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Commons Chamber

Volume 464: debated on Friday 19 October 2007

House of Commons

Friday 19 October 2007

The House met at half-past Nine o’clock

Prayers

The First Deputy Chairman of Ways and Means took the Chair as Deputy Speaker, pursuant to the Standing Order.

I beg to move, That the House do sit in private.

Question put forthwith, pursuant to Standing Order No. 163 (motions to sit in private):—

Point of Order

On a point of order, Madam Deputy Speaker. In the light of the news overnight that the Prime Minister has sold out British interests even more quickly than expected in Lisbon in the

“Last Supper for Britain as an independent sovereign state”

in the words of one of our newspapers this morning, have you received notice that the Government intend to make a statement to the House today?

I thank the hon. Member for that point of order. I have not received notice from the Government and, of course, it is entirely up to them whether they choose to make a statement to the House.

Orders of the Day

Building Societies (Funding) and Mutual Societies (Transfers) Bill

Lords amendments considered.

Clause 3

Transfers to subsidiaries of other mutuals

Lords amendment: No. 1.

The amendments arise out of difficulties that we experienced in tabling appropriate clauses when the House first considered the Bill. They do not affect the first part of the Bill, which extends the right of building societies to greater access to capital markets. We are not considering that today.

However, the second part of the Bill was intended to allow all mutual financials to merge with one another without either party losing their mutuality. Until now, if, for example, a building society wished to merge with a friendly society, one of them would have to lose its mutuality en route. That spoils the basis of mutuality.

The Bill allows financial mutuals to merge without either side losing its mutuality. That applies to all mutuals with the exception of credit unions—and, sadly, at the time when the measure left this House, of mutual insurers. The reason for that was that mutual insurers frequently traded as companies and were therefore caught by European Union and European economic area company legislation. It was not possible in the time available for the Bill’s first stages to find a draft wording that would cover that eventuality and be orderly. Happily, after the measure left this place, the Royal London mutual instructed Herbert Smith and Company, which instructed counsel. Between them they managed to produce the wording that we are being asked to consider this morning. Thanks to what happened in another place—I pay tribute to my noble Friend Lord Naseby—if the amendments are accepted, all the original objectives of the Bill will have been achieved.

In the light of what my hon. Friend has just said, can he confirm whether the new ruling will be subject to a potential test case in the UK courts or the European courts?

I do not think that there is any likelihood of the ruling being contested in either group of courts. I cannot absolutely confirm that, but I believe that the UK courts would be adequate.

Paragraph 5 of the explanatory notes, contained in the helpful commentary on the Lords amendments that my hon. Friend has produced, says that Lords amendments Nos. 1 to 3 ensure that

“transfers of mutual societies can apply where the transfer is to a subsidiary of an EEA mutual (which could include a mutual insurer) as well as where the transfer is to a subsidiary of another UK mutual.”

I would be interested to hear whether that works the other way as well. Can that apply to transfers from a subsidiary of an EEA mutual? We have all had experience of what seems to be a one-way process, whereby European organisations can acquire British interests, but we do not seem to be able to acquire their interests in return if we wish to.

Certainly the provisions would enable that to be the case, but the process would still be subject to the legislation covering the other EEA mutual, following on from the principle of subsidiarity, which I know my hon. Friend keenly supports.

I am grateful to my hon. Friend for giving way again. Having answered my question rather succinctly, will he now address an even more significant issue—the ruling out of the use of hybrid instrument procedures? That was touched on in the other place, but can he give any good reason why the hybrid instrument procedure should not apply in the case of provisions under the Bill?

Yes, because that will not actually occur. If my hon. Friend is concerned about that, he should know that the Bill is simply an enabling Bill. It will enable the Treasury to bring forward proposals from time to time and it will be subject to the affirmative procedure. If he were concerned about an issue, no doubt he could raise it at the appropriate time, but we do not think that the hybridity issue will arise. Because of that, we want to make the position clear in the legislation, rather than having to deal with it at a later date.

But surely if the hybridity issue will not arise, there is no need for Lords amendment No. 1. If the hybridity issue arises, that will only be because private interests may be being prejudiced as a result of a transfer. If private interests are going to be prejudiced as a result of a transfer, surely it is right that the hybrid instrument procedure in the other House should be applicable.

We do not think that that can arise, but we are establishing that beyond peradventure. However, no doubt the Minister will deal with the issue when she addresses the House—the point is very technical, as my hon. Friend will be aware.

Presumably the progenitors of the amendments, which I understand from the hon. Gentleman to be the industry itself, will have considered the hybridity and European issues. Will he therefore give an indication of whether either or both of those considerations were discussed with the organisations from the sector that were involved in formulating the amendments, and if so, what their view was?

All the proposals were discussed with the industry quite extensively and were of course dealt with extensively by the Treasury law team. We are all happy with what is before us and I am sure that the Minister will confirm that.

My hon. Friend has not dealt with the Channel Islands and the Isle of Man. Why does he think it important that the provisions should be extended to the Channel Islands and the Isle of Man?

With his usual perceptive nature my hon. Friend will have noted that that issue arises in the next group of amendments, not this one. No doubt we shall deal with it in time—I am sure that Madam Deputy Speaker would be unhappy if I were to deal with it now.

This complex group of amendments has been thoroughly tested before being brought back to the House. We are happy that it achieves the objectives that we all wanted when the original Bill was first introduced in this place. We are now satisfied that the group does just that and no more. I therefore recommend the amendment to the House.

I want to make a few brief remarks about the group. First, however, I congratulate my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) on his success in navigating his third Bill on to the statute book—[Hon. Members: “Fourth.”] My hon. Friend’s record improves by the minute.

The Bill is important and the amendments in the group address a gap that was left unfilled after Report and Third Reading earlier this year. My hon. Friend said that the amendments in the group enable mutual insurers to take advantage of the provisions of the Bill. They also extend the Bill to other mutuals in the EEA. I want to touch on some of the consequences of that, because it potentially brings within the ambit of the Bill a vast range of co-operatives in other EEA member states. We need to understand precisely what the impact could be of Lords amendment No. 3, which introduces the definition of an EEA mutual society.

Before I deal with that issue in greater length, however, I turn to Lords amendment No. 1, which deals with hybridity, which my hon. Friend the Member for Christchurch (Mr. Chope) raised in an intervention on my hon. Friend the Member for Bournemouth, West. As I understand it, the issue arises in part because a number of mutuals are established by private Bill. There was a concern that if an order was introduced to deal with the merger of two mutuals, one of which had been established under a private Bill, the hybrid procedure might apply. Lords amendment No. 1 removes that risk by ensuring that where an order might be treated as a hybrid instrument, another order can be made to ensure that it proceeds through the House without the hybrid instrument process applying.

In the debate on the matter in the other place, Lord Evans of Temple Guiting asserted that the Government believed the amendment to be necessary,

“because an order under Clause 3 could make provisions giving members of a transferring mutual membership and other rights in the holding mutual.”

He continued:

“That could require changes to the constitution of the holding mutual. Where the holding mutual has a unique legal form—a private Act of Parliament, for example—that could raise an issue of hybridity. The amendment excludes the hybrid investment procedure so avoiding unnecessary delay and complications in making the instrument.”—[Official Report, House of Lords, 10 July 2007; Vol. 693, c. 1358-59.]

We understand that the hybrid procedure can add delay. It is a thorough process; the hon. Members on both sides of the House who served on the Select Committee on the Crossrail Bill will remember the thorough scrutiny that that hybrid Bill went through. I am concerned that, by losing the hybrid instrument procedure, we will remove a level of protection and parliamentary scrutiny that would otherwise be available to members of a mutual who were dissatisfied with the proposals.

Hybrid Bills provide an opportunity for members of the public to petition a Select Committee and appear before it to express their concerns about the Bill and how it will affect them. That gives the Select Committee an opportunity to amend the Bill. If a member of the public was dissatisfied with a proposal and felt that their rights were being impaired, the hybrid instrument procedure would give them some protection. Will the Minister reassure us on this matter? Why does she think that removing the hybrid procedure is in the interest of the mutuals and their members? It offers protection at the moment, which they would lose if Lords amendment No. 1 were accepted today.

My hon. Friend is on to a good point here. It is significant that the explanatory notes on the Lords amendments make no attempt to justify the proposal that the hybrid procedure should not be applicable when private interests could be jeopardised. I am glad that he is putting the Minister on the spot and asking her to justify a measure that, while not setting a completely fresh precedent, should be used only in exceptional circumstances—namely, the removal of the hybrid instruments that are available to petitioners in the other place.

Order. The hon. Member for Fareham (Mr. Hoban) must reply to the first intervention. Then he might well be willing to take a second.

I am grateful for your guidance, Madam Deputy Speaker.

My hon. Friend the Member for Christchurch makes an important point. The explanatory notes explain clearly what is happening, but they do not explain why it is happening. Considering the Lords amendments this morning gives us the opportunity to give them proper scrutiny and to understand the purpose for which they were tabled. I am sure that the Minister will be able to expound on the merits of removing the hybrid instrument procedure. This debate gives us the opportunity to discuss that point.

Perhaps my hon. Friend the Member for Christchurch (Mr. Chope) has not read the explanatory notes fully. They clearly state:

“If the EEA mutual has a unique legal form that might raise a question of hybridity.”

That could be a problem. Our difficulty is that we do not know what the precise legal form of other EEA mutuals might be. The amendment has been included to overcome that problem.

I am grateful to my hon. Friend for that clarification. The uncertainty about the precise legal form of an EEA mutual—I do not know, for example, what the constitution of mutuals would be in the Czech Republic or any other EU member state—strengthens the need for a clear explanation of why the hybrid instrument procedure should be removed by Lords amendment No. 1; otherwise, a greater degree of uncertainty could be created. I am sure, however, that the Minister will be able to deal with that question.

Does my hon. Friend share my view that there is a distinction to be drawn between the question whether the hybrid procedure is relevant—my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) has suggested that it might be—and the question whether, if relevant, the procedure should be excluded by the provisions of the Bill?

That distinction can clearly be drawn, but I think that my hon. Friend the Member for Bournemouth, West has established why this is an issue. We now need to move on to the second part of the argument advanced by my hon. Friend the Member for Christchurch, and to ask why it is appropriate to remove the hybrid instrument procedure. I have not been privy to the discussions between the very innovative lawyers at Herbert Smith, their counsel and the Treasury, so I rather hope that the Minister will be able to shed some light on both parts of the argument about the hybrid instrument procedure. Why is it relevant, and why should it be removed?

I must point out to my hon. Friend the Member for Christchurch that this is not the only issue that I have with this group of amendments, and I should like to move on to my next point, as I am aware that other hon. Members wish to discuss other business this morning. I want to ascertain whether an order-making power that had been inserted by the amendments would be subject to the negative or the affirmative procedure. My hon. Friend the Member for Bournemouth, West will have a clearer memory of this than I do—indeed, he alluded to it earlier—but my recollection is that, on Second Reading and on Report, he and the Minister’s predecessor, the right hon. Member for Normanton (Ed Balls), emphasised the importance of ensuring that the affirmative procedure was used, as a means of providing further parliamentary scrutiny, given that this is predominantly an enabling Bill.

Lords amendment No. 3 talks about the Treasury specifying by order

“a body which is a cooperative or mutual undertaking”,

but it was unclear from the Bill, when it left this House in April, whether that would fall under the negative resolution procedure. Clause 3(6) of the original Bill seems to limit the affirmative procedure to orders made as a consequence of subsection (10) and to orders that amend paragraph (a) or (b) of subsection (11). We were led to believe that much of the Bill would be covered by the affirmative procedure to ensure that Members in both Houses had the opportunity to debate the issues, rather than relying on Members praying for the annulment of an order. I should be grateful for some clarification from the Minister on whether the order-making powers in proposed new subsection (c) in Lords amendment No. 3 will be subject to the affirmative or the negative procedure.

I want to turn now to the substance of Lords amendment No. 3. As my hon. Friend the Member for Bournemouth, West said, the original clause limited the different types of mutuals that could merge to building societies, friendly societies and industrial and provident societies. The amendment would allow that definition to be broadened to include mutual insurers by making reference to EEA mutual societies. We have broadened the Bill to apply to UK-based mutuals in order to include mutual insurers, and I am concerned that the drafting of the amendment would broaden the range of European co-operatives that could take advantage of the Bill.

Lords amendment No. 3 first defines an EEA mutual society as

“a body which is a European Cooperative Society for the purposes of Council Regulation (EC) No 1435/2003 (statute for a European Cooperative Society)”.

I took the trouble to print out the regulation to see what sort of mutuals might be covered—[Interruption.] I will resist the Minister’s entreaty to read it out, as I am sure that you would rule me out of order for straying from the point, Madam Deputy Speaker. However, I could not find any definition in the regulation that would restrict the type of mutuals that could merge with a UK financial mutual to comparable European financial mutuals. Paragraph (7), for example, states:

“Cooperatives are primarily groups of persons or legal entities with particular operating principles that are different from those of other economic agents. These include principles of democratic structure and control and the distribution of the net profit for the financial year on an equitable basis”.

It goes on to mention the various principles that a European co-operative society or SCE might have and it lists seven. I shall not read them out. If the Minister tempted me to do so, it would be to the regret of the whole House, as there are 24 pages of regulation.

