Amendment 106 deals with the continuity obligations which can be imposed. Under Clause 63(2), the residual bank and each group company have to provide whatever services and facilities are required for the business of the transferee. There is no time limit or other restriction in this clause. The British Bankers’ Association believes that a maximum time limit should be placed on this. The residual bank and its group companies have no right of appeal against a notice that they must provide services, so it is important to ensure that the obligation placed on them is proportionate. The BBA has suggested a period of 12 months on the basis that this is the normal notice period for service contracts entered into commercially. My own amendment is rather more modest because it sets a maximum of two years.

It ought to be possible for the transferee to make its own arrangements for whatever services or facilities it requires. In practice, 12 months should be adequate but, at two years, my amendment provides plenty of time to deal with things like IT systems, property and anything else that is likely to be needed. It seems grossly unfair to the residual bank to make it suffer, perhaps indefinitely, by providing services to the transferee. It is not a question of money, although adequate compensation is necessary, as we shall debate on the next group of amendments. A residual bank needs to concentrate on its own remaining business and not be sidetracked into being a service provider to a transferee which may even be a competitor. I beg to move.

This amendment relates to continuity obligations. It may help if I first provide a brief explanation of how these obligations are intended to work in relation to banking groups. Major financial firms do not tend to operate as single legal persons. Instead they are organised as groups, generally with a single, ultimate parent company and any number of subsidiaries which may be organised into distinct sub-groups. Corporate entities within these groups are connected through shareholdings, but are likely to be connected in other ways as well. Banking groups may have hundreds of group companies. Noble Lords should note that Northern Rock was an unusually simple bank in terms of corporate structure in that the holding company was the deposit-taker and the bank had very few subsidiaries.

There is no general rule about how banks organise themselves, and in particular about where they locate their systems. Some banks’ systems are split between subsidiaries; others are all located in the holding company or a particular subsidiary. For example, the holding company may employ all the group’s employees or a specialist subsidiary may provide IT services to the whole group. As currently drafted, the scope of the special resolution regime is restricted to banks; that is, institutions having permission to accept deposits under the Financial Services and Markets Act 2000. Noble Lords will be aware that I have tabled amendments to extend the scope of the temporary public ownership tool to bank holding companies. But the starting point will be to take action with respect to a bank, if that is practical. Continuity obligations enhance the likelihood of this being possible.

Clauses 63 to 70 provide for these continuity obligations. In particular, the clauses include powers to place general and special continuity obligations following a transfer upon group companies of the failing bank. These obligations will be restricted to ensuring that necessary services and facilities continue to be provided to the business that has been transferred. A general continuity obligation arises following a transfer automatically, by operation of law. The intention is that it would be replaced with special and specific obligations as soon as the authorities can determine the precise nature of the services or facilities required. The special obligation gives the authorities powers to create, modify or cancel contracts between a transferee and group companies. Where the transfer involves a property transfer, such that a residual bank is left behind as a distinct corporate entity, the special continuity obligation also extends to the residual bank. But the power is only exercisable in relation to the services and facilities required to operate the banking business effectively.

Let me say something about how the continuity obligations might operate in practice. A transfer of banking business may need to be made on an urgent basis. In this situation, it may not be possible specifically to identify the precise nature of the services and facilities that a bank receives from group companies. Group structures tend to be highly complex, and if there are hundreds of subsidiaries, it may take time to understand the precise nature of all the intra-group arrangements. Hence, on day one a general obligation would arise requiring group companies to provide such services and facilities as are needed to operate the banking business effectively. Then, in due course, and once the nature of the required services could be properly worked out, the power to impose special obligations could be exercised. The Government consider that reasonable consideration should be paid to service providers for any service or facility that they provide to a bank. Through Clause 69, the Bill provides the Treasury with a power to provide further details in secondary legislation on how the authorities will determine this reasonable consideration.

I was not quite clear about the Minister’s reasoning for the present state of the law not being sufficient for the purpose.

It is appropriate for the avoidance of doubt that the continuity obligation and its durability are clear. In earlier discussions your Lordships’ House emphasised the importance of continuity of service. We have an absolute goal to ensure that where the special resolution is used, continuity of service to the customers of banks is maintained. We wish to avoid there being any doubt at all about a bank’s ability to continue to receive the necessary support from other group companies on which it has depended.

That said, I repeat that I am entirely aligned with the sentiment expressed by the noble Baroness when she was speaking to her amendment. However, I hope that the provisions we have made and the comments I have addressed to the Committee will provide the necessary comfort to her.

Does the Minister think that the newco—that is, the company with the assets transferred into it—has a duty towards the resco in respect of continuity?

The company which the noble Viscount refers to as the newco—the transferee—would have certain duties of care to the transferor, and those duties are captured by the clauses on continuing relationships and the reasonableness of the price paid. This is certainly not designed to allow the transferee in any way to abuse the transferor. There is a duty, but it is not a legislative duty beyond the one relating to reasonable consideration for services provided. There is a duty, but it is not a legislative duty beyond the one related to reasonable consideration for services provided.

When the Minister spoke I realised that I had tabled my amendment under the wrong clause; it should have been in Clause 64, not Clause 63. I wonder whether the Minister might like to answer this question. He spoke in terms of a general continuity obligation not lasting more than two years. I had meant to draft provision for a specific continuity obligation lasting for not more than two years. The point is that the residual organisation should not be put in the position of being a service provider to the transferee for ever and a day. I wanted to focus on that. Perhaps the Minister can answer that and possibly save me from having to bring this back on Report.

I shall seek to answer the noble Baroness’s point. I think that the principles I articulated continue to apply and be relevant. I find it difficult to envisage a circumstance in which a continuing continuity obligation, be it general or specific, is likely to need to run for more than two years. However, one cannot rule out such a possibility when it relates to very complex IT systems that support retail banking and are at times housed in another part of the larger organisation. I urge the noble Baroness to take comfort from the fact that I share her view that there should be an appropriate and early separation, but not to the point that it places at risk the ability of the transferee—or newco, as the noble Viscount, Lord Eccles, described the company.

Are not some of these IT systems likely to be indivisible? In that case, may there not be a need for a continuing continuity arrangement if the system is to work?

That may well be the case. As I said yesterday, I was a director of Coutts. I was also a director of NatWest, but well before it became part of the Royal Bank of Scotland. The IT systems at NatWest at that time seemed to have been written in the Stone Age and our ability to make any meaningful changes to the customer service provision was constantly obstructed by what was known as BOLT—I do not know what that stands for. The noble Lord is right that legacy systems supporting the sheer volume of data which a large bank requires are not simply lifted out. In the new world of smaller computers and systems it is probably not quite as difficult as it was for many systems, but it is precisely for that reason that we think it would be wrong to put a time limit into legislation.

I thank the Minister for explaining what he had in mind, and I am grateful for his opinion that the arrangement should not last a long time. On the point about legacy systems raised by my noble friend Lord Higgins, we would not expect them to have to last a long time, simply because people today have to survive dealing with their own systems. I suspect that it would be unsatisfactory for a transferee to be dependent on its former home to provide its services over a long time. The natural instinct should be to drive away. I am grateful for what the Minister said. As I mentioned, the British Bankers’ Association is exercised about this. I shall ask it to read what the Minister said in Hansard and advise me whether it continues to have a concern.

Still dealing with the continuity obligations, we now move to what the transferee has to pay for them—or, to put it the other way round, what the transferor can receive for them. I shall speak to the seven other amendments in the group as well. They concern the arrangements for remuneration in respect of the provision of continuity services. In Committee in another place, the Government moved amendments to replace the original concept of “market rate” with one of “reasonable consideration”. I accept that “market rate” caused some difficulties because it might allow monopolistic pricing. Unfortunately, “reasonable consideration” has no defined meaning in commercial terms and, as drafted, leaves rather too much to the opinion of the Treasury, using its power under Clause 69, to which the Minister referred earlier, to determine what amounts to reasonable consideration. The Treasury has no natural or indeed obvious competence in the pricing of services reasonably.

My amendments address three issues: whether “reasonable consideration” is the right term; what obligations are on the Treasury and the bank to achieve reasonable consideration and other terms; and an appeal mechanism in case of disagreement as to the consideration or other terms.

Amendments 107, 109, 110 and 112 replace “reasonable consideration” with,

“such consideration as would be expected in arrangements concluded between parties dealing at arm’s length”.

That phrase would apply to Clauses 63, 64, 66 and 67. This formulation is used in those clauses for determining the other provisions in the arrangements for continuity services. It seems to me that if it is good enough for determining general terms and conditions, the formulation would be right and consistent for determining consideration.

Amendments 108 and 111 would delete the words,

“aim, so far as is reasonably practicable”,

from Clauses 64(3) and 67(3). That would require the Bank of England or the Treasury actually to achieve both “reasonable consideration” and other arm’s-length terms. The question posed by these amendments is: why should there be any issue of reasonable practicability? The service providers want assurance that they will be dealt with on arm’s-length terms and at a proper price. Why should the authorities have any let-out from achieving that? What, in practice, is targeted by this caveat wording of,

“so far as is reasonably practicable”?

Lastly, Amendments 113 and 114 replace the order-making power in subsection (1) of Clause 69 with a requirement for the Treasury to appoint someone independent to determine terms or price, whatever formulation is used, in the event of disagreement. I should probably have deleted subsection (2) as well, for completeness, but I do not think that that matters for the purposes of today’s debate.

There is a theme running through these clauses that the residual bank and the group companies will do what they are told on the terms they are given and for monetary consideration that the Treasury determines. These residual operations, and certainly other group companies, may well be viable businesses, with their own priorities, and it is important that they are treated fairly. These amendments are intended to be a contribution to that, and I beg to move.

It is worth bearing in mind that the bank described as the residual bank is part of a failed organisation. When we talk about the fairness of the arrangements between the bank that has gone into the special resolution process—the NewCo, as referred to by the noble Viscount, Lord Eccles, and the residual bank or transfer, as referred to by the noble Baroness, Lady Noakes—we are talking about what was, prior to that, a single organisation with a single set of shareholders with interests in the totality of the organisation.

I shall speak first to Amendments 107, 109, 110 and 112. The noble Baroness has tabled a series of amendments which seek to introduce the concept of arm’s-length terms into the continuity clauses. The amendments provide that the relevant authority must ensure that consideration be paid as would be expected in arrangements concluded between parties dealing at arm’s length.

If a former group company provides a service—for example, IT support, as we mentioned earlier—to a deposit-taker that has been transferred into temporary public ownership, the continuity provision places the former group under obligations to continue to provide the service. However, it is of course appropriate that the group company receives reasonable consideration for the provision of that service.

In normal circumstances, the forces of supply and demand—the usual commercial forces—would work to determine consideration, as would be expected in arrangements concluded between parties dealing at arm’s length. If a company purchased a bank from the group, it would seek to negotiate terms for the provision of services to the bank, or put in place other arrangements. For example, an IT company might stipulate that it be allowed to shut down systems for an hour each night to carry out maintenance. If the deposit-taker did not accept this provision, the bank would take its business elsewhere or arrange the service to be provided by another company. However, clearly, the authorities would not have opportunity to enter a process of negotiation, or to seek alternative arrangements at the time of the transfer under the SRR stabilisation powers.

Once the business is transferred, it is essential that the services continue to be provided to ensure that the deposit-taker remains operational from hour one of day one. This is necessary, for example, to ensure that depositors retain access to their accounts. Therefore, the transferee would have but one choice: to continue with the same services as pre-transfer. In addition, bank systems are often highly bespoke to the particular business that they support, so it is highly unlikely that a transferee would be able to find and organise an alternative supplier for essential services at very short notice.

Given that the deposit-taker would not be able to take advantage of substitute service providers, a former group company that supplies services is likely to be in a position of relative power and could seek to charge “ransom” rates. This is because the deposit-taker would have no choice but to accept the terms of the provider, given the absence of alternatives. For this reason, the Government consider that the phrase “reasonable consideration” strikes the right balance between the consideration that a service provider should rightfully receive and mitigating the risk of “ransom” conditions being imposed. Clause 69 provides that the Treasury may by order specify matters which are to be or are not to be considered in determining what amounts to reasonable consideration. I hope that I have suitably justified the Government’s position on this issue.

Amendments 108 and 111 seek to remove the phrase “so far as is reasonably practicable” from subsection (3) of the relevant clauses. This subsection relates to specific continuity obligations for share and property transfers. It imposes a duty on the relevant authority to aim to preserve or include provision for reasonable consideration, and other provisions that would be expected in arrangements concluded on an arm’s-length basis. The amendment would remove the qualification to that duty; namely, that the duty does not arise where it would not be reasonably practicable. Of course, it is the authorities’ intention to provide such things in all situations. However, there may be circumstances which result in it not being practicable. This reflects the fact that the continuity obligations have not been, and cannot be, concluded in the manner of ordinary contractual arrangements. A bank will normally make provision for its servicing arrangements in a deliberate and planned way, anticipating the future needs it will have for required services and facilities.

By contrast, the continuity obligations are designed to ensure that required services and facilities continue to be provided, following a transfer compelled by statute. In such circumstances, it may not be reasonably practicable to provide for the terms of such contracts to be on wholly commercial terms because there may not be any legitimate commercial analogue for the circumstances of the banking business following the transfer. I should also make it clear that the phrase “so far as is reasonably practicable” does not provide the relevant authority with a right to ignore commercial terms.

I shall now turn to Amendments 113 and 114, which seek to change the nature of Clause 69, whose purpose is to provide that the Treasury may by order specify matters which are to be, or are not to be, considered in determining what amounts to reasonable consideration, or arm’s-length provisions. The order is intended to be a standing piece of secondary legislation, not bespoke for a particular resolution. The purpose is to set out provisions which would not be suitable for primary legislation but which would aid clarity about how the Treasury may seek to determine what amounts to reasonable consideration or arm’s-length provisions.

Amendments 113 and 114 change subsection (1) of the clause so that the Treasury may appoint a person to determine what amounts to reasonable consideration in the event of dispute, instead of providing for the matters that are or are not to be considered in assessing what amounts to reasonable consideration. It is true that other parts of the Bill, most notably in respect of the compensation clauses, provide for independent valuation and for independent valuers to be appointed. However, the Government consider that the circumstances in which compensation takes place are different from the environment of a continuity obligation.

The existing power is an order-making power which allows the Treasury to specify matters which may be taken into account in assessing the consideration to be paid. The purpose is to provide commercial certainty as to the factors that may be taken into account and to ensure that a ransom is not paid. Any determination as to the consideration paid is, of course, subject to judicial review. Therefore, while it is not explicit in the Bill, there is a mechanism that could be put in place for the independent evaluation of the reasonableness of the determination as to consideration. Therefore, I hope that the noble Baroness feels able to withdraw her amendment.

Before I consider what to do with my amendment, will the Minister explain the difference in Clause 64(3) between paragraphs (a) and (b)? As I understood the Minister, the formulation of “reasonable consideration” was appropriate with regard to money, but somehow “arm’s-length” terms was the correct formulation for everything else. If we have a potentially monopolistic provider, why are not paragraphs (a) and (b) both on reasonable terms rather than market terms? If you can ascertain arm’s-length terms for one set of conditions, you can do it for price, or vice versa—or, you cannot do it for both. There is a mismatch in the Government’s own drafting, in that they apply a different standard to price compared to the other terms, which may be more important than price, in practical terms, for the residual organisation providing the services. Yet the Government have set up a completely separate way in which to determine those two sets of terms. Can the Minister explain the difference?

