Select Committee on Delegated Powers and Regulatory Reform First Report

First Report

Banking (No.2) Bill [HL]


1.  This report relates to the Banking (No. 2) Bill, which received its second reading on Tuesday 16 December. We understand that this No.2 Bill will be superseded by the Banking Bill expected to complete its Commons stages on Wednesday 17 December. Although our recommendations formally relate to the No. 2 Bill, they apply equally to the Commons Bill which is to replace it.

2.  The Bill makes various provisions about banking. A memorandum has been submitted by HM Treasury ('HMT') to explain the delegated powers conferred by the Bill, printed at Appendix 1.

The Special Resolution Regime: stabilisation options

3.  Much of Part 1 of the Bill contains provision to supersede the Banking (Special Provisions) Act 2008, the principal powers of which will lapse in February 2009. Part 1 provides for a regime of transfer instruments and orders as the principal mechanisms to apply the three 'stabilisation options' of transfer to a private purchaser, transfer to a bridge bank, and transfer to temporary public ownership (clause 1(3)). Where transfers of securities etc. or of property, rights and liabilities take place in the context of the third stabilisation option, a transfer to public ownership, they are to be effected by orders made by HMT (see clause 13(2)). Otherwise, transfers are effected by instruments made by the Bank of England (see, for instance, clauses 11(2) and 12(2)). Share transfer orders are subject to the negative procedure (see clause 25) which is also applied to property transfer orders (clause 45(5)(a)) and other forms of transfer orders (for instance 'reverse transfer orders': clause 46(5)(a)). We note that transfer instruments made by the Bank of England are not to be statutory instruments and so are not subject to any form of Parliamentary control.

4.  In our view the Government have not in their memorandum made a sufficiently strong case for the absence of any parliamentary procedure for instruments which effect a transfer to a private purchaser or a transfer to a bridge bank. It may be that the Government consider these two options to be qualitatively different from the transfer to temporary public ownership which is to be by order subject to the negative procedure. However, transfer to a bridge bank owned wholly by the Bank of England may be considered by some to be similar to temporary public ownership. In any case, the House will wish to seek a justification from the Government for the proposed absence of any Parliamentary procedure for instruments relating to transfer to a private purchaser, and in particular for instruments relating to transfer to a bridge bank. In the absence of such a justification, the House may wish to consider applying a measure of Parliamentary control over such instruments. In our report on the Banking (Special Provisions) Bill earlier this year, we recommended that the affirmative procedure should apply to the majority of powers to make transfer orders (5th Report, Session 2007-08, HL Paper 58). Parliament accepted, however, the application of the negative procedure, and we do not return to the matter in this report.

Tax — clause 74

5.  Clause 74(1) provides that the Treasury may by affirmative regulations make provision about the fiscal consequences of the exercise of a stabilisation power, and subsection (2) lists the taxes to which such regulations may relate. Subsection (7) contains a Henry VIII power for the Treasury to add or remove entries to the list in subsection (2), by negative order. As such orders are subject to laying before the Commons only we make no recommendation on this point. However if the clause 75 power was one which provided for the Order to be laid in both Houses we would have recommended that it should be subject to the affirmative procedure, and we invite HMT to consider this point.

Power to change law — clause 75

6.  Clause 75 confers an extremely wide power enabling HMT by order to disapply or modify the effect of any enactment (other than Part 1 of the Bill) or of any rule of law not in legislation, for the purpose of enabling the powers in Part 1 of the Bill (in its application to banks, building societies, and / or credit unions) to be used effectively. The power may be exercised for general or particular purposes and is subject to the draft affirmative procedure, or the 28-day affirmative procedure in cases of urgency. HMT explain their reasons for the power in paragraphs 221 to 236 of their memorandum, stating that "in the absence of such a power ... there is a real and significant risk that the Authorities may not be able to effect fully a transfer" which "could lead to serious adverse implications for the public interest through risks to financial stability, protection of depositors or the public funds". We make no recommendation in relation to clause 75, but we draw it to the attention of the House, so that it might satisfy itself that the rather unusual context for which Part 1 of this Bill makes provision justifies the extremely wide power taken by the clause.

