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A useful work, Craies on Legislation, ninth edition, has recently been updated in a comprehensive and helpful form by one of the parliamentary counsel, Mr Daniel Greenberg. He sets out pretty well all the examples that one can find of retrospection. They are always, quite rightly, tightly confined. In 1999, the noble Baroness, Lady Hollis of Heigham, rightly said for this Government that,

The very broad terms of the clause are in danger of setting precedents and quite expressly depart from the doctrine of necessity. I very much look forward to hearing what the Minister says in response. The noble Lord, Lord Myners, is in the Chamber and I can think

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of few people with a better understanding of this. I do not know whether he is answering this debate—I see him modestly shaking his head—but if he does not understand, I do not know who in the Government does. No doubt the Minister who replies will enlighten us.

Lord Blackwell: My Lords, I wonder with some temerity whether, at this late stage of the legislation, the House and the Government might consider some modest constitutional innovation to deal with the conundrum raised by the amendments. The Government’s case, as I understand it, is that if, late at night in the last knockings of doing some deal, a provision is found in some law that prevents the deal from being done and is not important in its own right, the parties concerned need to be able to get on and do the deal and put it to bed. I understand that. However, if this were corporate governance and it was too difficult to call up Parliament and the whole board, perhaps provision could be made for this by giving power to a sub-committee to take actions on behalf of the board when things need to done quickly and subsequently ratified.

We have no such provision in the constitution, but it would not be impossible to make provision in the Bill for the exercise of this power to be subject to scrutiny by some cross-party Standing Committee of this House, the other House or both Houses, or by a group of privy counsellors or some other innovation. This would simply ensure that there was a constitutional check on the exercise of this power where it was unrealistic for Parliament to be recalled. It would then be possible for that group to decide whether the power was being properly used and whether Parliament should be recalled to debate it if necessary. I know that it is unusual to make constitutional innovations in the course of a Bill, but I simply wonder whether this situation might require some creative thinking.

3.30 pm

Lord Davies of Oldham: My Lords, I am sorry to disappoint the noble and learned Lord, Lord Lyell, as I am replying to this amendment. He will know that I speak with the inherent wisdom of my noble friend Lord Myners. My noble friend has cast his decisive eye over the way in which we handle these issues, so the noble and learned Lord can rest assured that the Government are bending their best efforts to defend our position and that we appreciate the criticisms of the clause and the strength of the amendments that have been tabled.

I am very grateful to the noble Lord, Lord Blackwell, for bringing his innovatory dimension to all this. He will know that I can scarcely respond to it off the cuff at the Dispatch Box. I am not sure that it is feasible to follow the line that he suggests, but I am grateful to him for having advanced further the burden of the remarks made by my noble friend Lord Barnett, who, although critical of the clause, asked us to concentrate on its context and the nature of the problems that we are trying to resolve. I am grateful to the noble Lord, Lord Blackwell, for identifying just how the problems could emerge. I am not sure that his solution is just constitutionally innovatory—it is probably quite impossible—but I will take his point on board and consider it seriously.

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On Amendment 54, I congratulate the noble Lord, Lord Howard, on the force of his argument today and last week in Committee. He has been persistent on these issues but he has also been careful about how he has presented his arguments. I am grateful for that. I hope that, in response to this significant challenge from the noble Lord, Lord Howard, the House will, as the debate progresses today and, if necessary, at Third Reading, begin to find that the Government’s position and that of the noble Lord are gradually converging and that there is not a vast gulf between us on these issues. I will, nevertheless, identify why I defend the Government’s position.

I begin with a note of caution. The Government believe that this clause is, as a whole, essential. The Constitution Committee, in its report published last week, stated:

“We accept that there is force in the Government’s general explanation of the need for the Treasury to have a power to change the law by order”.

I will come to the remarks of the noble Lord, Lord Goodlad, in a moment, when I consider his amendment. I must also note that the Constitution Committee raised important questions about the exercise of power in the public interest, to which I will turn when I consider the amendments. Distinguished members of that committee have already made their representations today. The Government are grateful for the committee’s balanced and serious analysis of this clause, because we all recognise its importance.