My interpretation is that Clause 64(3)(a) relates to the core provision of continuity. Any other provisions going beyond that would be on an arm's-length basis. That is to say that there are certain issues where the transferee bank would absolutely require a continued service from another group company as part of the transfer. It might elect to receive other services from another part of the transferor and those would be negotiated on a commercial arm's-length basis.

Perhaps the Minister has read too much into subsection (3). Subsection (3)(a) refers to “provision for reasonable consideration”. It does not refer to core services or anything like that. Subsection (3)(b) refers to “any other provision”. If we take the provision of IT services, which is the example that the Government have used today and in another place, there are terms about price, but group companies might have all sorts of other important terms in a service level agreement, such as speed of turnaround, access to processing, updating and all the things that go with the provision of a facility. What is the difference between price and all those other provisions? If you can determine one on arm’s-length terms, why cannot you determine price on arm’s-length terms? They are two different streams in one; this is not about core services.

Other terms may take a wide variety of forms and do not amount simply to a reasonable price, as the noble Baroness suggests. Here, the requirement is qualified by a practicability requirement. The essential difference is the qualification on practicability.

The Minister takes me to my second question, before I determine what to do with the amendment. When he spoke earlier, he emphasised that,

“so far as is reasonably practicable”,

applied only to paragraph (b) of the provisions, whatever they are. He made a distinction between that and paragraph (a), which is about price. The Minister has said that again, which may be fine, but it is not what the Bill actually says. The Bill applies the qualification,

“so far as is reasonably practicable”,

to paragraphs (a) and (b). Therefore, again, the Minister has given me a slightly confused message and I wonder whether he can explain it.

The Minister is giving slightly confused messages because he is being given a slightly confused message. Perhaps I may beg the indulgence of the noble Baroness on this point; if she will withdraw her amendment I will certainly seek to give an absolutely precise answer to her question and allow that to inform her position on Report.

I thank the Minister. That just leaves Amendments 113 and 114, which relate to whether or not there should be some kind of independent mechanism to substitute for the Treasury’s judgment. When I hear Ministers saying, “Of course, there’s judicial review”, I always hear the sound of barrel scraping. No good justification can be put forward, so we fall back on the claim, “We have good old judicial review, which everyone knows is the most accessible and flexible of remedies available”. That will not wash.

I will consider what to do about Amendments 113 and 114 when I have had the chance to consider the other issues that the Minister is going to look at between now and Report. I feel that these clauses are weighted against what the Minister described as part of a failed organisation. Yes, that may be true, but these may be viable businesses that are part of a failed organisation; that is, they may have an ongoing life on their own, unrelated to the failed bank. We need to reflect a balance here—that is the purpose of my amendment—and not simply treat the residue as something that can be pushed around, shoved and told what to do.

Can the Minister give me an assurance? Looking at all these clauses on continuity obligations, I ask myself what would happen if the particular services were outsourced, or partly outsourced. I imagine that the Government will have considered the point and, I presume, will have satisfied themselves that that is covered by the Bill. However, it is difficult to think through the practical process that would apply in these cases. I would like the comfort of the Minister telling us that the Government have been conscious of this matter and are now content with the way in which it has been addressed.

The noble Lord, Lord Stewartby, addresses a question that reflects the reality of complex financial institutions. We have already addressed the issue of an essential service being provided to a banking subsidiary by another arm of the group. The noble Lord also refers to outsourcing arrangements in which a critical dependency is secured from an unaffiliated, unrelated entity. Those contracts would follow on with the transferee institution, so nothing in the Bill places at risk critical dependencies that are covered by an external third-party or non-related supplier. The noble Lord, Lord Stewartby, is right to seek assurance on that, given the reality of how many of our larger banking organisations are now structured.

The amendment sticks with the continuity obligations. It would add a new subsection to Clause 70, which allows the Bank of England or the Treasury to terminate a continuity obligation by giving notice. I ask first why this clause is necessary. If the correct arm’s-length terms have been determined under Clauses 64 or 67, they should have dealt with the discontinuance of the obligations. That would be a normal part of any arrangements for the provision of ongoing services and what commercial contracts for the provision of services would be expected to contain.

Contracts such as IT service contracts contain notice periods and, where appropriate, predetermined compensation terms related to the notice, especially where short notice periods are involved. Let us take the provision of IT services, which we have discussed and which is probably the classic example under these obligations. The residual bank or group company will have staffing matched to the services that it is required to deliver under the continuity obligations. If, say, half of those services are no longer required because the transferee has made its own arrangements, which I think everybody thinks is the right way to go, there will be staff to get rid of and perhaps property to dispose of or other costs related to that discontinued activity. Those things will all involve costs. If short notice is given, those costs could be significant.

My Amendment 115 would mean that, when notice is given, the Bank or the Treasury ensures that the residual bank is compensated for the consequential costs of termination. Obviously, the longer the notice, the less the cost is likely to be, but even then there could well be a cost. I invite the Minister to say whether or how the Clause 70 termination powers are constrained—by operation of the other provisions of the Bill or otherwise—so that the result is fair for the residual bank and, indeed, for other group companies that might be involved in this service provision, and whether the Government expect the arm’s-length terms covering termination provisions to cover the circumstances that I have described. If that is not covered by the existing expectation of the way in which the clauses allow terms to be set, I urge him to consider carefully my amendment to Clause 70, or something similar. I beg to move.

We consider that Clause 70 provides the authorities with the necessary flexibility to remove a general continuity obligation that has arisen. I agree with the noble Baroness that in some circumstances—there may not be very many—it may be appropriate for this to occur. This will happen when adequate arrangements have been put in place under special continuity powers or ordinary contractual arrangements. Therefore, the obligation will be terminated against a background where a considerable measure of agreement about the future has been reached. Nevertheless, we need to provide for the continuity obligation to be terminated.

However, it is the Government’s view that compensation should not be required if a general continuity obligation is terminated, because the service provider will no longer be under an obligation to provide the service. I should make it clear that if a continuity obligation is terminated, there is absolutely nothing to prevent a service provider from coming to a normal commercial arrangement with the bank for the service that it wishes to provide. However, we do not think it appropriate that compensation should be due if the obligation is terminated and the service is no longer continued. The implications of that would be in effect to provide a subsidy to the provider. This would scarcely make a great deal of sense if, for example, the bank could obtain the service at a lower price from another provider. While I wish to defend the need for a provision in the Bill to terminate a general continuity obligation, I agree with the noble Baroness that this may not occur too often. However, when it does occur, a case cannot be made out for effectively giving a subsidy to the provider when the bank could potentially obtain the service elsewhere. That is the basis of the provision.

I hear what the Minister says, but I shall take him back to my example of IT services. If one has arm’s-length IT service provision, because the service provider has to gear up in hardware, software and people, it is usually the case that those contracts, if they are on arm’s-length terms, contain terms dealing with duration and termination, because termination means that there are some dead costs often left behind and/or that there are excess facilities. We are not necessarily talking about tradable services; I understand that the continuity provisions are about bespoke services much more than about tradable services. You can go out and get a new provider for tradable services—for example, office cleaning—but these services tend to be interwoven and specific. If you had outsourced them—if, instead of a group company providing them, there was an outsourced provider—that contract would almost certainly have provisions covering termination, or certainly termination ahead of the anticipated term. That was the issue that I was seeking to probe and the Minister did not quite answer that aspect of it for me.

That may have been because I was concentrating on what I regarded as a more germane point. There was a hint in the amendment of an unfair commitment of funds in terms of a potential subsidy to a provider in circumstances for which we cannot envisage the justification.

On the point made by the noble Baroness, of course a continuity obligation will be accompanied by considerable communication between the authorities and the service provider, particularly in the case that she has identified of a provision of a service that may be of a considerable duration and which is absolutely essential to the continuation of the enterprise. If a piece of investment is critical to continuing to provide the service, this would be likely to comprise part of what is “reasonable consideration”, which was the subject of the discussion that we had on the previous amendments. I must refer back to the previous clause, as further detail may be provided in the orders made under Clause 69.

I emphasise two things. First, there is bound to be considerable communication between the authorities and the service provider in the instance that the noble Baroness has identified. Secondly, that would need to be examined under the basis of reasonable consideration. I am against what the amendment would provide, which is a concept of a subsidy in circumstances where the service might be readily disposed of and obtained more cheaply elsewhere. That is the point that I was seeking to make.

The Minister keeps using the word “subsidy”. I shall read my amendment to him:

“The continuity authority shall ensure that compensation is payable to the person on whom the obligation is imposed if that person suffers financial loss because of the nature, extent or timing of a notice given under subsection (1)”.

I cannot see anything in that about which the Minister could justifiably use the word “subsidy”. The amendment was designed specifically to cover only loss that was incurred by the company providing the service. I do not know whether the Minister’s speaking note was wholly predicated on subsidy; it certainly seemed to be that way and it seemed to me that the Minister did not address my points. He said that this would potentially be covered by “reasonable consideration”.

I will carefully consider what the Minister has said in the totality of his remarks and I shall disregard everything that he said in accusing my amendment of requiring a subsidy to be paid, because I do not think that even he, if he had read it more carefully, could have interpreted it in that way. Between now and Report, I shall consider what to do with this amendment, alongside the other amendments that are really about terms and conditions of provision of services, and I will consider whether there needs to be some valuation or appeal mechanism. For today, I beg leave to withdraw the amendment.

Amendment 115 withdrawn.

Clause 70 agreed.

This is a short probing amendment. I will be brief because I think that the subsequent debates on this clause will be much more interesting than mine. The amendment would take out Clause 71(4), which states:

“Provision by virtue of this section may (but need not) amend the terms of a pension scheme”.

I think that we would all agree that amending the terms of a pension scheme is a very sensitive matter. The position would of course be easier if a failing bank was taken speedily into public ownership in whole and not in part—then, if and when sales were subsequently made to private sector purchasers, there would be time to sort out the pension issues which are often complex when a group of companies is split. However—with assets going one way and shares another, with residual assets and liabilities, and with a staff divided when the FSA pulls the trigger for the tripartite authorities—no time is provided. The pension die is, in effect, cast. In contrast, when groups, typically, make part-sales of subsidiaries, there are established principles, present law and well tried appeal procedures to deal with the pension issues that arise. I beg to move.

My noble friend raises important points in his amendment. I have given notice that, on a probing basis, I wish to oppose the Motion that Clause 71 stand part of the Bill. I have grouped this opposition with my noble friend’s amendment as I suspected that I would raise issues covering the same territory. I seek to ascertain the extent to which the power could be used.

The clause is phrased in terms of being able to modify the property rights and liabilities of a pension scheme, and I have some specific questions for the Minister on what it allows the authorities to do. Does it allow the Treasury or the Bank of England to rewrite a defined benefit scheme so that it becomes, for example, a defined contribution scheme? Does it allow the Treasury or the Bank to alter accrued rights of employees of the failed bank? Does it allow the Treasury or the Bank to alter the accrued rights of deferred pensioners or pensions in payment? Does it allow the Treasury or the Bank to single out the pension rights of individuals as opposed to dealing with the rights of all members of a pension scheme? I am well aware of the public annoyance at finding that former directors sometimes have very large pension pots due to them when they leave. Is that one of this clause’s targets? Can this clause be used to amend rights in relation to individuals’ pension pots?

If any of those things can be done, can the order or instrument affect the existing legal rights of the individual? Can the individual demand his existing rights, or can the clause be used to rewrite his contractual rights? I see that the noble Baroness, Lady Turner, is in the Chamber. Will the unions have any say whatever about the rewriting of a failed bank’s pension scheme—if that is what this clause allows—before it is done?

At face value Clause 71 appears to allow practically anything to be done, with virtually no intervention by anyone. That is why it is important that the Minister is clear with the Committee about how the clause will be used.

I listened with interest to what the noble Baroness, Lady Noakes, said, and I agree with quite a lot of it. I am most interested in the arrangements that could be made to preserve and protect the rights of existing employees, as that is important. In banking, generally speaking, employees have reasonable pension provision, and attempts should be made to ensure that their rights are protected. I am not at all certain whether Clause 71 does that and I await the Minister’s response with interest.

I intervene at this point because I have a meeting elsewhere in the House at 4.30 pm and may not be able to speak on whether Clause 71 should stand part of the Bill.

I agree with my noble friend on the Front Bench. It seems that this clause enables the Government and the Treasury to do almost anything with regard to a failed bank’s pension scheme, as compared with the situation that would exist if the bank failed—I was going to say “in the normal course of events”—without the Government having set up the arrangements in the Bill. In that context, I ask the Minister to what extent there has been consultation on this clause with anyone representing trustees of pension schemes or organisations involved in pension schemes generally?

This issue is of great importance if, indeed, under subsection (4) powers are being taken to amend the terms of a pension scheme with apparently no qualification whatever regarding the protection of existing pension interests. If a bank fails, perhaps the pension scheme and pension fund will have certain protections, but what will the situation be with regard to the pension fund as against the more general assets of a failed bank? In particular, I presume that provision could be made to change a final salary scheme to a defined contribution scheme to the disadvantage of the pensioners, but that may or may not happen if the bank has not been operating under a new regime established by the Bill. Therefore, I think that very grave issues are raised, and the fact that all this is contained in a single clause indicates that the detail of how the Government envisage the clause, and in particular subsection (4), operating is rather lacking.

This debate raises some important issues. I am sure that all noble Lords will take the view that, for the generality of members of a bank’s pension fund, protecting the fund should be given a high priority. However, there is a difference between the generality of a bank’s staff and some of its more highly paid members. Under Clause 20, we discussed the situation in respect of directors, but I think it is the case that, with regard to some of the banks which are now in most difficulty, those who acted in the most reckless fashion and lost billions of pounds were not necessarily directors. They ran a unit of the bank but were not technically directors. Therefore, would this clause enable their huge pension entitlements to be curtailed to reflect the losses that they have run up?

I very much appreciate the succinct way in which the noble Viscount, Lord Eccles, introduced his amendment. I had prepared to respond to his points in a similarly succinct way and to give reassurance on those limited areas. However, the fact that the question on Clause 71 stand part is grouped with the amendment has inevitably led to a much wider survey of the issue. That has happened before I have been able to move government amendments, which will require me to spell out the thinking behind the clause in considerably greater detail, and before I have had the chance to listen to, and reply to, the arguments relating to additional amendments to the clause. I am therefore in some difficulty. I hope noble Lords will forgive me if I try to answer the points briefly at this stage, as fairly substantial discussions on this clause and the whole issue of the pension position are still to flow in our later proceedings.

I want first to emphasise why Clause 71 is necessary. A modification to a pension scheme may be necessary to facilitate a fully effective transfer. An order or instrument may in particular make provision regarding the consequences of a transfer for a pension scheme or about the property, rights and liabilities of a scheme. The instrument may, among other things, modify rights and liabilities, apportion rights and liabilities, or transfer property or accrued rights to another pension scheme.

If a failing bank is part of a group of companies—the point raised by the noble Lord, Lord Higgins—then all group employees may participate in the group’s pension scheme. In this situation, if a deposit-taker is transferred from the group, it is likely to be necessary for the employees of the bank to be transferred to a separate scheme. This clause provides that the authorities may make provision to transfer the employees from the group pension scheme and to establish a new scheme, or to transfer the employees into the transferee’s pension scheme for all future service benefits. In the case of a partial property transfer, for example, it may be necessary to make provision to apportion pension liabilities between the failing bank and the transferee. Further, it may be appropriate to make consequential provision regarding the terms of a pension scheme.