My concern is that these provisions cover all sorts of co-operatives. I spent my holiday in France this year and the village we stayed in had a wine-making co-operative—as, indeed, did all the villages in the local area. However, there is nothing in the current drafting to suggest why wine-making co-operatives in France could not merge with a UK financial mutual. I am sure that that would not happen and it sounds preposterous until we consider the fact that at least one French insurance company that I am aware of owns a vineyard. There could occasionally be a conflict and other French wine-making co-operatives could acquire the taste for owning insurance companies. It may sound a somewhat frivolous point, but it emphasises my concern that Lords amendment No. 3 starts off by enabling any co-operative falling within the scope of regulation 1435/2003 to enter into a merger with a UK financial mutual. The Minister might say that the order-making power in the provision will be used to define the type of mutual that can acquire a UK financial mutual and to rule out the prospect of the French wine-making co-operative from doing so, but I shall be grateful for her assurance that that is indeed the case.

I am following and I am intrigued by the hon. Gentleman’s argument, but what evil is he seeking to prevent? If for some reason a British financial institution wanted to merge with a wine-making co-operative in the south of France, I presume that it would do so only because it thought it was in the best economic interests of the business. I am not completely clear about what precisely the hon. Gentleman is trying to prevent UK financial mutuals from doing. As far as I can see, they are motivated not by a love of wine, but by a love of profit.

Defenders of the mutual societies would say that they are not motivated by a love of profit, but by a love of serving their members. However, the hon. Gentleman makes an important point. In response, the Bill was given a Second Reading on the basis that it would facilitate the merger of different types of financial mutuals rather than create some mutual conglomerate that covers a whole range of activities from selling insurance to selling bottles of wine—pleasurable though that conjunction of activities might be. I am merely seeking clarification from the Minister of how she believes Lords amendment No. 3 will work. Does she envisage that an order will be introduced to define more clearly the types of financial mutuals that are covered by this particular regulation in order to prevent a merger with non-financial mutuals of whatever nature?

There remains one potential anomaly to which I would like to draw the attention of the House. On Second Reading, we had some discussion about the exclusion of credit unions from the legislation. We understood the reasons for that and I shall not depart from that consensus. However, I wonder whether a credit union based in another EEA state could merge with a UK financial mutual whereas a UK credit union could not. I am concerned that there could be an uneven playing field here as between other EEA financial mutuals and credit unions that can merge with UK financial mutuals and UK credit unions that cannot merge. Will the Minister clarify whether, under the order-making power in amendment No. 3(c), other EEA member state credit unions could be excluded from merging with UK financial mutuals? It is important for the House to understand how the amendment will operate in practice.

Does my hon. Friend agree that this is extremely complicated territory and that it would be easier for the House to follow what was happening if the Minister were to intervene on him when he raised these specific points? We would then be able establish whether we were satisfied before moving on to his next point.

My hon. Friend, who has great experience in these matters, makes a valid point. As a gentleman, I would always give way to the Minister if she sought to intervene as my speech progressed. I would certainly hate there to be any unanswered points at the end of the debate.

Perhaps I can enlighten my hon. Friend. I refer him to clause 3(9) of the original Bill, which defines financial mutuals and the categories under which they fall. It is clear that they do not include credit unions—either here or abroad.

My hon. Friend makes an important point. I am not a parliamentary draftsman, so I bow to the experience of those whom he has consulted on this matter. However, I remain keen to ensure that the link between amendment No. 3 and its definition of an EEA mutual society cross-references clearly with the definition in clause 3(9) of a mutual society. Perhaps the Minister will clarify whether that linkage actually exists. It is a powerful point, because if established, it completely removes the problem of the French wine-making co-operative—[Interruption.]

I, too, bow to the greater experience of my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) in these matters, but I wonder whether there is a danger of putting too much faith in the Treasury. Amendment No. 3 (c) clearly refers to

“a cooperative or mutual undertaking of such description as the Treasury specify by order”,

so it could be subject to change at some future point. Whatever the Minister says is the current intention may well be superseded in the future.

My hon. Friend makes an important point, which is why we need more clarity about what is currently intended to be within and without the scope of the amendment. I am sure that the Minister will be able to address the issue in her remarks.

Does my hon. Friend accept that a UK building society, financial mutual or mutual society would also be an EEA mutual society, because the United Kingdom is part of the EEA? Were the amendment passed, we would have two separate definitions: one of an EEA mutual society, and one of a mutual society. Surely the EEA mutual society and the mutual society are the same.

We are getting into some tricky territory relating to drafting and how the clauses interact. I would be concerned if amendment No. 3 overrode subsection (9) such that credit unions, which we agreed were outside the scope of the Bill, could be brought in by virtue of the definition of an EEA mutual. I am sure that the Minister will clarify that eloquently when she chooses to speak in the debate.

Extraterritoriality, whereby a Government seek to regulate activities that take place in other states, is a thorny issue in the financial services industry. I am a little concerned that the way in which amendment No. 3 interacts with clause 3(1) and (2) gives rise to the accusation of extraterritoriality. I am sure that the Minister is also wary of other states trying to regulate extraterritorially in the UK, and we would not want to be accused of introducing the same vice in the Bill.

Clause 3(1) gives the Treasury the power to modify transfer provisions as it thinks appropriate, to facilitate the transfer of business between mutual societies. Subsection (2) indicates the extent to which the Treasury can intervene by referring to membership rights and so on. Will the Treasury be able to stipulate conditions about membership of a new pan-European financial mutual, when an EEA financial mutual acquires a UK financial mutual? The excellent explanatory notes, in reference to Lords amendment No. 6 and the justification of the charging by the FSA, state:

“The extension of clause 3 to EEA mutuals will require certain safeguards to be in place, equivalent to those applicable to domestic mutuals, regarding membership rights in the holding mutual and further demutualization.”

Amendment No. 3 would therefore appear to give the Treasury power to stipulate the future activities of a pan-European financial mutual. I suspect that it would enable the Treasury to say that such a mutual could not demutualise. In the event of further mergers, the Treasury, because of its earlier stipulations on mergers, might be able to restrict the commercial freedom of a mutual as it develops and grows.

My interpretation would be that the Treasury could stipulate what happens within the jurisdiction of the UK but not necessarily elsewhere. Therefore, would not it be expedient for any pan-European organisation to operate as a subsidiary in the United Kingdom, to fulfil any of the British Government’s stipulations, and to operate on a connected but not identical basis in other parts of Europe?

The hon. Gentleman might be right, but we need some clarity. From reading the explanatory notes, I am not sure what the limits will be to the operation of the Treasury’s powers. If his interpretation is right, my concern is met, but that is not clear at the moment. An EEA financial mutual might choose not to merge with a UK financial mutual because it fears that the provisions that the Treasury can make under clause 3(1) could impede its future pan-European operations.

Guidance from the Minister on this point is probably helpful, but I suspect that it is a pretty open-and-shut case. Will the Minister confirm that any legislation that we pass today will only be relevant to activities within the jurisdiction of the British Government—those in the United Kingdom?

The Minister is nodding, so I suspect that she will confirm that the issue raised by the hon. Member for Fareham (Mr. Hoban) is resolved by the fact that the legislation that we pass now will only be applicable to countries directly overseen by the British Government.

The hon. Gentleman might be right, and the Minister might indicate that in her remarks. I would add, however, that people might become members of a pan-European financial mutual, so how do we protect their rights? We have one sort of regulations for European co-operative societies, but the European Commission proposed a harmonised set of rules for European financial mutuals, which might give greater protection on a pan-European basis. Those proposals, however, have been withdrawn.

My hon. Friend is being untypically—or atypically—naive. The situation is no different from that for banks. Santander, which bought Abbey, operates as a pan-European banking conglomerate. Its activities in the UK, however, are regulated by the FSA and the Treasury. There would be no difference between what happened in relation to a commercial bank and what happened in relation to a European-wide financial mutual: what it did in the UK would be regulated by the UK. I would have thought that obvious, and I do not quite understand my hon. Friend’s concerns.

Part of this process is to tease out what will happen when the amendments come into force. When mutuals merge, and a pan-European financial mutual is created, I am not clear how members rights will be protected in that larger organisation. If a mutual becomes a subsidiary of a pan-European mutual, how would that work in practice? I would be content if the Minister gave the House the assurances that the hon. Member for Montgomeryshire (Lembit Öpik) and my hon. Friend the Member for Bournemouth, West have offered. Some clarity would be helpful, however, given that the explanatory notes are not as full as they could be in explaining the matter.

I feel that I should leap to my hon. Friend’s defence in the face of the onslaught from my hon. Friend the Member for Bournemouth, West (Sir John Butterfill). Does he agree that the analogy given by my hon. Friend the Member for Bournemouth, West is not completely accurate, because while the activities of such a mutual relating to customers and consumers will be regulated by the FSA, in the same way as those of any bank, the issue of membership rights is totally different, and does not apply in the case of Santander and Abbey?

I do not want to go too far down this route. My hon. Friend makes an important point. UK shareholder rights are different from those for a shareholder in a Spanish organisation; shareholder rights are not the same across all EEA member states. I am sure that the Minister will clarify the situation.

I think that my hon. Friend is on to a good point. There is a distinction between members of a mutual society and shareholders in a company. The Abbey National used to be a building society with members, whose interests were bought out when it became a company; the company was then taken over by Banco Santander. What we are discussing in this instance is the possibility of a mutual building society being taken over by a European bank which is a company, and members of the building society in the United Kingdom being disadvantaged by what happens in the operation of that organisation elsewhere in Europe.

That is an important point. We may need to distinguish between a member of a mutual as a customer of that mutual and a member of a mutual as “a shareholder” in the organisation. What I am trying to tease out is how that distinction works in the case of a pan-European mutual. Presumably a member of a United Kingdom mutual that has been taken over would expect to remain a member of the pan-European mutual. How will his rights as a member of that pan-European mutual be protected? The Treasury has powers under clause 3(1) and (2) which I understand to apply to a UK merger. I should like to know how they would apply in the context of a merger between, say, a UK and a French financial mutual.

Lords amendment No. 6 gives the Financial Services Authority power to charge fees for any functions conferred on it under the Bill. I wonder whether the Minister has had any discussions with the FSA about the type of charges that might be incurred. Our debate on extraterritoriality demonstrated some of the complexities involved in these matters, and the amendment implies that complex situations could be involved in this instance as well.

My comments have been intended to probe, and to ensure that the House exercises its role of scrutinising legislation. A gap was left at the end of the last Commons stage, and I think it should be filled. We all want financial mutuals to be strengthened, and if the amendments would allow that to happen, I approve of them.

I congratulate the hon. Member for Bournemouth, West (Sir John Butterfill) on his prodigious production of legislation. Given that this is his fourth Bill of the session, I suggest that he is rather more successful at running the country than most Ministers. I also congratulate the hon. Member for Fareham (Mr. Hoban) on identifying so many causes of fear in just six amendments. I do not mean to be rude, but I feel that rather than this being a celebration of detail, there is a hint of paranoia over the possibility that the hon. Member for Bournemouth, West may be trying to slip one under the wire and cause the permanent descent of financial mutuals in the United Kingdom into the hands of the operators of vineyards in France.

The hon. Member for Fareham made an interesting point about hybridity. I should like to know the Minister’s views on that, but it seems to me that Lords amendment No. 1 reduces the risk of application of the instruments relating to hybridity. I can see why that is attractive to the industry: it streamlines the process and, as far as I can see, reduces the opportunity for public debate about such changes. Conversely, if the amendment does indeed work in the private interests of companies, it may not necessarily work in the interests of investors or the public in general. Perhaps the Minister could give us her perspective on whether there will be unreasonable restriction of the opportunity for public participation if the hybrid—instrument procedure is used less often.

I am sure the hon. Gentleman is aware that before any merger of this type could take place, the members of both the mutual societies concerned would have to vote in favour of it. They would be the people most directly affected.

The hon. Gentleman has summarised the single most important defence for any such change. It is true that there will already be a legal requirement for the most direct stakeholders to have an opportunity to vote on the matter. The Minister may wish to put something on the record for future reference in case the legislation is ever applied in controversial circumstances.

I do not share the hon. Member for Fareham’s concerns about Lords amendment No. 3. He spoke of the dangers of a potential merger between a financial mutual in the United Kingdom and a vineyard or wine-making co-operative in the south of France. I observe in parenthesis that judging by the current performance of my endowment mortgage I probably should have invested my money in French wine, so it may not necessarily be a bad decision. Nevertheless, there is a practical and strategic question to be posed.

If for some reason a financial mutual in the United Kingdom decided to merge with a co-operative of whatever sort elsewhere in Europe, presumably the usual channels would have to be pursued and the members of the financial mutual would have an opportunity to vote on it. So if the senior management of a financial mutual were able to persuade its British membership that the merger was indeed in the interests of the organisation, who are we to prevent it from taking place? It is obvious—in my view, at least—that the organisation would still be bound by the regulations as they pertain in the United Kingdom, and that the security of the investments of the stakeholders in the United Kingdom would therefore be preserved. I do not entirely understand what the hon. Member for Fareham fears could happen that would not be in the interests of the organisations concerned, and would not be authorised by the stakeholders.

The hon. Gentleman is right to point out that it would be up to the members of both organisations to decide. I seek clarification of what is intended by the amendment; I do not mean to pass comment on its application.

That is probably a worthwhile request to the Minister. I too hope that she can clarify her understanding of the consequences.

As I have explained, I believe that the issue is resolved by the fact that the British legislation will apply in all circumstances in which the United Kingdom Government have jurisdiction, and will not apply in areas where they do not have that jurisdiction. The hon. Member for Bournemouth, West has already made an analogy with another financial institution that explicitly organises its operations following a takeover of a British-based financial institution in order to ensure that its British operations must adhere to British legislation, and that at the same time it operates according to the regulations as they apply in other European states.