The Delegated Powers and Regulatory Reform Committee made no specific recommendation in relation to Clause 75, but certainly urged that the House should scrutinise it closely,

The House has certainly scrutinised it carefully. The noble Lord, Lord Goodhart, who takes great responsibility for that committee, will know how intensive our debates on this were in Committee. He will also appreciate the strength of the representations that have been made today. I realise that there are still areas where the Government need to clarify and explain their position, which is what I hope to do during these debates, particularly on this group of amendments and the next. I apologise in advance for the rather lengthy response that I am obliged to make. This being Report, it is my only shot at convincing the House on these important issues. I have a number of important points to make about the amendments.

Three crucial issues have been raised. First, there is parliamentary procedure. Parliament must be allowed to play its essential role in holding the Executive to account. We have introduced an amendment that strengthens this in respect of Clause 75. We shall come to this when we discuss the next group of amendments. I will not go through that argument in full now, but it will be recognised that the Government appreciate the importance of government accountability. Secondly, the potential to use the power with retrospective effect would be removed by Amendment 54. As the Constitution Committee has noted, retrospective powers are not unprecedented, but the Government must make a

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watertight case for why they are needed in this case. I will come to those points in a moment. Thirdly, there is the question of clarity around how the power will be used. This is a broad power. Noble Lords, including the noble Lord, Lord Howard, have rightly sought assurances that this will not be a power exercised on the whim of a Government. I will provide reassurance about the seriousness with which any Government would use such a power.

We studied the issues carefully. We are aware of the strength of opinion in the House. I hope that it will emerge from our debates today and at Third Reading, should that prove necessary, that the power is more tightly worded and will be fully explained. I must make the position clear. The one thing that the Government cannot do is amend Clause 75 to such an extent that the power becomes unusable; to do so would jeopardise the prospects for a successful bank resolution and thus, in the Government’s view, would be irresponsible. I come again to the point that we must not forget: we are discussing this power in relation to the context in which it would be deployed and the nature of the problem for which it would be used to resolve. As the noble Lord, Lord Newby, noted in his remarks in Committee:

“Having read the Treasury memorandum, it is very difficult to see how the operation of the Bill could take place without such a clause”.

That, of course, is the nub of the Government’s case. The noble Lord went on to say:

“Therefore, although we on these Benches have a general aversion to any retrospective powers, without this power and the whole clause, it would be very difficult, if not impossible, to effect the rest of the powers in the Bill”.—[Official Report, 20/1/09; col. 1595.]

I think that Members on all Benches will agree that they may be necessary. That sums up the position that I sought to deploy at some length in Committee; indeed, it does so more accurately and succinctly than I succeeded in doing. I thanked the noble Lord for his contribution on that occasion, and I do so again today. However, I am going to ruin the effect of that succinct analysis by going on at some length, but that is the nature of the obligation of speaking from this Dispatch Box.

Amendment 54 would remove Clause 75(3), the provision that provides for retrospective effect. The noble Lord, Lord Howard, has spoken with conviction about the need to remove this subsection, while the Constitution Committee noted the power with a great deal of interest. Its report is balanced and recognises the challenges posed by this kind of power. The committee notes that there is no absolute prohibition on retrospective legislation in British constitutional law or practice. It also notes that retrospective powers are unusual but not unprecedented; in presenting the amendment, the noble Lord, Lord Goodlad, also reflected that position.

My last attempt to try to provide the House with examples of legislation with retrospective elements did not produce quite the convinced response that I would have liked, and noble Lords indicated that I ought to do better. This is a difficult area and none of the examples that I am about to give will be directly comparable, because we are dealing with different pieces of legislation and therefore very different contexts.

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I insist that context is everything with regard to these powers. However, all the examples demonstrate that such powers can and have been justified in terms of their context and all of them have been agreed in Parliament.

A recent example is found in the Criminal Evidence (Witness Anonymity) Act 2008, which overturned the effects of a judgment of the House of Lords on the scope to grant witness anonymity orders in criminal proceedings. The Act was given a qualified form of retrospective effect in that it could, in certain circumstances, apply to witnesses who had given evidence before the Act came into force. This was controversial, but the case was successfully made that the powers were justified in the public interest. There are of course differences between the power under that Act and what will be provided under Clause 75 of the Bill. I do not have the slightest doubt that the noble Lord, Lord Howard, will point that out with some force when he comes to speak, but before he gets the chance to do so I should say that I acknowledge the differences. I am giving an example of legislation that has retrospective effect.

