Clause 75 — Power to change law

Employment Opportunities – in the House of Commons at 8:00 pm on 10th February 2009.

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

With this it will be convenient to consider Lords amendments 55 to 57, 94 and 97.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

Clause 75 has been the subject of much debate in both Houses. Indeed, it is fair to say that the provision has been forensically scrutinised, and I believe that the Government have made the case for the power to change law. In both Houses, the Government tabled significant amendments to address the concerns that the Opposition raised. I believe that if this House accepts the amendments that were made in the Lords, we will put our seal of approval on a clause that is tightly defined and limited, and has been subject to the fullest discussion.

Let me briefly outline the subjects on which the Government have moved to meet the concerns of both Houses. First, we tabled an amendment in this place to ensure that the Bill could not be used to modify the Bill, or the secondary legislation made under it. As hon. Members know, the purpose was to make it clear that the Government would not amend the safeguards that are being established in secondary legislation. We wanted to provide legal certainty. Unfortunately, there was a technical problem with the amendment, which we corrected in the other place through amendments 55 and 56. Let me make it clear that those corrections do not undermine the principle of safeguarding the Bill's provisions and any standing secondary legislation under it, especially the partial transfers safeguards.

Secondly, the Government have addressed concerns that were expressed about parliamentary procedure. The other place repeatedly emphasised that Parliament must be allowed to play its essential role of holding the Executive to account. I am sure that all hon. Members agree with that. The challenge that the Government face is enabling parliamentary scrutiny without compromising the authorities' ability to use the stabilisation options swiftly and effectively, and without jeopardising the possibility of an effective bank resolution. The clause recognises that by making the exercise of the power subject to the draft affirmative procedure, unless action needs to be taken urgently. To cater for cases in which urgent action is necessary, the Treasury may—only when it considers it necessary—make orders under the 28-day procedure.

However, a particular concern in the other place was that, if Parliament struck an order down, the Government could reintroduce the same order ad infinitum. Of course, that was not our intention—indeed, it would be neither politically nor constitutionally credible. The Government do not believe that the clause could have been interpreted to permit that. However, to meet the concerns that have been expressed, the Government tabled amendment 57, which expressly requires any new order to be drafted "in new terms". That means that there must be a material difference between any new order and the original order laid before Parliament. In addition, of course, we expect the Government, in introducing any new order, to reflect on the concerns of Parliament. For the sake of consistency, amendments 94 and 97 make similar provision throughout the Bill. There will be no opportunity for the Government to avoid parliamentary scrutiny. The amendments were welcomed in the other place, and I hope that they will be welcomed here.

Thirdly, the Government have addressed retrospection. The other place tried to ascertain exactly how the retrospective power under clause 75 would be used. As the Constitution Committee noted, retrospective legislation is not unprecedented, but must have a strong public interest justification. The debate in the other place coalesced around subsection (3), which provides that the Treasury may use the power if it considers it "necessary" or "desirable" to give effect to a particular exercise of a power under part 1.

The constraint on the power—the "necessary or desirable" test—is not, of course, the only limit on the use of retrospection. The power exists not in a vacuum, but in a highly developed public law framework. It is important to recognise the range of constraints on the use of the power and that not all of them appear in the Bill—they do not need to do so.

First, there are the convention rights. Article 7 is an absolute bar on the retrospective imposition of criminal offences, or increase in penalties. The use of the retrospective power may also engage article 1 of the first protocol—the right to the peaceful enjoyment of property. Retrospective interference with property rights needs especially careful justification, whereby the action must be proportionate to the public interest pursued. The range of cases in which it will be compatible with convention rights to interfere retrospectively with property rights protected by article 1 of the first protocol is limited.

Secondly, there is the Government's duty to act reasonably. What "reasonably" means in practice will depend on the context. The more unusual or potentially unfair the proposed course of action, the greater the justification that will be required.

The third constraint on the exercise of retrospective powers is the Government's respect for the rule of law and legal certainty. The Government take seriously their duty to act fairly and appropriately, and will always do that. However, we recognise that those public law constraints may not be enough to provide sufficient certainty. That is why we have gone further, to add something material to the range of existing constraints, and to avoid the potential for casting doubt on the existing safeguards provided by public law.