I was interested by what the hon. Member for Fareham and others said about the difficulty of not having a harmonised system of regulations across the European Union as a whole. Far be it from me to suggest that that sounds like a curious plea from those on the Conservative Front Bench for fiscal and legislative harmonisation across the EU, which I personally feel—perhaps this makes me a Eurosceptic—would be taking things too far.

I should hate the hon. Gentleman to leave with an incorrect interpretation of my remarks. I merely drew attention to the absence of such harmonised regulations. We are left with the question of how it can be ensured that the interests of members are protected. I recognise that there are different rights in different member states when it comes to, say, shareholders of public companies. We should encourage the rich variety in the European Union rather than seeking to homogenise it.

I fully understand the hon. Gentleman’s desire to clarify on the record the position of those on the Conservative Front-Bench. For the avoidance of doubt, and because I know from painful experience that irony translates poorly in Hansard, let me reaffirm to the good people of the United Kingdom that I believe that, on balance, I am still more pro-European than the hon. Gentleman.

There is, however, an inescapable reality to do with harmonisation. In respect of any such proposed legislation it will be necessary for judgments to be made in the application of regulations in cases of potential mergers. So long as there is not a harmonised system of regulations explicitly defining the terms of mutuality and associated matters across the EU, we will have to depend on the common sense of those interpreting the regulations when a merger is proposed.

An interesting point was made about credit unions, but that highlights just one of a number of situations in which there could be a grey area and the legislation would have to be interpreted according to specific circumstances. I do not believe that it is possible to frame such proposed legislation so explicitly as to cover in black-and-white terms every possible eventuality. I seek the Minister’s guidance on this: will she furnish us with her judgment on whether, when the legislation is applied, there will still need to be a degree of interpretation?

In the real world, I expect there will be few circumstances in which such uncertainties arise. In the majority of cases, the arguments will be so clear and the mergers so well defined in established precedent that we will not have such a problem. It is also my experience that when we in this House analyse proposed legislation we often over-emphasise potential problems and undervalue the benefits of having professionals making judgments.

Although I hope the Minister can give some clarification on the issues I have raised, overall the amendments are sensible, as they have been framed with the industry in mind. There is also the ultimate insurance policy: when such mergers are proposed, the members will vote on them.

I congratulate my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) on the progress he has made with his Bill. I have the privilege of being one of the co-sponsors, and I look forward to it getting on to the statute book—I am probably almost as excited as he is about that prospect. However, that does not mean that we should not use the opportunity presented to us today to get a little more clarity, particularly from the Government on what their intentions are as they will hold all the cards under the powers we will give them under the Bill.

The fact that we have a decent chunk of time to discuss the Bill at this stage of the parliamentary Session is a great vindication of the decision taken a few years ago by a previous Leader of the House that we should have a sitting Friday after the long recess so that we can consider amendments from the other place to private Members’ Bills that we in this House have carried through to Third Reading. Under the previous arrangements, when the last Friday sitting was at the end of July, it would not have been possible for the Bill to make progress with the amendments made in the other place. There used to be a vicious circle: because of the reluctance of the other place to make amendments that they knew would kill a Bill, Bills were less perfect than they would otherwise be.

First, I should declare my interests, not only as a sponsor of the Bill but as someone who holds a mortgage with the Nationwide, which is a supreme example of a good mutual. I have my house insurance with the Liverpool Victoria, which I understand is a mutual insurer, and I have a great constituency interest in what we used to call the Portland building society—it has now been taken over by the Nationwide. Its headquarters are in my hon. Friend’s constituency, which is, perhaps, one of the reasons he has developed a strong interest in this subject.

I shall first discuss amendment No. 1. It was moved by Lord Evans of Temple Guiting on 10 July. At that stage, he was a member of the Government so he was speaking on behalf of the Government, but I understand he resigned on Wednesday. I am sure that the Minister will join me in paying tribute to his service, and in particular his contribution in helping to steer the Bill through the other place. He said that the overall purpose of the Bill was to ensure that there were

“helpful amendments to building societies legislation in relation to the wholesale funding limit and the position of their members in the event of an insolvency.”—[Official Report, House of Lords, 10 July 2007; Vol. 693, c. 1355.]

That is important. We discussed earlier in connection with safeguards what happens if a mutual organisation in our country is taken over by a mutual organisation outside the country and therefore outside the bounds of the regulatory control of our regulatory authorities, and that mutual then goes into insolvency. How will members based in the UK who are caught up in such a transfer be protected? It is important that the Minister gives us some assurances on that, particularly in the case of mutual insurance companies, which are much more vulnerable to the marketplace than building societies. The Minister whom I quoted was, of course, speaking before the Northern Rock crisis occurred.

My hon. Friend does not realise that the scenario he describes could happen today, without this Bill being enacted. The only difference is that it would happen only if one of the parties lost its mutuality. The members would have to vote for that. Any British mutual can be bought by an overseas entity of any type whatsoever, but its members would need to vote for that, and it would lose its mutuality en route. That makes no difference to the scenario my hon. Friend describes. It simply enables them both to remain mutuals.

Is that correct? I ask with great respect, as my hon. Friend is a much greater expert in this matter than I am. To go back to the example of the Abbey National, it was originally a mutual society, then its members chose to demutualise and benefited from that, and then in due course that company was taken over by Banco Santander. That had become a shareholder issue, and the shareholders in the company then became shareholders in the Spanish company. In the case of a mutual that is taken over by another mutual, that organisation does not lose its mutual status and its members want to be assured that they will still be members of an organisation that has value and that at some stage in the future they will be able to benefit from that. Therefore, I am unsure whether the issue of a mutual being taken over by a foreign mutual is the same as that of a mutual that becomes a company in this country as a result of a resolution passed by the members. Perhaps the Minister will be able to give some clarification on that when she responds to these points.

The Northern Rock example involves a building society that gave up its mutuality before losing much of its reputation—or perhaps I should say, its head. Many of the erstwhile mutual members of Northern Rock received shares in lieu of their mutual interest and are now, arguably, far worse off than if it had never given up its mutuality.

However, at least the Northern Rock scenario is under the control of a British regulator and the rules made by this sovereign Parliament. That would not be the case if Northern Rock had been taken over when it was mutual by another mutual somewhere else in the European economic area. That is the distinction to which we need to draw attention.

Leaving aside the fact that Northern Rock’s recent difficulties obviously have nothing to do with its status as a financial institution—

Well, okay—we will have that discussion in the pub later. Leaving that aside, surely the hon. Member for Christchurch (Mr. Chope) can see that any financial institution based in the United Kingdom must necessarily be subject to British regulations. Is he suggesting that a financial institution taken over by a foreign organisation would be subject to regulations from somewhere else, even though it was operating within the United Kingdom?

Obviously, the operations of such an institution within the United Kingdom, in so far as they dealt with retail issues—insurance or building society services, for example—would be regulated in this country. I am concerned about the regulations on the operation of such a mutual society. For example, what proportion of loans would it be allowed to take in comparison with the value of its members’ interests? One thing that prompted my hon. Friend the Member for Bournemouth, West to introduce this legislation was his liberalising desire for mutual building societies to be able to have access to the wholesale market for funds. It was that power that went to the head of Northern Rock and resulted in its current problems. I do not say that that was the sole cause, but it contributed. If Northern Rock had remained a mutual building society, it would not have been able to get access to those wholesale funds or to get into its current difficulties, which have resulted from recent events in the financial markets.

What mechanism can the hon. Gentleman foresee that would enable the people determining whether to make such changes in the status of financial institutions to decide what the strategic decisions of the management were likely to be? The hon. Gentleman cannot blame the structure of the organisation for the decisions that were made; if it were a structural issue, why was only Northern Rock affected and not other similar organisations?

I should remind hon. Members that we are not debating the issue of Northern Rock. Enough reference has been made to it for an understanding to have been achieved.

I am grateful, Madam Deputy Speaker. You enable me to answer the hon. Gentleman’s other point on how we would introduce safeguards, in respect of which I have a bit of a problem with Lords amendment No. 1. At the moment, one of the safeguards is that before any approval, if the issue is a hybrid one, anybody who felt aggrieved could petition the other place under the hybrid instrument procedure. However, under Lords amendment No. 1, such a move would be excluded. Paragraph 6 of the explanatory notes on the Lords amendments refers to the justification for that, but it does not wash. Paragraph 6 states:

“Lords Amendment 1 ensures that any order made under clause 3 which may have effects peculiar to a particular mutual will not be dealt with under the hybrid instrument procedure…As a result of the addition of ‘EEA mutual’ to clause 3 it is possible that an order… could, for example, require an EEA mutual society acquiring a UK mutual to give transferring members full membership rights in the EEA mutual.”

Most of us would think that a good idea. However, the paragraph goes on:

“If the EEA mutual has a unique legal form that might raise a question of hybridity.”

Okay—so it raises a question of hybridity. If the hybrid instrument procedure were applied, members of the UK mutual subject to it would be able to decide whether, either as individuals or collectively, they wished to petition the other place under that procedure.

Lords amendment No. 1 would ensure, as paragraph 6 goes on,

“that the hybrid instrument procedure would not apply, should such a situation arise.”

Why should it not apply? What mischief could possibly result from the hybrid instrument procedure? The essence of that procedure in the other place is that an opportunity is given to petition, just as people can petition against a private Bill or a hybrid Bill. If the relevant people consider that they need to petition against it, they can; the petition is then considered by the relevant Committee in the other place. That can either reject the petition as being irrelevant or without substance, or say that the petition has substance and merit, and proceed accordingly.

I bring my hon. Friend back to the point that we would be dealing with two groups of members: the members of a mutual may be borrowers or depositors. In such cases, both the interest groups would be served. I cannot think of another group of people who would have locus standi by petitioning as my hon. Friend suggests. Will he say who they could possibly be?

We are talking about hypotheses. If my hon. Friend does not think that any group would have a locus standi to petition in the event that a hybrid instrument had been deemed, there would be no harm in allowing the hybrid instrument procedure, because it would not make any difference. Perhaps neither my hon. Friend nor I are wise enough to know exactly what is behind all this, but paragraph 6 is phrased as it is because somebody thinks that private interests might well be prejudiced as a result of the procedure. Under the hybrid instrument procedure, those interests would have a right to petition in the other place and “they” might wish—I do not know who “they” would be—to preclude that right or opportunity from those aggrieved petitioners.

My hon. Friend knows very well that in such circumstances mischief-makers could claim to have locus standi, that the procedure for establishing that is complex and long, and that the issue would go to the Court of Referees. People interested in delaying things—for whatever reason; another commercial company might want to take the building society over, for example—could make mischief knowing that, although they would not succeed, they could delay the whole procedure.

If one looks at the history of the hybrid instrument procedure, one sees that it has always been the last desperate throw of the people who have been challenged on the issue—to say, “We cannot afford to delay.” It so happens that there would be no delay if the petition were rejected and that in the other House there is what is called, I think, an expedited hybrid instrument procedure to cover the scenario to which my hon. Friend refers. We should not have too much haste if that is going to result in people feeling or being prejudiced against as a result of a takeover of an organisation, in which they have a mutual interest, by an EEA mutual.

Does my hon. Friend agree that my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) might well be right in saying that this provision would prevent unnecessary delay in any such mutual takeover or joining together? Does he further agree, however, that it might also prevent a necessary delay?

Exactly—my hon. Friend is absolutely right. That is why, when looking at this issue, their Lordships’ House and a Joint Committee of both Houses regarded the hybrid instrument procedure as sacrosanct—as a cherished means of preserving the rights of individuals, which should not be prejudiced by a hybrid instrument. The whole purpose of the procedure is clear. My hon. Friend the Member for Bournemouth, West says that he does not think that a set of circumstances will ever occur when it will be triggered. That is fine, but why not leave the power in the Bill?

Our noble Friend Lord Naseby raised this issue in the debate in the other place on 10 July. The Minister present said in response that, given the “sheaf of notes” that he had on hybridity, he would write a full letter about it to our noble Friend. That letter, dated 12 July, was placed in the Library of the other place on 17 July, as deposited paper 2007/563. I intend to quote briefly from it—if I can find it from among my papers. [Interruption.] The Minister, helpfully, has a copy. Perhaps she—

Exactly, Madam Deputy Speaker. Effectively, what the Minister who wrote that letter said was not very different from the explanatory memorandum. It is not satisfactory that we are being asked to allow the rules on hybridity to be disapplied, without any guaranteed safeguards for members who might otherwise be able to resort to those rules. The provisions in the Standing Orders of the other place have stood the test of time as a necessary safeguard. Those set out in Standing Orders Nos. 216 and 216A are clearly stated and do not involve an enormous amount of time; however, they do ensure that those who feel aggrieved can put forward a petition, which can then be considered.

As someone who did once petition this House in respect of a private Bill—a house in London in which I had an interest was over the proposed route of the Jubilee line tunnel—I know exactly how valuable the petitioning procedure can be. I point out to my hon. Friend the Member for Bournemouth, West in particular that it normally results not in a full hearing in front of the relevant Committee, but in a compromise between those who feel aggrieved and the promoters of the Bill or instrument in question. It is a safeguard that will probably not normally have to be exercised through time being spent in the other place. However, the knowledge on the part of the mutual society in question that, if the instrument is potentially hybrid, it needs to ensure fairness among all the private interests affected, concentrates minds and ensures that the society is more likely to satisfy an aggrieved party’s complaints in advance.

