My Lords, this group of amendments contains a number of amendments tabled in relation to the Delegated Powers and Regulatory Reform Committee’s report on the Bill, which I received and, like all noble Lords, read with great interest. I thank the noble Lords, Lord Fox and Lord McNicol, for their amendments. I was also going to thank the noble Baroness, Lady Bennett, but sadly she is unable to join us today, which of course is a real tragedy for us all. Nevertheless, we have the benefit of the noble Baroness, Lady Jones, in her stead, which is wonderful for us.
I wholly echo the sentiments expressed by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Judge, on the vital role that the DPRRC plays in supporting the work of your Lordships’ House. I am grateful to my noble friend Lord McLoughlin and his committee for their scrutiny of the Bill.
As I stated at Second Reading, I am very well aware of the strength of feeling across the House on the provisions in the Bill highlighted today. I was expecting many of the speeches that were given. I am sure that noble Lords are aware that my right honourable friend the Lord President of the Council, Jacob Rees-Mogg, has also taken an interest. He recently wrote on this issue to my noble friend Lord McLoughlin and the previous chair of the committee, my noble friend Lord Blencathra, noting that the Government are taking its findings into consideration. While at this stage I cannot commit to changing anything in the Bill, I will take away the comments of noble Lords for due consideration. It is important that we get this legislation right and that the powers are proportionate and measured, as well as conducive to effective subsidy control.
Let me start with some thoughts on Amendment 15 to Clause 10. I previously noted that Clause 10 concerns the creation of subsidy schemes and streamlined subsidy schemes. A streamlined subsidy scheme must be laid before Parliament before it is made, or modified, by a Minister of the Crown. Streamlined subsidy schemes offer public authorities a swifter route to demonstrating compliance for categories of subsidies at especially low risk of causing market distortions, that promote UK strategic policy objectives and which the Government judge to be compliant with the subsidy control principles.
This amendment would require streamlined subsidy schemes to be made or modified by regulations subject to the negative procedure. Indeed, the noble Lord’s amendment is in line with the recommendation made by the DPRRC in its report. The Government believe that Clause 10 sets out a proportionate level of parliamentary scrutiny for streamlined subsidy schemes. The regulations will be laid before Parliament both when they are made and when they are amended. I also intend to engage with the devolved Administrations, other public authorities, and the experts in the subsidy advice unit on the development of these schemes.
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I do not believe that it is appropriate to make streamlined subsidy schemes by way of regulations. These schemes will be technical, detailed documents, which are not well suited to being drafted as legislation. It is essential that they are drafted in such a way, and
with a level of detail to ensure, that they are understood clearly by small public authorities and by lay persons and technical experts, as well as by lawyers.
I trust that the several illustrative products we published last week demonstrate to the Committee the nature of the streamlined subsidy schemes, and illustrate that they would not easily be achievable by means of a statutory instrument. The Government will also, in sufficient time ahead of publication, publish further details on how streamlined subsidy schemes will be monitored, evaluated and updated.
I recognise the importance of having sufficient parliamentary oversight of the subsidy control regime as a whole, and of having appropriate scrutiny mechanisms for the streamlined subsidy schemes. I am happy to consider this point further.
On Amendment 26, Clause 16 provides a list of 10 countries defined as marketable risk countries. The clause sets out that the Secretary of State may give a direction, which must then be laid before Parliament, that a country on this list should not be treated as a marketable risk country where the conditions in subsection (5) are met. The Secretary of State must revoke any direction where those conditions are no longer met. Marketable risk countries—such as, for instance, the United States or member states of the EU—have higher levels of private insurance market capacity, such that government export credit support is, in our view, not appropriate. The general approach is that export credit insurance cannot be offered by UK Export Finance to UK enterprises for business with customers in marketable risk countries. I am sure that noble Lords would support that principle.
The noble Lord’s amendment would require designations to be made by regulation, not by direction. The Government’s view is that rapid action to amend the list of marketable risk countries may be necessary in the event of any sudden changes in economic circumstances. A direction from the Secretary of State, as opposed to regulation, would enable the Government to act swiftly to amend the list of marketable risk countries. I reiterate that I recognise the strength of feeling among noble Lords on this matter, and I undertake to consider it further.
Amendments 30 to 32 were tabled by the noble Lord, Lord Fox. Their purpose is to remove the ability of the Treasury to amend Clauses 25, 26, and 27 by regulations so as to alter the meaning of “deposit taker”, “insurance company” and “insurer” respectively. The effect would be that, in instances where those definitions need to be altered, the Treasury would have to do so through primary legislation rather than regulations. I am afraid I must also reject these amendments. The ability of the Government to amend these definitions to remain up to date and effective is an important one. The Government must be able to reflect any future changes resulting from the continued evolution of the financial sector.
It is not uncommon for primary legislation to give the Government the power to amend definitions by regulations. Instances can be found in financial services and non-financial services legislation. For example, there are delegated powers in Section 355 of the Financial
Services and Markets Act 2000, where the Treasury has the power to specify the meaning of “insurer”. Although there are no plans to do so at this stage, it is vital, in an area of law with a nexus to financial regulation and the UK’s international obligations, as is the case with the Bill, that the Government are enabled to update definitions. The ability to amend these definitions by secondary legislation provides a more effective and faster tool to do this than primary legislation. I emphasise that the power itself is very narrow, in so far as it relates only to those definitions of institutions captured by the requirements. Furthermore, any changes in definitions will be effected by affirmative procedure, ensuring that there is proper parliamentary scrutiny, and be subject to consultation with the Financial Conduct Authority and the Prudential Regulation Authority.
Lastly on the amendments, I turn to perhaps the main event of this grouping: Amendment 50 to the famous Clause 47. The purpose of this amendment is to remove the exception to the duty of publishing a financial stability direction. Again, I understand that the rationale for this is to address the DPRRC’s concern that the use of this exception would remove public and parliamentary scrutiny of the use of this power. The effect of this amendment would be that the Treasury no longer had the explicit ability to delay publication of a financial stability direction where
“that publication … would undermine the purpose for which it is given”.
Again, I must respectfully reject this amendment. The exception under Clause 47(7) serves a meaningful purpose in ensuring that the Treasury can delay publishing a direction while publication could undermine the purpose for which that direction was given in the first place. Furthermore, I do not believe that the removal of Clause 47(7) is necessary to ensure transparency over the use of direction. Subsection (7) was not created with the intention of allowing financial stability directions to be kept secret permanently. We agree that this would not be appropriate; indeed, as the noble and learned Lord, Lord Hope, suggests, subsection (6) is intended to deal with this very aspect of transparency.
There are circumstances where it would clearly be necessary to delay the publication of a financial stability direction. Publishing a direction effectively discloses that financial assistance has been given and therefore undermines the ability to grant assistance on a covert basis. For example, the ability to delay disclosure is critical in instances where the Bank of England provides liquidity support to stabilise a failing firm. In situations such as this, disclosure of the direction could further damage confidence in a firm, exacerbate a liquidity stress, or give rise to financial and market-wide instability—including further firm failures—unrelated to broader market fundamentals.