The Government therefore tabled an amendment to delineate the power more carefully in response to the concerns that were raised. Amendment 54 does that by positively affirming the public interest in avoiding retrospection. In particular, it addresses the concern that the retrospective power could be deployed on a whim. It does that by retaining the words "or desirable", while making it absolutely clear that the flexibility inherent in the desirability test is not a licence to act lightly. Indeed, we are setting out that it is generally in the public interest to avoid retrospection, and that there must therefore be a countervailing specific public interest for the exercise of a retrospective power under the clause.

Throughout, the Government's only immovable position has been that we cannot amend the power to the extent that it becomes unusable. As we have done throughout our proceedings on the measure, we have sought to achieve a compromise. The amendments demonstrate how the Government have responded to the constructive debate that has taken place. I believe that they are credit to the approach of this House and the other place, and I commend them to the House.

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Photo of David Gauke David Gauke Shadow Minister (Treasury) 8:15 pm, 10th February 2009

As the Economic Secretary said, the provision has received a great deal of scrutiny. Clause 75 is essentially a Henry VIII clause, which permits the amending of primary legislation by secondary legislation. It is not surprising that that caused considerable concern in this House and the other place.

There are two broad concerns. First, there is the constitutional point about parliamentary scrutiny and accountability. The second anxiety, which should not be ignored, is the practical matter of the amount of uncertainty in the Bill and the various protections that we have debated—for counterparties, for example. If the protections available to them can be amended by statutory instrument, they are less substantial than we think. That is important to confidence in the UK banking sector.

Both the original clause and the current provision contain specific aspects that are worth highlighting briefly. First, there is the basic point that the clause allows secondary legislation to amend primary legislation. Secondly, there is the extent to which the clause can have retrospective effect—the Economic Secretary referred to that, and I will revert to it. Thirdly, although affirmative resolution is generally required, that is not the case if the Treasury deems it unnecessary. The protections that affirmative resolution affords therefore appear somewhat fragile.

Fourthly, where we go down that route and a subsequent resolution is required from both Houses, that can be done within 28 days. That means that a recess occurring at the wrong time could cause a considerable delay. It would be perfectly possible for a change in the law to be made by a statutory instrument that would not be reviewed until some months afterwards. All those concerns have been raised at various stages of the Bill's progress and the Government have attempted to address some of them.

Let me deal first with the retrospective effect, which is essentially what is driving Lords amendment 54. I note the Minister's comments about the constraints on retrospective legislation that already exist, given the terms of the Human Rights Act 1998, and the fact that he highlighted the issue of interference in property rights in particular. Retrospective legislation that interferes with property rights has to cross a number of hurdles if it is not to be vulnerable to challenge in the courts.

It might be helpful to the House in getting a better understanding of how that argument works, as well as the constraints that apply to clause 75, if the Minister could give us an example. If I may assist him, in the spirit of co-operation that has characterised the Bill's progress, perhaps he could clarify whether interference in the contractual rights of senior bankers, including their right to receive a bonus, would be vulnerable to a challenge under the Human Rights Act, because that would be seen as retrospective legislation that did not meet the public interest test that he outlined. I mention that in an attempt to gain a greater understanding of the existing constraints on retrospective legislation.

In Lords amendment 54 we also have an attempt to ameliorate the concerns that exist. It may be a well-spirited attempt, but it is perhaps open to some scepticism. Clause 75(3) states that the Treasury

"may make provision which has retrospective effect in so far as the Treasury consider it necessary or desirable for giving effect to the particular exercise of a power under this Act".

Lords amendment 54 would introduce the following qualification:

"in relying on this subsection the Treasury shall have regard to the fact that it is in the public interest to avoid retrospective legislation".

I would be grateful if the Minister could be a little clearer about the impact of that wording, which would presumably be helpful for the purposes of judicial review. We raised our concern in Committee that it was the Treasury alone that would consider whether such action was necessary or desirable, which seemed to be a somewhat subjective test.

If I remember rightly, we proposed an amendment to the effect that the Treasury should "reasonably" consider such action necessary or desirable. I wonder whether the new wording makes the test more objective and therefore less vulnerable to challenge under judicial review. If the new wording does not do that, I am not quite sure what purpose it serves. If Lords amendment 54 is an attempt to raise the hurdle in the way of the Treasury using the power for retrospective purposes, we would be sympathetic to it, but we question what difference it would make.