This procedure does have a very important role to play, therefore, in our parliamentary democracy and, indeed, in our constitution. In fact, that is exactly what happened in the case that I was referring to. As a result of our expressing concern that our houses would subside because of the tunnelling works, our local residents association was given cast-iron guarantees that, if any subsidence occurred, it would be paid for by those building the new Jubilee line. I am pleased to say that in the end, there was no subsidence. However, there were concerns that there might be, and without the private Bill procedure and the opportunity to petition, those concerns might have affected the value of houses in the area because people would have been worried about what would happen if subsidence did occur in future. So this procedure is not merely theoretical, but of constitutional significance.

It is worth telling the House that it is not the case that hybrid orders are never resorted to. First, however, I should point out that I have found three examples since 1 January 2000 of hybrid orders that did complete the hybrid instrument procedure. There were no petitions presented against the London Thames Gateway Development Corporation (Area and Constitution) Order 2004, which was subsequently approved by both Houses. I have not gone into the detail, but perhaps that was because the concerns expressed—similar to my experience with the Jubilee line—were addressed before the matter reached Parliament. The second example is the Thurrock Development Corporation (Area and Constitution) Order 2003, which was laid before Parliament on 2 July 2003. No petitions were presented against that order, which was subsequently approved by both Houses. The third example is the draft Policing of Airports (Belfast City) Order 2003. Again, no petitions were presented.

In case any of my hon. Friends are now thinking, “Well, is this procedure ever used?”, I can tell them that it was used in the context of the West Northamptonshire Development Corporation (Area and Constitution) Order 2004, which was petitioned against. The relevant Select Committee considered the matters complained of in the petitions against the order. They were gone into, and eventually the order was approved by both Houses. However, as a result, it was a better order than it would have been, and those who felt that it would particularly disadvantage them were able to have their say.

You will know, Madam Deputy Speaker, that the right to petition this House goes back to time immemorial—before the time when we began having Government legislation in the way we have it today. I cannot understand the reports in today’s papers saying that the Government have not got enough legislation for this House and, that as a result, we will be unable to sit so much next year.

It is indeed narrow, Madam Deputy Speaker, but may I submit that it is also very important, because it is on a subject that affects the rights of the individual subjects of our country?

As my hon. Friend the Member for Bournemouth, West has pointed out, there is a problem regarding the time that the procedure can take. However, as I did earlier, I draw his attention to House of Lords Standing Order No. 216A.

It provides for the expedited procedure, under which the Bill does not have to be considered in such detail, and states that the

“hybrid instrument…which, by virtue of the Act authorising it to be made, is, after the expiry of a period prescribed by that Act…to proceed in Parliament as if its provisions would, apart from that Act, require to be enacted by a public bill that is not hybrid…referred to as an “expedited hybrid instrument”.

The procedure for such an instrument differs from that applicable to other hybrid instruments.

The standing order continues:

“A petition…not to affirm an expedited hybrid instrument shall be…deposited…within ten days beginning with the day on which the instrument is laid”.

If the Hybrid Instruments Committee is of the opinion that there ought to be a further inquiry, it conducts that inquiry itself, forthwith. After 10 days, if there is some substance to the petition, the matter is inquired into; the Hybrid Instruments Committee does that itself. The procedure could not be used, as has been suggested, by potential rival bidders, although we know from what happens in the real world that such bidders often get up to all sorts of tricks. We have seen that in relation to a recent takeover of a bank, although we shall leave that to one side.

I took the liberty of asking the House of Commons Library about the implications of Lords amendment No. 1. Its reply states:

“In general terms those who would have wished to petition against a hybrid instrument would be adversely affected, as treating such an instrument as an ordinary instrument precludes the right to petition.”

It continues:

“Exactly who those individuals or groups would be would depend on the provisions in the instrument.”

That almost goes without saying. This real issue could act adversely against members of mutual societies when they find that their directors have it in mind to sell their interests to other organisations in the European economic area. Those agreed members should have the chance to take advantage of the procedure that I have outlined.

The problem that I have about all this is that if we reject Lords amendment No. 1, it might jeopardise the whole Bill—it would depend on whether their lordships could be reconvened to accept our disagreement with it. I hope that the Minister will express her good intentions and those of the Government in respect of how those individuals who might be adversely affected will be protected if that cannot be done by the hybrid instrument procedure.

I am worried about the predatory action that may come from some EEA mutual insurers. Mutual insurers are basically known much more on the continent than in our country. I shall now translate a document from French. The international association of mutual assurance societies is based in Brussels, in what is sometimes described as the heart of Europe. It produced a helpful note on what mutual insurance is and why one must use it. Under the heading “opportunities”, it identifies the fact that the insurance market is still expanding because the universe of risks is doing so too. That universe is indeed expanding, but those are risks not only that people want to have insured, but they are risks for insurance companies. The larger the risks insured, the larger the risk to those companies. We know what happened to Lloyd’s members.

What happens when people invest in a mutual savings society and find that that society’s interests are taken over by a mutual insurance company which then, in order to buy insurance business, insures things that it should not have done and ends up going bust? Where does that leave the savers in the mutual society originally based in the UK, who may have lost everything? Surely we should safeguard against such a situation. We should be alert to the prospect of predatory action.

Before I turn to the other amendments, may I tell hon. Members that the issue of hybrid instruments was examined by the Joint Select Committee on Delegated Legislation in 1972-73? Those recommendations were accepted by both Houses. The Committee was chaired by the late Lord Brooke of Cumnor, the father of the current Lord Brooke of Sutton Mandeville, whom I had the privilege of serving for a short time as a Parliamentary Private Secretary when he was a Treasury Minister. That is a distinguished family of statesmen.

Order. Interesting as that might be, I do not think that it is in any way relevant to the amendments that we are discussing.

The Joint Select Committee on Delegated Legislation that examined the issue of hybrid instruments said that where those hybrid instruments were such that they might affect individuals, there should not be any removal of the right to use those hybrid instruments. Its concern was that although we have clear rules about what hybrid Bills are and the fact that people have the right to petition for such Bills, the Executive were trying to avoid the hybridity rules that relate to private Bills by trying to use subordinate legislation as the means for getting those hybrid instruments through.

That is why the hybrid instruments procedure was initiated. It was examined by the Committee, which concluded that the procedure has

“for nearly 50 years provided valuable safeguards for private interests affected by delegated legislation and should be retained.”

That is what is important in the context of this debate: that procedure should be retained and not swept away. If it is to be bypassed by the provisions of this Bill, it is incumbent on the Minister to articulate clearly what alternative safeguards will be available to people who might be adversely affected.

I turn to the other Lords amendments in this considerable group. I am grateful to my hon. Friend the Member for Fareham (Mr. Hoban) for raising a number of concerns that I had about their provisions, particularly Lords amendment No. 3. I hope that the Minister will be able to give us assurances about the insertion of a definition of an EEA mutual society, which as I said in an intervention, seems to be at odds with the Bill’s definition of a mutual society. Surely a UK mutual society is also an EEA mutual society, because the UK is in the EEA.

It would have been much clearer if the same rules applied everywhere. I hoped that the hon. Member for Montgomeryshire (Lembit Öpik) was allying himself with the Eurosceptic cause, but I can understand that his ambitions to become president of his party are unlikely to be realised—in the light of the leadership candidates—if he has such credentials. I do not blame him for suppressing them today. In any case, he expressed concerns and I hope that they will be addressed by the Minister.

Just for the avoidance of doubt, I can hardly be a Eurosceptic given that my parents are Estonian. If I were to express any scepticism about the case for mutuality rules that work effectively across Europe, I would be made a pariah in Tallinn.

I hear the development of the hon. Gentleman’s argument, but as I am a member of the parliamentary delegation to the Council of Europe, some of my best friends are Estonian, and I know—

I hope that the Minister will be able to respond to the concerns expressed. At the moment, the definition in amendment No. 3 of an EEA mutual society is not confined to financial mutuals, but the definition in the Bill relating to mutual societies—in other words, UK mutual societies—is confined to financial mutuals. My hon. Friend the Member for Fareham made an analogy with a mutual wine-growing co-operative. In this country we have a well known and ancient wine co-operative, of which I am privileged to be a mutual member, and that is the Wine Society. If anyone suggested that the Wine Society might be able to take over a building society, people would think that they must be barking. But on the face of it, the Bill would enable a co-operative vineyard in an EEA state to take over a mutual savings society operating in this country.

My hon. Friend also referred in passing to the concerns that have been expressed about cost, including the cost of the Financial Services Authority becoming involved at that vague dividing line between its responsibilities in the UK and how much it could be involved in regulating a mutual based outside the UK. I notice from the financial memorandum that the costs to be incurred would never exceed the costs actually incurred by the FSA, but implicit in that is that the FSA would be able to pass on its full costs to any mutuals involved. Concern was expressed in the other place that that might be a deterrent. I am not saying that that would necessarily be a bad thing, because it would be good to have some deterrent against all our mutuals being taken over by foreign organisations.

I hope that the Minister will be able to address the point that I put to my hon. Friend at the outset about reciprocity. At the moment, the Bill and the notes on it are phrased to suggest that a mutual society in this country could be acquired by or merged with a mutual society elsewhere. However, it would not appear to facilitate the taking over of a foreign mutual by a UK-based mutual.

I hope that the Minister will be able to address our concerns and give me some assurances, so that we do not have to divide the House and thereby jeopardise the further progress of this important piece of legislation, on which I once again congratulate my hon. Friend the Member for Bournemouth, West.

I, too, wish to congratulate my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) on getting yet another private Member’s Bill to this stage. He is on the threshold of getting another one enacted, and that is a considerable achievement.

I have followed the debate this morning with interest. Some of the arguments on the amendments are finely balanced, although my hon. Friend made a persuasive case for their incorporation into the Bill. However, my hon. Friends the Member for Fareham (Mr. Hoban) and for Christchurch (Mr. Chope) also gave some persuasive arguments about why we should be concerned by the amendments. I wish to tease out some of the issues and I hope that the Minister will be able to reassure the House that there is nothing sinister behind the amendments, whether intentional or otherwise.

It would also be helpful if the Minister could clarify which of the amendments are required to comply with EU law and which ones are just thought to be a desirable addition to the Bill. I am not entirely clear which ones we have to accept just to comply once again with our masters in Brussels.

My hon. Friend the Member for Christchurch made a persuasive case that hybrid instruments have stood the test of time. From the Committee proceedings that he quoted, they would appear to have been in place for some 80 years, so the Government need to do much more to explain why something that has stood the test of time for so long and been considered an important part of our procedure should be ditched for the purposes of this Bill. My hon. Friend suggested that that was a slippery slope that might be extended at some point to future issues, so it is important that the principle that hybrid instruments can be brought before the House is considered in detail. I would not like us to ditch something willy-nilly, after a short debate with few Members present on a Friday morning, for the sake of something that is not necessary. I hope that the Minister can clarify why Lords amendment No. 1 is necessary.

My hon. Friend the Member for Bournemouth, West said that he could not envisage anybody who might wish to bring the question of hybridity forward, and the only people who would wish to do so would be mischief makers. My hon. Friend has much experience in such matters, and he may well be right, so I shall not quibble with him. However, it says in the explanatory notes—Lord Evans of Temple Guiting made the same point in the debate in the House of Lords—that

“an order under clause 3 could…require an EEA mutual society acquiring a UK mutual to give transferring members full membership rights in the EEA mutual. If the EEA mutual has a unique legal form that might raise a question of hybridity.”

That suggests that the Government accept that the Bill might raise questions of hybridity and no one seems to dispute that point. The amendment is merely there to ensure that when a question of hybridity is raised, the hybrid instrument procedure would not apply.

My hon. Friend the Member for Bournemouth, West made the point that the amendment will prevent unnecessary delay and stop mischief makers causing trouble. That may well be right. It strikes me, however, that if the Government are acknowledging that a question of hybridity could arise, the amendment could prevent a necessary delay from taking place. I do not understand what huge advantage the amendment provides that justifies ditching an important tradition that has stood the test of time. The Minister should go into detail to explain why the amendment is necessary. It strikes me that it is required not for us to comply with EU law, but because the Government think that it is desirable. She should make the position clear.

Amendments Nos. 2 and 3 would widen the definition of a mutual society. We had an interesting discussion about mutual vineyard owners taking over financial institutions. The point behind that is important. Proposed new paragraph (c) in amendment No. 3 states that the body is

“a body which is a cooperative or mutual undertaking of such description as the Treasury specify by order”.

I tend to be cynical about such measures because they are deliberately vague and might allow the Treasury, perhaps at a later date, to do something that was not intended when the Bill was passed. Given that, it would help the House if the Minister made it clear which bodies the Treasury intends to specify by order, and if she made a commitment that that would not be extended without further parliamentary scrutiny.

My hon. Friend is aware that the Bill provides that all such orders will be subject to the affirmative resolution procedure. Therefore, the House will have the opportunity of discussing them.

I am grateful to my hon. Friend for once again reassuring me about the merits of his Bill, and that the safeguards are in place. I am sure he would agree, however, that it is important to tease out the full extent of its implications. When we have consensus on a Bill—and it seems that we have consensus on this Bill’s merits—certain things can slip through that were not intended when it was originally drafted. As my hon. Friend the Member for Christchurch said, given that we have time to discuss the Bill’s merits, it is important to make our points clear.

Does my hon. Friend agree that to say that something is going to be subject to an affirmative order is not the same as saying that it is like a piece of ordinary legislation, because we will not be able to amend it?

My hon. Friend has been in Parliament much longer than I have and knows all the tricks of the trade that Governments can use. Something that sounds reassuring at a superficial level may not be so in reality. I am grateful to him for reminding me of the dangers that he has outlined.

