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Lord Howard of Rising: My Lords, this amendment is simple. It states that if the code is not followed, there should be an explanation of why it has not been followed. Her Majesty's Government strongly argued that the code should not be legally binding. While I do not agree with that argument, it is just understandable that the Government should seek to keep all their options open in exceptional circumstances. However,
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In Committee, the Minister said:
“We are at one with the amendment”.—[Official Report, 13/1/09; col. 1177.]
However, he went on to say that the Government do not wish to be bound by legal rigidity. This amendment does not impose a legal obligation to follow the code, but asks for an explanation for deviating from the code. Given the Government’s keenness on transparency, I am sure the Minister will wish to accept the amendment. Indeed, I will go one further and say that it would be suspicious if he did not wish to give reasons for ignoring the code.
Lord Davies of Oldham: My Lords, I do not think there is a great distance between us and the Opposition on these issues. That is why, if the noble Lord will forgive me, I have a battery of notes that will demolish his amendment in technical terms. That may readily be done, and I do not have the slightest doubt that it would be done with the greatest accuracy. However, I do not think that that would address his argument.
I am not in conflict with the noble Lord’s objective. As explained in Committee, the Government have considerable sympathy with the spirit behind the amendment, which is about transparency and accountability to Parliament and the public at large. However, the expectation that the authorities will comply or explain is clearly built into all the crucial parts of the code. The default expectation must be that the authorities will follow the code. After all, it is established by primary legislation. It is explicitly stated in the Bill that the authorities are legally obliged to have regard to the code. If the authorities took any action that deviated significantly from the code, it goes without saying that a public explanation would normally be needed; indeed, it would without doubt be demanded by this House and the other place.
I do not think that it is necessary to remind Parliament of its obligation to hold the Government to account in primary legislation. That is why all who serve in Parliament do so, unless they are serving in Government. The expectation is that the code will make the authorities accountable. If they should in any way, shape or form resile from that obligation, they will be challenged in Parliament. That expectation is bound to be automatic. I therefore hope that the noble Lord will accept that his amendment has provoked an interesting debate, as it did in Committee, but that he can safely withdraw it.
5.30 pm
Lord Howard of Rising: My Lords, I wish that I had a pound note for every time the Minister has told me that he agrees with me but does nothing about it. I thank him for his explanation. Expectations may be in the code, but that does not mean that they will not be disappointed, rather like the disappointments that the Minister dishes out to me on such a regular basis.
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The amendment is about transparency, not accountability. It is about people’s ability to see why the Government are taking the steps that they are when they go outside a code that they themselves have written. It does not seem unreasonable that people should be told why the Government are deviating from their self-appointed agenda. Perhaps the Minister will comment.
12: Clause 5, page 4, line 18, leave out subsection (2) and insert—
“(2) The code shall not come into force unless an order containing the code has been laid before Parliament.
(2A) An order under subsection (2)—
(a) shall be made by statutory instrument, and
(b) shall be subject to annulment in pursuance of a resolution of either House of Parliament.”
Baroness Noakes: My Lords, the amendment replaces Clause 6(2) with two new subsections. Subsection (2) requires the Treasury to lay before Parliament a copy of the code of practice required by Clause 5. My two new subsections replace this with a requirement that the code be contained in a statutory instrument subject to the negative resolution procedure.
In Committee, I argued for this code of practice to be approved by Parliament using the affirmative resolution procedure. The Minister resisted that argument. His arguments were largely based on the fact that a draft code of practice is currently in circulation, and that the Government were to be congratulated on that. I know that the availability of the draft has been welcomed by market players and representative bodies, but we must not be blinded by the open process on this first draft code. The draft released in November was only a draft. All agree that a number of changes must be made to the draft before it is finalised. New topics, such as holding companies, have been added to the Bill. Other comments have been made both by those affected by the code and by parliamentarians of both Houses. The code must clearly be revised before it is issued in its final form, yet there is little time to finalise it if, as I understand is the intention, it is to be issued as soon as the Bill comes into effect. Hence, even for this first code of practice, we have run out of time for a proper iterative process through consultation. It is therefore natural and right that Parliament should approve even this first draft in order to provide some assurance that the Executive have achieved the right balance in the code, in accordance with discussions in both Houses.
Furthermore—this is my main point—however open the process around the first code to be issued, it is clearly likely that there will be further codes to be issued as practice develops. Indeed, something would be wrong if there were not further versions. However, there is no requirement in Clause 6 for external
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The authorities are required to have regard to the code, and Parliament should have some say in what they are to have regard to. I believe it is arrogant of the Treasury to seek to bypass Parliament in this respect.