A second example is Sections 3 and 4 of the National Insurance Contributions Act 2006, which contain regulation-making powers enabling retrospective provision to be made. A third example is in Section 431A of the Income and Corporation Taxes Act 1988. The regulation powers in that section enable provisions to have retrospective effect and may amend primary legislation. However, I accept the fact that the noble Lord, Lord Howard, is loath for me to comment on anything to do with taxation in this respect, so the third example is put forward with some diffidence.

Lord Lyell of Markyate: My Lords, I am most grateful to the Minister for giving those three examples, but they are all examples where the retrospective power could properly be said to be necessary. They would not need the words “or desirable” in order to have that power. Can the Minister draw that distinction as to why he needs “desirable” as well?

Lord Davies of Oldham: My Lords, I intend to do that. It is an important point and I will not sit down without addressing myself to it. Perhaps the noble and learned Lord will allow me to come to that point in time as it relates rather more to the other amendments and not to Amendment 54 tabled by the noble Lord, Lord Howard.

All of these powers are different in their scope and purpose. As I said, there must be a compelling public interest case for these powers and the House must consider each on its merits. Therefore, the question the House faces today is whether the retrospective power in this Bill is justified in the public interest. We have had the scrutiny which the Constitution Committee suggested was necessary for these issues. In fact, the scrutiny has probably exceeded even the exceptional standards the House normally presents on issues such as this.

I believe that the public interest case, with respect to Clause 75, is clear. The absence of retrospective powers could jeopardise the chances of a successful bank resolution, undermining the special resolution objectives which are at the heart of this part of the Bill, including

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the protection of financial stability, depositors and public funds. The Bill has been produced against a background of considerable difficulty—indeed crisis—within the financial system, with great effects on the wider economy and deleterious effects on our people. Therefore, we should recognise that we are operating within a context where quite significant action needs to be taken.

If I had not anticipated this when the noble Lord, Lord Goodlad, supported by my noble and learned friend Lord Morris and the noble and learned Lord, Lord Lyell, spoke, I knew that the Constitution Committee would present its position in a critical way with a heavy onus resting on the Government to justify to the House why a retrospective power of such breadth as that which is contained within Clause 75(3) is required. The committee asked the Government to consider whether the scope of the power could be narrowed and to give examples of where the retrospective aspect of the power might be used. I will start by trying to deal with the issue of examples, but I preface my remarks by the obvious point that we are talking about events that will happen rapidly and in relation to which it is not easy for us to give clear identification of what might happen. It is no use quoting from the past. We are trying to anticipate with this legislation the kind of crisis which could occur in the future and to ensure that there are powers in place for the authorities to be able to cope.

The drafting of a transfer order in a fast-burn situation with events moving rapidly may not be perfect. Errors and inaccuracies may creep in. Whether it is appropriate to correct these retrospectively will depend wholly on the facts of the case. If it were the case that the order could not be drafted and action taken rapidly, the very purpose of what the clause seeks to address, in terms of the challenges of a failing bank, could not be achieved.

As I said, it is difficult for me to give instances. However, there may be cases where the parties all intended to achieve a particular effect and have proceeded on the basis of that intention, but looking at the instrument may reveal that the text itself is ambiguous or even wrong. In such cases it may be entirely appropriate to correct the drafting with retrospective effect to ensure that the parties who have signed up to the resolution are indeed in the position that they intended to be in when they gave their agreement. Alternatively, there may be provisions of the law that it would be perfectly proper and sensible to modify, but which are overlooked when the transfer takes place because of the speed at which intervention is required and because of the complexity of the field.

I shall illustrate how difficult that could be with regard to the provisions that relate to the control of undertakings. There are numerous provisions regarding significant changes to the ownership of companies, including provisions that require the prior consent of the regulator to a change in ownership. A share transfer instrument or order is likely to trigger those provisions. The Government would expect to comply with them in full; that would, of course, be their intention. It is not impossible, however, that in a rapid fast-burn resolution of a bank with a novel structure or one that

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carries on an unusual range of activities, we might inadvertently overlook such a provision. If we did not have the retrospective power, the directors of the bank, or indeed third parties, could be faced with the prospect that action taken to effect the resolution might lead to them facing a regulatory penalty. Indeed, in some circumstances it could even result in criminal penalties. Some of these regimes could result in contracts not being enforceable or the transfer not being recognised. All this could lead to serious uncertainty about the consequences of the resolution for the parties involved. As we have debated previously, any uncertainty in entering into these developments could seriously jeopardise the prospect of the resolution being successful.