I would like the Minister to address another aspect of amendment No. 3. When we discussed that before, the then Economic Secretary to the Treasury, now Secretary of State for Children, Schools and Families, said that the mutual insurers had to be left out of the Bill because of the possibility of contravening EU law. He said:

“We have considered whether the Bill could be extended to cover companies limited by guarantee that are also insurers, but because insurance is regulated on a Europe-wide basis, we would have to allow the same procedures to apply where the transfer is to a subsidiary of the body corporate in another member state which is similar to a company limited by a guarantee…For that reason, and despite our efforts, we were not able to include mutual insurers in”—[Official Report, 27 April 2007; Vol. 459, c. 1156.]

the new clause in Committee. Given that that was turned on its head when Lord Evans said that the amendment

“is wide enough to encompass mutual insurers and, by permitting transfers under the new provisions to a mutual society established in any EEA state, it ensures that there will be no breach of EC law”—[Official Report, House of Lords, 10 July 2007; Vol. 693, c. 1356.],

it would be helpful for the Minister to explain how we have gone from the stage of something being specifically ruled out, because it would breach EU law, to the stage that we are at now, where something is going to be incorporated to ensure that it complies with EU law. That strikes me as a sharp turnaround in a short space of time. What assurances can she give that the legal opinion on which the amendment is based will not be subject to challenge and will be watertight for the future? I am not a lawyer, and my hon. Friend the Member for Christchurch knows much more about such things than I do, but if we can have a turnaround in a legal opinion in such a short time, I am not convinced that there cannot be a further turnaround in future.

We have not discussed amendments Nos. 4 and 5 very much, but it seems that they are necessary to comply with EU law. Perhaps the Minister can clarify that. Without them, a mutual in another EEA state would have to establish a UK company subsidiary to benefit from the changes, which might place it at a disadvantage. The changes would ensure that UK and EEA mutual societies were treated equally. The amendments’ purpose is not to benefit UK mutual societies in particular, but to benefit mutual societies in other EEA member states.

There is a potential slight contradiction between the hon. Gentleman’s comments and those of some his colleagues. They see the benefit of harmonisation of regulation across Europe, but he is concerned about that. Surely we would all benefit from a degree of harmonisation to ensure that we at least understand the terms. When a potential linkage or merger between a British-based financial institution and one based elsewhere in Europe is considered, some of the uncertainties and subjective determinations would at least be clarified.

The hon. Gentleman makes a good point. He may well be right that that would be a good thing and make sense, but why do we need the amendments? Will the benefits be felt by mutual societies in other EEA countries rather than mutuals here? What will be the consequences in practical terms?

Amendment No. 6 provides for the Financial Services Authority to charge fees for any functions conferred on it by the Bill. It is an eminently sensible addition. It would be perverse should the FSA be out of pocket as a result of the changes. I welcome the amendment. Perhaps the Minister will explain whether that would cover not just the costs of the work in front of the FSA at the time, but the costs of the extra staff that it may have to employ to deal with the additional workload. Lord Evans acknowledged that that would

“result in additional work and, therefore, costs for the FSA”.—[Official Report, House of Lords, 10 July 2007; Vol. 693, c. 1360.]

Presumably, that means that if it is providing additional work, we need additional staff to cope with it. I hope that the fees charged on that basis will cover those additional costs for the FSA as well as the costs incurred at the time when such things are being debated. I welcome the amendment if it means that the fee-charging powers would be extended in that way.

When I was talking about amendment No. 3, I forgot to mention an important point about its definition of an EEA mutual society. Will the Minister tell the House how many mutuals across the EEA will be brought under the scope of the Bill as a result of the amendments? What are the practicalities of that? Can she outline what the Treasury envisages happening as a result of the provisions, and which mutual societies it has in mind?

I welcome the Bill. Some of the amendments are absolutely necessary, but I share some of the concerns expressed by my hon. Friend the Member for Christchurch, especially about amendment No. 1. I look forward to the Minister addressing all the concerns that have been raised this morning.

I am extremely positively encouraged by Opposition Members’ forensic scrutiny of the Bill during today’s debate. I am grateful to the hon. Member for Bournemouth, West (Sir John Butterfill) for presenting the Bill and congratulate him on its success; it is a credit not only to him but also to the plethora of outside organisations, which I support, with which he has been working. The measure will lead to long-lived improvements in our economy.

I reassure Opposition Members that there are no scary and subterfugeal attempts to achieve anything from the amendments that is not blindingly obvious. I shall use the few moments available to me to—

In the few moments that I intend to use, given the 32 Bills listed for debate during the next couple of hours, I shall briefly set out our understanding of the amendments and respond to specific points that have been made.

The amendments fulfil the commitment given in the House to extend the Bill to mutual insurers, which answers one of the main points made by the hon. Member for Shipley (Philip Davies). The Government continue to be appreciative of the support from all those involved in developing the Bill and look forward to implementing its provisions for the benefit of the mutual sector. We shall of course support the amendments, given that we introduced them, with consultation and co-ordination, in the other place. I hope that both sides of the House will be able to support them, too.

Clauses 3 and 4 will make it easier for one type of mutual society to transfer to the ownership of another type of mutual society as a subsidiary company while retaining the important elements of mutuality; for example, individual members transferring to the subsidiary company may be given voting rights in the holding mutual society. Mutual insurers and certain European mutuals will be included as a result of the amendments made in Committee in the other place on 10 July. I shall explain how they fit into the Bill as it left this place.

Clause 3 concerns transfers to subsidiaries of other mutuals. Amendment No. 1 ensures that any order made under clause 3, which may have effects peculiar to a particular mutual, will not be dealt with under the hybrid instrument procedure, as has been much discussed this morning. As a result of the addition of the words “EEA mutual society” to clause 3—in amendment No. 2—it is possible that an order made under the clause could impose requirements on a mutual insurer or other EEA mutual society acquiring a UK mutual. That could include, for example, a requirement to give transferring members full membership rights in the holding mutual. If the holding mutual has a unique legal form, that may raise a procedural question of hybridity, as we have discussed.

The hon. Member for Shipley asked which amendments would comply with EU law. Amendments Nos. 2 to 5 fulfil the dual purpose of extending the scope of the Bill to mutual insurers, as we decided we wanted to do following the comments of my predecessor that the hon. Gentleman quoted, and thereby complying fully with EU law. Amendments Nos. 1 and 6 are necessary as a result of amendments Nos. 2 to 5. I hope that is clear.

The hybridity provision will ensure that the hybrid instrument procedure of the other place would not apply in the situation I described. It is a standard provision to exclude the hybrid instrument procedure, which will reduce complication and delay in making an order under clause 3. We have had considerable discussion as to whether that is a good thing and in that regard I shall refer to the letter that I think the hon. Member for Christchurch (Mr. Chope) was looking for—perhaps he would like to wave it at me—which makes it entirely clear that if one of the affected companies has a unique legal form, for example if it had been established by a private Act of Parliament, the provisions that we may or may not introduce as a result of the Bill could raise a technical question of hybridity. I believe that it really is a technical question. The important point is that the amendment is merely a precaution.

I shall be completely honest with the House: at this stage we do not know how this part of the Bill should be implemented. My firm view—and, I believe, the view of the hon. Member for Bournemouth, West—is that it is better to have proper democratic consultation on the specifics of how we can fulfil our aims under the Bill, and to look at all possible options, rather than to exclude, by not having the hybridity amendment, one of the possible options that we may subsequently decide to pursue. No decisions have been taken on the implementation of the Bill. We shall consider and consult on the various ways of implementing clause 3, to achieve the aims of the Bill while protecting mutuals and their members, so including the hybridity provision is mainly a precaution. Our consultation will be extremely democratic.

This is the first time I have had the privilege of hearing the Minister speak in her new role. She is obviously very much on top of the issue, and as someone who has much experience of the City of London she will be familiar with the concept of a blank cheque. Is she not asking us, in effect, to sign a blank cheque today? In light of what she has just said, might it not be better for the Bill not to make progress so that the consultations she describes can take place? The Government could then legislate on the matter, in their time, in the coming Session.

No, I do not agree with that. I do not feel that it is a blank cheque. I genuinely feel that technical issues may arise if we choose to implement the Bill in a certain way. We have not decided how to implement it yet, and hon. Members of all parties and representative interest groups can respond to the consultation with arguments that include the question of hybridity if they would like to. When we finally put forward our proposals, we will do so through the affirmative resolution procedure, and those issues can be discussed in that forum. I genuinely believe that that is a sensible way to proceed; it is not a way to stifle debate.

I would like to pick up on something that the Minister said earlier. She said that amendments Nos. 2 to 5 were required to comply with EU law. Much as I dislike having to pass laws to comply with EU law, I understand the need to do so under our current arrangements, but she said that amendments Nos. 1 and 6 were necessary as a result of those amendments. Would she clarify that point? I understood that amendment No. 1 is not necessary to comply with amendments Nos. 2 to 5. I understand why amendment No. 6 is necessary as a result of the other amendments, but not amendment No. 1. Is it not the case that the Bill could progress with all the amendments apart from amendment No. 1?

That is not my understanding. The amendments address the specific point that my predecessor made in Committee: if one wants to extend the Bill to mutual insurers, there is a corresponding issue of ensuring that the provision is not challenged under EU law, which I think is right and proper. I am simply telling the hon. Gentleman of what I have been technically advised.

I am aware that the hon. Gentleman has had a substantial opportunity to contribute. I shall take one more intervention.

I am grateful to the hon. Lady for accepting this final intervention. She referred to the precautionary principle, but since when has the precautionary principle been used by the Government to exclude individual rights, at a time when, by the Government’s own admission, they do not know how the Bill will be implemented or how those rights might be adversely affected?

I do not believe that I am excluding rights by addressing the point of hybridity at this point during the passage of the Bill. It is a correction of a potential technical anomaly that may become necessary later on as we consult and work together to ensure that the Bill is implemented in the right way.

Amendments Nos. 2 and 3 widen the definition of mutual society in clause 3 by inserting a definition of EEA mutual. There has been some discussion of that. An EEA mutual can be a European co-operative society, a co-operative society established in any European economic area state or any other type of co-operative or mutual body as specified by the Treasury in secondary legislation. That will ensure that any changes made under the Bill apply where the transfer is to a subsidiary of an EEA mutual, as well as where the transfer is to a subsidiary of another UK mutual. That incorporates the conversations we had this morning on proposed paragraph (c) in amendment No. 3, and the way in which it would be considered by Parliament.

In response to the Conservative Front-Bench spokesperson, I can clarify that primary legislation is considered under the affirmative resolution procedure. However, the power in proposed paragraph (c) in amendment No. 3 is subject to the negative resolution procedure, because it simply allows the Treasury to specify other co-operatives or mutuals, including those in other EEA states, to which a UK mutual may transfer. It may need to be exercised at short notice—for example, to specify a new kind of EEA mutual in a potential and live takeover situation. We believe that the negative resolution procedure is appropriate in that case. The power cannot be used to amend primary legislation, where of course it is right and proper that any such changes should be subject to the affirmative procedure.

I am grateful to the Minister for that clarification. She listed the three types of EEA mutual. With regard to what we discussed earlier, can she tell me whether that means that non-financial EEA mutuals can merge with a financial UK mutual?

I presume the hon. Gentleman is going back to the wine example. It is not for me to specify which sectors should be pursuing alliances with other types of sectors. It is theoretically possible that the situation he describes may happen, but that does not cause me any concern at all.

To clarify, a UK non-financial mutual, which by definition is an EEA mutual, could merge with a UK financial mutual, notwithstanding the provisions in the Bill after it left this House.

That is my understanding. The changes will allow mutuals in other EEA states to take over UK mutuals on the same basis that other UK mutuals may take them over. Only EEA mutuals specified in the Bill or an order made under it may benefit in that way. To reiterate, it is a matter for the bodies concerned to decide whether a particular takeover is appropriate.

Clause 3(9) specifies three types of UK financial mutual that could merge with other UK financial mutuals. I think that the Economic Secretary said that a UK non-financial mutual or a financial mutual that falls outside subsection (9) could merge with another financial mutual. That means that, for example, a credit union in the UK as an EEA mutual could merge with a friendly society, building society or mutual insurer. That runs counter to what was said on Second Reading.

My understanding is that the purpose of the proposal is simply to create a level playing field. A foreign or UK credit union could in theory acquire a UK mutual. As they are small bodies, credit unions are probably unlikely to do that, but it is possible.

Does the Economic Secretary feel, like me, that we are considering a moot point? If a UK financial mutual wished to merge with a Bratwurst-making co-operative in Germany, a pizza-making co-operative in Italy or a herring-pickling co-operative in Estonia, that would be a matter for them. Nevertheless, the insurance policy is the good business sense of the UK financial institution, plus the necessary requirement for authorisation from its members. Although we can theoretically play games, in practice it is not an issue.

I agree. It is not for the Government to start delving deep into the decisions that essentially private organisations may wish to make.

Lords amendments Nos. 4 and 5 would introduce the term “relevant company” into clause 3. That ensures that a mutual society’s business can be transferred under the modified procedures to a UK company or a body incorporated in any other EEA state, provided that that company or body is controlled by another mutual society.

Lords amendment No. 6 ensures that the Financial Services Authority has the power to charge fees for any functions that the Bill confers on it, extending the FSA’s existing powers to charge fees under the Financial Services and Markets Act 2000. The extension of clause 3 to EEA mutuals will require certain safeguards, equivalent to those that apply to domestic mutuals for membership rights in the holding mutual and further demutualisation. That answers some of the points that were raised. The FSA may have a role in that and, if additional functions are conferred on it in the order that implements the Bill, it may need to charge fees in connection with them. If the FSA exercises its power to charge fees, that could result in costs for businesses that wish to take advantage of the new procedures. However, any such fees would be paid directly to the FSA and would not exceed the FSA’s costs in the transaction in question.