As I said, in Committee I argued for the affirmative procedure. This, of course, is not much of a procedure, as an order would be unamendable. Indeed, the Minister, who normally praises the affirmative procedure when it suits him, implied that it was not effective and clogged up Parliament.
I do not think that there would ever be an argument for a code of practice to be issued so quickly that the affirmative procedure was an impediment, and the Minister did not make that argument in Committee. I have, however, reduced my sights to a negative procedure, so that if major concerns were expressed about the content of an order, the Government could at least be forced to come to either House, or both Houses, to explain themselves. I hope that the Minister will not continue to resist some minimal, but symbolically important, parliamentary involvement in this code. I beg to move.
Lord Newby: My Lords, I support the amendment. The more one looks at the code, the more one realises how substantive it is. Take, for example, the objectives of a bridge bank. If you read the Bill, you would not have the faintest clue why you needed a bridge bank in addition to the full nationalisation option. However, the code makes it absolutely clear: it says that it is intended to be a short-term operation and that its primary objective is to facilitate the sale of the bank. It seems to me that either of those things could equally well have been put in the Bill from the start. As the noble Baroness said, the fact that they are in the code now does not necessarily guarantee that they will be in the code for ever, because it can be changed at any point.
The Minister said earlier that the code has been scrutinised in Parliament. We have scrutinised it in Parliament to a certain extent but equally, as the noble Baroness said, new sections of the code are as yet unwritten. Even when the full first version has been completed, there will be every opportunity for the code to be amended in future.
The negative resolution procedure is a very limited form of parliamentary scrutiny but it is better than nothing. On that basis, I support the amendment.
Lord Davies of Oldham: My Lords, I am grateful to noble Lords who have spoken on this issue, which occasioned some debate in Committee. The noble Baroness has slightly shifted her position in response to the Committee stage debate, but so have the Government. She will recognise the extent to which the Government have listened to arguments about the code and will know that they have shifted their position considerably. The noble Baroness indicated that there would be no requirement for external consultation on the code. It is our exact intention that Clause 10
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I will be asking the noble Baroness to withdraw her amendment but I hope that she will appreciate that, in approaching these issues, we have listened carefully to the debates in this House and the other place. I hope she will also appreciate that we have provided opportunities for the draft code to be scrutinised.
A moment ago, the noble Lord, Lord Howard, said that, if he had a pound for every practice that I indulged in when responding to amendments, he would be rich. I would also be very rich if I had a pound every time I was asked for a draft code or draft statutory instrument to be provided before concluding legislation. How often have noble Lords said, “You’re asking us to provide for later codes or subordinate legislation but we have not seen sight of them yet”? Here we provide a draft code, which has been significantly debated in both Houses. We are also responding to the changes suggested in Committee, but yet again it is suggested that we are not moving far enough because we are not making the draft code subject to a statutory instrument.
I had hoped that it would have been recognised how far the Government have moved on this concept of the code. In the previous amendment, we debated and accepted provisions that the code must set down how the special resolution objectives are to be understood and achieved, how the choice is to be made between different options, and a number of other matters at the heart of the significance of the code.
We have come a very long way with Clause 5. The Government chose to put into primary legislation some of the things that may be covered by the code. We also laid the code before the House and had extensive debate on it. The code has been subject to more parliamentary scrutiny than I would dare to suggest many other codes have been. So we are not seeking to avoid scrutiny. We have gone to great lengths to ensure that we have had a proper framework for parliamentary consideration of what the code should contain. The principal reason why it should not be laid before Parliament is that it is not a statutory instrument. This is a code of practice. There are countless codes and guidelines that are not subject to parliamentary approval. A very large percentage of them were not considered when the primary legislation that established them was debated. This code is in a very different position.
Let me give an illustration. The Memorandum of Understanding between Her Majesty’s Treasury, the Bank of England and the Financial Services Authority, which establishes the framework for co-operation in the field of financial stability, does not require a statutory instrument for it to come into force, yet I am sure that noble Lords will recognise the significance of that key document. Many here and in the other place take great interest in that document, but it is not appropriate for every key document to be subject to direct parliamentary approval in the way that the noble Baroness suggests that this code might be.