I shall give the House another example. There are provisions of regulatory law that apply in different ways depending on the group structure of the regulated entity. Some regulatory law will aggregate the activities of undertakings in the same group. Were the Treasury to take a bank into temporary public ownership as things stand, the bank would find itself in the same “group”—I use that in inverted commas—as Northern Rock, Bradford & Bingley and RBS. We may find that various provisions of regulatory law apply to it in a different way.

We are aware of those issues and aim to comply with them in full or, where appropriate, to seek a waiver from the regulator. However, it is possible that a particular bank might raise different issues that had never been dealt with before and we might miss something. Again, there is a risk of regulatory penalty and unenforceable contracts. Contracts entered into by the bank after temporary public ownership could potentially be laid open to challenge as a result of the breach that had occurred. There is a risk that that could threaten the resolution, and the Treasury’s judgment, based on ongoing contingency planning, is that that risk is a serious one.

I appreciate that retrospective provision was not used in the resolution of Northern Rock, Bradford & Bingley or the Icelandic banks, but experience shows that there is a clear public interest in being able to respond swiftly to fast-moving events to achieve the special resolution objectives, including protecting depositors and maintaining financial stability, two of the significant objectives of the Bill that establish the context in which these powers are being sought. Indeed, the authorities need to intervene at even shorter notice than in previous resolutions. The difficulties relating to Northern Rock were very well known but a bank failure can occur out of the blue—for example, where an unforeseeable event destabilises the bank. That might occur where trading losses have been concealed by deception and we would not have the warning—limited though it was—that the bank was in trouble in the way that we had with regard to Northern Rock.

Of course the Government do not take that power lightly but the public interest argument for effective resolution of banks is compelling. That would be jeopardised without the retrospective power. I hope that the examples clarify for the House how retrospection might work in practice and that I shed some light on some of the possible consequences if the authorities did not have recourse to that power.

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The noble Lord, Lord Howard—I am all too conscious of the fact that he has the last word on the amendment—might point out that the examples I provided relate to the needs of the authorities to return to issues that they have not been able to resolve successfully at the first attempt. That may be so, but I would point out that the affairs of a large modern bank can be extraordinarily complex. We have to accept that there is a real chance that the authorities may not be able to resolve the problems immediately and perfectly at the first time of asking. If that means only up to the possibility of making a mistake, the Government are obliged to do so, but I believe that it is better to do that now and prepare for the possibility in the legislation than to proceed on the assumption that the Government on every occasion will get it right first time.

I hope therefore that the noble Lord will accept that the Government are prepared to own up to the possibility of fallibility, particularly when dealing at short notice with the affairs of multimillion-pound large and complex financial institutions. I hope that he will also accept that the prudent course of action is to make provision that will enable the Government to confront that reality and to act to resolve it if it proved in exceptional cases to be necessary.

If the noble Lord can accept the case that I have put in the face of his spirited articulation of the principles of parliamentary scrutiny to which he has subjected the clause, I hope that he can withdraw his amendments and give us the basis for further discussions between us before Third Reading on outstanding points of detail.

I turn to Amendment No. 55, which is in the name of the noble Lord, Lord Goodlad, and which has attracted the support of the other distinguished members of the Committee: the noble and learned Lord, Lord Lyell, and my noble and learned friend Lord Morris. We have considered this proposal to remove the power to make retrospective provision if it is desirable; allowing only that the provision may be made if necessary, which is the burden of the noble Lord’s case. I remind the House that anything done under this power will be in pursuit of the special resolution objectives. In this sense, any use of the power will always be necessary: after all, we are dealing with a crisis situation and crisis provisions operating in a short space of time represented by the special resolution procedure, which is the whole substance of that part of the Bill.

However, if the power were limited to what is necessary, it would suggest that a retrospective provision could be made only where it would be impossible to effect a resolution otherwise than by making retrospective changes. The examples I have given of when the retrospective power might be used illustrate why the need to change the law, including retrospectively, may involve the evaluation of competing public interests. Such an evaluation may show that the case for retrospective provision is justified in the public interest. If such provision could be made only where necessary, that would prevent the better outcome for the public interest being pursued, yet that should be the guiding principle of a Government in action in this context.

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