Financial Services Compensation Scheme — clauses 167-179

7.  Part 4 of the Bill is concerned with funding support for the Financial Services Compensation Scheme ('FSCS') under Part 15 of the Financial Services and Markets Act 2000 ('FSMA'). The FSCS is set out in rules, made by the Financial Services Authority under section 213 of FSMA, which are not statutory instruments. Section 213(3)(b) already requires the scheme to include provision for the scheme manager to impose levies on all or any class of persons authorised to carry on activities regulated by FSMA. Clauses 167 and 168 insert, respectively, a new section 214A conferring power for regulations to enable levies to be imposed under the FSCS for the purpose of maintaining contingency funds, and a new section 214B enabling HMT to require payments to be made under the FSCS in connection with claims against banks etc. in respect of which stabilisation powers are being exercised under Part 1 of the Bill. Section 214B requires provision in regulations about the nature and amount of the payments which HMT may require.

8.  The memorandum explains that no decision has yet been taken about whether there should be a contingency fund, but the circumstances in which one might be found necessary are thought to be real (paragraphs 484 and 486). In view of the affirmative procedure, we find these delegations acceptable - particularly as, in the case of section 214A, the new levy would be imposed in the context of the FSCS arrangements already provided for under the FSMA; and, in the case of new section 214B, the power to require payments is in the Bill itself and the regulations are subject to the constraints in subsections (4) and (5).

9.  There is however a further power to impose levies by negative regulations under the new section 223B (inserted by clause 170) which provides for loans to the FSCS from the National Loans Fund. In paragraph 503 of the memorandum, HMT explain that the negative procedure is appropriate on grounds of urgency; but they do not say why the regulations could not be made (as opposed to being laid in draft) before being subject to an affirmative procedure, which is the procedure proposed in the Bill for many other urgent cases (see, for instance, clause 246). We would usually expect that provision in a statutory instrument for an entirely new levy should be subject to the affirmative procedure (the draft affirmative procedure is to apply to orders under new section 214A), and we recommend that the 28-day affirmative procedure should apply in the case of new section 223B. (Under the 28-day affirmative procedure the order could if necessary be made and come into force before approval, but would lapse if not approved by both Houses within 28 days).

Banknote Regulations and Rules — clauses 212 & 213

10.  Part 6 of the Bill repeals the provisions currently governing the issue by banks of banknotes in Scotland and Northern Ireland, and enacts new provision, but only for those banks already allowed to issue banknotes. The new regime for those banks is to be contained in provisions which will be divided between regulations ("banknote regulations") to be made by HMT by affirmative statutory instrument, and "banknote rules" to be made by the Bank of England. The powers to make banknote regulations are, as HMT acknowledge in paragraph 555 of the memorandum, broadly stated and cover all aspects of "the treatment, holding and issuing of banknotes" (clause 212(1)). A wide range of more specific provision may be included in the regulations by virtue of clauses 214-7, and provision may be made for penalties and civil proceedings for non-compliance under, respectively, clauses 219 and 221. In view of the affirmative procedure we do not believe this delegation is inappropriate.

11.  However, the arrangements for the allocation of provisions between regulations and rules seem unsatisfactory. Clause 213(2) provides that "banknote regulations may require or permit banknote rules to do anything which banknote regulations may do". On its face, this is a wholly unqualified power of sub-delegation. Even though the actual drafting of Part 6 (for instance, the references to "regulations or rules" in clauses 215 and 216) leaves uncertain the extent to which this is intended, there are powers exercisable in banknote regulations (for example, the power in clause 219 to enable the Bank of England to impose apparently unlimited penalties) which we would not expect to be capable of being exercisable in an instrument which did not require affirmative approval. We recommend that the scope of the power in clause 213 to make banknote rules should be narrowed, at the least to remove the power for banknote rules to impose unlimited penalties.

House of Lords Bill [HL]

12.  This private member's Bill establishes a Commission to make recommendations for the creation of life peerages. We reported on the almost identical Bill introduced early in the last Session (First Report, Session 2007-08, HL Paper 11).

13.  The main criteria for recommendation are set out in clause 5(3), and the intention of the Bill is that additional criteria may be proposed (and applied) by the Commission. Proposed criteria are to be subject to a negative procedure. When we considered a similar provision in last Session's Bill, we accepted that, if the role of the Commission is to propose criteria, then someone needs to approve them and that it was appropriate for Parliament to perform that role. We did however conclude that the affirmative procedure would be more appropriate for the approval of the criteria, and that this might be achieved by requiring a Minister to lay before both Houses a draft order containing the proposed criteria.

14.  Clause 5(5) of the present Bill responds to that recommendation by including a requirement that the proposed criteria be laid before both Houses by a Minister, but in the form of an order subject to annulment. We express again our view that the affirmative procedure is the more appropriate mechanism for signalling both Houses' approval of additional criteria proposed under clause 5(3).

