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Amendments 173F and 174AA would introduce a sunset provision into the financial assistance clause. We can debate the merits of sunset provisions in general when we discuss Amendment 208 tabled by the noble Lords, Lord Newby and Lord Oakeshott, so I shall confine my remarks to the implications of these amendments. They would mean that the extended definition of financial assistance, introduced by government Amendment 173E, would last for only two years after Royal Assent. As I have just explained, government Amendments 173A to 173E will put the provision of financial assistance by government departments to bank customers rather than to banks themselves on a proper footing.
The effect of the amendments would therefore be that expenditure under schemes covered by the extended definition of financial assistance could not be incurred after two years after Royal Assent. If the schemes are guarantee schemes—and both the Homeowners Mortgage
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Expenditure is not incurred when a guarantee is given but when it is called, so the guarantees on the scheme could only be given for defaults in the two-year period that occurred before February 2011. It would not be long before giving such guarantees would be almost pointless.
More generally, I am, of course, delighted that the noble Baroness, Lady Noakes, has such confidence in the Government’s plans for tackling the current crisis that she thinks it will be over in less than two years. We certainly expect our measures to bear some fruit in that time, but it would be wrong to assume that all these measures could be discontinued in a fixed, short period such as two years.
As I said, some measures may necessarily require expenditure after two years even if they are closed to new entrants in that time. Others may need to run for longer periods in any case. So fixing a time limit now would simply be an unnecessary hostage to fortune.
Government Amendments 174A and 174B address a different issue regarding the provision of financial assistance. As your Lordships will know, the Treasury has arranged to support the UK banking sector. These arrangements include the Credit Guarantee Scheme for new interbank lending introduced in October 2008, and the Asset Protection Scheme and the guarantee scheme for asset-based securities, announced on Monday 19 January. These schemes involve the provision of guarantees or similar financial commitments by the Treasury. Of course we hope that there will be no need to make payments in respect of any of these commitments, but clearly the Treasury must be in a position to settle promptly any liabilities that arise under the schemes.
Normally, this would be effected by securing parliamentary approval for an estimate. However, the expenditure might be needed at any time, including during a recess when estimates could not be obtained. Also, it would be very damaging for confidence—and lead to all sorts of unhelpful speculation—if the Treasury were to seek an estimate including estimated amounts of money to cover the expenditure just in case any liabilities arose under these schemes. Amendments 174A and 174B address this issue by proving for direct access to the consolidated fund, without an estimate in cases where the funds are required urgently, and providing for parliamentary reporting with suitable safeguards for commercial confidentiality and for maintaining market confidence.
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Amendment 174C would have the effect of making adjustments to the definition of “a financial institution” subject to the draft affirmative rather than to the negative procedure. I recognise the point that there ought to be parliamentary scrutiny of important changes to the scope of a scheme to provide financial assistance, but I am not convinced that the affirmative procedure would be necessary or appropriate in this case.
The power in Clause 227 is to provide clarity and certainty in the difficult cases that may arise at the margins of the definition of “a financial institution”. It is not intended to be—and indeed could not be—used
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I hope that the noble Baroness, Lady Noakes, will agree not to move her amendments and I beg to move my amendment.
Baroness Noakes: I have tabled Amendments 173F and 174AA as amendments to the Government’s Amendments 173E and 174A, as the Minister has explained. I also have Amendments 174 and 174C in this group. In addition to speaking to my amendments, I shall be raising some questions on the amendments to which the Minister has just spoken.
The Minister’s Amendment 173C allows an unspecified Secretary of State to give financial assistance in the extraordinarily wide terms now allowed by new subsection (1A), introduced by Amendment 173E. Presumably, this covers all Secretaries of State, so the power is very wide indeed. More broadly, it is conventional for the Government to seek specific statutory cover for expenditure rather than rely on the Appropriation Act. To that extent, both Clause 225 and the government amendments are in line with that expectation. What is not expected is that the statutory power should be taken in a wholly unconstrained way, which is what the clause allows, particularly after the Government’s amendments.