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There is another example in banking: the rules made by the Financial Services Authority. The noble Baroness said of the rules in a previous debate that this Bill confers powers that go way beyond anything in the Financial Services and Markets Act. The powers conferred by that Act are significant. To take an obvious example, it confers on the Financial Services Authority power to withdraw regulatory approval from a bank. This is a serious power but, in the case of both the Financial Services and Markets Act and the Banking Bill, the powers are conferred by primary legislation, not by rules or codes. It is therefore the primary legislation that is subject to the fullest debate, not the code or rules, which provide guidance on how the powers are to be used. Of course, it is the primary legislation that we are considering today.
When the code is released, the Treasury will be under a statutory duty to lay it before Parliament. If this House seeks a debate on the code, then that will take place. Indeed, when the Government issue a new code shortly, I have no doubt that the noble Baroness will prompt such a debate, given the great significance that she has attached to the code, for which I do not criticise her. However, as I said when we considered this in Committee, the Government have shown their willingness to involve Parliament and interested parties in the formulation of the code. While we have a very clear idea of what the code will contain, we are involved in redrafting it, because we have to take on board the amendments that the Government have proposed in response to the Committee debate.
This amendment would require the unusual step of seeking parliamentary approval for a technical guidance document. We do not normally ask Parliament to do that and we should not on this occasion. We have given the debate on the code a very good hearing. The Government have responded to some important points and have indicated necessary changes that will be effected to the draft code. I hope, therefore, that the noble Baroness will think that she has pressed the Government effectively in this area—I recognise the effectiveness of that pressure—and that we have responded. I hope that she will withdraw her amendment. I see that the noble Viscount, Lord Eccles, wants a word before I sit down.
5.45 pm
Viscount Eccles: My Lords, I am sure that the Minister will accept that many times when statutory instruments come before the Merits Committee, the code of practice that is referred to is attached and is part of the committee’s remit. It is not the case that codes of practice do not get scrutinised in that way.
Lord Davies of Oldham: No indeed, my Lords. I was not seeking to detract from that at all. I was merely indicating that this requires a statutory instrument for the code to become effective. The noble Lord has succeeded in provoking a further point in my argument. The Delegated Powers Committee, whose representations the noble Baroness and other Members of this House quite rightly urged the Government to take seriously, especially where it clearly identifies that further thought and consideration by the Government is necessary, did
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Baroness Noakes: My Lords, I thank my noble friend Lord Eccles for his contribution and I am grateful for the support from the noble Lord, Lord Newby, who I thought gave some good examples of the importance of this code. That point gives the lie to the Minister’s calling the code a technical guidance document. It is not a technical guidance document. It goes to the heart of how the extensive powers in the Bill will be used. You cannot use this Bill without the guidance document because, deliberately, a large amount of the substance has been left over for the code. We do not object to that as a matter of principle, because we recognise that that detail may need to change over time. It is that issue of changing over time that it is probably more important.
The Government keep wanting congratulations on the open process of this first code, but the fact is that a lot needs to change in that first draft before it is finalised and there is no way that Parliament is going to have another sight of the document, certainly not before this Bill has completed its stages. The Minister said that the Memorandum of Understanding is not required to be done by Parliament. No, it is not, because it exists only extra-statutorily. If it were set up as part of a statutory framework, there is no doubt in my mind that Parliament would want to have a say on it. The Minister said that lots of codes of conduct are not subject to parliamentary approval. However, lots are; it is not an unusual or unprecedented procedure. Let us make this code one more such. I beg to test the opinion of the House.
5.49 pm
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The Deputy Speaker (Baroness Gibson of Market Rasen): My Lords, there being an equality of votes, in accordance with Standing Order 57, which provides that, no proposal to amend a Bill in the form in which it is before the House shall be agreed to unless there is a majority in favour of such amendment, I declare the amendment disagreed to.
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6 pm
Baroness Noakes: My Lords, we now come to Clause 7, which is crucial in the context of the special resolution regime because the FSA is required to pull the trigger under this clause before one of the stabilisation options can be pursued. Two conditions have to be met before the FSA can do that and my amendment concerns the second, which is contained in subsection (3) which reads:
“Condition 2 is that having regard to timing and other relevant circumstances it is not reasonably likely that (ignoring the stabilisation powers) action will be taken by or in respect of the bank that will enable the bank to satisfy the threshold conditions”.
My amendment replaces the words “not reasonably likely” in this formulation with “highly unlikely”. We had an interesting debate in Committee at the end of which the Minister undertook to take the issue away to see whether an alternative form of words could be found. He has not done that, so I have retabled my amendment for further debate.
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