House of Lords (Members' Taxation Status) Bill [HL]

15.  This private member's bill does not delegate legislative power.

Local Democracy, Economic Development and Construction Bill [HL]


16.  This Bill is divided into 9 Parts, and covers topics ranging from local authority electoral arrangements to construction contracts. There is a memorandum from the Department for Communities and Local Government about the delegated legislative powers in the Bill, printed at Appendix 2. In addition to the provisions mentioned in the memorandum there is also a delegation to the National Assembly for Wales in clause 29.

Petition schemes

17.  Chapter 2 of Part 1 of the Bill requires local authorities to make schemes to handle and respond to petitions made to them by people who live, work or study in the authority's area.

18.  Clause 20 provides for the extension of these petition provisions to other bodies, including for example parish councils in England, community councils in Wales, the Greater London Authority and Transport for London. An extension to any or all of these bodies would be effected by order subject to the negative procedure. The Committee is content that the negative procedure is appropriate for the extension of the petitioning scheme to major bodies such as the Greater London Authority, but considers that its extension to much smaller bodies, with far more limited resources, has the potential to be more controversial and should require a greater degree of Parliamentary scrutiny. We therefore recommend that any order by the Secretary of State under clause 20 to extend the petition provisions to all parish councils (or a category of them) should be subject to the affirmative procedure. The same consideration would apply to an order by the Welsh Ministers for community councils in Wales as regards the procedure in the National Assembly for Wales.

Electoral changes — clause 53

19.  Clause 53 enables the Boundary Committee for England to give effect by order to recommendations for electoral changes. By virtue of paragraph 9 of Schedule 1 to the Bill, the Boundary Committee is able to delegate any of its functions to any of its members, employees, committees or sub-committees. There is no prohibition on delegation of the function of making orders under clause 53. This would change the current position under paragraph 9(2) of Schedule 1 to the Political Parties, Elections and Referendums Act 2000 (repealed by Part 3 of Schedule 7 to the Bill), which prevents the Electoral Commission from delegating their existing powers to make electoral changes orders. We recommend that a similar prohibition on delegation should apply to the Boundary Committee's powers under clause 53.

Regional strategies — clause 79 (and clause 65)

20.  Part 5 of the Bill is about regional strategies, which will replace the existing regional spatial strategies and regional economic strategies. Clause 79 enables the Secretary of State to give to any person exercising functions under Part 5 of the Bill directions (not subject to Parliamentary procedure) in relation to the exercise of those functions. The directions may be of a general nature (clause 79(3)). Paragraph 60 of the Department's memorandum explains that the power to give directions might be used generally or in particular cases, and points to a similar power in section 7(2) of the Regional Development Agencies Act 1998. It is true that section 7(2) of that Act enables directions to be given to a Regional Development Agency in relation to its functions of formulating etc. a strategy. But the current position for regional spatial strategies is that provision in connection with the exercise by any person of functions relating to the strategies is made by regulations by the Secretary of State subject to negative procedure under section 11 of the Planning and Compensation Act 2004.

21.  Clause 74 provides for matters of procedure, etc. for the revision of strategies to be dealt with by regulations subject to negative procedure. Those matters are potentially of less significance than general directions under clause 79 which could impact on the content of the strategy. Accordingly, we recommend that directions under clause 79 which are intended to apply generally to all responsible regional authorities (or to categories of them) should also be contained in regulations subject to negative procedure. Similar considerations apply to the powers of transfer in clause 65(6).

Economic Prosperity Boards (EPBs) — clause 86

22.  Clauses 83 to 97 are about Economic Prosperity Boards (EPBs). Paragraph 159 of the Explanatory Notes explains that an EPB is intended to have functions relating to the economic development and regeneration of its area.

23.  In the clauses a number of powers are conferred on the Secretary of State to establish and make provision about EPBs, all by order subject to affirmative procedure. In general we do not consider any of these powers inappropriate, but there is a question surrounding the extent of the power under clause 86. This enables an order to "provide for a function of a local authority that is exercisable in relation to an area within an EPB's area to be exercisable by the EPB in relation to the EPB's area". Though under clause 94 the Secretary of State must consider that establishing an EPB will improve the exercise of statutory functions relating to economic development and regeneration in the area, clause 86 does not expressly limit the functions which may be made exercisable by the EPB to those relating to economic development and regeneration. Clause 86(2) provides that a function may be included in an order only if he considers that it can be appropriately exercised by the EPB. Nevertheless, if the intention is (as mentioned in the Explanatory Notes) that the functions of an EPB should relate to economic development and regeneration, we consider there is a good case that the limitation should be expressly set out in clause 86(1), and not left implicit.