In another place there was a discussion about whether Clause 225 should be restricted to some kind of financial stability context. Expenditure in paragraph (a) of subsection (1) is so constrained because of the references to Parts 1 to 3 of the Bill but neither paragraph (b) nor paragraph (c) has any words restricting it. My Amendment 174, which was tabled before the Minister tabled his later amendments, sought to limit the use of those powers in paragraphs (b) and (c) on the same basis as the Bank of England would use its stabilisation powers as set out in Clause 8. In relation to the use of these powers the Minister said to the Public Bill Committee in another place:
“Obviously there has to be a systemic risk”.—[Official Report, Commons, 30/10/08; col. 209.]
The Bill does not say this and I believe that the Minister has given a description this evening in his introduction which runs counter to the assurance given in another place. I ask the Minister to address this point specifically in his response. Is he saying that what the Minister said to the Committee in another place now no longer holds?
The Council of Mortgage Lenders has expressed concerns about the workability of the homeowner mortgage support scheme that the Government intend to use this new broad power for, to give financial
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Accordingly we do not seek to oppose Amendments 173E and 174A, but my Amendments 173F and 174AA, as the Minister explained, seek to limit their use to two years. This is very limited sunsetting and not like the general sunsetting of this Bill to which the Minister referred, which we do not support. The two years mentioned in my amendments are intended to allow the Government to do whatever is necessary and give enough time for more specific statutory authorities to be put in place if, for any reason, expenditure needs to continue on a more permanent footing. The Minister gave an example of potentially needing to continue payments outside a two-year period. We understand that it would be appropriate to have the power now but a more specific version of the power should be placed in an appropriate statute if there were a long-term requirement for expenditure, rather than seeking to hide it within something which was originally designed for financial stability and systemic risk.
We also have a concern with one aspect of Amendment 174B. We obviously have no problem with allowing for emergency access to the Consolidated Fund but we firmly believe in transparency and parliamentary accountability and we were genuinely astonished at the contents of new subsection (6) to Clause 225, which seems to allow the Treasury to completely dispense with a notification to Parliament if the Consolidated Fund is raided under Clause 225. Can the Minister say whether there is any precedent for this power to keep Parliament in the dark on a permanent basis? I could not recall one.
Amendment 174C is slightly different. The power in Clause 225 refers to giving financial assistance to a bank or other financial institution and Clause 227 allows the Treasury to say what is or is not a financial institution. There is no apparent requirement for the institution treated as a financial institution to have any connection with finance or banking. Can the Minister say whether the Treasury could use Clause 227 to specify, say, that Jaguar Land Rover or Corus was a financial institution in order to give it some financial assistance? Indeed, can the Minister say what an “institution” is? Its use in statute appears to be confined to charities, higher education and criminal justice, apart from uses in connection with “financial institution” or “credit institution”, and it does not appear to have been used hitherto as synonymous with “person”, which is what one might have expected.
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My Amendment 174C concentrates on parliamentary procedure and says that the order-making power should be subject to the affirmative procedure if this power in Clause 227 is capable of designating almost any kind of organisation as a financial institution. That is an extremely wide power and emphasises how very broad Clause 225 could be made. For that reason we wish to seek the affirmative procedure as opposed to the negative procedure in relation to any relevant order made under Clause 227.
Lord Newby: These are pretty wide-ranging powers which masquerade under extremely bland parliamentary drafting. At first sight, apart from it being difficult to understand what the government amendments are getting at, you would not gather that the homeowner mortgage support scheme, for example, would be covered by these powers. They raise a general issue with which we have been grappling: the need for the Government to move quickly to deal with exceptional circumstances, and the need for adequate parliamentary scrutiny. As the Committee will know, sympathy on these Benches has, broadly speaking, been with the Government. I am not saying that we are departing completely from that on these amendments, but the noble Baroness has raised a number of issues on which we await the Government’s response.
The concerns raised by the Council of Mortgage Lenders about what happens next, the extent to which consultation will take place, what further scrutiny there will be of the homeowner mortgage support scheme and whether it will have a sunset clause demonstrate the general point that these are significant powers which, unless the Government take the situation seriously, can be exercised almost in secret. Unsurprisingly, given our later amendment, I have some sympathy with the noble Baroness’s proposal for a two-year sunset clause. However, the thought of having a two-year sunset clause on one small bit of the Bill demonstrates why you need either a sunset clause for the whole Bill or no sunset at all. In reality, it is difficult for a Government to bring forward a Bill amending just one aspect of what we have here.