The Minister described Lords amendment 56 as an attempt to address a technical failing and ensure that clause 75 would not allow the Treasury to amend the Bill, which is a concern that I raised in Committee. We welcome that. I am grateful for the explanation of Lords amendments 55 and, in particular, 56. However, it would be helpful for the House to have some reassurance that Lords amendment 56 in no way waters down the changes that Government have made to prevent clause 75 from being used to amend primary legislation, including, therefore, some of the protections contained in the Bill.

If I remember correctly, we proposed an amendment in Committee that attempted to address the concern that clause 75 could be used to amend the Bill. That amendment was rejected, but the Government then came forward with their own proposals. I wonder—I say this out of sheer curiosity; I do not know the answer—whether our amendment had the same technical flaw as the Government's amendment did. If it did not, perhaps the Government would have been better off sticking with our wording. None the less, the intention behind what the Government are seeking to achieve is welcome.

We also welcome Lords amendment 57, which addresses a concern that I raised in Committee about it conceivably being possible for the Government to present order after order for an additional 28 sitting days, which would all be rejected, yet enable the change in legislation to retain its effect. The Minister rightly said that that would not be politically or constitutionally credible, although it is perfectly possible for Governments to do things that are neither. None the less, the new wording and the intention behind it are welcome.

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Photo of Peter Bone Peter Bone Conservative, Wellingborough

There has to be some material difference between repeat orders, so can my hon. Friend clarify who decides whether there is a material difference? Is it the Executive or the Chair? If it is the Executive, that is a pretty pointless addition to the Bill.

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Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am grateful to my hon. Friend for raising that useful point. I will not attempt to clarify it, but I hope that the Minister will do so.

We retain a sense of uneasiness about clause 75, but the Minister is right that there is a need for some flexibility, which is perhaps why we are not using more intemperate language or getting more excited. However, we feel uneasy about these Henry VIII clauses, and it is important to put that on record.

It is also right to put on record our uneasiness about the potential for retrospective legislation. Given that the Government have passed quite a few such items of legislation during the handful of years that I have been in this place, it is good to hear them acknowledge that retrospective legislation is undesirable. Measures such as those covering air passenger duty and vehicle excise duty have been retrospective to a greater or lesser degree, which has been unfortunate, so if the Government are now giving an indication that they are less likely to pursue retrospective legislation in future, that is even more welcome.

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Photo of Colin Breed Colin Breed Shadow Treasury Minister

The Minister is right to say that this matter has had a great deal of debate and scrutiny. However, as Mr. Gauke has said, at the end of it all many of us remain at least uneasy—and I could put it a little more strongly. To say that retrospective legislation is against the public interest is to state the obvious. One aspect of this matter that worries me is the legal uncertainty bit. In an area of our economy that is so important, we must have certainty. When we are in uncharted waters such as these, any uncertainty will be unhelpful.

The Bill is primarily about the protection of depositors, and that is quite right. That is its main thrust. However, using retrospectivity to give them enhanced protection will potentially undermine or reduce the rights of another set of stakeholders. I am convinced that this will result in some real issues that will lead to a judicial review. The whole idea of balancing and of having fairness and desirability tests when we are, in effect, preferring one set of stakeholders to another, is fraught with difficulties. However, as the Minister hinted, the kind of amendments that would begin to satisfy me and many others would render the whole exercise of retrospectivity useless and unworkable. There is therefore no way we can get round this problem.

Flexibility, used on limited occasions, is one thing; using this power in a wider context to address unforeseen circumstances on a larger canvas is something else. We shall have to see how it works out. I am unhappy, rather than uneasy, but I am prepared to support the measure because we need this legislation and because a case has been made for having some flexibility.

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Photo of Peter Bone Peter Bone Conservative, Wellingborough 8:30 pm, 10th February 2009

I understand the Government's problem. Throughout the passage of the Bill, we have been discussing events that we hope will never happen, but we are trying to create certainty in case they do. The Government might not intend to use these clauses retrospectively, or indeed to amend the primary legislation. However, this Government might not be in power when a problem occurred; we might be in the fifth term of the prime ministership of my right hon. Friend Mr. Cameron when such circumstances arose—you never know. We want to ensure that there is as much clarity as possible.