I want to assure the noble Viscount, Lord Eccles—this is the cardinal point which I want to establish with the Committee—that this provision would not amend accrued rights. It does not do that and does not create the possibility of doing it, nor have we any intention of doing it. It applies both to the group position and to individuals. The powers taken in Clause 71 are necessary because leaving pension matters to be dealt with through normal corporate transactional methods could jeopardise the ability of the authorities to effect a swift and effective transfer to resolve the problems of a deposit-taker. For example, in normal commercial conditions any reallocation of pension liabilities would almost always require agreement from the trustees of the pension scheme. That could lead to significant delay while the trustees considered the matter, but it could also result in the trustees requiring a figure—even a ransom—to secure consent. In addition, there might be general regulatory requirements which involve lengthy notice periods, which for obvious reasons is frequently the custom with pension arrangements. All of these matters may impede the resolution of what is intended to be a fairly rapid exercise, and that would be contrary to the broader public interest in effecting the transfer.

The noble Lord has made two very important points: first, on the protection of accrued rights; and, secondly, on the position of the trustees. I have looked in vain to find any mention of that in the clause. As it is so important, one would have thought that it would be explicit.

Perhaps the Minister can explain an issue that I tried to tease out when I spoke on clause stand part. Subsection (3) states:

“In particular, an order or instrument may—

“(a) modify any rights and liabilities”.

I heard what the Minister said about transferring accrued rights and ensuring that the trustees do not get in the way and about this being a rapid exercise—although I have never found that dealing with pension schemes is a rapid process, whatever instrument is used—but he is ignoring the fact that Clause 71 appears to contain powers to do the things that my noble friends have been asking him about.

I add my concern to the comments of my noble friend Lady Noakes. Subsections (3) and (4) suggest that they may affect accrued rights.

That is where we started with the probing amendment of the noble Viscount, Lord Eccles. Perhaps the Committee will accept that I am giving the clear assurance on the cardinal points raised there.

We do not intend, nor are we taking the power, to amend accrued rights. We have no intention of intervening with the pension position of individuals or groups. We are seeking to avoid those conditions which obtain in normal commercial practice with regard to the operation of trustees and aspects of concern about pensions. We seek to do that because—I bring the Committee back to the obvious point—we are involved in a transfer that we hope on many occasions to effect as rapidly as possible, because the transfer relates to institutions in considerable difficulty.

Nothing in the Bill, or in the clause, obviates our obligation to act in accordance with the European Convention on Human Rights. Those rights will be observed and there will be no exercise of power to disrupt accrued rights, which would be quite contrary to Article 1, Protocol 1, of the convention. The Government are giving the clear assurance that we have no intention of doing that through the drafting of the clause. However, we need to move with greater dispatch than in normal commercial transfers. The clause is not drafted to undo employees’ pension rights, pots or entitlements. The noble Lord, Lord Newby, asked why we do not single out one group of employees, a limited number. That is not what the clause does, nor is it the intention behind it; it is merely to ensure that we can deal with the problem of institutions more rapidly than is the case under normal commercial transactions.

I emphasise that I have a considerable amount to say to justify the government amendments to the clause; that is why I am in great danger of repeating myself not only at length but ad nauseam—a fault of which I have been accused in the past. I hope that the Committee will accept that at least I have set out my response to the amendment moved by the noble Viscount, Lord Eccles. The issues raised by the noble Baroness will inform our debate on the next two or three amendments.

I certainly would not want to encourage the Minister to repeat himself at length; I find it difficult to see how he could do so on the amendments that he is about to move, but wonders will never cease.

The Minister has said extremely helpfully that he does not wish to affect any accrued rights. Yet the Bill, at face value, gives the Government the power to do just that. Perhaps he ought to think between now and Report about an amendment to Clause 71, so that it covers those who have deferred rights—current employees with accruing service or, indeed, those with pensions in payment—but makes it clear that there is no intention to deal with accrued rights. That would be extremely helpful. I know that the Minister cites Article 1, or whatever it is, of the European Convention on Human Rights, but frankly that overarches a lot of things. It is not a first-line provision of restraint on the use of a power; it simply indicates that some people might have to resort to that in due course if challenging it in a court of law. It is not as preferable as having clear statements in the Bill, especially if we are dealing with employee rights. That is an important point in respect of accrued rights.

Separately, the Bill appears to say that rights can be changed for the future because provision can be made to amend the terms of a pension scheme. That could indicate that you could change the terms of future accrual in the pension scheme from defined benefit to defined contribution, or, if in defined benefit, from 60ths to 80ths, or whatever might give you a lower pension entitlement. I do not think the Minister is saying that; I think he is saying that he wishes to use the clause to make more efficient what can be quite complicated and take quite a long time in the real world. I certainly would not challenge the Government on having that sort of power, but I am most unhappy with a power that is drafted as it is and which appears to suggest that the Government can use it to make fundamental changes to one of the most important rights that people have in their current or former employment with an organisation.

Let me emphasise that rights can be transferred with great rapidity. Under the Bradford & Bingley transfer order, which the Committee will recall, employees were transferred to a new scheme with Banco Santander much more rapidly than one would expect in normal commercial transactions. We all recognise the element of urgency that is bound to attend an issue of that kind.

I am merely bringing to the Committee’s attention the fact that the Government are not seeking to rewrite the law on pensions to disadvantage a single pensioner in the country; they are seeking merely to ensure that, with transfers that are in the public interest and that need to be effected with speed, the pension position is not a block because of the normal processes that obtain with the transfer of pensions. Such a block would jeopardise the successful conclusion of a transfer that is very much in the public interest.

I cannot emphasise the position a great deal more, but I hear what the noble Baroness says: I have to establish further the Government’s position on non-interference in accrued rights. Of course I will take that point on board.

I feel privileged that this debate has been grouped with a stand-part debate, having started with a very modest probing amendment. I am sure that we are all grateful for the assurance that the position of individuals will be reconsidered, because that is what we are talking about and the clause does not really address that situation at all. Accrued rights in a sense make the person paid up when, perhaps because of luck and good negotiation, there is a second pension phase when the business for which he or she works is transferred to a new owner. The Minister referred to the contrast between, in negotiation, being held to ransom and what I might wish to describe as a reasonable deal. In this circumstance, we should not overemphasise this rapidity point. It is slightly reinventing the wheel. There have been many circumstances in which it has been necessary for groups of companies to sell in a fairly distressed situation its subsidiaries. They have had to have negotiations during those sale proceedings about what will happen to the membership of pension schemes. I do not think that there is anything much new in the circumstance of a failing bank.

I have had experience of taking over a company that was not in a very good condition. Of course, there needed to be negotiation about what would happen to the pension rights of the people in that company. I believe that there is a need for further thought to be put into this clause and, in putting further thought into it, I hope, along with quite a lot of the other provisions of this Bill, that the dice have not been loaded too much in favour of an easier life for the Bank of England or the Treasury. In the mean time, I beg leave to withdraw the amendment.

In moving Amendment 116 standing in the name of my noble friend Lord Myners, I shall speak also to the other government amendments in this group. These amendments relate to extending to bank holding companies the provisions of the Bill that relate to temporary public ownership. As the Bill is drafted, the stabilisation options exercisable by the share and property transfer powers, which form part of the special resolution regime, are exercisable only in relation to banks. The authorities have, during the course of developing and consulting on the Bill, continued to consider the question of how best to resolve different types of failing banks.

The events of autumn 2008 made it apparent that in some cases exercising a power conferred by the special resolution regime in relation simply to the bank may be insufficient fully to achieve the resolution objectives, particularly that of protecting and enhancing the stability of the financial system of the United Kingdom. The starting point for this issue is that banks often form part of complex corporate groups, and the ultimate “parent” company may not be the company which has the deposit-taking permission and is, therefore, the “bank” for the purposes of the special resolution regime.

There are a number of reasons why a power limited to banks may be insufficient. First, the activities of the bank and the rest of the group may be so inter-related that the exercise of the transfer powers only in relation to the bank may be insufficient to resolve the bank successfully. Secondly, taking action only in relation to the bank may give rise to serious difficulties with the rest of the group, which is very likely to include other financial companies that are part of, or participants in, the financial system.

In certain cases, the exercise of the transfer powers in relation to the bank may so disturb the operation of, and confidence in, the group as a whole that it leads to the insolvency of some or all of the other entities of the group. Where other group companies are dependent on the bank for its financing, the exercise of the transfer powers in relation to the bank may interfere with that funding stream and undermine market confidence in the viability of those companies to such an extent that they can no longer continue to operate. Where other such entities in the group are financial institutions, their failure may impede the achievement of the special resolution objectives. In addition, the failure of other entities in the group may give rise to difficulties in the continued operation of the bank, given the interconnectedness of the group.

Finally, a private sector solution may be more likely on a group-wide than a bank-only basis. This is particularly the case if other non-bank parts of the group are attractive to buyers. I note that the Bill already contains provisions that seek to address aspects of the potential difficulties related to a bank’s corporate structures, while Clauses 63 to 70, which we have just considered, impose among other things an obligation on group companies to continue to provide necessary services or facilities under the continuity obligations. However, the Treasury has concluded that the imposition of continuity obligations, while remaining a vital tool in certain cases, will be insufficient to address the full range of difficulties in all cases. Therefore, as we announced in the 2008 Pre-Budget Report, we have tabled amendments to extend the Treasury’s power to take a failing bank into temporary public ownership to include bank holding companies. As noble Lords will appreciate, the Bill already provides for the Treasury to take a failing bank into temporary public ownership.

The Minister will not expect these Benches to greet any amendment which increases the scope of nationalisation even if it is accompanied by that well known word “temporary”, which has no defined meaning in the Bill.

I am not sure that the Government have made a clear case for this. Is the Minister saying that these provisions are only required for pension schemes in order to ensure that they can be properly dealt with? I gathered from the tail-end of the Minister’s remarks that that is what he was saying. Apart from that, he said that bank structures are often complicated—which I am sure they are—but he did not explain why the continuity obligation clauses, which we debated partially earlier, could not deal with the issues that he raised. I am not clear what it is that has led the Government to seek this additional nationalisation power unless it is only for pensions. I found the way in which the Minister introduced it difficult to follow. Perhaps he will cover that point in his reply.

Can he say also how many UK banks are likely to have holding companies which could get dragged into nationalisation? Is it a large number of banks? I am sure the Treasury has been passing its nationalisation slide-rule over the whole of the banking sector so there must be an easy answer. The Minister’s colleague next to him looks as if he is well aware of the answer so I am sure there is one. How many banks could have their holding companies dragged in in this way?

Amendment 126 proposes a new clause on holding companies and its subsection (4) restricts its use to holding companies which are incorporated in the UK. In practical terms, that is probably all that the Government can do, but have they considered the extent to which that may now make the UK an unattractive place for a bank to have its holding company? If that were the case, it would add to a number of other features that have accumulated over recent years of why the UK is not a good home for the holding companies of organisations. In particular, have the Government considered whether this might drive bank holding companies out of the UK? It could leave the UK bank operating in the UK but its holding company could go somewhere else. I remind the Minister of HSBC. It is currently headquartered and based in the UK. Its name is the Hong Kong and Shanghai Banking Corporation, and it was domiciled in Hong Kong. When the Chinese looked as if they were going to take over Hong Kong, it activated provisions in its articles of association and moved to New York. I am not suggesting that HSBC would look at the Bill and think about moving, although it might, but it illustrates the point that banks that operate on a global scale and their holding companies do not have real roots in territories. They can just up and move to another territory. If this clause is on the statute book, will it not encourage holding companies to move outside the UK, which is not to the advantage of the UK?

A more detailed point relates to Amendment 127. It brings in which of the powers in the earlier part of the Bill can be used in the context of the holding company. Clause 20, which we debated earlier, relates to rewriting the employment rights of directors. This amendment allows the rewriting of the employment rights of directors of the holding company and of the bank. I understand those two within the Government’s rationale for Clause 20, but I cannot understand why that clause should also apply to the directors of a bank in the same group. I do not think there is any suggestion here that the bank in the same group is a failing or failed bank, so why are the Government taking powers to reach into another bank, not the failed bank, in the way set out in Clause 20?

Having looked at this ability to take the holding company into public ownership, I went back and looked at the earlier part of the Bill to see if it dealt adequately with everything that might come up in the context of a holding company. I shall put to the Minister some things that might not be adequately dealt with in the early part of the Bill. We are now potentially taking into temporary public ownership businesses that are nothing to do with a failed bank and are potentially viable, vibrant, saleable or whatever. There just happens to be a failed bank. On the first day in Committee, we debated the objectives of the special resolution regime that this holding company is being brought into, and the Government rejected the amendment moved by the noble Lord, Lord Newby, in relation to enterprise value and our amendments in relation to creditors. If the Government are going to go beyond taking into public ownership failed banks and grab all kinds of other activities, they ought to revisit whether the terms in which the objectives are stated in Clause 4 are robust. If the Government do not do so, we need to before Report.

The second area that the Government ought to revisit is the code of practice issued under Clause 5. The draft code does not include anything because it was issued before the Government came up with the wizard idea of grabbing holding companies and fellow subsidiaries while taking hold of a bank. That ought to be covered in the code of practice, and I was unclear whether the way in which the code of practice was drafted in terms of taking a holding company into temporary public ownership would require the Government to cover that. It seems to me that it should. I leave those points with the Minister, but I hope he will reply to the questions I asked earlier.

I have a simple question for the Minister. These provisions deal with a situation in which a holding company is taken into temporary public ownership. Is there a good reason why similar provisions are not being introduced to enable the holding company being taken into temporary temporary public ownership to be a bridge bank?

I confirm the noble Baroness’s suspicions about my numeracy. I do not have in my head the number of banks that belong to holding companies, but it is obviously quite a number. We will provide a figure and I will circulate it to all noble Lords who have participated in the Committee. The category includes RBS and HBOS, and there are a number of others. I assure the noble Baroness that I will answer that question fully in due course, certainly before Report.

The noble Baroness made a great deal of the fact that these increased powers, which the Government are convinced are necessary in view of the problem in operating the resolution procedure, may make the United Kingdom an unattractive place for holding companies. I do not think that the United Kingdom is setting out to be an attractive place for holding companies that contain potentially failing banks. Let us remember the context of the Bill—it deals only with the circumstances in which failure has occurred. The Government’s concern should be to ensure the encouragement of successful enterprises in this country. With regard to the Bill, we have to address ourselves to where there are failures.

Does the Minister know how to differentiate, ex ante, between failing and successful organisations so that we attract the successful holding companies that have successful banks and not those with duff banks? What about the signals that that will send to mobile banks regarding where they should locate?

The Government are not going to make that decision. They will not apply the criteria for that; the banks will decide whether they come here or not. I should be exceedingly wary of giving enormous encouragement to holding companies that may contain failing banks. The noble Baroness seems to suggest that because we are addressing ourselves to this problem in forthright terms we are, by definition, rendering ourselves unattractive—quite the opposite. Guaranteeing the viability of the financial system is an absolute prerequisite for continued investment in this country, which is why the Government are pursuing this strategy.