I have considerable sympathy with the comments of the noble Baroness on proposed new subsection (6) in Amendment 174B. The Treasury might well think it necessary on public interest grounds to keep quiet about a whole raft of things that the public would legitimately feel that they had a right to know. Can the Minister explain the circumstances in which he envisages that being required? Equally, can he explain why the Treasury is resisting Amendment 174C on affirmative resolution? During the passage of the Banking (Special Provisions) Act 2008, we supported the need for speed in nationalising a failing bank. However, the kind of schemes that we are talking about here do not have the same kind of urgency. The homeowner mortgage support scheme is announced and must then be worked up. It almost certainly could not be legislated for at quite the same speed—and almost certainly would not need to be—as a bank that was suddenly collapsing. We will listen carefully to what the Minister said on that amendment.
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Lord Higgins: These are remarkable powers. It is quite difficult to comprehend at first sight exactly what is involved, although the Minister helpfully tried at the beginning to set out how the procedure for making such moneys available is carried out.
However, if I understand the Minister correctly, it is proposed that the normal estimates and Appropriation Act procedure should be abandoned completely. It appears from Amendment 174B that the Government have that in mind. In those circumstances, I am not clear how Parliament can exert control. It would be helpful if the Minister spelt that out in general terms.
Proposed new subsection (5) in Amendment 174B gives me particular concern, saying that where money is paid out,
- “the Treasury shall as soon as is reasonably practicable lay a report before Parliament specifying the amount paid (but not the identity of the institution to or in respect of which it is paid)”.
All this will have happened without any parliamentary control at all. I am not clear on what the justification for that could conceivably be.
Another thing, among many, that I am not clear on is the situation for the giving of guarantees, and when they are likely to be called. Again, is there to be any parliamentary control at all, either on the giving of the guarantees or on the releasing of money under them?
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Lord Myners: I can confirm that “the Secretary of State” covers all Secretaries of State; that is normal. The individual Secretary of State who uses the powers under Clause 225 will be accountable to Parliament.
The noble Baroness, Lady Noakes, mentioned some words used in the other place with reference to “systemic risk”. The problem is that the noble Baroness’s amendments limit the systemic risk to the banking and financial system. The government amendments are intended to allow schemes with wider scope, so as to avoid vicious circles of banks damaging the economy and, in turn, damaging banks.
Baroness Noakes: I understand what the Minister says, but can he confirm that his colleague discussing this in Committee in another place intended that the powers as then drafted were to be used only in the context of financial systemic risk, and that they were not then conceived for any other purpose?
Lord Myners: I am not in a position to know what was in the mind of my colleague in the other place when he made that remark. I can, however, help the Committee by explaining the situation as I see it. There is a linkage between the financial system and what the media occasionally call “the real economy”. To regard the two as entirely dislocated from each other is to pose the risk of increased systemic risk. Although it would be wrong for me to put words into the mouth of my colleague in another place, that linkage between the financial system and non-financial institutions, the non-financial part of the economy, was entirely consistent with addressing a systemic risk to the financial system. In that respect, there is consistency between what I have said and what my honourable friend in the other place said.
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The noble Baroness raised the definition of “institution”. “Institution” would clearly not include manufacturing companies.
Questions were raised about the comments of the Council of Mortgage Lenders. I welcome the comments of the noble Baroness on public-interest considerations, which I am sure will be appreciated by those who will benefit from the Homeowners Mortgage Support Scheme. She asked about parliamentary scrutiny and the impact assessment. Parliamentary scrutiny of the Homeowners Mortgage Support Scheme will take a range of forms: adjournment debates, parliamentary Questions and ministerial correspondence. An impact assessment will be published once negotiations with the lenders have concluded. Until the scheme’s design is finalised, we cannot publish an assessment of costs and benefits, but will do so at the appropriate time.
