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Clause 16

Banking Bill – in a Public Bill Committee at 1:30 pm on 6th November 2008.

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Photo of Peter Bone Peter Bone Conservative, Wellingborough

I beg to move amendment No. 113, in clause 16, page 8, line 10, at end insert—

‘(3A) Subsection (3) has effect notwithstanding any provision in European Union law.’.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss amendment No. 114, in clause 31, page 14, line 7, at end insert—

‘(3A) Subsection (3) has effect notwithstanding any provision in European Union law.’.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I tabled these two amendments to help the Government. I hope that when I have explained them they will be accepted, or at least the Government will think about them and come back on Report.

We are talking about a Bill and provisions that we hope never to see in force. If we had been talking five years ago about banks collapsing and the need to make provisions for them, people would have laughed—it just does not happen. It happened a hundred years ago. So, it may be that all our deliberations are for nothing. The Act may never come into force. The Minister has said on many occasions that it will only be called on in exceptional circumstances. I agree with that, but he has also gone on to say on a number of occasions that we want clarity and speed. If there is a failing financial system, speed is needed to deal with the outcome. The Bill seeks to ensure that the effect of transferring shares—or of transferring property, which my other amendment refers to—can happen straight away, without interference. It is clear that that is the intention of clauses 16 and 31. The transfers will have effect whatever any legislation says, so any contract law or other legislation will be ripped up to allow for these special, unusual provisions—temporary ownership of a bank, for example.

The problem is that the Single European Act overrides, or at least the Government believe that it overrides, existing UK legislation. We could find ourselves in the kind of situation that I think has already come about in the current financial debacle, in relation to Northern Rock. The Northern Rock provisions were delayed because the Government had to get clearance from the EU that there was not a problem with state aid. That clearance was negotiated and achieved, but it took time. If the special provisions in the Bill ever needed to be used, speed would be required. The whole Bill is designed for speed. There can be partial ownership, a sale to a private sector purchaser or nationalisation. What we cannot have is the European Union saying, “Hang on a minute; you can’t do that. You are in breach of EU law.” Worse still would be the EU not making that decision and not saying anything, leaving us in limbo. It would say, “You might be in breach of EU law, so you  can’t do it,” and meanwhile the whole of our financial system would collapse. That cannot be allowed. The Government will possibly put two fingers up to the EU and do it anyway, but we do not want to be in that situation. The Government have made it clear that their intention, despite what the EU says, is that this will happen. That is what I assume; if the Minister says that that is not the case, we have a serious problem.

The Minister might be minded to say to me, “You can’t do this. You can’t add that amendment because it is not legal.” I am afraid that I am not a lawyer, and I apologise for any mistakes that I might make in the pronunciation of some of the cases that I will mention. The Minister might refer to the Factortame case, which relates to the Merchant Shipping Act 1988. The European Court of Justice—the Luxembourg-based judges who extend our law, almost behind our backs—ruled that that Act was illegal. The matter went to the House of Lords, where it was decided that the European Union Act is incorporated into British parliamentary law. That makes it difficult for us to overcome the problem that I have been talking about. We cannot be sure that the transfers of property or shares could occur without EU approval, and in the turmoil we might not get that approval, or it might be delayed. If that was the case, there would be no point in making the proposal. However, no one Parliament can bind a following Parliament. It does not have the power to do that, even if it wanted to, despite what some Ministers think. We are a sovereign nation. It will be helpful to the Committee to know that that is not my personal opinion, and that it is therefore not necessarily correct.

The Thoburn v. Sunderland city council case was on this very matter. With your permission, Mr. Illsley, I shall read a short paragraph from the conclusion. Lord Justice Laws stated:

“Whatever may be the position elsewhere, the law of England disallows any such assumption. Parliament cannot bind its successors by stipulating against repeal, wholly or partly, of the 1972 Act. It cannot stipulate as to the manner and form of any subsequent legislation. It cannot stipulate against implied repeal any more than it can stipulate against express repeal. Thus there is nothing in the 1972 Act which allows the Court of Justice, or any other institutions of the EU, to touch or qualify the conditions of Parliament’s legislative supremacy in the United Kingdom. Not because the legislature chose not to allow it; because by our law it could not allow it. That being so, the legislative and judicial institutions of the EU cannot intrude upon those conditions.”

It is quite clear from that judgment that any Government could put a little line in, as my amendment does, to take the EU law out of a specific Act. That can be implied or real. In here it will be real because we are saying it. Is it the Government’s view that the Bill as it stands would allow all these special provisions to occur without any regard to EU law? If that is the case, I will be content, but I still think it would be useful to have my amendment. If it adds nothing, it does not damage the Bill. However, it may help to clarify the position so that the law is as I think the Government want it to be. Therefore in this extreme emergency, which we hope will never occur, there will be clarity that what the British Government and this Parliament decide is the law and cannot be overturned by a small group of judges in Luxembourg who say, “By the way, you cannot have temporary ownership of the bank. You cannot sell it on privately despite the fact that you have torn up all your own laws of contract or your competition laws.”