On the more general points, the noble Baroness asked about the code of practice. It applies to the holding companies’ powers, and the draft code will need to be updated to take account of the amendments that we are introducing. The noble Lord, Lord Newby, asked about powers given to the Bank of England. Resolutions on a holding company level have the potential to affect a large number of parties, including those not part of the financial services sector. It is likely that the public interest decision of whether to intervene will involve balancing the interests of a wide variety of persons. The noble Lord will not be surprised to hear that in a democratic society we consider that government Ministers answerable to Parliament are the best placed to make these judgments. The temporary public service option has a higher public interest test for intervention than the other stabilisation options. As the noble Baroness emphasised, we preface public ownership with the crucial word “temporary”. I hear what the noble Lord, Lord Newby, says about these issues; he articulates his position with great frequency and considerable force. However, I am sure that he fully understands the Government’s position vis-à-vis the Bill.

I emphasise that these government amendments are the product of the consultation that we have been able to carry out and the extra time that we have been able to devote to analysing a rapidly developing situation, against a background where the legislation needs to be delivered in a limited period. The Government have been assiduous in their consultation in the months prior to the legislation. The amendments are the product of more recent developments. I commend Amendment 116 to the Committee.

The Minister did not address two of the questions that I asked him. Perhaps I may help him by reminding him. I asked him, first, what the fundamental rationale for the holding company provisions was. Towards the end of his initial remarks, he spoke about dealing with pensions. When we dealt with Clause 71, he indicated that the amendments were about pensions. Are the new clauses fundamentally about pensions or are there other matters? Will the Minister explain how those other matters are unable to be dealt with by the continuity obligations in the clauses just before those affected by the amendments?

My second question was about the application of Clause 20. I asked the Minister why, in subsection (2)(a) of the proposed new clause, the Clause 20 powers apply not only to the directors of the holding company and the failed bank but to the directors of another bank in the same group, notwithstanding that that bank is not a failed bank. The Minister did not explain why the Clause 20 powers should be applied outside the context of the holding company directors, who may well be taken to have some responsibility for the failed bank that is that company’s subsidiary. I am unclear why the directors of another bank in the group are dragged into the Clause 20 provisions.

The amendments are tabled in relationship to pensions because the pensions issue raises the matter in an obviously precise form—namely, that pension holders in the individual bank may be part of the scheme that obtains across the group, which was the burden of our discussion earlier.

The noble Baroness asked why other directors are dragged into the provisions. The issue is authority in relation to a failing bank. We need to be able to ensure that the management of all deposit-takers can be changed if necessary to achieve the special resolution regime objectives. I share the view of the noble Baroness that the crucial objective is protecting financial stability and depositors. The powers are necessary to ensure thorough examination of management so that the management necessary to operate within the framework of the special resolution regime is present.

I emphasise again that our problem with using just the word “bank” is that a very large number of deposit-takers in the United Kingdom—I apologise to the noble Baroness; I cannot put a precise figure on it, but she will know that it is not one that I would obviously have in my head—are part of complex group undertakings. We are consulting on the additional powers necessary to deal with these groups if they should get into severe difficulties. A Banking Bill that dealt just with banks and not with holding companies in circumstances where the financial difficulties may go beyond the single deposit-taker would indicate that the legislation could not meet its objectives of bringing security to the financial situation, so it is important to ensure that the resolution tools work for all banks.

As financial markets and firms continue to develop, and consolidation within the industry continues to occur, it is important to ensure that the authorities have the appropriate powers available. Transferring the whole of a group, if the Treasury considers that transferring the deposit-taker alone would not adequately resolve the threats to financial stability, is likely to be the effective way in which to take control of the deposit-taker to stabilise it when there is a threat to financial stability. It will be recognised that just dealing with the deposit-taker itself in certain circumstances may not be sufficient. We have to ensure that the deposit-taker will be fully operational after the transfer; otherwise, there is no point in having put it into the regime. Secondly, it helps to address the problem that, if a deposit-taker is transferred out of a group, the group may fail. This could be a significant risk to financial stability itself, so the authorities have no option but to consider the wider picture.

Of course, we recognise that this has the potential to be invasive, so any decision to extend the resolution tools to group companies needs to be accompanied by the appropriate safeguards. That is the basis of some of the past discussions that we have had on the Bill and, undoubtedly, of further discussions that we will have as we progress.

I hear what the Minister says about using the power. The power is restricted; it is not really about whether or not pensions cause a problem—that might have been a red herring that the Minister introduced. The power can be used only if the holding company needs to be taken into public ownership for the purposes of conditions A and B in Clause 9. It is not actually about continuity obligations at all; it is only about financial stability.

I am still mystified about why other directors of banks within the group have to be affected by the Clause 20 powers. There is no suggestion that any other bank in the group has a financial impact of that sort, otherwise it would have been sucked into the powers in Clauses 7 to 9. I still do not understand why the good bank in the group is tainted by the bad bank. Will the Minister explain that?

The Government are seeking the necessary flexibility to envisage those situations that have not obtained thus far but may do. With a holding company with a failing deposit-taker in its framework, it is right that the authorities should examine the nature of the direction and policies pursued. After all, the holding company might hold another deposit-taker. Of course, it will be necessary to examine the implications of the failed institution that is going into the special resolution regime and what impact it has on the group, as well as the effect that the holding company has on deposit-takers in its framework.

I shall not convince the noble Baroness that these powers are necessary unless she accepts the fact that the authorities should not make provision solely for a bank taking a deposit that belongs to a group when some of the direction and policy of the bank may relate to influences beyond its own directors; it might even have directors in common with the holding company. There would be no option but to examine that kind of situation. That is all that the Government are seeking in these terms.

I will again be brief and return to a small issue about pensions and pension schemes. I propose to add at the end of Clause 71 a short paragraph that gives individuals the right to be provided with information. It typically takes a long time to resolve the splitting of a pension scheme and its assets and to achieve a situation in which individual members know exactly where they stand. In this case, the tripartite authorities would be starting a process for reasons that they considered to be advantageous to themselves and the public interest. Therefore, they need an obligation to report on the results of their decision in a timely fashion. That would provide a reasonably early opportunity for representations to be made by members of a scheme or schemes and their representatives, particularly if they are uncertain about whether equity is being achieved. I beg to move.

The noble Viscount, Lord Eccles, raises an important point about ensuring that pension scheme members are kept informed, but I do not think that his amendment is necessary.

Trustees of a pension scheme are under statutory obligations to provide members and beneficiaries of pension schemes and relevant trade unions with a written statement of material changes or alterations to the scheme. Depending on the nature of the change or alteration to the scheme, generally written notice has to be provided within two or three months after any such change has taken effect. In addition, trustees must prepare and make available an annual report, which must be provided free of charge to members and beneficiaries on request.

These reporting obligations, which I know will be familiar to the noble Viscount, would apply to the trustees of any pension scheme affected by a transfer order or instrument under Clause 71. Therefore, I do not think that it is necessary to accept the amendment. We have the existing statutory mechanisms for the provision of information. This legislation complies with that and does not change it in any way. I hope that the noble Viscount’s concerns are satisfied.

I would be more comforted if I were certain that trustees would not think that the partial transfer procedure was likely to have overridden their power to act as efficiently as they would have liked to have acted on behalf of the members of the scheme. That is another reason why I sincerely hope that more thought will be given to Clause 71. Whereas much of the Bill could be shortened, there is a case for spelling out in more detail the provisions with regard to pension schemes. Meanwhile, I beg leave to withdraw the amendment.

The amendment derives from a fear on my part that the drafters of the Bill have overlooked an important condition introduced in the Insolvency Act 1986, which will interact very badly with the recently passed Pensions Act 2008. Under Section 1(3) of Part II of the 1986 Act, for the first time, in contrast with all previous insolvency legislation, the directors of a company which was challenged as to solvency were obliged not to accept insolvency until they had explored all possible avenues for its correction. Severe penalties would fall on them if they did not do so.

As matters stand, it would be a reasonable assumption that any bank getting into dialogue with the Government with a view to a rescue was following that path and taking reasonable steps to avoid insolvency. If those discussions prospered, and the insolvency was avoided by the bank being embraced by the Government’s rescue arrangements, that bank would not have gone into insolvency. If the pension scheme was afterwards set adrift and not continued in the direct protection and ownership of the company and the Government, it would not qualify for inclusion in the Government’s pension protection plan.

I am sure that that is an unintended consequence. All I am looking for in this probing amendment is an assurance from the Government that they will amend this clause to ensure that, whatever happens, a pension scheme that is bereft and set adrift as a result of being embraced by the Government’s nationalisation programme is itself either looked after or passed into the care of the pension protection plan. I beg to move.

I am conscious of the noble Lord’s expertise in this area and of my own limitations, so I shall reply to him in the following vein. What he has described is clearly the intention behind this legislation. We want to ensure that bank insolvency and administration—the procedures established in Parts 2 and 3 of the Bill—should be deemed to be a qualifying insolvency event for the purposes of the Pensions Act. The noble Lord knows that this would mean that, should a bank administrator or liquidator be appointed in accordance with those parts of the Bill, the insolvency practitioners would be under a statutory obligation to file a notice to the board of the PPF informing it of whether or not they considered that the scheme could be rescued, and the other relevant provisions of the Pensions Act 2004 would apply.

The Government are considering consequential amendments to make that effective. Such an amendment would be made either to Clause 253 or under the relevant provisions of the Pensions Act 2004. The noble Lord has made his case. We intend to respond. I hope that he feels that this is a constructive response.

I thank the Minister for that assurance, which I am happy to accept. I ask only that the wording be abundantly clear and remove any uncertainty. There are some nasty little people called licensed insolvency practitioners prowling the world, who will look to make trouble if they find any opportunity. The clause needs to be watertight.

I can be brief. I have signalled that I oppose Clauses 72 and 73 standing part of the Bill on a probing basis. They deal with enforcement and disputes respectively.

I suspect that these clauses are more symptoms of the Government not having worked out in advance how they will deal with the important areas of enforcement and disputes. However, I shall give them the benefit of the doubt and invite the Minister to set out for the record how the Government see both enforcement and dispute provisions working. I invite the Minister to say when those provisions will be revealed to the world in draft and what consultation they expect to undertake.

I also ask the Minister to address why the regulations are to be dealt with by the negative procedure only under Clause 72. I appreciate that the power does not extend to the creation of a criminal offence or the imposition of a penalty but, nevertheless, the rights of individuals may be seriously affected by the detailed regulations. In those circumstances, it is normally the case that Parliament should have a say in how those regulations are drawn.

The noble Baroness has called a debate on the purpose of Clauses 72 and 73. It may be helpful if I set out the purpose of these clauses as seen by the Government. They relate to share transfer orders and instruments and property transfer instruments; that is to say, the stabilisation powers. They enable further provision to be made as regards the enforcement of obligations imposed by such instruments and orders, and as regards disputes.

The starting point is that such orders and instruments make changes or impose obligations by operation of law. For example, a share transfer order transfers ownership of shares by operation of law. That is to say, the effect of the order—without more—is to divest the original shareholder of ownership and confer ownership on the transferee. No enforcement mechanism is needed in such circumstances as the order itself has achieved this effect. A former shareholder might attempt to vote his original shares, but any such action would be devoid of consequence as he is no longer the valid owner of the shares. However, the debates on the Bill—and, indeed, the experience of previous resolutions—have shown that this is a highly complicated field where it may be necessary to address a series of complex rights and liabilities in order to make resolutions effective. Given the importance of legal certainty in this area—many noble Lords, including the noble Baroness, have emphasised this point—we consider it prudent to be able to make specific provision about enforcement and disputes.

Clause 72 concerns enforcement. As I have previously stated, it is essential for the achievement of the special resolution regime objectives that the provisions in the orders and instruments take effect with certainty. In certain circumstances, it may be necessary to impose obligations on persons in relation to transfers, which require specific actions to be taken. In such circumstances it may be desirable, and aid certainty, to spell out the specific means by which such obligations are to be enforced. An example of an area where it may be necessary to impose specific obligations can be given in the context of share transfer powers. As I have said before, a share transfer takes effect simply as a result of the order or instrument itself. But shares may be held in a variety of different ways. For example, normally a shareholder of a certificated share must be registered in the register of members of a company in order to exercise the powers of a shareholder, or bearer shares may be held, which enable ownership of the shares to be transferred by physical delivery. In each case the transfer of ownership of such shares by the exercise of share transfer powers would be effective without imposing further obligations. This is the effect of Clause 21. But it may be desirable to impose such obligations to promote legal certainty. So an obligation could be imposed on the registrar to enter the transferee on the register of members, or on the holders of bearer shares to surrender them. If such requirements were not enforceable and relevant persons, such as the registrar, were not to undertake these actions, this would lead to confusion and potentially a lack of confidence in any transfers and the effectiveness of the implementation of the stabilisation procedures.

These obligations therefore aim to ensure that the formal requirements which normally relate to the transfer of shares and which must necessarily be dispensed with to make the transfer immediately effective are updated as soon as is practicable. This clause enables provision to be made about how such obligations are to be enforced, so the procedure is clear. I should note that provision may not include the creation of a criminal offence or the imposition of a penalty, but may confer jurisdiction on a court or tribunal. The Government believe that civil remedies rather than criminal offences better suit the nature of these obligations.

On Clause 73, it is desirable to have a mechanism to have appeals or disputes mechanisms for each of the powers that the Treasury or the Bank of England has under the stabilisation powers. Clause 73 sets out that the share transfer orders, share transfer instruments and property transfer instruments can include provision for disputes to be determined. These provisions can confer jurisdiction on a court or tribunal or specified persons; for example, an appeal panel.

It should be noted that whenever an exercise of stabilisation powers involves a determination of civil rights and obligations—protected by Article 6 of the European Convention on Human Rights—disputes must be determined in a way that respects the protections of Article 6, which provides for procedural fairness. These provisions therefore put our compliance with Article 6 on the strongest footing, and I believe that they have been welcomed by the markets and by commentators.

The noble Baroness asked why there is only the negative procedure. I believe that the parliamentary procedure for these regulations is common. They have been considered by the Delegated Powers and Regulatory Reform Committee to be appropriate.

In summary, both these clauses are workmanlike provisions, and I believe that they are essential to the efficacy and fairness of the powers. I therefore ask the noble Baroness to allow these clauses to stand part of the Bill.

Is it expected that statutory instruments containing enforcement and dispute powers will be issued soon? Or do the Government intend to wait until the exercise of the special resolution regime? Will they be generic, to sit there, or will they be specific? I did ask when we might see drafts, and so on.

It is my understanding that they will be specific.

Clause 72 agreed.

Clause 73 agreed.

Clause 74: Tax

Amendment 119

In moving Amendment 119, I shall also speak to Amendment 120. For the convenience of the Committee, I have grouped Clause 74 stand part with these two amendments.

The Delegated Powers and Regulatory Reform Committee pointed out that there is a Henry VIII power in Clause 74 (7). This power, because it involves taxation, involves parliamentary process in the other place only. The Bill provides in subsection (7) that it is subject only to the negative procedure. The Delegated Powers Committee was clear that if both Houses had been involved, it would have recommended the affirmative procedure, and it invited the Treasury to consider that point.

I have tabled the amendments to get the views of the Treasury and the Government on this; I do not seek to interfere in the privilege of the other place by tabling the amendments. The Minister will be aware that the Delegated Powers Committee reported long after the Bill had completed Report stage in another place, and this is the only formal opportunity for us to seek the Government’s response.