The noble Baroness also raised questions about—
Baroness Noakes: I had not realised that the Minister was going to move on so swiftly from institutions. He said that an institution could not be somebody in the manufacturing sector. I asked him what could and could not be in the term “financial institution”, and he said what could not. What would and could be included in the term?
Lord Myners: I am happy to come to that in a moment but should like to carry on addressing the comments the noble Baroness made on proposed subsection (6) in Amendment 174B. I was asked whether I was aware of any precedent for the removal of the requirement to report to Parliament. I am not aware of any direct precedent. The key issue here is to avoid systemic risk. The noble Baroness has tabled an amendment on transparency and I will return to this issue in that debate.
The noble Lord, Lord Newby, expressed sympathy with much of what the Government are doing in helping businesses, people and homeowners as a result of the consequences of the global credit crisis. For that, I express the Government’s appreciation. I believe that I have answered the questions on proposed subsection (6) of Amendment 174B.
The noble Lord, Lord Higgins, asked a number of questions, but I am afraid that I missed the penultimate one. If he can remember the order in which he asked the questions and is kind enough to help me, I will endeavour to answer him. Following that, he asked about parliamentary control of the giving of guarantees. I have already addressed that question in respect of the comments made by the Council of Mortgage Lenders on parliamentary accountability.
I will endeavour to be even more helpful to the noble Baroness on the term “financial institutions”. This provision allows the Treasury to inject clarity at the edges where there may be some doubt as to whether a particular institution is a financial institution. It would not allow the Treasury to specify something as a financial institution when clearly it is not. For example, it could not specify Jaguar Land Rover or Corus Steel as financial institutions. Yet the hybrid nature of many financial institutions and the ever-present sense of innovation in the financial services sector may give rise to doubts as to whether an institution qualifies as a
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I can see that the noble Lord, Lord Higgins, is ready to remind me of his unanswered question.
Lord Higgins: I am grateful to the noble Lord. I do not think he has covered my initial question. Are we totally abandoning the traditional form of approval of expenditure when the sums involved are likely to be large? One can see the need for urgency in certain circumstances. but if the House of Commons is sitting I am not clear why it would not be possible to deal with this as a matter of great urgency in 24 or 48 hours. This would of course be totally without precedent. The problem arises when the House is not sitting. With the kind of sums likely to be involved if we are dealing with systemic risk, there would be a strong argument for recalling Parliament.
The clauses effectively overrule all the traditional ways in which Parliament and our democratic system keep control of expenditure. It would seem from Amendment 174B that the Treasury simply decides that the expenditure is needed and says it is too urgent for Parliament to exercise any control—even after the event. That would clearly be a stable door and horse-bolting situation. None the less, to include a provision for the matter coming before Parliament the moment it has occurred would be desirable.
The question which the noble Lord did not realise I asked is on Amendment 174B. It says,
“the Treasury shall as soon as is reasonably practicable lay a report before Parliament specifying the amount paid (but not the identity of the institution to or in respect of which it is paid)”.
I do not see why that is the case. It is extraordinary that not only is there no apparent control in the event but, when the report has been submitted, it need not specify to whom or in respect of what the amount has been paid. That is an incredibly wide-ranging provision. I do not see the need for it.
Lord Turnbull: Like the noble Lord, Lord Higgins, I do not understand why, if something is urgent under proposed subsection (4) of Amendment 174, it then also has to have anonymity under proposed subsection (5). There may be circumstances in which anonymity, secrecy or delayed release of the information is justified but it should not apply in every case in which the urgency condition has been invoked.
Lord Myners: The noble Lords, Lord Higgins and Lord Turnbull, have raised important questions about anonymity. I intend to take those points away and discuss them with officials to see if we might qualify any need for anonymity.
Lord Higgins: Are we totally abandoning the normal estimates and Appropriation Act procedure as far anything deemed by the Treasury as urgent is concerned?
Lord Myners: In recognising that these are measures which may be required in an emergency, in which financial stability is at risk and important measures need to be taken to stabilise the economy and the financial system, we are setting out appropriate measures which are suited to respond in the way that urgency requires.
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