I was probed slightly further on the power to charge fees, so I shall clarify the matter. Officials in the Department have discussed the principle of fees with the FSA. We will have further discussions at the time of consulting on and making the order. As I said, the FSA’s power to charge fees is in the Financial Services and Markets Act 2000. The amendments widen the power to cover costs relating to the new functions conferred under the Bill. The FSA could charge only its costs for ensuring that adequate safeguards are in place. That seems entirely sensible.

I said that I would not give way again, so I shall stick to that. I apologise.

I am delighted to commend the Lords amendments to the House.

I am happy with the Economic Secretary’s reply. She has explained clearly and comprehensively the points that have been raised.

I was disappointed that, given the time available, the Economic Secretary was not prepared to take my other intervention. If the Bill goes through today, when will it be implemented? It sounds as though there is a long timetable. Has my hon. Friend any idea how long the process will take?

The last discussions that I had in the Treasury suggested the consultation would take some months, but I cannot be any clearer than that.

Lords amendment agreed to.

Lords amendments Nos. 2 to 6 agreed to.

Clause 4

Transfers to subsidiaries: distribution of funds

Lords amendment: No. 7.

I beg to move, That this House agrees with the Lords in the said amendment.

The Channel Islands and the Isle of Man were not included within the scope of the original Bill. It is my understanding that it is usual for us to consult them before making legislation that would affect them. It is also my understanding that they have indicated that they would like to be included within the legislation, but no doubt the Minister will able to confirm that. I can see no reason why the Channel Islands and the Isle of Man should be excluded. If the rest of the EEA is included—they are, of course, outside the EU—they should, as part of the United Kingdom, be included.

I feel duty bound to ask whether the amendment, if passed, would make it more difficult for a financial mutual in the United Kingdom to enter into a merger agreement with a kipper-making co-operative on the Isle of Man.

I doubt it, is the answer. We have heard all sorts of strange suggestions as to who might merge with whom. All such mergers would require approval by the Treasury and the FSA. I am reassured that they are sensible enough to make sensible decisions.

Can my hon. Friend tell us when he first approached the Channel Islands and Isle of Man authorities to find out whether they wanted to be included in the Bill and why it was not apparent at the outset, when he first launched it, that they wished to be included?

I did not approach them myself—I understand that they were approached by the Treasury and asked to be included, but perhaps the Minister could confirm that.

Few people would wish to quibble with Lords amendment No. 7. However, I hope that the Minister will both respond to my question about how it came about that those authorities wanted to be included in the Bill at such a late stage and say what she sees as the implications of that. We quite often hear complaints in the House that a different regulatory regime operates in, for example, the Channel Islands or the Isle of Man from that which Parliament imposes here, and that that regulatory regime is often less protective of consumer interests. For example, the other day I attended a breakfast at which the issue of health supplements was raised in that context. Concern was expressed that the Channel Islands’ regime for regulating health supplements was rather different from that which applied in the UK. What guarantees can the Minister give that the implications of extending the Bill to the Channel Islands and the Isle of Man are compatible with being able to look after the best interests of individual investors or members of mutual organisations?

I, too, would like to raise a query that I hope the Minister can address. Lords amendment No. 7 says:

“Her Majesty may by Order in Council provide for any of the provisions of this Act to extend, with or without modifications, to any of the Channel Islands or to the Isle of Man.”

I suspect that that is standard wording for a Bill of this nature. However, I understand that not all the current legislation covering mutuals is so extended to cover the Channel Islands and the Isle of Man. I wonder whether the Minister could touch on which legislation is and which is not, and what implications that might have, as I understand that all previous legislation at least has the capacity to include the Channel Islands and the Isle of Man. Perhaps the Minister could therefore clarify whether the amendment would, as a matter of course, apply to the Channel Islands and the Isle of Man or whether it just means that it could apply them, should they so wish at a future date.

I shall be happy to provide that clarification. My understanding is that the drafters of the Bill had not spotted the fact that other, similar types of legislation applied to the Channel Islands and the Isle of Man. When the Bill was being discussed in the House, during its earlier stages, there was not time to make the necessary consultations. We have a policy not to introduce such permissive extent clauses without consulting those involved—in this case, the islands—first. That has now happened and I am happy to confirm that they are content with being included, hence the amendment. I hope that that will answer the point raised by the hon. Member for Bournemouth, West (Sir John Butterfill).

I also understand that the Industrial and Provident Societies Act 1965 applies to the Channel Islands, and that there are powers to apply the Friendly Societies Act 1992 to the islands and the Isle of Man, which have not been fully used.

My understanding is that this measure will make that possible, but I am not in a position to say whether it will actually happen. However, everyone is happy with the situation.

Given that the Minister has told us that discussions have taken place with the Channel Islands and, possibly, the Isle of Man, can she tell us whether this point was ever raised either by the Government with them, or by them with the Government?

I know that the islands’ authorities were consulted and were content with the proposed amendment. I shall be happy to provide further details at a later stage if the hon. Gentleman considers that necessary.

Bearing in mind the uncertainty about the timetable, will the Minister tell us whether it will be possible for the Channel Islands and the Isle of Man to implement the provisions of the Bill before the United Kingdom Government implement them?

I am not sure whether that would be possible, but I can see no difficulties arising if it were to happen.

I am grateful. I was most interested to hear the Minister’s response to my hon. Friend the Member for Christchurch (Mr. Chope). Surely neither the Channel Islands nor the Isle of Man could implement the legislation before the British Government had done so, because it would be the British Government’s implementation of the different phases of the legislation that would trigger any subsequent actions that might flow from it.

I apologise for not being a world expert on the legal situation relating to the Channel Islands and the Isle of Man. I shall clarify the situation. The amendment will allow the Bill to be extended to the islands. It will be used only if the relevant mutuals legislation is extended, and it will then affect only those mutuals established in the Channel Islands and the Isle of Man. No time frame has been agreed at the moment; that will be sorted out during the consultation period. I must also apologise to the House and clarify that the Isle of Man could not implement the provisions before we had done so.

I commend Lords amendment No. 7 to the House.

Lords amendment agreed to.

Crown Employment (Nationality) Bill

Not amended in the Committee, considered.

New Clause 1

Appeals

‘(1) A person who is ineligible to be employed or hold office in a civil capacity under the Crown by reason of the rules made under section 2 (“the rules”) may appeal to a Crown Employment (Nationality) Rules Tribunal ("the Tribunal") for an exemption from the rules.

(2) In determining an appeal the Tribunal may recommend to a Minister of the Crown (or any person or body to whom the power has been delegated under section 2(3)) that an exemption to the rules be made.

(3) The Secretary of State shall make regulations with respect to the composition, conduct and operation of the Tribunal.

(4) The Secretary of State may not make regulations under this section unless a draft of the regulations has been laid before and approved by a resolution of each House of Parliament.

(5) The power to make regulations under this section is exercisable by statutory instrument.’.—[Mr. Chope.]

Brought up and read the First time.

I beg to move, That the clause be read a Second time.

Before introducing the new clause, which is tabled in my name and that of my right hon. Friend the Member for East Yorkshire (Mr. Knight) and of my hon. Friend the Member for Shipley (Philip Davies), may I apologise to the promoter of the Bill on behalf of my right hon. Friend the Member for East Yorkshire for his absence from the House today? My right hon. Friend was particularly keen to be here because he has always had a lot of respect for the hon. Member for Hendon (Mr. Dismore). He was able to participate in a debate on an almost identical new clause some three years ago, but today he was faced with a dilemma, as a big constituency event about the future of Bridlington hospital is taking place and he felt that he should attend it. The Government have proposals to reduce the activities of that hospital, which is—

Madam Deputy Speaker, my right hon. Friend particularly asked me to say that because the mother of the hon. Member for Hendon lives in his constituency in Bridlington, and he thought that he was serving the family—

I am sure that my right hon. Friend will be satisfied with what I have tried to do on his behalf.

The new clause has a history. It was debated some three years and four days ago on 15 October 2004. It was drafted by my late and much lamented friend, Eric Forth, who was unable to promote it at that time because he was called away, shall we say, to parliamentary business in the Maldive islands. He therefore left it to my right hon. Friend the Member for East Yorkshire, myself and others to carry the torch on his behalf on that occasion. In case there should be any doubt about plagiarism, I admit that the drafting of the new clause is not my own doing, but that of my late former right hon. Friend, Eric Forth.

The fact that the new clause has once again been selected for debate shows how it has stood the test of time and relevance. It is important because it also illustrates a sense of fair play and the desire to ensure the rights and freedoms of individuals. That was always right at the top of my late right hon. Friend’s agenda. He wanted Parliament to be able to do that on behalf of the people.

The purpose and effect of the new clause is to provide a counterweight to clause 2. As drafted, the clause gives “a Minister” or

“any person or body to whom that power has been delegated”

the power to impose “new nationality requirements” on those seeking employment or office in any

“civil capacity under the Crown”.

The new clause would give anyone aggrieved by the impact of the new nationality requirements the right to appeal to a tribunal for an exemption. That is why it is important to reflect on the new clause today. It involves the setting up of a tribunal and a right to appeal to it. It does not give the tribunal the right to impose its will on the Government; rather, it has an opportunity to make recommendations. It is not an absolute right of appeal, but a modest way of taking some steam out of what may be a bit of a cauldron for individuals who fall foul of the provisions in clause 2.

My hon. Friend rightly says that the new clause would give the tribunal powers only to recommend to a Minister of the Crown that an exemption should be made. Does he agree that in all likelihood it would be quite extraordinary for a Minister to ignore the tribunal’s findings.

I accept what my hon. Friend says. The House would be able to put pressure on a Minister if he tried to wriggle out and not accept the tribunal’s recommendations. The Minister would have the opportunity to come before the House and set out why he did not agree with the tribunal’s reasoning in making the recommendation. It is a necessary safeguard.

In that case, what circumstances can my hon. Friend envisage in which a Minister might wish to overrule the tribunal?

All that I can say to my hon. Friend is that when I had the privilege of being a Minister, albeit a junior one, in a Conservative Government, we always took seriously the rulings and recommendations of appeal bodies. Being a fair-minded person, I would like to think that the present Government, for all their faults—I am delighted to see the Parliamentary Secretary to the Cabinet Office, the hon. Member for Lincoln (Gillian Merron), on the Front Bench—would be minded to accept the recommendations of a tribunal. My hon. Friend tempts me to make a party political point, but I will not do so on this occasion.

My hon. Friend will notice that in relation to clause 2, with which his new clause would deal, the explanatory notes say:

“Any rules made under this power would have to comply with the requirements both of the European Communities and of the European Convention on Human Rights.”

It would be interesting to know whether they “will”, rather than “would”, comply. Does my hon. Friend agree that his new clause, in introducing an appeal system, would increase the likelihood of compliance?

My hon. Friend is on to a good point, because it is important, when considering human rights and individual freedoms, for people to have a means of redress if they feel aggrieved. The new clause would enable some right of redress if a person felt aggrieved. In the absence of the new clause, a sufficiently accessible right of redress will not be available.

In the light of that, is my hon. Friend as surprised as me that the Bill’s promoter did not have the foresight to include that protection when drafting it?

There hangs a story. When I and others spoke to the new clause some three years ago in this place, it was pointed out that the hon. Member for Hendon had had the opportunity to see the new clause for some considerable time; as I recall, the new clause was tabled in July, and the debate did not take place until October. He therefore had the opportunity to do something about it. In fairness to him, however, he was in a slight dilemma, because he said in that debate that he was neutral about the new clause. It then became apparent that the Government were—to put it mildly—hostile. I suspect that, because he is an ambitious and realistic person, he decided that it would be better not to promote a new clause to which he had heard previously that the Government were hostile. I do not know what his attitude will be today, as I have not had the chance to talk to him about it.

Given that that was three years ago, many reshuffles have occurred since and the hon. Gentleman has not found preferment, perhaps he will revert to his natural inclinations now, as it would not affect his career one way or another?

Order. Perhaps the hon. Member for Christchurch (Mr. Chope) will confine his remarks to the new clause that he is promoting.

Certainly, Madam Deputy Speaker. The issue raised by my hon. Friend the Member for West Chelmsford (Mr. Burns) relates to whether the new clause is likely to find favour with the promoter of the Bill. I am in the dark on that matter, and we will have to wait and see what the hon. Member for Hendon has to say.

Three years ago, the new clause was welcomed by my hon. Friend the Member for Beaconsfield (Mr. Grieve), who was then on the Front Bench. I hope that it will be welcomed equally by my hon. Friend the Member for Tunbridge Wells (Greg Clark), whom I am delighted to see on the Front Bench today.

May I drag my hon. Friend back to something that he said earlier? I was intrigued by his observation that the Government of the day—I was not an MP at the time—were hostile to the new clause. Given its rather benign nature and the modest proposals that it contains, will my hon. Friend explain what the objections were?

I shall come to that shortly. I am afraid that my hon. Friend will have to wait expectantly for me to remind the House of what happened on that occasion. But, as I have said, my hon. Friend the Member for Beaconsfield was supportive of, indeed enthusiastic, about the new clause, which he considered to be a necessary safeguard for those who might be disadvantaged by clause 2.

Would such a person be an individual who had, say, been excluded from the process of application for a job, or does the hon. Gentleman think that a class of people might be disadvantaged? If it were a class of people, would he have United Kingdom citizens in mind?