I tabled the question on Clause 74 stand part to get a greater understanding of how the Government intend to use the powers in Clause 74. I hope that the Minister’s speaking note will not simply fall back on his old friend “flexibility”, because as usual the Explanatory Notes give no hint at all about how the powers might be used in practice. Of course, they are very extensive powers in relation to taxation, so it is reasonable to ask the Government to set out how they expect to use the powers, especially as the powers are not restricted to the transactions associated with the stabilisation power or the bank that is the object of the stabilisation power.

The Banking (Special Provisions) Act 2008 contains no equivalent section. Have any issues arisen in practice from the exercise of powers under that Act? The Minister might like to say in what respects taxation has caused a problem in practice so as to lead the Government—in the case of Northern Rock, Bradford & Bingley, or Kaupthing Singer & Friedlander—to seek the extensive powers set out in Clause 74. I beg to move.

I thank the noble Baroness for the clarity of her explanation. I shall seek to avoid using the term “flexibility”, at least on this clause, although as a concept it has considerable merit when anticipating the extraordinary circumstances to which this legislation is relevant. However, I shall subserviate the term, should it appear in my speaking note on this clause, in favour of another one.

This clause makes provision for dealing with the tax consequences of a transfer made under the special resolution regime in Part 1. Similar provision is included in the Banking (Special Provisions) Act 2008. The tax affairs of an authorised institution are likely to be extremely complex, and the tax implications of the transfers of shares, property and liabilities of such an institution are no less. It is therefore necessary to have a broad power to deal with the various types of tax charges or losses that would otherwise arise as a consequence of a transfer.

I should stress that the purpose of the proposal is not to enable the Treasury to impose a new tax charge or to deprive a taxpayer of the use of any tax loss that might arise from having had their shares transferred away from them. That is a very important point. Rather, the intention is broadly to ensure that the tax advantages or disadvantages that are created because of the transfer can be neutralised and that continuity can be preserved, where appropriate.

I turn to the amendments in the name of the noble Baroness, Lady Noakes, and the noble Lord, Lord Howard of Rising. I should stress that the purpose of subsection (7) is to ensure that we can, if necessary, update the list of taxes in subsection (2) by order. The amendments would give effect to a suggestion of the Delegated Powers and Regulatory Reform Committee that these orders should be made by the affirmative procedure rather than the negative one. Although the Government take the committee’s views very seriously, in this instance we feel that it is not necessary to adopt the draft affirmative procedure.

In determining the list of relevant taxes, we have sought to limit it to taxes for which it is likely that provisions may be needed. However, we recognise that circumstances may change over time, and the order-making power ensures that the Government will be able make the necessary changes so that all relevant taxes are covered.

I should point out to noble Lords that any regulations substantively amending provisions relating to any tax—regardless of whether it is one included in the provisions of the clause or one subsequently added by order—will be subject to the affirmative procedure. It is these regulations, dealing with amendments to tax provisions of any tax added to the list, that will clearly be of most substantive interest to Parliament and external stakeholders. Given that any substantive amendment to tax provisions will be subject to the affirmative procedure, we believe that it is appropriate to retain the negative resolution procedure for this order, relating to the addition of new taxes to the list of those covered by the clause. I therefore invite the noble Baroness to withdraw the amendment.

In describing the point of the clause the Minister said that the tax effects should be neutralised. There would therefore not seem to be a case of financial privilege involved here. Could not the Delegated Powers Committee’s recommendation, that the clause be subject to the affirmative procedure, be accepted?

I take account of the noble Lord’s observation, but it is our view that it would be inappropriate for the affirmative procedure to apply, for the reasons that I have given.

I am a member of the Delegated Powers and Regulatory Reform Committee and I wish to ask the Minister a rather technical question. The committee’s report on the Banking Bill was published on 18 December. I think it would be normal for it to expect a written reply but, so far as I know, it has not done so. Is it the Government’s intention to send one?

If there has been a failure of procedure, I apologise. If a letter is customary and was expected by the committee, I shall take whatever steps are necessary to ensure that it is sent. I am not sure how much longer I can use the excuse that I am new to the House. There is very rarely a day when I do not do something wrong—when I stand when I should be sitting or use a term that I should not use. On the other hand, I believe—and my noble friend Lord Barnett encourages me to believe—that there is a sign of progress. However, I apologise if we have fallen short in respect of procedure and I assure the noble Viscount that I will ensure that steps are taken to redress our failures.

Of course, procedure is extremely important and my noble friend was right to ask the Minister when the Delegated Powers Committee may expect a reply from the Government. However, I am much more concerned about the substance.

It is customary for the Government to take very seriously the recommendations of the Delegated Powers Committee and rare for the Government to reject them. They did so last June, during the passage of the Banking (Special Provisions) Bill, in relation to the nationalisation order, if I may use that shorthand, and whether the affirmative procedure should be used. Sound reasons were accepted at the time relating to timing, but this is of a different order.

This matter does not require urgency; it is something where the Treasury is just saying, “We don’t think we want to ask for power in advance and go through that affirmative procedure, which we find really rather boring. We’d like to just ram it through and hope that no one prays against it in the time available”. There was no substantive reason for the Government not to accept the recommendation of the Delegated Powers Committee, other than they did not want to do so. That is a very unfortunate position for them to take in Committee and we will have to think about it very carefully before Report. The House will not be pleased to find the Government again setting themselves against the findings of the Delegated Powers Committee, which generally commands the support of the whole House, as its members are very experienced in issues relating to delegated powers taken in Bills. I do not believe that the Government have advanced any substantive argument for not following the recommendation, other than preference. I do not think that that will wash with the Delegated Powers Committee and it will not wash with these Benches either.

I will not press the amendment today. I believe that we are expecting more from the Delegated Powers Committee fairly soon, and that will be even more interesting for the Committee to deal with. Today, I beg leave to withdraw my amendment but I should not like the Minister to think that this issue will go away.

Clause 75 confers an extremely wide power, enabling Her Majesty's Treasury, by order, to disapply or modify the effect of any enactment other than Part 1 of the Bill or of any rule of law not in legislation for the purpose of enabling the powers in Part 1 to be used effectively.

The reason given for this very wide power is that there is a real and significant risk that the authorities may not be able to effect fully a transfer which could lead to serious adverse implications for the public interest through risks to financial stability, protection of depositors or the public funds. There has been some narrowing of this clause since it was first introduced, but the power is still extraordinarily wide. The phrase “having regard to” is unnecessarily broad.

Amendment 121 is modest and seeks to narrow the clause so that it is in line with the objectives of the special resolution. I shall discuss those objectives in greater detail when I speak later. In the mean time, all the amendment seeks to do is to restate how the powers can be used so that, as I have said, they are the same as the declared objectives set out in the Bill. Indeed, it would be perverse if alterations could be made to the law that were not strictly in line with the objectives of the special resolution regime. I beg to move.

With pleasure, I agree with the noble Lord. It is important to link the use of this power with the Bill’s objectives. However, I do not take the view that a change of drafting along the lines suggested by his amendment is required. First, in using or considering the use of stabilisation powers, it is of course necessary for the authorities to have regard to the special resolution objectives, so the stabilisation powers are already targeted on achieving outcomes which best meet the special resolution objectives considered in the round.

Secondly, the clause already requires the Treasury to have regard to the special resolution objectives when making an order under this provision. But the making of the order in isolation is unlikely to achieve special resolution objectives, as it is a power ancillary to the powers of the special resolution regime. It is the powers of that regime which are used to achieve its objectives and this power, which we are discussing here, makes changes to make the use of those powers more effective.

The Government consider that the existing provision best reflects the underlying importance of the objectives in this context, but reconciles that with the supporting role which this clause plays to the main powers of the regime. I hope that the noble Lord appreciates that we are thinking along similar lines as regards the importance of linking with the objectives of the special resolution regime, but that is already in the Bill. Therefore, I hope he will feel that he can safely withdraw his amendment.

I thank the Minister for his remarks. If he agrees with me, then why not draft the Bill so that what it says is in line with the objectives? Support for the objectives should be as the Bill says, and the Government should not use it, as they so often do, as an opportunity to try to take wider powers than are necessary or than the Bill says. I beg leave to withdraw the amendment.

I shall speak also to Amendments 123 and 124. Amendment 122 seeks to remove Clause 75(3). That subsection allows retrospective alteration to the law. Retrospective legislation is undesirable at the best of times, but in this instance there are practical reasons as well as constitutional ones.

Much has already been said about the overwhelming importance of legal certainty in banking arrangements. The ability to legislate respectively, as set out in Clause 75(3), makes it extremely hard, if not impossible, to obtain the level of legal certainty necessary to carry out banking business. One of the reasons for London's competitive advantage in the financial services industry is the UK’s well developed legal system. However, the legal uncertainty created by the ability to alter the law retrospectively, set out in subsection (3), would be so detrimental that any flexibility gained in dealing with banks in difficulties would be overshadowed by the damage to the legal system on which banks depend. How can banks arrange their affairs in an orderly fashion if the arrangements they make can be overturned retrospectively? It makes the taking of security and obtaining a clear legal opinion on that security virtually impossible.

Comment has been made in another place that this legislation would apply only to a bank in trouble, but banks deal with each other, so action taken in using the special resolution regime could affect any bank because any bank could be counterparty to the bank falling under the regime and so be drawn into the net. In practice, the sort of situation and lack of confidence that this Bill seeks to avoid could be exacerbated, or indeed created, because any institution which has the slightest chance of coming under the special resolution regime would immediately be shunned. Healthy institutions would avoid transactions with a counterparty where there is a possibility, however remote, of that counterparty falling under a regime where the law can be altered retrospectively. It would be best if this subsection were removed from the Bill.

Amendments 123 and 124 propose that agreements entered into prior to any retrospective legislation are still valid. That would go some way towards achieving the legal certainty which the banking industry needs. If subsection (3) is not to be omitted from the Bill, at least these two amendments give a chance to provide some order and certainty to arrangements entered into in good faith. I am sure that the Minister, with his experience, will see the impossibility of any commercial enterprise existing in a world where agreements can be torn up at will, let alone in the banking industry where, as has already been said, legal certainty is required to avoid the need for massive increases in capital or other serious disadvantages. I beg to move.

I must advise the Committee that if this amendment is agreed to, I shall not be able to call Amendment 123 because of pre-emption.

At first sight, this is an extremely draconian clause. We have considerable concerns about it because it seems to give the Treasury blanket ability to change the law. However, having read the Treasury memorandum, it is very difficult to see how the operation of the Bill could take place without such a clause. In the case of Northern Rock and Bradford & Bingley, we have seen that the Government had to act very quickly. It was for that reason that, when the Banking (Special Provisions) Bill was going through your Lordships' House, we agreed to the negative resolution procedure. We saw the overriding need for speed in certain circumstances, which was borne out by both Northern Rock and Bradford & Bingley.

We therefore accept the rationale for the generality of the clause. Subsection (3) again at first sight looks draconian because it talks about retrospective powers, but the Treasury memorandum sets out why such powers might be needed, and I have to say to the noble Lord, Lord Howard of Rising, that I do not believe the concerns expressed by the banking industry about the subsection. We are here talking only about what happens to a bank that has completely collapsed; we are not talking about the Government being able willy-nilly retrospectively to change the basis on which the generality of the banking sector can operate.

Therefore, although we on these Benches have a general aversion to any retrospective powers, without this power and the whole clause, it would be very difficult if not impossible to effect the rest of the powers in the Bill, which I think Members on all Benches agree may be necessary.

I am grateful to both noble Lords who have spoken in this short debate, but especially to the noble Lord, Lord Newby. Save in one respect, he has already adumbrated the two main arguments that I was going to present on the issue. Of course the Government are sensitive about retrospective legislation, but it is necessity that drives our position. As the noble Lord, Lord Newby, said, provisions very similar to these in the special provisions Act were used to modify legislation to make the transfers of Northern Rock and Bradford & Bingley effective. That reflects the fact that we are not dealing with normal circumstances; we are dealing with crisis circumstances where some element of setting aside the bar on a retrospective dimension to the law is necessary.

In our discussion of the previous amendment, the noble Baroness cited the deliberations of the Delegated Powers and Regulatory Reform Committee. We pay due regard to those, but so do the Opposition. They will have noticed that the committee made no reference to the retrospection of the power when it discussed Clause 75, so it did not raise for the committee the concerns to which the noble Lord, Lord Howard, gave voice when he moved Amendment 122.

Amendments 123 and 124 are inappropriate. They would introduce considerable uncertainty into the effectiveness of the power provided by the clause, which is of great significance. A vote would involve a significant number of agreements with different parties. At the time of resolution, there is likely to be a considerable number of contracts entered into before the use of stabilisation powers, which will continue to subsist following the use of those powers.

If we accepted the noble Lord’s amendments, those types of contract would be covered by different law to those contracts entered into after the use of the stabilisation powers. If anything would create legal uncertainty, it would be that. It would jeopardise the success of the resolution, which could ultimately put off a private sector purchaser from agreeing to buy a failing bank. The amendment is inconsistent with the common approach to change in the law. When legislation is amended, it affects all relevant activities, not just those that commence after the legislation's commencement, otherwise, if a new tax were introduced for a certain type of employee or sector, it would not apply to those employees whose contract was signed before the tax came into force. We all recognise that that does not obtain.

I appreciate the noble Lord’s concern about any retrospective aspect to legislation. We should all be on our guard on that issue, and it is the job of the Opposition to probe when there are elements of it, but I hope that he appreciates the Government's defence of the issue and that the necessity for the clause to pass unamended is paramount.

I draw the Minister's attention to what the Delegated Powers and Regulatory Reform Committee report states on Clause 75. It states:

“We make no recommendation in relation to clause 75, but we draw it to the attention of the House, so that it might satisfy itself that the rather unusual context for which Part 1 of this Bill makes provision justifies the extremely wide power taken by the clause”.

The committee is inviting the House to consider the matter carefully.

I am grateful to the noble Lord, who is always scrupulous in his close attention to detail. He is absolutely right; he has given effect to that request from the committee. We have considered the matter and the Government have been subject to inspection and scrutiny on it, but I hope that we have also fulfilled the committee's requirement that we give adequate justification for our proposals in the clause.

The Minister commented on the use of legislation in connection with Northern Rock. Can he explain how retrospective legislation was used to resolve the case of Northern Rock?

Part of the powers in the special provisions Act related to certain contracts concerning Northern Rock—I think that that is also the case with Bradford & Bingley. In the Bill, we are following previous example in those terms. That reflects the fact that, as the House will appreciate, the special powers regime—and in this case the Bill—must be able to deal with circumstances where significant and rather dramatic action has to be taken. This legislation is close to the way in which the transfer of both Northern Rock and Bradford & Bingley to the Treasury required that the shadow directorship provisions of the Companies Acts were disapplied. That followed a process not dissimilar to what we envisage in the clause. It does not quite fit the pattern of retrospection, but it does interfere with the common law.

Was that used retrospectively?

It was not used retrospectively, but it did interfere with existing law and applied differently under the special powers. Clause 75 is concerned with that broad position. Perhaps when introducing the case of Northern Rock to the argument, I should have done so more carefully by saying how it used one law to take primacy over another—the law relating to the special powers of the Northern Rock provision. I concede that it did not quite fit the same category of retrospection.

I find it rather odd that the Minister should use Northern Rock as an example when, plainly, it was not. He referred to contracts coming under different parts of the law and said that a contract could be written under one part of the law, but that would then change. Actually, the amendment proposes that a contract or agreement written under the law should remain written under that law and that any subsequent changes to that law should not affect that contract.