One of my concerns is the use of statutory instruments. I sit on the Joint Committee on Statutory Instruments, which meets every week. We look at hundreds and hundreds of orders, the vast majority of which deal with minor matters in which specific regulations are being put in place that are clearly contained in the primary legislation. I fear, however, that the Bill could create a method whereby a future Government could amend the primary legislation by having a one-and-a-half hour debate in a Committee room and that, by the time the Front Benchers had spoken and perhaps two Back Benchers had said something, the whole matter would have been voted on. With statutory instruments, there is no opportunity to amend the regulation. We are talking about a really serious matter here, and it would be much better for the Government to introduce further primary legislation if they wanted to make a major change.

This is a Henry VIII clause. I understand that the Minister wants some flexibility, and that he does not expect his Government to use the measure unfairly, but in 20, 30 or 40 years, someone could look back on this legislation and say, "Ooh! We can do this just by passing a statutory instrument!" That appears to be the situation, although I see the Minister shaking his head vigorously, so perhaps I have misunderstood it. However, many of the amendments seem to consist of fine words that do not go to the heart of the matter.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

Any parliamentarian worth his salt will immediately be concerned about the potential for Henry VIII clauses and retrospective legislation; it is absolutely right that both this place and the other place have seen extensive scrutiny of the Government's proposals. I have to say that I believe we have won the intellectual argument about why these powers are necessary and why they need to be retrospective. Let me make it absolutely clear: I believe we have not only won the argument but built a consensus around the approach to be adopted. That is seen in a clause that is now tightly defined and limited. We are absolutely certain that, as a result, we will not need to amend the Bill or propose any secondary legislation. That is absolutely clear.

As for retrospection, I acknowledge that it is always controversial, but hon. Members need to recognise that, in the context of a failing bank, we may need the flexibility to deal with all possible contingencies. There could have been a major fraud in the run-up to a bank's failure and, in that context, the authorities may need the flexibility to be able to make provision regarding events that happened before the making of the order—for example, to siphon moneys away from the company in a wholly uncommercial and illegal way.

Mr. Gauke talked about the impact of the wording on retrospection. The wording explicitly provides that the Government cannot use the power on a whim; they will have to demonstrate—for example, through a judicial review—that they took account of the public interest not to use retrospective powers before they actually use this power.

In response to the question put to the hon. Member for South-West Hertfordshire in an intervention by Mr. Bone—about whether it really matters that Parliament has to use a materially different form of words—I would argue that it would be for the Government to demonstrate to Parliament that there was a material difference and Parliament would have to be convinced of it. Indeed, the Government's action could also be subject to judicial review, if that were appropriate.

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Photo of Peter Bone Peter Bone Conservative, Wellingborough

The point I wanted to raise was whether the Government would decide whether it was materially different or whether it was for the Chair to decide whether it was in order.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

It is always a matter for the Chair to rule what is and what is not in order. Certainly in the first instance, however, it would be the Government's responsibility to comply with the law. If we pass the amendment this evening and it comes into law, it will be the Government's responsibility to produce something that is materially different. I hope that Members will appreciate that the Government always want to act reasonably and to obey the law; they should expect us to do so.

Lastly, let me deal with whether the clause will have a negative impact on legal certainty—an issue raised by the hon. Members for South-East Cornwall (Mr. Breed) and for South-West Hertfordshire. Given the consensus we have reached, we do not believe that the clause as drafted will have a negative impact on legal certainty. We have taken great pains throughout the debate on this legislation to ensure that that is not the case, whether it be in respect of this particular clause or other clauses. Exercise of the retrospective power might be used to correct a drafting error in a transfer order to put parties in the position that they thought they were in at the time of the transfer. I am happy to confirm that the purpose of the power is to enhance legal certainty for counter parties, not to diminish it.

As I have said, I believe that we have won the argument about whether clause 75 is necessary. I hope that we are also about to agree on significant amendments to it to ensure that it is tightly defined and appropriate.

Lords amendment 54 agreed to.

Lords amendments 55 to 60 agreed to, with Commons privilege waived in respect of Lords amendment 59.

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