I did not have a class of people such as United Kingdom citizens in mind, although the hon. Gentleman has raised an interesting point. I had in mind particular individuals who found themselves counted out as a result of the operation of the discretionary procedures in clause 2. I had in mind an individual, which raises the issue of how practical it is for an individual to seek redress unless we insert something rather like the tribunal procedure in the new clause. The hon. Gentleman, however, has raised a much wider issue—which goes beyond the terms of my new clause—about the Bill’s impact on United Kingdom citizens in general rather than individual aliens, or foreigners, who might be disadvantaged by clause 2.

My hon. Friend the Member for Beaconsfield expressed the fear that expectations would be raised among the foreign population of this country about the ability to apply for civil service jobs. He feared that when people examined the details, they would find that they were being blocked by a new set of potentially complex Government rules. They might be excluded because of their nationality, which the Government might regard as undesirable or prejudicial to their ability to act impartially or be loyal to the Crown. But—as I think many Members accept—the fact that someone in this country has a particular nationality does not necessarily mean that he supports the Government of the country of which he is a national. Indeed, the reverse often applies: a person may have come here from Sudan, Burma or—especially in the current context—Zimbabwe precisely because he despises and loathes his own country’s current regime. The fact that a person is a national of a country—North Korea or Iran, for example—that is on a blacklist should not of itself automatically put them at a disadvantage because the Government regard any national of that country as being a potential threat to our national security.

I have secured today’s Adjournment debate and I have been following my hon. Friend’s remarks in my office—I hope he will forgive me for not having followed them from the outset. He is setting out the difficulty that people—particularly those foreign to our country—will have in understanding the proposed legislation and its intent. The Bill is accompanied by helpful explanatory notes, however, but although we can follow the content and purpose of the Bill with the aid of those notes, I am finding it difficult to follow my hon. Friend’s arguments closely as all we have to help us is his new clause on the Order Paper—we do not have any explanatory notes on it. Such notes can be circulated in scrutiny Committees, and I wonder whether my hon. Friend might—if not during this debate, then subsequently—consider whether it might be helpful to the House, especially on private business days, to have explanatory notes on amendments and new clauses circulated.

Order. I hope that the hon. Member for Christchurch will confine his remarks to the new clause and its contents.

Certainly; that has always been my intention. I do not think it is necessary for us to have written documents explaining what the new clause is about, as the House has the benefit of my presence to explain it.

As we have the benefit of my hon. Friend explaining things, will he explain proposed new subsection (3)? It states:

“The Secretary of State shall make regulations with respect to the composition, conduct and operation of the Tribunal.”

There were problems—in the late 1990s, for example—with regard to the composition of public bodies, which led to the setting up of the independent Appointments Commission. Why does my hon. Friend want the Secretary of State to make the regulations—presumably that would give the Secretary of State the powers to appoint the members of the tribunal—or does he intend that the regulations should specify that the appointments should be made by the AC, so as to avoid any accusations of packing public bodies by one political party or another?

My hon. Friend makes a fair and pertinent point. In considering whether to adopt the wording that our late lamented friend, Eric Forth, former Member for Bromley and Chislehurst, proposed, I faced the following dilemma: if we were to try to incorporate the point that my hon. Friend the Member for West Chelmsford (Mr. Burns) makes, that would make it less likely that such a new clause would be acceptable to the Government. Sometimes in legislation, perfection can be the enemy of the good.

This Government have repeatedly said that they want there to be independent appointments, particularly following the furore over the packing of appointees to NHS public bodies in the late 1990s, so they might not be as averse as my hon. Friend thinks to making such bodies independent, in order that it is seen that they are whiter than white.

I hope that the Government have taken that point on board. As my hon. Friend knows, under proposed new subsection (3) it would be for the Secretary of State to make the regulations, and they would be all the better if they were to incorporate all the points my hon. Friend rightly raises.

I do not wish to belabour the contribution of my hon. Friend the Member for Christchurch; he was clearly trying to be helpful to the Government. However, to pick up on the point that my hon. Friend the Member for West Chelmsford (Mr. Burns) raises on subsection (3), my hon. Friend the Member for Christchurch has included the word “conduct” in it. Is he aware that some tribunal chairmen tend to feel that they are High Court judges and often try to go much further than the legislation allows them? Has my hon. Friend used the term “conduct” in order to mean that the Secretary of State would have a mind to what training those chairmen have and that they understand the limits of the powers Parliament has given them—or does he have a different intention?

I accept the criticism that the word is vague. However, as I said, the Secretary of State would ultimately interpret what we meant by “conduct”. In the light of the previous debate, it seems that there is a good precedent, at this stage of a Bill, for the Government not really to know what that means. The issue of what we mean by “conduct” would ultimately have to be decided by the Secretary of State in regulations.

May I help my hon. Friend? As he drafted the new clause, he will have noticed that under proposed new subsection (4), the regulations that will lay out the composition, conduct and operations of the tribunal will be subject to affirmative resolution, so will have to be scrutinised by this House and another place. Furthermore, the Secretary of State will have to make draft regulations first. There is a problem: regulations in statutory instruments cannot be amended. However, if the Secretary of State produced draft—

What my hon. Friend is saying, I think—if I can encapsulate his remarks—is that he would like the Secretary of State to make the draft regulations before the statutory instrument came to this House. Although it is not spelt out in the new clause, I certainly hope that the Government would adopt that practice. If we have the opportunity to see draft regulations in advance, there will be the opportunity for consultation on them. Such regulations might be important and far-reaching. Issues might arise about the potential cost of the regulations; that is why we would want to see whether there was a regulatory impact assessment and cost-benefit assessment when they were brought forward in draft. In that way, we could have the fullest debate about them before they came into operation.

I am sorry that my hon. Friend the Member for Old Bexley and Sidcup (Derek Conway) was not in the Chamber at the outset of my remarks. I should say to him that the whole purpose of the new clause is to introduce the appeal procedure so that an individual—we are talking about individuals, rather than groups—

“who is ineligible to be employed or hold office…by reason of the rules made under section 2…may appeal”.

That is important because a national of another country may be one of our country’s strongest supporters. There are many examples of that; we may find that the Government have inadvertently put lots of really strong supporters of the United Kingdom—who might even support England in the big match this weekend—on the wrong side of section 2.

My hon. Friend raises an interesting point. He seeks to establish justice through an appeal, but I am concerned about proposed new subsection (2), which states:

“In determining an appeal the Tribunal may recommend to a Minister…that an exemption to the rules be made.”

Does that recommendation add any weight towards making the Minister make such an exemption, or will it be up to the Minister’s discretion whether to accept the tribunal’s recommendation?

I am bound, in a sense, by the text of my own new clause and, as it is drafted, the tribunal could make only a recommendation, which—given the meaning of the word “recommendation”—the Government could accept or reject. However, if we set up the tribunal properly, with the right people who command respect from all sides of the debate, and if they are properly advised, take proper evidence and go into the necessary detail of individual cases, I would hope that any recommendation would be so compelling that it would be almost impossible for a Government reasonably to reject it.

I am not altogether sure that my hon. Friend, unusually, fully understands how this Government operate. However, might there not be a way round this problem? Might not the Government be persuaded to say in the draft regulations, which will be subject to affirmative resolution, that they will accept all recommendations by a tribunal?

The Government could do that, and it might be a way of encouraging a better class of person to take on the role of tribunal member. It is quite often a bit demeaning for those involved in a quasi-judicial process to think that, having heard the appeal, their recommendation might not be accepted.

It is of course worth remembering that we are framing this legislation not for this Government but for any Government, so it has to be robust in all circumstances. Did the hon. Gentleman consider framing subsection (2) of his new clause on the basis of making the tribunal’s recommendations binding? If so, was there a rationale for why he preferred instead the form of recommendation before us—accepting, of course, that ultimately, precedent rather than the letter of this legislation will determine the tribunal’s efficacy in influencing ministerial decisions?

I would be being less than frank with the hon. Gentleman and the House if I did not point out that, in deciding whether to retain the wording in the original new clause, it had previously been accepted as being in order and relevant to this Bill. However and as we know, there was not even a quorum in the House when it had to take a decision on it. Rather than tinker with the previous wording, I thought I would be on safer ground in adopting it. Indeed, it is the wording of which the Government and the promoter had had notice on a previous occasion, and they must have been expecting that we would introduce a similar proposal this time. However, I accept that in an ideal world, it would have been open to people to table amendments to my new clause. However, there are no such amendments on the selection list, so we cannot discuss them today.

I am sorry that we are pressing my hon. Friend on this issue—I hope that he is not offended by that. I am not quite sure who the “better class of person” is to whom he referred. Perhaps my hon. Friend the Member for West Chelmsford (Mr. Burns) is the better class of person whom he wants. May I press my hon. Friend the Member for Christchurch (Mr. Chope) on the point that my hon. Friend the Member for West Chelmsford raised? If a Minister declines to accept the tribunal’s recommendation, what happens then? Would the members of the tribunal resign? Would there be another form of appeal? My hon. Friend will understand why the House would like to hear the detail on the consequences of Ministers’ actions. As we know, Ministers do not always decide as we would like them to.

Exactly, and this is where human factors come into play. The most robust judicial figures in our land would probably say, “If we make a recommendation based on evidence after hearing all the parties and Ministers reject it, this is not a role on which we wish to spend our time. We do not want to waste our time hearing cases in detail, only to find that we are overruled.”

If the Government were not to accept recommendations, the ablest people might, ironically, be deterred from continuing in service as members of the tribunal and their places might being taken by ciphers—people more interested in the role’s salary than in the opportunity that the post would give to serve the interests of justice and promoting individual liberty.

That gets back to my original point to my hon. Friend: would it not be better for the independent appointments committee, rather than Ministers of the Crown, to appoints the members of these tribunals?

I accept that it would be better. I hope that the new clause will be accepted by the Government and by the House, and that the Government will, in due course, have the opportunity of implementing it on the basis of including a practice direction that they will always accept tribunal recommendations.

Given my hon. Friend’s answer to a previous intervention about the fact that if a tribunal had considered all the evidence in a robust and thorough manner and everybody could see that it was all above board, a Minister would be unlikely to reject the recommendations, does he intend that the tribunal would take evidence in public and that its findings would be made public so that people could hold the Minister to account should he overrule the decision?

The issues of whether the tribunal would sit in public, whether the evidence and its decisions would be published and, if so, how, are dealt with in subsection (3) of the new clause. That provision refers to the

“conduct and operation of the Tribunal.”

I would like tight prescription to be set out in regulations on that matter. In answer to my hon. Friend’s specific point, I would like that prescription to ensure that proceedings were in public, so that justice could not only be done but be seen to be done.

This is an important point because the way that clause 2, which the new clause seeks to amend, is drafted means that the provision would apply not only to a Minister overruling a tribunal but to any person or body to whom the power has been delegated. It may well be that it is not a Minister who overrules a tribunal’s decision—it could be any unelected and unaccountable body—so it strikes me that it is even more important that the findings are public, so that we can all see where we stand.

Although my hon. Friend is right in saying that the decision coming before the tribunal to be tested may not be that of a Minister, but of someone else to whom the power had been delegated, the tribunal recommendation would, under the provisions of subsection (2) of the new clause, be a recommendation to the Minister rather than to the body that had made the original decision. The Minister would thus ultimately have full responsibility and accountability.

My hon. Friend is right to say that transparency is an essential part of accountability. I recall going to a court in Scotland when I was a law student. The case was quite a seamy one. My group was sitting in the public gallery, as the High Court judge knew, and it was not long before defending counsel suggested that the court should sit in camera. The lord justice in question, who recently died, sadly, put his feet up on the bench, not just metaphorically but literally, and said, “Justice must not only be done, but it must be seen to be done.” He gave a big wink to all us students sitting in the public gallery.

I am very much in favour of this principle of transparency and openness. Normally, the only people who are against it are those who fear embarrassment. There is thus always a motive for the Government to be against it, but we pride ourselves on having an open, honest and fair judicial system in this country. I would hope that those principles would be replicated in the rules for the tribunals that would be made under the provisions of the new clause.

My hon. Friend’s reminiscences about his days as a law student are very interesting, but I wish to press him again on the quality of the people who will be involved and their conduct. I recall once having to give evidence before an employment tribunal at which the chairman went way beyond the terms of reference. He was probably not up to the job, and the lawyers present had to remind him that he was going beyond the scope of the powers that Parliament had given him. Is my hon. Friend concerned about the sort of people who will be running the show? Not only might the Minister who makes the decisions be of varying quality, but so might the person giving advice on exemptions to the Minister not be of a very high calibre. The whole system could be a shambles. Does that worry my hon. Friend?

That is why it is important that the composition of a tribunal should be set out in the regulations and, preferably, be the subject of consultation in advance. I do not know whether my hon. Friend has appeared before an industrial tribunal, but in the days when I practised as a lawyer I used to do so. They comprised a chairman, who was normally legally qualified, a “representative” of the trade union movement and a representative of business. Often, one could see that those people were not working together as a collective. Instead, they saw their role as expressing their own sectional interests. If that were to happen in the tribunals that I propose today, I would be dismayed and disappointed because that is not how a fair tribunal should operate. All the people on the tribunal should be concerned only with ensuring that justice is done, and they should not be drawn from any particular sectional interests—in the same way we do not draw our judiciary from sectional interests and people do not have the right to choose the particular judge who will preside over their case. That principle also extends to juries. We have restricted people’s right to choose a jury that they think will be sympathetic to them on some sexual or, dare one say, national or racial basis.