I understand that position, but the contract is significant only in that it is effective. All I was indicating is that there is a precedent in situations in which action has to be taken, where something similar to Clause 75 obtains and it is necessary for us to apply the law in a rapidly changing situation that makes a particular demand on the authorities. As I have indicated to the noble Lord, if we were faced with a potential abuse of power, criticism would be voiced in very many quarters about it. However, we should balance what is without doubt an attribution of power to the authorities with the fact that they are dealing with an extremely difficult, and perhaps in the future often rapidly changing, situation in which they need to move with dispatch. I hope that that will satisfy the noble Lord and that he will withdraw his amendment.

I shall intervene at this point rather than in the clause stand part debate, because the debate has ranged far and wide on this clause. My problem with it is that the Bill was intended to deal with what you might call ordinary times. Of course, banks have frequently failed, but not very close together. In the past 100 years, there have been a considerable number of bank failures, and I think we all agree that there should be a better scheme for dealing with infrequently failing banks. However, the Bill is in front of us at a time of crisis, which is colouring our view.

I read the Treasury’s memorandum to the Delegated Powers and Regulatory Reform Committee, all the while bearing in mind that the Treasury is a minimalist department that says the least that it can reasonably say to make its point. It does not say as much as it might be thinking. On this occasion, however, it wrote two and a half pages, which is a pretty long presentation. I think we would all agree with it when it says very firmly in the two and a half pages that sometimes the unexpected happens. The question then is how you structure an appropriate response.

As has been said in this debate, the examples given in the two and a half pages are, frankly, unconvincing, because Northern Rock and Bradford & Bingley were both cited. However, the Treasury found its way through both of those without the benefit of a Clause 75, so we could repeat the terms of the 2008 Act and not get into Clause 75. There is the possibility that it might need to do something that meant that the ombudsman’s powers to protect consumers were not prejudiced by a failing bank and the orders that followed. Then there is the disapplication of the 2006 Act to bridge banks. Bridge banks are the most significant feature of this Bill, and I should have thought that the possibilities that relate to bridge banks would have been thought through.

My noble friend quoted the point made by the Delegated Powers and Regulatory Reform Committee. In making that comment, the committee was I think also conscious that a Bill that was originally intended for ordinary times was being brought forward in a time of crisis. The crisis has led to alternative actions. I suppose that if the Act existed, the FSA might have decided that the Royal Bank of Scotland should be taken into the special resolution regime. Is it really likely that at any time when there is a major problem, as there is today, the powers in Clause 75 would be confidently used? Surely, as has happened, another solution would be found in times of crisis. The case for this very wide power is unconvincing, and I firmly believe that the Treasury could find its way, as could the Bank of England, without the benefit of this clause. It might take a little more due diligence in each case, and possibly slightly more time, but I am sure that it would find its way through without the benefit of this clause, which should be withdrawn.

Parliament is always extremely reluctant to give the Executive powers that can be exercised retrospectively. I still have a little difficulty envisaging how these retrospective powers might be used. The Minister appeared to refer to Northern Rock and Bradford & Bingley, and then, I think, recanted and said that they were not an example of a retrospective use of the powers. Will he give us an example of how these powers might be needed and might be used? Another point relates to an individual working in a bank who has taken decisions on the basis of the law at the time. If the law is changed retrospectively, could the individual find that he has committed a criminal offence? Parliament has always been very reluctant to do anything that makes people liable criminally. Can the Minister be sure that individuals will not be affected in the way that I have described?

I apologise for taking part in the debate now, not having been at the whole debate for medical reasons. I raise one point for clarification. The Explanatory Notes say that if these powers have to be used in an emergency—in other words, if they are brought into effect before there is an affirmative resolution, which is one of the protections against the use of these retrospective powers—they lapse if they are not affirmed at the end of the 28 days. Will the Minister make it clear—I hope he can—that if they lapse, they will never have been effective?

As the noble Viscount, Lord Eccles, was frank enough to confess to us, we have gone slightly wider than the amendments and on to the validity of Clause 75. I am obliged to reiterate the obvious point that there is bound to be some conflict between the public interest objectives of resolving the difficulties of a bank in severe financial distress on the one hand, and the provisions of legislation that are designed to work in relation to a normally functioning business on the other.

Clause 75 is linked to the special provisions of the regime, and reflects the fact that the authorities are acting in the difficult circumstances of a failing bank. We are not looking for general retrospective powers; we are seeking only to facilitate the use of one of the stabilisation options. The scope of the powers might be severely constrained unless we had the ability to ensure that the action taken under those provisions had some paramountcy. That is why the clause is drafted in the way that it is.

The noble and learned Lord, Lord Lyell of Markyate, asked me a specific question, but, in more general terms, where an entirely new regime is introduced in an area which is already populated by a complex and interrelated body of primary and secondary legislation and common law, new laws may come which contain powers that are not dissimilar to those under Clause 75. For example, the Safeguarding Vulnerable Groups Act 2006 and Section 148 of the Criminal Justice and Immigration Act 2008 reflect the fact that the legislation coming in is bound to affect in direct terms already existing legislation. All we are seeking with regard to this clause is exactly that position. There is not a great deal of retrospective quality to it, although it contains a retrospective element. But the necessity of the authorities to be able to act—

Does the noble Lord realise that if he reads Hansard tomorrow he will find that what he just said does not make sense?

I will try to be more succinct. I am trying to express that the authorities have to act at extremely short notice. We want them to have the powers to act in what is regarded as an emergency position with regard to a failing bank. In acting in those terms, they cannot be bound by legislation which constrains that legislation which is constructed to deal with more normal circumstances. We have debated one illustration for some time and I realise that I will not convince Members of the Opposition on this matter very readily. With regard to pensions, I indicated why we might not seek to interfere with the rights of the individual pensioner or to act along the lines of pension legislation requiring consultation with trustees, which might take months to effect, when action could be taken in the fairly immediate short term or the action is bound to fail.

All I am arguing is that this is broadly the position as regards Clause 75. We cannot spell out every circumstance of every emergency because they are not foreseeable. From past practice, we have seen the necessity for rapid action. But, by definition, I do not have an example to quote under the special resolution regime because we have not had it. But we are trying to anticipate how we would deal with an emergency position. In those circumstances, it might be necessary for us to be able to act in the way in which the clause envisages.

The noble Lord seems to want to take powers to deal with a situation which he cannot envisage. He cannot give a single example of what the powers might be needed for and it is unwise to give the Government these powers to deal with any situation when they cannot envisage an example.

We are governed by the objectives of the Bill, the operation of the special resolution regime and the definition of the emergency. The noble Lord will freely concede that. If he is saying, “But you do not have a specific instance of a crisis to which this Bill might relate”, of course we do not. We are trying to anticipate how we defend the public interest in the future. That is bound to fall foul of the noble Lord’s request that I quote past examples chapter and verse.

Does there not come a point when the attempt to get two belts and three pairs of braces is going too far? If, for example, this clause did not exist and the Treasury were to do something needing to be done at speed—I think we all accept that time will be of the essence—if it turns out that under existing law it has made a mistake, it will be a matter of compensation. It will not be a matter for which anyone will be hung, drawn and quartered. The problem with Clause 75, headed “Power to change law”, is that it is going too far.

I will be brief, but if the noble Viscount thinks that we are going too far and that we should not guard ourselves against financial collapse, I hope he has carefully calculated the cost of our inability to protect the financial system in recent months.

Will the Minister confirm that Clause 75(3) was used for Northern Rock and Bradford & Bingley?

I have accepted that point. I was seeking to illustrate that we were obliged in operating with regard to Northern Rock to act in a way which affected other legislation and that the Northern Rock position formed an element of emergency. But there was no retrospective quality to it and I have withdrawn that point.

I do not think that the point the Minister made to me was right. We had a Statement yesterday. I cannot see why not having Clause 75 would prevent the FSA, the Bank of England and the Treasury proceeding to put a bank into the special resolution regime. However, some challenges might follow from that which would have to be met and dealt with.

The noble Viscount, Lord Eccles, seems to be saying that the Government should not have this provision but that they should have the rest of the Bill; that they would act in a way which was in breach of the law, but that would not matter very much because people would take the Government to court and to the extent that they had broken the law, they would have to pay compensation. That is a very bizarre way to proceed.

It may appear to the noble Lord, Lord Newby, to be a bizarre way to proceed, but it probably will happen anyway. Nothing that anyone can do will make it certain that every possibility has been thought of. There may be challenges to some of the things that have been done. Surely, in a democracy, it is impossible to give yourself, as I have said before, so many belts and pairs of braces that you will never suffer a challenge.

I absolutely agree. One of the issues that we have been grappling with is, to a certain extent, the decision on how much should go in the Bill. As a general principle, I wear a belt.

I do not accept the Minister’s argument on retrospective legislation. Before going further, will he answer the practical question on how banks would be able to get clean legal opinions when Clause 75(3) allows retrospective legislation?

Let me emphasise the fact that we are trying to deal with circumstances which we cannot forecast in precise terms, but we have to ensure that the authorities can act effectively. To illustrate, what if a bank was facing rapid deterioration, the authorities were intending to act, and a fraud was discovered? They would then have act at extremely short notice to effect a transfer. The issue of due diligence would have to follow because action would have to be taken in such a way to ensure that confidence is sustained; otherwise the transfer would not be effected and the concept of the resolution regime would collapse. Under normal circumstances, of course the operation would not continue if there was a potential problem with the law, but it might be that the public interest is served by the effective continuation of the operation and resolution of the position, with the other factor being dealt with subsequently.

Does the power undermine clear legal opinion? No, it does not. It will not be used to modify the provisions of the Banking Bill, and the Treasury will not use it to amend the legislative safeguards provided. We are not taking a power to interfere arbitrarily with the legislation. When Ministers were pressed in a similar discussion in the other place, the Government amended the Bill to ensure that that could not happen. The Government are working hard with stakeholders and market participants to design appropriate safeguards to cover the real problem of partial transfers, the nub of a very difficult situation. We are of the view that it would not be appropriate for this clause to be used to amend the safeguards we are putting in place. We are responding on whether a clear legal opinion on this legislation should be developed, and we defend Clause 75.

Can the Minister confirm that this clause would not be used to change contract law?

As the noble Lord knows, I am no lawyer. I am therefore reluctant to leap to the Dispatch Box with a categorical response. We were pressed in the other place on how we would use the clause, and we gave the assurance that I am repeating now. The Treasury has no intention of using the clause to amend the legislative safeguards which the Bill provides for the procedures. I hope the noble Lord will accept that that is about as far as he can press me on the matter.

I have listened carefully to the Minister’s argument for the clause—that it is needed for unforeseen circumstances which he cannot describe to the Committee. Given that his argument rests on the premise that something which he cannot describe might arise where these powers might be needed, how can he give a commitment in respect of the Bill? If his argument is founded on that principle, how can he selectively choose?

As I indicated, we were pressed on this in the other place and we sought to establish that we have not introduced the clause in order to give an overriding power to amend and disregard other aspects of the Bill. I am seeking to reinforce that assurance. The special resolution regime and its safeguards are set out in this legislation. When an emergency arises in a complex legal environment, it may be necessary for the authorities to act in accordance with this Bill, which will then be an Act, even if it runs counter to other legislation that was conceived in rather more normal times. That is the nature of the emergency of failing financial institutions, and it forms the basis of this legislation. I am sure that the noble Lord, on principle, supports it.

The noble Lord has given us his usual brilliant and long explanation, but it is completely unsatisfactory. I will be returning to the issue on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment No. 125 seeks to leave out Clause 75(8). Subsection (8) proposes that orders can be made under this clause without the need for them to be laid before Parliament for 28 days, not counting periods of dissolution, prorogation and adjournment. To deal with difficult and unforeseen circumstances, Clause 75 seeks immense powers, including the power to change laws as set out in subsection (1), and to amend them retrospectively, as we have just been discussing. Whatever one’s views of these powers, the only way in which they could possibly be acceptable is if they have to be approved by Parliament. It is unacceptable that these immense powers should be used without the consent of Parliament.

If an order is made under Clause 8 at the beginning of the Summer Recess, there will be no need for it to be considered by Parliament for nearly four months. That is bad enough, but subsection (8)(d) allows a new order to be made if an order under this legislation lapses. As far as I can see, there will be nothing to stop new orders being made ad infinitum, thereby making a nonsense of the requirement for parliamentary approval. Furthermore, paragraph (c) provides that any action taken under an order which is not subsequently approved by Parliament is not invalidated. In fact, the approval or disapproval of Parliament would no longer matter. Power would have been transferred from Parliament to the Executive. I hope that that is not the Government’s intention, and I have no doubt that the Minister can confirm the position. However, it is what the proposed legislation says that matters, as it is the legislation that provides the criteria for government action. If the criteria were simply the comments made by Ministers in Hansard, then incidents such as an old man being arrested for intervening at a Labour Party conference or a lady being prevented from reading out the names of the fallen in Iraq would never have occurred. There are many other examples of the misuse of legislation.

I urge the Minister to consider most carefully this amendment, so that we do not fall into the trap of providing a future unknown Government with the power to override Parliament and create a form of totalitarian society. Aside from the constitutional issue, subsection (8) adds to the difficulties of banks being able to enjoy certainty in their legal arrangements. If the Treasury can make an order without the consent of Parliament, it will almost certainly mean that any legal opinion given to banks in the course of their business will have to be qualified. That qualification may well mean that this Committee’s good work on enabling set-off and netting arrangements, so that a clean legal opinion can be given, has been wasted. I beg to move.

Can the Minister tell us whether there is any precedent in legislation for a clause of this sort? Although it seems to allow orders to be made and subsequently to lapse, what is done in the mean time and without approval can apparently persist just the same. I cannot recall, in the past 40 years or so, seeing a clause of this sort, or statutory instruments being allowed to be used in these ways.

I recognise that this is a challenging area for legislation, but we are seeking to deal with a challenging situation. The Government think that this provision is important because there may be circumstances in which a transfer needs to be made at very short notice indeed. It is therefore necessary to modify aspects of legislation in order to make it effective. We are talking about emergency circumstances. In such circumstances, any prior requirement for each House to approve a draft order before it came into force would cause delay during which time the authorities would not be able to address the emergency of the failing bank. The repercussions of this might be disruption in the financial markets. It might place public funds at unacceptable risk, and it might exacerbate financial instability. Surely recent experience has taught us that this is a real possibility. Events move quickly, and the authorities have to act quickly.

Of course I accept the Opposition’s criticisms that this does not fall into the pattern of straightforward, normal legislation. It seeks to deal with potential emergency circumstances. Under the envisaged 28-day procedure, however, the order will be subject to a full debate in this House and the other place. It will need to be affirmed by resolutions in both Houses in exactly the same way as the draft affirmative procedure. The only difference is that instruments under the former procedure can come into force earlier. I could understand noble Lords’ reservations about this power if the Bill were about normal circumstances and Clause 75 related to normal circumstances. However, we are dealing—might be dealing—with issues of such significance and such emergency that prompt action by the authorities is necessary. That is why this provision is in the Bill.

I asked a simple question about whether there is any precedent whatever for the form of words that we see here relaxing the normal arrangements made. Given the form of words, an order can be made—one understands that it may be urgent—and then lapse. However, the clause says that, meanwhile, the situation that was created remains the same. It is left, so to speak, hanging in time without anything attached to it. That will not help the noble Lord. He will have got the urgency, but then the order will have lapsed, and what he wanted to achieve will not have happened except in that particular period of time. He will have achieved nothing in the long term.

