Banking (Special Provisions) Bill

My Lords, I am speaking in my capacity as chairman of the Delegated Powers Committee and only in that capacity. It is not normal practice for the chairman of the Delegated Powers Committee to speak in debates on matters on which the committee has reported, but the committee’s reports are usually published in time for Members of your Lordships' House to study them carefully before we get to the Committee stage of a Bill. That is not possible in this case. We received copies of the Bill and the Treasury memorandum yesterday. The committee met at 10.30 this morning. Our report was published a couple of hours ago and is now available in the Printed Paper Office, though very few noble Lords will have had time to look at it. I was therefore authorised by the committee to speak in order to inform your Lordships of our conclusions and our reasons for reaching them. With one exception, which I will come to later, we were satisfied that all the delegated powers were appropriate. What deeply concerned us, however, was that all the powers in the Bill will require only the negative resolution procedure. The exercise of a power to nationalise banks or take over their assets will, particularly in the case of major banks such as Northern Rock, be extremely important and in all probability extremely controversial, as in this case it plainly is. Your Lordships’ House, and I imagine also the House of Commons, would normally expect to enjoy a level of scrutiny provided by the affirmative procedure for any order exercising those powers. Under the Bill as it now stands, however, they do not get that. The Government’s reasoning for this is set out in paragraph 23 of the memorandum sent to the Delegated Powers Committee, which states: "““The negative resolution procedure is considered most appropriate for orders under clause 3. Any initial order transferring the securities of a deposit-taker is likely to need to be made urgently, at short notice, possibly within days ... A requirement for each House to approve a draft order would cause a delay (particularly where Parliament was in recess, for example) which would undermine legal certainty and the confidence of consumers and the markets and could create, or impact adversely on, existing financial instability. Any form of affirmative procedure, for example a requirement for a resolution within 28 days of the order being made, risks uncertainty during that period as to the effectiveness of the transfer or other provision. The serious practical, legal and economic consequences … of being required to unwind a transfer as complex as that of a deposit-taker where a 28-day order is not subsequently affirmed strongly militates against the use of such a procedure””." That sounds very convincing. However, the memorandum completely misunderstands the position. In fact, the affirmative resolution procedure would normally be much quicker in getting certainty. If a draft order is laid before Parliament, the Government, with their control of the timetable, can get the order debated and approved unconditionally on the next working day. If the negative resolution procedure is used, the order, when it is made, has hanging over it for 40 working days the possibility of annulment. The annulment of an order would not undo what has already been done so it would not give full effect to the wishes of Parliament but would cause confusion and possibly chaos. The difficulties envisaged in the Treasury memorandum can indeed be overcome. One difficulty is that in your Lordships' House an affirmative resolution order, but not a negative resolution order, is subject to a hybridity procedure, which would delay its approval. That is not given as a reason by the Treasury in its memorandum but it may well be in its mind. However, it would be simple—and has been done on a number of occasions—to amend the Bill to include in it a provision that orders made under it shall not be treated as hybrid orders, even if they technically are. Indeed, the noble Lord, Lord De Mauley, has already put down an amendment to that effect. Another possible cause of delay is that under Standing Order No. 73 of your Lordships' House no Motion to approve an affirmative instrument can be moved until it has been reported on by the Joint Committee on Statutory Instruments, and has been laid before the House. But in the case of urgency, Standing Order No. 73 can be, and has been, suspended. More difficult problems arise if the urgent action needs to be taken during a recess. That is in practice likely to arise only during the Summer Recess. There are two ways of dealing with that. One is by making use of the power under Clause 14 to make retrospective orders backdated to the date on which the Treasury declared its intention to make the order. For example, it could be used if the Chancellor of the Exchequer published a draft order on Friday, backdated it to that date and obtained the approval of both Houses on the draft early next week. Alternatively, this problem could be dealt with by inserting into the Bill a power to make an affirmative order having immediate effect, if it is strictly necessary to do so, but lapsing after 28 days unless it has been approved by both Houses. This would be no worse than making a negative order which would remain subject to annulment for 40 days. The committee concluded that the problems of delay are at least as bad, and in many circumstances worse, under the negative procedure than under the affirmative procedure, and that the possible urgency of order-making is not a ground for deciding which procedure should be used. Let me express the views of the committee on the specific powers in the light of that conclusion. We had no hesitation in concluding that orders made under Clauses 3, 4 and 6 should be made by the affirmative process. We also believe that provision for compensation provided by orders under Clauses 5 and 7 are likely to be contentious and need a level of scrutiny provided by the affirmative procedures. Clause 11(1) is the only provision in the Bill where we do not think that delegation is appropriate. Clause 11(1) is extremely wide: "““The Treasury may by order make such modifications of any enactment as they consider appropriate for or in connection with facilitating the provision of relevant financial assistance by the Bank of England to building societies””." It is so wide as to say that it is in effect what is usually described as a skeleton power. Clause 11(3) provides a non-exhaustive list of provisions under the Building Societies Act 1986 that can be modified. Clause 11 is discussed in paragraphs 60 to 64 of the memorandum, which is printed as an annexe to our report. Paragraph 62 states: "““The Treasury intends to make an order under that power as soon as possible””." It must be aware what the terms of that order are going to be. There should therefore be no difficulty in replacing Clauses 11(1) and Clause 11(3) with a single provision giving exhaustive power to modify the Building Societies Act 1986 or any other statutes that will need alteration for the purposes of the proposed new order. The width of Clause 11(1) is neither necessary nor appropriate. As I said, in effect it is a skeleton power to create new legislation with none of the detail provided for powers under Clauses 3 and 6. Any consequential amendment of the statute not listed in Clause 11 could be made under the power to make consequential amendments under Clause 12. Even if the alteration just suggested is made, the affirmative procedure here is necessary. This is a very important power whose exercise plainly needs the affirmative procedure. I note that the powers under Clause 11 are not limited to 12 months, unlike those in Clauses 3 and 6, because no sunset clause applies to Clause 11. Finally, there is Clause 12. So far as it creates powers to modify or disapply provisions in primary legislation, these are in effect Henry VIII powers and should in accordance with usual practice be subject to the affirmative procedure. There is nothing in the recommendations of the Delegated Powers Committee, except to that extent in relation to Clause 11, which will reduce the powers of the Government to make orders. What our recommendations will do is increase the ability of both Houses to scrutinise the orders properly, and it is plainly desirable that that should happen. The Treasury’s objection to the use of the affirmative procedure is, as I said earlier, based on a misunderstanding of how that system works. I hope that the Government will accept our report and will table amendments that will make that the procedure under the Bill. I have noted that there is already an objection to Clause 11 standing part and amendments have been tabled to Clause 13, which go somewhat further than the committee’s report. I express the thanks of the committee to our Clerk and legal advisers for their remarkable work, which was done under great time constraints.