I do not want the Minister to tell us that we are the heart of Europe and that that will never occur. We are talking about extreme circumstances. I need to know, before deciding whether to press the amendment to a vote, whether the Government intend our law to be supreme or whether they accept that the EU will look at our decisions and then decide whether we can proceed. If that happens there will be delay and there would not be clarity. I am grateful to the Committee for listening to that point and I shall be interested to hear what the Minister has to say in response.

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

Clauses 16 and 31 set out the effect of a transfer of the securities or the property, rights and liabilities of a failing bank by an instrument or order made under this part of the Bill. In particular, the clauses specify that a transfer may take effect in law by virtue of the instrument or order. Subsection (3) of each clause specifies that a transfer is to take effect despite any restriction arising by virtue of contract or legislation or in any other way. The purpose of these provisions is to ensure that a transfer of securities is effective in law and takes place in spite of any restrictions that might otherwise exist.

Amendments Nos. 113 and 114 insert a new subsection (3A) into clauses 16 and 31. They specify that a transfer may take effect despite any restriction arising by way of a provision in European Union law. As honourable Members will be aware, Member States must not legislate in a manner contrary to Community law. We do not believe that we are legislating in such a manner with the production of the Banking Bill.

As Members will know, we always declare at the start of our Bills that they comply with the Human Rights Act 1998 and that they are compatible with convention rights. We do not say that they are compatible with EU law because we would not produce a Bill if it were not compatible with EU law. I am happy to inform the hon. Member for Wellingborough that there is nothing in this legislation that is incompatible with Community law. Indeed, the Government strongly support the general principles of the EU state aid framework and we work closely with the European Commission and Parliament on state aid related matters.

What the hon. Gentleman seeks to do through these amendments, however, is in our view clearly illegal. The provisions of the amendments would place the UK in breach of our obligations under the EC treaty, would damage our reputation in the EU and, if not corrected, would lead to legal proceedings against the UK. We cannot accept what are in effect law-breaking amendments. Nothing proposed in this legislation should give the hon. Gentleman any concern that there would be unnecessary delay in exercising the powers of the special resolution regime.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 1:45 pm, 6th November 2008

Where clause 16 refers to a transfer taking effect

“despite any restriction arising by virtue of...legislation”, is the Minister saying that that is arising as a consequence of any UK legislation and that that carve-out does not apply to EU legislation?

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

In essence, that is what I am saying. We operate within a framework of Community law. It is not appropriate to go into the detail. I appreciate that the hon. Gentleman does not want anything to get in the way of speedy resolution when the situation of a failing bank arises. The Bill as it stands will allow speedy resolution to take place and clauses 16 and 31 are appropriate as they stand.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I am partially reassured by what the Minister has said. I am pleased that the Government are not bringing forward a Bill that goes against EU law but, of course, the Government never think they are bringing forward a Bill against EU law until the justices in Luxembourg decide that they have.

My problem is that the envisaged situation will be a national emergency. It will be a crisis of enormous significance, such as we saw recently when the Government did act before getting approval from the EU and the EU had to catch up afterwards. In reality, the Government ignored the EU and persuaded it afterwards of the need to approve. I see no harm in inserting my words because they do not change the matter. If the Minister is right and the Bill complies with EU law there is no problem.

I have one question that I am not sure about. The Minister says that this legislation will not cause delays but we have seen a delay with the share placements and the preference share subscription documents relating to the £42 billion of investment by the Government into private banks. The delay has come about because in those documents, which I have read in detail, the preference share investments cannot be repaid for a minimum of five years and no dividends can be paid. Those sections of the agreements are very strange and do not make any commercial sense. They were inserted because of European Union law. Those investments have been delayed and have not taken place, despite the Government saying that they have, because commercially banks need to pay dividends to make them a marketable security. There are renegotiations at the moment, which are being widely reported in the Financial Times. Whichever way we look at it, there is clearly a delay. The situation is not of the scale that we might envisage in which the whole of the financial system was collapsing.

I am reassured by the Minister in one respect and concerned in another, but I think that I have made a mistake. I have looked at the drafting again—it is not well drafted—and it misses out the important factor that the judges must interpret it in such a way, which I should have said. I do not think that it would be right for me to press an amendment that is incorrectly drafted. The principle is still of great importance and I would like to come back to it at a later stage. I beg to ask leave to withdraw the amendment.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

For the benefit of the Committee, the Clerk and I are of the opinion that it is perfectly well drafted, which is why it was accepted for debate.

Amendment, by leave, withdrawn.

Clause 16 ordered to stand part of the Bill.