Property transfers — clause 110

24.  Clause 110 contains an unremarkable power for the Secretary of State to make an order transferring property, rights and liabilities. The order is subject to affirmative procedure. Orders of this type are not normally subject to this high level of Parliamentary scrutiny and there is no explanation in paragraph 79 of the Department's memorandum. Unless the intention is always to combine the order under clause 110 with an order under any of clauses 86 to 102, we recommend that the order-making power under clause 110 should be subject to the negative procedure.

Dehybridising provision — clause 112(4)

25.  Clause 112(4) disapplies the hybrid instrument procedure for orders under Part 6. We draw this to the attention of the House, so that the House may consider whether the various consultation or consent procedures provided by the Bill are sufficient.

Marine and Costal Access Bill [HL]


26.  This large Bill is in eleven Parts. Its key elements include the introduction of a new system of marine management; changes to the way fisheries are managed; and provisions to facilitate recreational access to the English and Welsh coast. The Bill was published in draft in the last Session, and the Committee made some observations on delegated powers to the Joint Committee established to scrutinise the draft Bill. Some of those comments have been reflected in this Bill, and we do not mention them again here. This Bill also contains several new additional delegations of legislative power. Most of the delegated powers are explained in a memorandum submitted to the Committee by the Department for Environment, Food and Rural Affairs, printed at Appendix 3. We first draw to the House's attention the new delegated powers which seem to be of significance, and we then return to one of our earlier observations on the draft Bill.

New delegated powers

Provision for Appeals — clauses 70 & 105

27.  Clause 70 requires the 'appropriate licensing authority' (the Secretary of State, the Scottish or Welsh Ministers or the Department of the Environment in Northern Ireland) to provide by regulations for a right of appeal against a decision under clause 68 on an application for a marine licence, which is required by a person before he may carry on a licensable marine activity (listed in clause 63). By virtue of subsection (3), the regulations may make provision about certain procedural matters, but they may also provide for the powers of any person to whom the appeal is made. In paragraph 102 of its memorandum, the Department explains that the negative procedure is thought to be appropriate here because the same procedure applies for the regulations under clause 66 which make procedural provision about applications for, and the grant of, licences.

28.  Almost identical provision about appeals is made by clause 105, which requires regulations to provide for appeals against certain notices (for instance, a notice under clause 69 to vary, revoke or suspend a marine licence). In paragraph 140 of its memorandum, the Department explains that provision about appeals under clause 105 should attract the affirmative procedure 'since the appeal process will have wide implications for operators'. (In fact, despite what the Department says in the memorandum, the powers in clause 105 will attract only the negative procedure unless clause 306(7) of the Bill is amended.)

29.  We do not dissent from the Department's view that the affirmative procedure is appropriate for regulations under clause 105. But in the absence of any clear reason why the affirmative procedure should be appropriate for appeals against the variation of a licence but not for appeals against the refusal of a licence, the same procedure should apply for regulations under clause 70, and we recommend accordingly.

Delegation of functions: Monetary penalties — clause 95

30.  Clause 95(1) enables a licensing authority to delegate designated functions of its own or of an enforcement authority to a designated person by negative order. That power is amplified by subsection (2), which allows powers to impose monetary penalties to be conferred on the delegate. When made exercisable by enforcement authorities themselves, those penalty powers must be set out in orders made under clauses 90 and 92 (to which the affirmative procedure applies). Paragraphs 130 to 132 of the memorandum do not expressly mention the additional power conferred by clause 95(2). It would however seem that an order made in reliance on it might make similar provision in relation to the designated person as would be made under clauses 90 and 92 in relation to an enforcement authority. We also note that the Department states in paragraph 131 of its memorandum that the powers in clause 95 enable the licensing authority "to prescribe in more detail how each of the functions should be performed". We therefore recommend that an order under clause 95 should attract the affirmative procedure, as do orders under clauses 90 and 92.

Coastal access — clause 288

31.  Part 9 of the Bill makes provision for recreational access to the English and Welsh coast. In relation to England, clause 288 provides that Natural England must prepare a scheme setting out the approach it will take when discharging its duty under the Bill to facilitate coastal access, and submit the scheme to the Secretary of State. The Secretary of State is then entitled to approve the scheme (with or without modifications) or reject it and to ask Natural England to submit a new scheme. The Committee considers that, in view of the likely importance of, and interest in, the coastal access scheme, once a scheme submitted by Natural England has been approved, the Secretary of State should lay the scheme before Parliament.