On the contrary, one of two situations may obtain. It may be that Parliament reaches a judgment that the action was unnecessary and unjustified, and the action therefore lapses; or it may be that Parliament considers the authorities to be completely justified in the action that they took. Those two situations are the subject of parliamentary judgment. Of course it will happen after the authorities have acted, but Parliament often reaches its judgments in just such a way. Parliament does not dictate to the Government and the authorities: it keeps their actions under scrutiny and provides the legislative base on which they act. That is what the Bill seeks to do.

Does the Minister agree that the hazard in the signing of a statement of affairs in this situation is enormous and carries with it a penalty of a seven-year summary sentence? In the circumstances, will the Government expect and require that any statement of affairs supplied in this matter—bearing in mind the speed at which they are likely to have been produced and the risk of hazards increasing—will always be required to be signed by at least one licensed insolvency practitioner as an endorsement?

If I am going to bob up and down and answer every question, I shall be fairly vigorous. I shall take that point on board.

The Committee will appreciate that we are in somewhat uncharted waters—and in a sense the Government are using that argument. They are saying, “Here we are without a chart. We might think it desperately important to do something immediately and we must be allowed to do it”. But we live in a country which is governed by the rule of law, and it is important to go back to those basic principles. The legislation provides that we should give the Government powers which they will not have until they choose to lay an order. So they can act on something which is not the law until they instantly state that it shall be the law and until Parliament has had a chance to consider it.

The Minister said that Parliament may think that it was a good idea and approve it, which is all well and good. However, if Parliament said that it was a very bad idea and disapproved it, it would still remain the law. Consequently the Government will be able to rule absent of anything which is the law in the way that we understand it. We understand law to be either the common law or statutory law, but this will not be statutory law except by completely changing the notion of our statute so as to enable the Government to do what they like. The danger, which we ask the Government to reflect on, is that it will lead to a great deal of concern and lack of confidence.

My noble friends asked whether it would be possible for people to get sensible legal advice on what is likely to happen, and the legal profession and others elsewhere will be racking their brains in trying to decide what kind of circumstances the Government will use. No doubt in coming days the newspapers will come up with some suggestions, and the Treasury may think up suggestions which it has not at the moment passed to Ministers. However, there is a danger of uncertainty in the financial world and there are real strengths in government according to law.

It is questionable whether the problem we are in is due to a lack of powers for the Government immediately to do as they like. It is certainly not my impression that the mess we have gotten into—whether it be partly global, partly local, or partly to do with this country—is a result of the Government not being able to snap their fingers and have something done. There is therefore a strong argument for sticking to our constitutional principles, which are embodied in the European convention. The convention is mentioned as something that we should seek to abide by, at least in regard to property rights and so on—so far, so good—but we must remember that it is in many ways a safety net. Until now we have lived in a country with higher standards than that, and we are proposing to abrogate those standards. That is why we are asking the Minister to think again.

My noble and learned friend has put far more eloquently and with far more knowledge of the law the points that I wanted to put to the Minister on my reading of the clause. I am trying to think of circumstances that might pertain to it. These are the powers of a medieval monarch; this is Alice in Wonderland stuff, where the law is what I say it is if I am the Executive and, if Parliament subsequently disagrees with me, that is tough. That is how it was. If the Minister is not able to give us an example, the clause seems disproportionate; it seems a very big sledgehammer indeed and creates a horrendous precedent. I wonder whether the Minister might not go back to his officials, who are obviously enthusiastic about ensuring that they cover all the bases, and consider whether it might be possible to achieve the objectives without going quite so far in what is nothing more than a grand by-pass of Parliament clause with considerable consequences.

On my reading of this, it is possible to keep running the order over a recess, as my noble friend said from the Front Bench. If there is some dire emergency—some dire national crisis—that requires immediate action, it is possible to recall Parliament. If the order provides for 28 days, I do not see why it is necessary to have this renewal of the period, which effectively means that Ministers can govern by fiat, secure in the knowledge that there is no accountability whatever. Not only is there no certainty, but there is no accountability. This is the most extraordinary clause. I can only think that it was written by officials who had perhaps not given sufficient concern to the role of Parliament and, as my noble and learned friend said, to the importance of maintaining the rule of law, which is fundamental to our whole way of life.

There are more or less acceptable bits of subsection (8). If you are bringing a bank into the regime at the beginning of August and feel that you have to use some of the powers in Clause 75, you would do it under an order and, as paragraph (b) of subsection (8) states, you have 28 days after Parliament returns to get the order approved. That does not seem draconian or untoward; it seems sensible. In reality, the likelihood of Parliament being recalled purely to approve an order under this clause is not practical politics.

However, paragraphs (c) and (d) seem odd. If, as paragraph (c) states, the fact that an order has lapsed does not invalidate anything that you have done, by definition virtually everything that you are going to need to do will have to happen very quickly, so you will have done it. Therefore, paragraph (c) is very strange. I take the point about paragraph (d). What is to stop the Government reintroducing an order? Again, in practical politics, it is highly unlikely, but the provision states that if an order lapses it can be reintroduced. If the Government do not put it to a vote, any action taken under it cannot be invalidated and you could keep going round that roundabout time after time.

This is not my amendment, so I am not summing up, but I shall respond. Let us not be too general in our arguments. This power is circumscribed by the earlier parts of the Bill defining the situation in which these powers may be applied. They are limited. Within that framework, the Government are seeking a power that will ensure that we can take action on a failing bank that is a threat to the financial system. Within the framework of this legislation, we can take action to deal with an emergency that we cannot describe fully and in detail, but we know the cost of loss of confidence in the financial system. The potential necessity for the authorities to act with great rapidity on a failing bank is the framework within which these powers are sought. There should not be delay because of consideration of other legislation.

Earlier, I introduced into the debate the fact that one or two other Acts of Parliament were passed against a background where it was recognised that they were being introduced in an area where there was existing legislation and that they took precedence over it. I heard what the noble and learned Lord, Lord Lyell, who has a distinguished record in the law, said. I am merely indicating that we are seeking these powers for circumstances that are clearly prescribed in the Bill, and the noble and learned Lord ought not to generalise too far in his representations.

Although I do not like it, I do not have a problem with the Minister’s description of this provision. However, I do not see why it is necessary to be able to extend an order beyond the 28 days. I have particular problem with why, if Parliament chooses not to approve an order, it is necessary for the original decision to stand. As my noble and learned friend pointed out, that seems to create a third area of law that is neither common law nor statute law, but law by ministerial fiat. That seems very dangerous and out of all proportion with the problem. If the Minister could explain why it is necessary to have that, we would be less concerned.

The Minister was kind enough to refer to what I said, but he said that I was talking in great generalities. We are talking about the banking and financial systems of the United Kingdom, their stability, public confidence in their stability, the protection of depositors and the protection of public funds. I cannot think of anything in relation to the financial system in all its huge and broad effect that is not covered by those phrases. It is not as though we are talking about a narrowly defined structure within which this remarkable power is right. We are talking about the Government’s powers to do anything that they like in the entire world of public and private finance. I am told that that is just a generality, but the Minister’s argument turns on him.

Is it possible for the 28-day period to be extended just like that?

When Parliament is sitting, it will consider whether the position is acceptable. If Parliament rejects the order, it is inconceivable that the Government would reintroduce it in defiance of the will of Parliament, so that is not the case. The issue with regard to the continuation relates to an emergency action having been taken and Parliament not sitting within the period. Twenty-eight-day orders are not common, but they are not unknown. They exist because it is recognised that there are actions by authority that ought to be subject to early parliamentary scrutiny and concern. That is why they are limited to 28 days. The only circumstances in which there would be an extension would be if they could not be considered in that period.

I am sorry to belabour the point with the noble and learned Lord, Lord Lyell; he knows how much I respect him in these matters. We have dealt with matters with regard to the law in the past. I have never felt that my responses have been entirely satisfactory to him and I feel the same way now. However, I emphasise that we are talking about a power that can be exercised only when a particular institution is entering the special resolution regime. That is the governing position with regard to the other clauses in the Bill. We have clear strategy triggers in the Bill which set up this position. We therefore expect this provision to be exercised only in the most exceptional conditions.

I hear what the noble and learned Lord says: it goes without saying that the rule of law and democratic traditions are the best safeguard for a financial system operating in any society. However, there can be threats to a financial system which have very little to do with the law, the ethics or the ethos of that system. Things can go very badly wrong. They have gone very badly wrong in very recent experience. This Bill seeks to provide, as best we can, that such eventualities cannot recur with regard to a failing financial institution. That is the limiting framework in which these powers will be taken. I hope that he will accept the Government’s good faith in this matter.

I have the greatest respect for the Minister; he is a former Member of the other place and I know that he has great respect for Parliament. However, he has not addressed the fundamental issues. He keeps saying that these extraordinary powers would be used only in exceptional circumstances. However, he needs to explain why he needs them and he has not done so. Granted, there might be exceptional circumstances and, granted, Parliament might be in recess—I take the noble Lord’s point that recalling Parliament is no small matter—but he is arguing for exercising these extraordinary powers in very serious circumstances. Would it not be sensible to take this provision away and think whether it might be possible to achieve his objectives without creating what I believe is an extraordinary precedent in this clause? I cannot believe that it is beyond his wit in guiding his officials to come up with a rather more sensible and less draconian way of approaching the problem, which I quite see could arise where there was a crisis in an institution.

I am grateful for those remarks, although, as ever with the noble Lord, Lord Forsyth, his invitations are to be accepted with care. The thought that I, my officials and my noble friend the Minister would not take note of this significant debate is absurd. Of course we recognise the significance of the points raised. I apologise for my inadequacy in assuaging all doubts. We will consider the matter further, but I hope that the noble Lord will withdraw his amendment today.

When the noble Lord considers the matter, might he find that an easy way of dealing with the concerns about the potential abuse of the law would be to delete paragraphs (c) and (d) of subsection (8)?

The noble Lord made a pretty substantial argument to that effect earlier and I will of course consider it.

I thank all noble Lords who have spoken in this debate. As we still have the clause stand part debate to come, I beg leave to withdraw the amendment, bearing in mind that I will return to the matter later.

This clause, as I am sure we have all realised by now, should not stand part of the Bill for two good reasons. The practical one is that it will create serious difficulties for the banking industry. We may dislike the banking industry but it has been, and remains, a contributor to the economy of this country. I spoke about the problems that this clause will create for the banking industry when we debated previous amendments.

The second reason, which we have already touched on, is constitutional. I have spoken to various amendments to Clause 75 but the truth is that the clause should not be in the Bill. However difficult it may be to cope with a serious banking failure, and however much flexibility might be required for that purpose, that is insufficient reason for surrendering the ability of Parliament to call the Executive to account. In spite of what the Minister has said about the powers being very narrow and specific, they are not, as my noble and learned friend Lord Lyell pointed out.

At the risk of repeating myself, let me explain why there is a movement of power from Parliament to the Executive. Subsection (1) of Clause 75 allows any law, except this one, to be amended for the purpose of enabling the powers in Part 1 of the Bill to be used effectively. The definition of “amend” is set out in subsection (4). If one examines the special resolution objectives, for which these powers are to be used, one finds that it does not take much imagination for those objectives to be interpreted broadly enough to allow an unacceptably wide range of laws to be changed. For example, Clause 4(5) provides that objective 2 is to protect and enhance public confidence in the banking system. That means that if there were media speculation and comment on the state of the banking industry or the state of an individual bank, it would be feasible to use this legislation to introduce press and television censorship. Your Lordships may think that this is a little far-fetched, but it is perfectly possible. That is just one example of what could be done under this legislation.

There are many occasions, as I commented when speaking to Amendment 125, where the law has been broadly interpreted to suit government requirements. I am sure that your Lordships can think of many instances where the Government have used their power in a way not thought of when particular legislation was introduced.

Subsection (3) of Clause 75, as we have already discussed, allows for retrospective legislation. The difficulty that the clause creates for banks has already been pointed out but, again, it is possible to interpret the clause very broadly. The law in Great Britain gives citizens the ability to go about their business, secure in the knowledge that there is a clear set of rules on what is allowed and what is not. They have the protection of the rule of law, as my noble and learned friend pointed out. In a democratic society, it is unthinkable that this certainty of where one stands within the law can be removed at will.

Subsection (8), as we have already discussed, enables Parliament to be completely ignored when the power is used to amend the law and to change it retrospectively. I remind your Lordships that subsection (8)(b) effects this by allowing 28 days for an order to be approved by Parliament; if the order lapses, subsection (8) allows a new order to be made. The Minister said that if the order were rejected by Parliament, it would be unlikely to be re-presented. That does not mean to say that the Government could not allow the order to lapse and then simply introduce it again so that, by stringing a number of 28-day periods together, they could ignore the views of Parliament.

Subsection (8)(c) states that, even if an order is disapproved of by Parliament, nothing is invalidated that was done under it. Together, subsections (1), (3) and (8) enable the Government to ignore Parliament completely—subsection (1) by allowing the law to be amended, subsection (3) by allowing retrospective change of the law, subsection (8) by allowing orders to be made at will and subsection (8)(c) by allowing for the force of the law to apply to an order even if it lapses. But it is for Parliament to approve legislation; it is not for the Executive to change Parliament’s decisions at will and without its approval. However much flexibility is required to deal with banking stability, that does not justify sacrificing the supremacy of Parliament and all that that can entail.

In any event, if a serious problem arose, there is nothing to prevent Parliament from being recalled, as my noble friend Lord Forsyth suggested. To say that it is difficult and expensive to recall Parliament and that, for that reason, one should surrender democracy, is absurd. The Northern Rock legislation was pushed through both Houses far more quickly than any deal formalising a bank coming into the special resolution regime could possibly be signed, sealed and delivered.

Clause 75 turns upside down centuries of effort and sacrifice to create a free society governed by the rule of law and the democratic process. Even by the standards of this Government in recent years, Clause 75 is appalling. It is shocking that it has even been introduced to Parliament.

I support what my noble friend has said from the Front Bench. I recognise, as the Government say, that we are in very difficult waters, but they are made more dangerous by abandoning these profound and longstanding principles, particularly regarding retrospection. I ask the Government to think most carefully again. The matter is bound to arise in the press before the Bill has finished its course. It is extraordinary that the Minister has not been able to think of a single example. People will think of examples. They will probably also see that there are other ways of resolving them, as my noble friend Lord Eccles said so eloquently a few minutes ago. Therefore, this is the moment to ask the Government to say that they will take stock. We are sure to come to this on Report. Before then, we need to know that we will be given much more satisfactory answers before we can allow the matter to proceed.

I thought that we had exhausted all the arguments before we reached the clause stand part debate, but I suppose that reiteration never did anybody any harm. The noble Lord, Lord Howard, effectively summarised all the points that have been made thus far.

Perhaps I may make one or two things absolutely clear. The banking industry has not expressed its concern about the clause in the terms which were depicted in the noble Lord’s contribution. We have been in extensive consultation with the industry. It was concerned that the clause might override the safeguards on partial transfers that we had put in place. We responded by amending the Bill so that we cannot do that—that provision is contained in subsection (4)(a). If the banking industry has the concerns that noble Lords have suggested—after all, it is an interested party—we await such representations.

