rule of law. It is a parliamentary matter. I would be amazed if the banking industry had expressed a view on it. It is not about how it will affect the banking industry. We are at one with the Minister in wanting to give the Government the powers to deal with irresponsible banks and the consequence of them, but at issue here is a far more fundamental matter: the accountability of the Executive and of Ministers to Parliament and the role of Ministers in the creation of the law. That is why there is such concern on these Benches and even, I think, on the Liberal Benches.

Lord Northbrook: The British Bankers’ Association states:

“We remain concerned therefore about this general and retrospective power to amend legislation notwithstanding the scoping out of amendments to the Banking Act itself and related secondary legislation”.

Lord Davies of Oldham: I was about to respond to the point on which the noble Lord, Lord Forsyth, commented. I would have asked how I could possibly respond to this debate without addressing the issue which he raised in regard to the clause and which has been raised many times in this debate. It was said that the banking industry is not interested in these issues. If we are talking about confidence in the financial institutions and the banking industry, it is valid for me to point

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out that we have received from the important interested parties limited representations that differ from the tenor of the argument that we have heard today.

I reiterate that it is inevitable that there will be some conflict between the public interest objectives of resolving a bank in severe financial distress on the one hand and the provisions of legislation which are designed to work in a normally functioning business on the other. We are concerned to guarantee that the authorities can act in carefully circumscribed circumstances to deal with an emergency. I cannot give an illustration of such an emergency because we are seeking to guard against eventualities that may occur. We are not fighting as generals in the last war; we are trying to anticipate what is necessary in legislation to protect the financial system, because we are aghast at the consequences to the public interest of recent failures.

The Government consider it crucial to take a power to amend the provisions of primary and secondary legislation and common law within this very narrow framework to make the provision work. Are we disregarding Parliament in doing so? The noble Lord, Lord Forsyth, suggests that the Government are taking on not even Henry VIII powers but those of a medieval king—it sounded like a medieval king called Alice, but I cannot recall that historical figure.

Lord Howard of Rising: There was a Queen Alice of Louvain.

Lord Davies of Oldham: Yes, but the noble Lord did not say “monarch”; he said “king”. He then went on to describe Alice.

Lord Forsyth of Drumlean: I gave the Minister two metaphors. I talked about a medieval monarch and I said Alice in Wonderland. I was referring to “when I say what a word means, it means what I say”. We have Ministers who will apparently say: “When I say what a law is, that is what it is and there is nothing that Parliament can do about it”.

7 pm

Lord Davies of Oldham: I am grateful to the noble Lord for elucidating that position. Far from us looking towards the powers of a medieval monarch, we are seeking to act in carefully prescribed circumstances of very considerable concern to the public interest. It is quite clear that the legislation defines the narrow terms within which the authorities can act. Are the authorities intending to act in defiance of the will of Parliament? No—what they are doing is exactly the opposite. They are saying that, if we act in this area, they will present before Parliament within 28 days the opportunity to make the judgment on whether that action was justified. It is not like a normal order, which could be laid a considerable time afterwards, but one which will be presented within 28 days.

Anxiety has been expressed about two things. Why is that not absolutely prescribed as the only period? Because it might be that Parliament is in recess. It might be a judgment that Parliament should be recalled for reconsidering the order, but it might be a judgment of the vast majority of the nation, of all Benches in this House and all sides of the House of Commons,

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that to recall Parliament in those circumstances would be to exacerbate the loss of confidence in the financial system rather than increase it. That is something for which the Government would be responsible.

If Parliament denied the validity of the order after 28 days of it being repeated, is it conceivable that a Government, having taken action in those circumstances, with the order having been rejected by Parliament, would reintroduce the same order? To what purpose would they do that, when the whole action of the Government is directed towards seeking to establish confidence in the nation? By carrying out such an arbitrary action, they would render the circumstances far worse.

I am prepared to accept that we must look again at this clause. I accept the seriousness of the debate, but I hasten to mention another point. Noble Lords have suggested that it is not an important factor that the banking industry did not react to this clause and the other provisions of the Bill in quite the way that noble Lords have done—but nor did the Delegated Powers Committee. The noble Lord, Lord Northbrook, is right; he has quoted the committee accurately. It did not call attention to Henry VIII powers or the powers of a medieval monarch—or those of Alice in Wonderland. Did the committee suggest that? No, it did not.

The Government should respond to this debate and look at the issue further. However, it may just be that noble Lords have slightly exaggerated the nature of the threat to our democracy represented by a Bill that seeks to deal with an emergency situation in carefully defined, narrow and prescriptive terms.

Lord Forsyth of Drumlean: I may be misunderstanding the words in the Bill. The Minister has just said that, of course if Parliament took a different view the Government would take account of that. However, the Bill says that,

Does that not mean that whatever the Executive or a Minister have done will stand, regardless of what Parliament thinks? How in that case can the Minister say what he has just said to the Committee? This is what is causing such offence—or am I misunderstanding?


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