Works detrimental to navigation — clause 304

32.  Clause 304 inserts a new Part 4A into the Energy Act 2008 to provide for the control of certain operations (for instance the construction of a submarine oil pipeline) which might obstruct or endanger navigation. New section 79N provides for the appointment of inspectors, and enables the Secretary of State to make in regulations provision about their powers (which may include powers of entry) and provision creating offences. New section 79P enables the Secretary of State to provide by order that any or all of new Part 4A is to apply with any modifications to operations in the Scottish inshore region. In paragraph 328 of its memorandum, the Department explains that the affirmative procedure is appropriate for the power conferred by new section 79N because equivalent powers in the Energy Act 2008 are affirmative; but the memorandum does not mention the power conferred by new section 79P.

33.  In view of the government's intention that the affirmative procedure should apply, and the precedents in sections 13 and 27 of the Energy Act 2008, we agree that the delegation in new section 79N is not inappropriate. As respects the power in new section 79P, it is relevant that 'modify' is defined in section 106 of the Energy Act 2008 to include 'amend', and that it is at present unclear to what extent the government intend that the regime to be applied to the Scottish inshore region should differ from Part 4A of the Bill. With that in mind, we recommend that the affirmative procedure should apply to such an order. We also note that, as drafted, the Bill appears to make no amendment to section 105 of the Energy Act 2008 to provide for the affirmative procedure for regulations under new section 79N.

The Committee's earlier recommendations

IFC Authorities: Membership — clause 147(3)

34.  Clause 145 provides for the establishment in England of inshore fisheries and conservation authorities ('IFC authorities'), and clause 147 deals in detail with the provision that the orders may make about membership of IFC authorities. Clause 147(2) requires that persons appointed by the Marine Management Organisation as members under subsection (1)(b) must be acquainted with the needs and opinions of the local fishing community and have knowledge of or expertise in marine conservation. Subsection (3) enables subsection (2) to be amended by negative order.

35.  In our consideration of the draft Bill we invited the Department to make the case for the negative procedure. In paragraph 186 of their memorandum the Department now explain the purpose of the power as being to "provide flexibility … if the nature of the marine environment changes", although the power would enable either or both of the two limbs of subsection (2) to be removed entirely. The core functions of an IFC authority are enshrined in clauses 149 and 150 in terms of inshore fisheries and marine conservation. Given in particular that the Joint Committee stressed in its report the importance of IFC authority members having local knowledge and experience, it is not clear why the power to remove these qualifications has been retained. We draw to the attention of the House the possibility that the power could be exercised so as to remove the requirement that IFC authorities must include members with experience that is particularly relevant to the authorities' core functions. If the House finds the power appropriate, we recommend that the affirmative procedure should apply.

Draft Legislative Reform (insolvency) (Advertising Requirements) Order 2009

36.  This draft Legislative Reform Order was laid by the Department for Business, Enterprise and Regulatory Reform (BERR) on 4 December 2008, under the Legislative and Regulatory Reform Act 2006 (the LRRA). An explanatory document was laid along with the Order.

37.  The Order will amend the Insolvency Act 1986 (the 1986 Act) in relation to the advertising regime for voluntary liquidations. Under the 1986 Act, where the liquidator of a company in members' voluntary liquidation believes that the company will be unable to pay its debts in full within the period stated in the directors' statutory declaration, the liquidator must summon a meeting of creditors. Notice of the meeting must be sent to each of the known creditors. In addition, the meeting must currently be advertised both in the Gazette and at least 2 newspapers circulating in the locality in which the company's principal place of business is situated. The purpose of this Order is to remove the requirement to advertise in 2 local newspapers, and replace it with discretion for the liquidator (or company) to undertake any additional advertising that they see fit.

38.  As required under the LRRA BERR have consulted on the proposal, and report that the overall response was favourable (paragraphs 34 to 44 of the explanatory document). However, the Newspaper Society objected, principally on the grounds that the proposal underestimated the effectiveness of local newspaper advertisements in alerting creditors. BERR contend that the requirement to place newspaper advertisements for every liquidation, without consideration of the value derived from the expenditure on those advertisements, represents a disproportionate financial burden on funds that might otherwise be distributed to creditors (paragraphs 41 and 42). Under the proposal liquidators (or the company) will in any case be given the discretion to undertake whatever additional advertising seems most appropriate in the circumstances, which might include advertisements in local newspapers or other media.

39.  The Committee is content that the Order meets all the tests in the LRRA, is not otherwise inappropriate for the Legislative Reform Order procedure, and should be allowed to progress as an affirmative instrument, as proposed by the Department.

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