This is nothing whatever to do with the banking industry. The Bill of course affects the banking industry; this is to do with the role of the Executive and their accountability to Parliament and the rule of law. It is a parliamentary matter. I would be amazed if the banking industry had expressed a view on it. It is not about how it will affect the banking industry. We are at one with the Minister in wanting to give the Government the powers to deal with irresponsible banks and the consequence of them, but at issue here is a far more fundamental matter: the accountability of the Executive and of Ministers to Parliament and the role of Ministers in the creation of the law. That is why there is such concern on these Benches and even, I think, on the Liberal Benches.

The British Bankers’ Association states:

“We remain concerned therefore about this general and retrospective power to amend legislation notwithstanding the scoping out of amendments to the Banking Act itself and related secondary legislation”.

I was about to respond to the point on which the noble Lord, Lord Forsyth, commented. I would have asked how I could possibly respond to this debate without addressing the issue which he raised in regard to the clause and which has been raised many times in this debate. It was said that the banking industry is not interested in these issues. If we are talking about confidence in the financial institutions and the banking industry, it is valid for me to point out that we have received from the important interested parties limited representations that differ from the tenor of the argument that we have heard today.

I reiterate that it is inevitable that there will be some conflict between the public interest objectives of resolving a bank in severe financial distress on the one hand and the provisions of legislation which are designed to work in a normally functioning business on the other. We are concerned to guarantee that the authorities can act in carefully circumscribed circumstances to deal with an emergency. I cannot give an illustration of such an emergency because we are seeking to guard against eventualities that may occur. We are not fighting as generals in the last war; we are trying to anticipate what is necessary in legislation to protect the financial system, because we are aghast at the consequences to the public interest of recent failures.

The Government consider it crucial to take a power to amend the provisions of primary and secondary legislation and common law within this very narrow framework to make the provision work. Are we disregarding Parliament in doing so? The noble Lord, Lord Forsyth, suggests that the Government are taking on not even Henry VIII powers but those of a medieval king—it sounded like a medieval king called Alice, but I cannot recall that historical figure.

There was a Queen Alice of Louvain.

Yes, but the noble Lord did not say “monarch”; he said “king”. He then went on to describe Alice.

I gave the Minister two metaphors. I talked about a medieval monarch and I said Alice in Wonderland. I was referring to “when I say what a word means, it means what I say”. We have Ministers who will apparently say: “When I say what a law is, that is what it is and there is nothing that Parliament can do about it”.

I am grateful to the noble Lord for elucidating that position. Far from us looking towards the powers of a medieval monarch, we are seeking to act in carefully prescribed circumstances of very considerable concern to the public interest. It is quite clear that the legislation defines the narrow terms within which the authorities can act. Are the authorities intending to act in defiance of the will of Parliament? No—what they are doing is exactly the opposite. They are saying that, if we act in this area, they will present before Parliament within 28 days the opportunity to make the judgment on whether that action was justified. It is not like a normal order, which could be laid a considerable time afterwards, but one which will be presented within 28 days.

Anxiety has been expressed about two things. Why is that not absolutely prescribed as the only period? Because it might be that Parliament is in recess. It might be a judgment that Parliament should be recalled for reconsidering the order, but it might be a judgment of the vast majority of the nation, of all Benches in this House and all sides of the House of Commons, that to recall Parliament in those circumstances would be to exacerbate the loss of confidence in the financial system rather than increase it. That is something for which the Government would be responsible.

If Parliament denied the validity of the order after 28 days of it being repeated, is it conceivable that a Government, having taken action in those circumstances, with the order having been rejected by Parliament, would reintroduce the same order? To what purpose would they do that, when the whole action of the Government is directed towards seeking to establish confidence in the nation? By carrying out such an arbitrary action, they would render the circumstances far worse.

I am prepared to accept that we must look again at this clause. I accept the seriousness of the debate, but I hasten to mention another point. Noble Lords have suggested that it is not an important factor that the banking industry did not react to this clause and the other provisions of the Bill in quite the way that noble Lords have done—but nor did the Delegated Powers Committee. The noble Lord, Lord Northbrook, is right; he has quoted the committee accurately. It did not call attention to Henry VIII powers or the powers of a medieval monarch—or those of Alice in Wonderland. Did the committee suggest that? No, it did not.

The Government should respond to this debate and look at the issue further. However, it may just be that noble Lords have slightly exaggerated the nature of the threat to our democracy represented by a Bill that seeks to deal with an emergency situation in carefully defined, narrow and prescriptive terms.

I may be misunderstanding the words in the Bill. The Minister has just said that, of course if Parliament took a different view the Government would take account of that. However, the Bill says that,

“the lapse of an order under paragraph (b) does not invalidate anything done under or in reliance on the order before the lapse and at a time when neither House has declined to approve the order”.

Does that not mean that whatever the Executive or a Minister have done will stand, regardless of what Parliament thinks? How in that case can the Minister say what he has just said to the Committee? This is what is causing such offence—or am I misunderstanding?

I do not know what the Delegated Powers Committee or any other committee was doing, but I look at the words on the Bill that we are being asked to approve and that seems to be the meaning. The Minister has just said that it means something else. Can he help me with that?

I cannot help any further, except in saying that the noble Lord with all his applied intelligence is interpreting the measure his way and I, with my limitations, am interpreting it differently. We just have to disagree on that.

I suggest that perhaps the Government should look at a redrafting of this provision if it causes such confusion. I am with my noble friend on this; the way in which he read it out indicates that when the decision has been taken on this order, that will be it. If that is not true, redraft it—or something.

I am grateful to the noble Baroness. She may recognise that we have debated this issue for a considerable period of time. As I have said in previous debates, of course the Government take seriously representations in Committee. We will take this issue seriously.

I am very grateful to hear what the Minister said. This was the point that I raised when I apologised for speaking, having come late to the debate, in the very first intervention that I made. My reading of Clause 75(8)(c) is perfectly clear. If the order decides something or lays something down before Parliament has had a chance to consider it, which will be in a minimum of 28 days and might be three or four months or more, and if Parliament subsequently declines to approve the order, the Bill says that the order is not invalidated. I can see why for practical reasons it says that—but for practical reasons the Government want to override the long-standing constitutional principle against retrospection.

The Minister seems to be in some doubt about what this subsection means. I do not know how he can possibly be in any doubt of it. I would hope that it would take only about 15 seconds for somebody in the Box to send him a message saying whether, if the House declines—

Here comes the message!

Yes, help is coming. The point is, if when the matter eventually gets to be debated by the House, either or both Houses decline to approve the order, do things that have been done under the order remain valid or do they lapse and cease to be valid? I am sure that the Minister is now in a position at least to give a straight answer about his understanding, and that provided by his officials.

I thought that I had already conveyed this point to the Committee, but I shall make it again. The 28 days is for bringing the order before Parliament within that period. Of course, if Parliament votes it down, the powers lapse. But the noble and learned Lord will appreciate that the real problem with the 28 days is that it is 28 days, provided that Parliament is sitting. We do not know when the emergency might occur, but the Government must act. The noble Lord, Lord Forsyth, started the hare running that it would increase financial confidence if Parliament was recalled to debate the order. Certainly, that was contended on the noble Lord’s side of the Committee and I disputed that as an aid to financial confidence. Nevertheless, perhaps that would be the way in which the order would be dealt with. But certainly, if Parliament rejects the order, the powers lapse. The noble and learned Lord, Lord Lyell, must surely be satisfied with that answer.

I do not think that the Minister is deliberately missing the point, but I am fearful that he does not understand it. The Bill says that,

“the lapse of an order under paragraph (b) does not invalidate anything done under or in reliance on the order before the lapse”.

That would seem to mean that if something, such as a transfer, is carried out, which is one of the things imagined, of which the House disapproved—and the House disapproved of the order that gave the power to make that transfer—the transfer would nevertheless remain and could not be altered except by some other Act of Parliament. Is that the Minister’s understanding? That is really what we are fighting about. That is the mischief of this retrospective provision.

Before the Minister replies, could I return to Bradford & Bingley? It all happened between 27 and 29 September. The Minister knows that 28 days is a long time in circumstances such as those, not a short time. If that had been handled under one of the 28-day instruments, by the time the business was scheduled perhaps some 21 days later, there would have been no unscrambling of Bradford & Bingley. Therefore, the noble and learned Lord, Lord Lyell, is absolutely right. If you have one of these orders and it does something substantive and substantial, whatever Parliament then decides, what has been done cannot be reversed.

Of course, that is right. I assume that the noble and learned Lord, Lord Lyell, accepted that from my earlier remarks. We are talking about emergency provision and action. When an action has occurred it means that the authorities have taken responsibility for property and made very important decisions. In an emergency, by definition, they have taken a decision because of the threat to the financial system as a whole. Of course, the noble and learned Lord cannot be anticipating that 28 days later there would be an attempt to unscramble the actions taken. The aspect of parliamentary accountability is that the Government have to lay the order to justify and account for their actions and accept the criticisms of Parliament if it thinks that the Government and authorities have not acted properly and wisely, but there is no turning back of the clock.

Just for myself, I am most grateful to the Minister for his clarification. He is all for retrospective legislation and that is the issue on which he stands.

Again, I thank all noble Lords who contributed so much to this debate. I am grateful that the Minister is going to reconsider the clause and I hope that he will listen to the comments made by my noble friends. He might just bear in mind that a 28-day limit is rather like a speed limit: it is something that people go up to but never under.

I would also like the Minister to confirm that the Government will not allow 28-day orders to lapse which then enable them to stick another one in saying, “Parliament didn't object to this so we can just get a new one”. Perhaps when he is considering revising the clause he could look at the drafting to see what can be done to stop this draconian legislation being applied to any other matters. He keeps saying that it will be used only for narrow purposes but, as drafted, the law would allow all sorts of undesirable things to happen.

Clause 75 agreed.

Clauses 76 to 80 agreed.

Amendments 126 and 127

We are now moving to much less exciting territory. Amendment 128 would insert a new clause after Clause 86 to deal with foreign bank branches.

We started our Committee consideration on the first day with a group of amendments where I sought to introduce asset-freezing provisions such as were used for the purposes of dealing with Landsbanki and Icesave deposits. Somewhat predictably, though disappointingly, the Government chose not to take the opportunity of accepting those amendments and complying with the report led by my noble friend Lord Newton of Braintree. That still leaves branches of foreign banks operating in the UK untouched by the Bill, which we do not regard as satisfactory. I have tabled a new clause after Clause 86 so that the Government can have the power to deal with the branches of foreign banks if they cause financial stability problems or otherwise need to be dealt with within the objectives set out in Clause 4. The drafting is modelled on the drafting for credit unions in Clause 86.

I appreciate that branches are not as easy to deal with as whole organisations such as credit unions, which is why it would be necessary to take a very broad power to achieve an acceptable result. The exercise of such a power may well raise issues under EU law, but that would apply when a power was used, not when it was placed on the statute book. It would also affect how it was used. I tabled this to ask the Government why they are not dealing with the branches of foreign banks in this legislation given that we know they have caused problems in the past and are likely to do so again. I beg to move.

The purpose of Amendment 128 is to apply the special resolution regime to foreign banks. As in our earlier debate on foreign banks, for the purposes of this debate, a foreign bank is one incorporated under the law of another jurisdiction but which operates in the UK through branches established here.

I believe that the noble Baroness’s intention is that the amendment should be focused on European Economic Area banks that have set up branches in the UK using “passports” under the EC banking consolidation directive. The Bill applies the SRR to UK deposit-takers only, although I should point out that this includes UK-incorporated subsidiaries of foreign-owned or foreign-headquartered banks. That approach is entirely consistent with European law.

Under Community law, prudential regulation of a bank from one EEA state operating through a branch in another EEA state is for the home state regulator. Therefore, the home state regulator is responsible for taking the lead on resolving any difficulties with such a bank, including any branches that it may have operating in another EEA state.

Indeed, the powers of the host state authorities are limited by Community law, and even if we sought to take powers to apply the SRR to EEA branches, the UK authorities could act on those powers only in highly circumscribed ways. For example, the share transfer powers have been developed for use in relation to shares and securities as defined in UK law and are therefore not directly applicable to foreign banks. Also, as discussed in last week’s debate on foreign property, we are limited in the extent to which foreign courts will enforce any transfer order of foreign property within any foreign bank, even one which has a branch in the UK.

As I also made clear when speaking about the amendments on asset-freezing powers, the extent to which a foreign branch has property in the UK within the reach of the UK authorities will be a matter of fact rather than law. For these reasons, both legal and practical, it is not beneficial to extend the powers of the SRR to foreign banks. However, we are of course aware that EEA banks operating in the UK through branches can have UK depositors and that this may give rise to a number of specific issues. This was clearly the case with recent events around the Icelandic banks. The UK Government have shown that we are prepared to take decisive action to protect savers, to ensure financial stability and safeguard the interests of the taxpayer.

The UK authorities, of course, continue to work closely with other regulators and authorities within the EEA to resolve difficulties with EEA firms operating in the UK. Members of the Committee should also be aware that the remit of the Financial Services Compensation Scheme extends to branches of banks from other EEA states which have joined the top-up arrangements, as per the provisions of the relevant directive. Of course, UK branches of foreign banks from outside the EEA are authorised by the FSA and participate fully in the Financial Services Compensation Scheme.

Nevertheless, I recognise that there are issues here which require a closer look. The Chancellor has already written to Commissioner McCreevy in Brussels, asking that the Commission work with the UK in reviewing the arrangements for branches and other cross-border banking entities. Of course, we are continuing to conduct our own analysis of supervisory changes that may be needed, not least through the review that the noble Lord, Lord Turner, in his capacity as chairman of the FSA, is undertaking to determine changes needed to UK and international banking supervision.

It is important to remember, however, that any changes that the UK authorities determine to be necessary will need to be made in co-operation with our European partners, and not in a piece of purely domestic legislation such as the Bill. As far as the Bill is concerned, therefore, the approach taken towards its scope, combined with our existing powers, is the right approach to delivering the best results for financial stability and depositors. I therefore urge the noble Baroness to withdraw the amendment.

Before I do so, the Minister said that he assumed that I was talking about EEA banks. The definition in proposed subsection (2) of my amendment refers both to EEA banks and treaty banks, and is therefore not simply confined to the EEA. The Minister’s response was mainly in the context of EEA branches. I am sure that it is good to write to Commissioner McCreevy and wait for the European Commission to propose some action or a directive, but that is not the action that I would have thought that a responsible Government would take. Let us assume, however, that writing to Commissioner McCreevy is a good and constructive thing to do about branches of EEA firms. What, then, about branches of other banks that operate under the FSMA through treaty provisions?

Although I referred at some length to EEA branches, which is an area of particular concern given the experience both of the Icelandic banks and of some of the Irish banks, I made it clear that arrangements existed in the Financial Services Compensation Scheme for non-EEA banks operating in the UK under FSA approval. I repeat that it is outwith the scope of the Bill to address issues of branches of foreign banks in the United Kingdom that do not have a legal form, and may not have assets, in this country. We would adopt a similar attitude of concern if a UK bank operating through a branch in another country outside the EEA was somehow brought within the ambit of a regime similar to the SRR.

I never worry much about what other countries might do. The important thing is what the Bill is about: UK financial stability. The Minister answered in respect of the FSCS for foreign branches, but not in relation to the whole range of things. This issue may be less important in the light of what the noble Lord, Lord Eatwell—who is unfortunately not in his place at the moment—said on the first day in Committee: international moves are away from branch banking and towards the use of subsidiaries. If that happens, that issue will go away. I shall contemplate what the Minister has said, unsatisfactory though it is, between now and Report.