My hon. Friend makes an important point. If an employer is about to appear before a tribunal and sees that the chairman has a beard, a copy of The Guardian and plastic shoes, he knows that he is probably in for a hiding. My hon. Friend makes a fair point about the quality of people before whom one might appear. Does he think that those who sit on tribunals should have no declared party political allegiance so that at least the petitioners can be assured of a fair hearing, rather a partisan hearing?

There is a difficulty with this. I am in favour of encouraging the maximum number of people to join political parties and participate in the political process. My hon. Friend refers to the laudable objective that everyone who sits on a tribunal should be without allegiance to a political party, but if the consequence of introducing such a rule would be to deter people from participating in the political process or joining a political party, it would be counter-productive. We have reached that situation already in some of the appointments in the NHS. Unless people are members of the political party that is in government, they feel, especially if the Minister is making the appointment, that they will be at a potential disadvantage. Often, people who have a party political interest—who have joined a political party and take an interest in public affairs and the welfare of our great nation—have an important role to play, perhaps on tribunals like the ones we are talking about. They might be party political, but the important thing is that such people, whatever their views, are big enough to be able to suppress their prejudices when it comes to taking decisions—

Order. I hope that the hon. Gentleman will give way to me. We are in danger of hearing an embellishment too far in terms of the new clause that is before the House. It would perhaps have been better if some of the issues that are now being raised had formed part of another amendment or new clause. I direct the House to have regard to the strict terms of the new clause that is being considered.

I am grateful to you for that ruling, Mr. Deputy Speaker. You will be aware of how physically exhausting it is to keep rising and sitting down again—

Order. In which case, the hon. Gentleman will no doubt consider that that also applies to the Chair. Perhaps we will have mutual restraint in that respect.

Absolutely. Let us hope so. I abide by your ruling, as always, Mr. Deputy Speaker. I am not going to articulate all the details that would be contained in the regulations which, if I interpret it right, is your concern. Otherwise, we would be here all day, which would obviously be undesirable.

Obviously we will abide by the directions of the Chair, but in terms of rising and sitting down I note that both the occupant of the Chair and my hon. Friend look in pretty good condition, so this exercise is probably very good for everyone.

My hon. Friend says that he does not want to be pressed on the detail. I am sorry we are having to do that, but we do not have explanatory notes to new clauses in the way that we do for other Bills, so he will understand why we need to press him to clarify the direction in which he is travelling. Although he will not go into absolute detail—the House will understand why—I hope he does not take offence at the fact that we are pressing him a little on these matters.

I would never take offence at anything my hon. Friend did or said. What is important is that the House and the Government, whom I hope to be able to persuade to accept the new clause, know why we have chosen to include the words

“composition, conduct and operation of the Tribunal.”

Those are the three key elements of the regulations to be made under the new clause. We discussed the importance of the composition of the tribunal. The nature of its composition would make all the difference in the world to its effectiveness and authority. That is why there should be detailed regulations relating to that. The conduct of the tribunal would be fundamental to whether the people who appear before it have confidence in it, and whether it is effective and commands public support. The operation of the tribunal is also highly relevant. That is why those three elements have been picked out. The new clause does not say that the Secretary of State cannot make regulations that go wider than that, but any regulations that he does make must include those essential key elements. I hope that that commends itself to the House.

In promoting the new clause, my hon. Friend has given such an alarming picture of the consequences of the tribunal having people of poor quality or not being able to conduct itself properly that he is beginning to persuade me that the new clause is deficient and should have more specifics on the conduct and calibre of the people involved. Can he reassure me on that?

All I can do is say that we are where we are, as Mr. Deputy Speaker said. We have the new clause before us. It is not embellished. No one has sought to amend it by making it more extensive. All one can do is hope that if it is incorporated into the Bill and the Bill becomes law, the Government, who control such things, will ensure that the concerns expressed are reflected in the content of the regulations.

It grieves me to have to tell my hon. Friend that, like my hon. Friend the Member for Tunbridge Wells (Greg Clark), I am becoming more and more concerned that the new clause does not go far enough. I fear that I shall have to seek to catch Mr. Deputy Speaker’s eye to make it clear why there may be deficiencies in it.

It would not be the first time I have been accused of having deficiencies. I am the first to accept that nothing in the world is perfect but, as I candidly explained to the hon. Member for Montgomeryshire (Lembit Öpik), my main concern is to introduce a provision that is in order and relevant.

I understand the objections that other Members have made, but as at this stage we do not know how many cases would go to a tribunal or how many times it would meet, does my hon. Friend agree that it is difficult to make specific points about its composition?

That is obviously an issue. The number of times the tribunal met would depend on how the Government used their powers under clause 2. If they were seen to use their powers fairly, only a small number of aggrieved people would appeal to a tribunal. Of course such a process is always open to vexatious litigants or people who are sometimes encouraged—I am ashamed to say—by members of the legal profession who think there is money in it for them too, but such cases would be the exception. However, if the Government were seen to be heavy-handed in the use of their considerable powers under clause 2, there would be a heavy burden on the tribunal, which would eventually lead to additional costs for the taxpayer. In that sense, setting up a tribunal process with costs for the taxpayer would introduce a deterrent against the Government acting in a high-handed and unfair fashion in the exercise of their powers.

It is uncharacteristic of my hon. Friend to call for what could be a considerable increase of public expenditure, which has to be financed from taxation. He is usually meticulous in avoiding such charges on the Exchequer, so I assume that he has made an assessment of what he considers a proportionate sum for the costs of the provision. What does he think is a reasonable expenditure consequence of his proposal?

Order. Before the hon. Gentleman replies, may I point out to the hon. Member for Tunbridge Wells (Greg Clark) that it will be helpful if he addresses both the Chair and the microphone? Otherwise his words may not be properly recorded.

My hon. Friend the Member for Tunbridge Wells asks a pertinent question. As a former shadow junior Treasury Minister, I know how important costs are and how important it is that Opposition parties do not support proposals that might be interpreted by a mischievous Government as suggesting that we were making unfunded spending commitments. I do not think that the costs of the tribunal process would be greater than the costs incurred by not having a tribunal. If there is no tribunal to take the steam out of the cauldron, more people would be dissatisfied and the judicial review process would be used instead. Perhaps the Minister will tell us about that process in due course because when we last discussed the issue the Government line was, “Let the people use judicial review”, but that is expensive not only for the applicants but for the Government and thus the taxpayer nationally. It can use up valuable resources.

Will my hon. Friend explain who will pay the costs of the tribunal? Will the litigants be responsible, which might mitigate the costs to the Exchequer, or is it his intention, and expectation, that the costs would be met from central Government?

I am afraid that on this occasion, I will have to hide behind the wording of my new clause and say that that will be a matter for the regulations. Regulations could incorporate rules relating to costs, but I had it in mind that normally the burden of costs should be borne largely by the taxpayer rather than the applicant. We are talking about lots of applicants who are applying for what may be quite modest civil service jobs, where the salary might be only a few tens of thousands of pounds. I would not want them to be deterred from exercising their rights and obtaining justice by the knowledge that, were they to be unsuccessful, they would be penalised significantly by costs.

I understand where my hon. Friend is coming from on the issue of costs and taxpayers’ money, but an important balance has to be struck. That is one of the reasons I am so disappointed by the way in which the Government are dealing with legal aid, effectively ruling out access to the legal system for lots of people in our society who are relatively poor. It has almost got to the stage where people have to be extremely wealthy or extremely poor to get access to justice. I would not want my tribunal, as I shall arrogantly call it, to fall foul of that system. I want anybody who is aggrieved—not those who are vexatious—to be able to get access, and the costs would have to be borne as part of the overall cost of society and having fair play.

I am sure my hon. Friend accepts that there cannot be a differential between the cost and the effectiveness of the tribunal. They are part of the same issue. He said earlier that more people would go to the tribunal if the Government were seen to accept its verdict. Is there a danger that the Government would deliberately not accept the verdicts of the tribunal to deter people from going to it, in order to reduce its costs?

My hon. Friend is adopting the mindset of a Minister; I congratulate him on that. It is exactly the convoluted approach, with perverse behaviour and outcomes, that Ministers, or perhaps their advisers, often adopt. I hope that we can have more trust in human nature and rational behaviour on the part of the Government than my hon. Friend suggests. I do not want to make any guarantees, but I live in hope. The issue of costs is important, and when we last discussed it, it was the main reason and justification put forward by the Government for not accepting the new clause. However, I would say, “What price justice?”

My hon. Friend has made it clear that it is at least possible that the costs might fall on the litigant, but given the terms of his new clause, if the tribunal’s decision were not binding on a Minister, litigants would be enticed into a gamble. They could spend large sums of money and win their case, but find that Ministers completely ignored the tribunal’s ruling. Should we be enticing people who may be, as my hon. Friend says, quite low paid, to risk their money in that way?

I draw my hon. Friend’s attention to a relevant analogy, which is what happens under the planning process. If people are aggrieved by a planning outcome, they can seek judicial review, which is an expensive, convoluted process. The result of that review will never overturn the decision and say that the planning permission that was granted is now overturned. A judicial review can only send the matter back for reconsideration. That happens at the moment under the planning process, and it is one of the reasons why I would never advise a constituent to engage in such judicial reviews.

However, at least under my proposals, the costs will be much less for the applicant than those of engaging in judicial review. I accept the comments of my hon. Friend the Member for Tunbridge Wells that, almost by analogy with judicial review of planning decisions, the outcome will be uncertain because applicants may end up with a pyrrhic victory. They believe that the recommendation has been made in their favour, but then the Government overturn it. At least by that stage, the Government are accountable to the House, the individual Member of Parliament can seek an Adjournment debate on the matter and all the available processes would come into play, including scrutiny by the alert newspapers, which we are lucky enough to have in this country.

Giving a Minister of the Crown discretion about whether to accept a recommendation drives a coach and horses through matters, and I take the point that the proposal is less than perfect, but it is better than the alternative. Indeed, there is no alternative before us today.

It is typical of the responsible way in which hon. Members are tackling the matter that they are so concerned about the potential costs and want to ascertain how the process may interact with the people whom it is designed to benefit. Under clause 2, married people may find themselves penalised by their relationship. I appreciate that amendments in the next group could have an impact on the clause. However, when one considers that the status of a spouse may have a critical impact on an individual’s ambition to serve in a civil capacity under the Crown, it is important to establish proper safeguards for such people. In a sense, they risk being penalised not for their status, beliefs or nationality but because of the person whom they have chosen to marry. That may have to happen sometimes, but, if so, it should be subject to a right of appeal or review, for which the new clause calls.

My hon. Friend the Member for Beaconsfield supported the new clause when we previously discussed the measure. He said that it provided a framework of greater fairness and that it would prevent the Government from having free rein in picking and choosing the countries that they would put on a prohibited list.

Clause 2 gives the Government tremendously wide discretion to outlaw citizens from a range of countries on the basis of a black list, which may have a severe impact on affected individuals. As my hon. Friend the Member for Beaconsfield said on the previous occasion, it would be better to concentrate on the individual qualities of applicants, almost irrespective of their nationality, and consider their ability to serve the country well.

When we discussed the measure previously, the hon. Member for Hendon, the promoter, was dismissive of the new clause, saying that those who supported it were not genuine supporters of the Bill. That did not—and does not, I believe—apply to my hon. Friend the Member for Beaconsfield because he said that he could see some good in the Bill overall. I can see some good in the Bill overall, but I can also see a lot in it that is bad. I am concerned to try to make it better and fairer than it would be without the inclusion of new clause 1.

On the previous occasion, it was said that judicial review would be available and that that would be sufficient—I anticipate that the Minister might have the same brief as her predecessor did three years ago and say that we do not need the provisions in the new clause. The argument was put then, and no doubt it could be put now, that the judicial review process had been streamlined and that there were now effective mechanisms for settling cases prior to the hearing taking place. However, if one wants a recent example of the reality of judicial review, one does not need to go further than the case reported in the papers in the past 10 days of the challenge to the distribution of the Al Gore film to our schools. An individual took that case to judicial review. Although I do not have first-hand knowledge of it, my understanding of what was contained in press reports is that bringing the case to judicial review could have cost the challenger up to £200,000. If he had lost the case, not only would he have had to pay that £200,000 but he would have been liable for the Government’s very considerable costs.

We do indeed have a new judicial review process, which can be used by the Government, but it is too rarely used by the Government. It could have been used by the Government in that case, because at the end they seemed to be quite satisfied with the outcome, although the taxpayer ended up paying the best part of two thirds of the costs of the challenger, as well as the costs of trying to resist the challenge. However, not many people who seek a position in the civil service will risk such large sums of money in the judicial review process. I therefore do not think that the judicial review argument, which the Minister might deploy, is an effective argument against the new clause.

There it is—the new clause is not perfect, but it would certainly have a beneficial impact on what would be the unfair provisions in clause 2.

My hon. Friend must forgive me for not being on the Front Bench in the Committee stage of the Bill, but can he brief me on whether the Human Rights Act 1998 offers some protection to people who might be disadvantaged by the decisions of Ministers?

Although I am member of the Parliamentary Assembly of the Council of Europe—I am delighted to see the former leader of the British delegation, the hon. Member for Manchester, Central (Tony Lloyd), in his place; he might be able to help us on this—my understanding is that in order to exercise one’s rights under human rights legislation in this country one would need to go to court. That means that one would effectively open oneself up to exactly the same potential costs as going to judicial review. One might then seek to go the European Court of Human Rights in Strasbourg. However, I believe that at the last count the list of cases waiting for determination there was about 100,000, so one would not be guaranteed very speedy justice, and by then the job opportunity might have gone somewhere else.