Amendment 13

Part of UK Infrastructure Bank Bill [HL] - Report – in the House of Lords at 5:25 pm on 4th July 2022.

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Photo of Lord Sharkey Lord Sharkey Liberal Democrat 5:25 pm, 4th July 2022

My Lords, I shall speak also to Amendment 18. I am very grateful to the noble Lord, Lord Vaux, and my noble friend Lady Kramer for adding their names to both amendments and to the noble Lord, Lord Tunnicliffe, for adding his name to Amendment 18.

The Bill contains Henry VIII powers in Clause 2(6)(a) and (b). These powers would enable the Treasury to amend the activities of the bank and change the definition of infrastructure by regulations subject to the affirmative procedure. There is no constraint, the Treasury has carte blanche: it can add to, subtract from or modify any or all of the bank’s listed activities; it can change what counts as infrastructure by adding, subtracting or modifying. This would enable fundamental changes to be made to the bank’s operations without any meaningful parliamentary scrutiny. The Government have previously asserted, and may do so again today, that the affirmative procedure for SIs constitutes meaningful parliamentary scrutiny, but this is obviously not the case.

In its 2018 report, the Constitution Committee noted:

“Without a genuine risk of defeat, and no amendment possible, Parliament is doing little more than rubber-stamping the Government’s secondary legislation. This is constitutionally unacceptable.”

But there is a way of enhancing scrutiny of secondary legislation. This is the super-affirmative procedure, and our Amendment 13 would replace the affirmative procedure with this super-affirmative procedure. Erskine May, in Part 4, chapter 31.14, characterises this procedure as follows:

“The super-affirmative procedure provides both Houses with opportunities to comment on proposals for secondary legislation and to recommend amendments before orders for affirmative approval are brought forward in their final form … the power to amend the proposed instrument remains with the Minister: the two Houses and their committees can only recommend changes, not make them.”

During the passage of the recent Medicines and Medical Devices Act, the Minister, the noble Baroness, Lady Penn, very helpfully summarised the super-affirmative procedure as follows, saying

“that procedure would require an initial draft of the regulations to be laid before Parliament alongside an explanatory statement and that a committee must be convened to report on those draft GC 376.]">Official Report, 19/10/20; col. GC 376.]

It was in that Bill that the House last voted to insert the super-affirmative procedure. There was widespread support from across the House—from Labour, from these Benches, from the Cross Benches and even from two extremely distinguished Conservative Peers. Prior to that, according to the Library, the last recorded insertion was by the Government themselves in October 2017 in what became the Financial Guidance and Claims Act.

When they are not doing it themselves, the Government traditionally put forward any or all of three routine objections to the use of the super-affirmative procedure. The first is that it is unnecessary because the use of the affirmative procedure provides sufficient parliamentary scrutiny. This is obviously untrue. The second routine objection is that the super-affirmative procedure is cumbersome. I take this to mean only that this procedure is more elaborate than the affirmative procedure; which is, of course, the whole point. It is necessarily more elaborate because it provides for actual scrutiny where the affirmative procedure does not. The third routine objection is that it all takes too long. This has force only if there is some imminent deadline, and there is none in this case.

In Committee, the noble Viscount, Lord Younger of Leckie, argued in favour of retaining the Henry VIII powers in Clause 2:

“There may, however, be instances where we need to update the definition of infrastructure or the bank’s functions to ensure that the bank can continue to fulfil its objectives as a long-lasting institution.”

He went on to give an example:

“New green infrastructure technologies may emerge in the future which we would want … to include in the bank’s definition of infrastructure, to signal to the bank and the market that the bank can invest in these technologies.”—[Official Report, 14/6/22; col. 1541.]

I am afraid that this is a very weak argument. The definitions of “infrastructure” in the Bill are not exhaustive, as the Minister has again said this afternoon. The bank could simply decide that it wanted to include new green technology and say so in an official press release. In any case, the Treasury could always direct the bank to include these new technologies and any such direction would be published. As things stand, the Henry VIII powers would enable the Minister to change both the bank’s activities and the definitions of infrastructure without constraint or meaningful parliamentary scrutiny. Our Amendment 13 would restore an element of parliamentary scrutiny; Parliament should not be bypassed.

Amendment 18 addresses the issue of transparency over aspects of the Treasury’s relationship with the bank, including operational independence. The relationship between the Treasury and the bank is in large measure set out in the framework document. It is not entirely clear what the legal status of this document is, and there are inconsistencies between it and the Bill. We will discuss those later when we talk about the need to revisit the framework document and align it with the Bill, but I will examine just one section of the document.

Section 15 is entitled:

“Resolution of disputes between the Company and the Shareholder”.

The company is the bank and the shareholder is the Treasury. Paragraph 15.2 sets out a fairly standard procedure for trying to arrive at an agreed resolution of a dispute. Paragraphs 15.3 and 15.4 set out what happens if the resolution process is unsuccessful. Under the terms of these paragraphs, the Treasury may give the board of the bank directions of a specific or general nature.

If the board and the accounting officer reasonably believe that a given direction would conflict with a set of prescribed items, the board may issue a reservation notice in writing to the Treasury in respect of a direction that in its opinion would:

“infringe the requirements of propriety or regularity … not represent good value for money for the Exchequer as a whole … be of questionable feasibility or … unethical … be contrary to the Strategic Objectives ... result in the directors of the Company being in breach of their legal duties … and/or … not be in the best interests of the Company for any other material and demonstrable reason.”

The Treasury may nevertheless instruct the bank to comply with the direction. If that happens, the bank must seek a written instruction to undertake the actions set out in the direction. This written instruction is called a written direction; there is an oral equivalent, called an oral direction. The bank then has to follow the written direction. It is also required to tell a list of people what has happened and to arrange for the existence of the written and oral directions to be published. However, there is a caveat. The existence of the written or oral direction may not be published if the Treasury has directed the board in writing not to do so.

There are several things wrong with all this. First, there is no mention of publishing the reservation notice in the framework document at all. In her letter to us of 25 June, the Minister said:

“we have committed to update the Framework Document to clarify this position to reflect that the Bank may publish its Reservation Notice.”

Why “may” and not “must”? After all, the Bill specifies that the Treasury must publish any direction.

The second thing wrong is that the framework document explicitly requires the bank to

“arrange for the existence of the Written Direction or any Oral Direction … to be published”.

That is, unless the Treasury tells it not to. Why the odd language about publishing the “existence” of the written or oral directives? In plain English, that is not a requirement to publish the contents, but only the existence of the written or oral directives. That clearly cannot be right.

The third thing wrong is the Treasury’s power, set out clearly in the framework document, to gag the bank by directing it not to reveal the existence of a written or oral directive. The whole chain of events must be transparent at every point. If operational independence is to have any real meaning, the bank and the Treasury must publish not only the original directive but also any reservation notice and any written or oral direction.

That is what Amendment 18 would do. It simply amends Clause 4(3)(b) to read that the Treasury must publish a direction and

“any subsequent, consequential or relevant correspondence between the Treasury and the Bank.”

That means it must publish the content of such correspondence, not just the fact of its existence. I beg to move Amendment 13.