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Clause 31

Banking Bill – in a Public Bill Committee at 10:30 am on 11th November 2008.

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Photo of David Gauke David Gauke Shadow Minister (Treasury)

I beg to move amendment No. 133, in clause 31, page 14, line 6, leave out ‘or’.

Photo of Roger Gale Roger Gale Conservative, North Thanet

With this it will be convenient to discuss the following amendments:

No. 134, in clause 31, page 14, line 7, leave out ‘in any other way’ and insert ‘common law’.

No. 135, in clause 31, page 14, line 12, leave out ‘(by any name)’.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

Clause 31 relates to the effect of a transfer, which we touched on in the debate initiated by my hon. Friend the Member for Wellingborough last week. He raised the issue of whether subsection (3) has effect notwithstanding EU provisions. I have no intention of repeating that argument, but there are one or two ambiguities in the clause; in particular, subsection (3) refers to the transfer taking effect

“despite any restriction arising...in any other way”.

It would be helpful if the Minister could explain what that means. The subsection also refers to contract or legislation, so presumably “in any other way” means a common law restriction. If it means more than that we would welcome clarification. Our intention, in particular with amendment No. 134, is to flush that out.

With amendment No. 135, we query whether “(by any name)” in subsection (4)(b) is necessary. It is a drafting point, but the expression does not seem to add a great deal to the interpretation of the subsection. Can the Minister explain otherwise? I shall raise one or two points in a stand part debate, but the purpose of the amendments is to seek clarity from the Minister as to the intention of the clause.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I speak in favour of amendment No. 134. The Government seem to have made it clear in earlier debates that one cannot use the words “in any other way” because the EU laws apply. Removing “in any other way” and inserting “common law” would mean that the Bill will do what the Government say it should do, so the amendment is most helpful for them.

The front page of the Bill states that in the view of the Chancellor of the Exchequer the provisions of the Bill

“are compatible with the Convention rights”.

However, they cannot be compatible when the purpose of the clause is to tear up normal rights because we are dealing with an exceptional circumstance. Will the Minister explain how the Chancellor came to that conclusion?

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I am a bit concerned about the clause so I hope that the Minister can reassure me. The drafting is slightly casual. Substituting “in any other way” in subsection (3) with “common law” would make the clause clearer. I am not sure whether the words “contract” and “legislation” would limit the words “in any other way”. The legal term for that is eiusdem generis.

The long title of a Bill limits the amount of material in the Bill; similarly, in parliamentary terms, a parliamentary question must be followed by supplementary questions that derive from the main one. The eiusdem generis rule, if strictly applied to the Bill, would mean that the words “in any other way” would be subject to the words “contract” and “legislation”. They would not give the freedom that they appear to give the Government, but could be construed within the rules of eiusdem generis, meaning that the provisions would be subject to contract legislation.

On amendment No. 135, I hope that the Minister will be able to spell out for us what he anticipates that consent “by any name” will mean. If he can explain what the other names for consent may be or why the definition of consent needs to be expanded to include “by any name” it would be reassuring. If he cannot I would find it rather more disturbing. I endorse my hon. Friend’s probing amendment.

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 10:45 am, 11th November 2008

The clause makes provision in relation to the effect of a property transfer instrument. Its purpose is to ensure that a transfer of property is effective in law and takes place in spite of any restrictions  that might otherwise exist, such as a requirement to secure the consent of a person who does business with a bank. The hon. Member for South-West Hertfordshire has proposed a set of amendments that would narrow the interpretation of the clause. I will seek to explain why we believe they are unnecessary and unhelpful.

Subsections (3) and (4) of the clause, which the hon. Gentleman wants to amend, are drafted in deliberately broad terms. Once the authorities have decided to intervene in the public interest to resolve a failing bank and the necessary general and specific conditions have been met, the Government consider it appropriate that a transfer should take effect despite any restriction. That is to maximise the chances of a successful resolution in so far as is feasible.

For that reason I do not consider that the changes proposed in amendments Nos. 133 and 134 would be appropriate. They would restrict the breadth of restrictions relating to contracts, legislation and common law. The changes would be likely to be a subject of interest for people seeking to pick holes in the transfers; for example, a party could argue that a restriction that was ignored did not technically relate to a contract, legislation or common law and that it would, therefore, get in the way of a successful transfer and resolution under the SRR.

Of course, notwithstanding the provisions of the clause, a transfer may not take effect in a manner that contravenes Community law—a point highlighted in the debate prompted by the amendment tabled by the hon. Member for Wellingborough. In addition the Treasury has reserve powers, which we will consider in the debate on clause 66, to ensure that international obligations that do not have effect in domestic law are nevertheless not contravened by the exercise of powers under the SRR. Subject to those constraints, the Government consider it appropriate that a transfer should take effect despite any other restriction.

The hon. Member for Wellingborough raised the issue of compatibility with the European convention on human rights. It would not be normal for Secretaries of State to give detailed justification as to why they think a complete Bill is compatible with convention rights. It is important for me to respond directly to amendment No. 135, which appears to narrow the definition of what may be deemed a requirement for consent.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I thought that the Minister was about to explain why the Government thought that the convention was not under threat from the Bill. It seems clear to me that it is, because rights under contract are being torn up. That is the whole purpose of the clause. The argument that the Minister will not tell me will not do. The Government must explain; there must be some general reason why they think that the Bill complies with the convention.

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

Let me have another try to see if we can go further in response to the hon. Member for Wellingborough. It is normal practice that if a Bill confers powers, they must be exercised in a way that is compatible with the convention. It is clear that that can be done in a way that is compatible with convention rights, so personal property rights can be overridden if  the Government’s action is proportionate and in the public interest. That is the case with the Bill, which is why the statement has been made.

Amendment No. 135 appears to narrow the definition of what may be deemed a requirement for consent. One of the principal rationales for the stabilisation tools is that it may be necessary to circumvent the usual mechanisms for transferring shares or property, if it is in the public interest. Given that it is imperative that a transfer occurs immediately and with full effect, it is right that there are no restrictions on making the transfer once the general and specific conditions have been met.

If the provisions of the clause were narrowed, private sector transferees might be deterred from acquiring a failing deposit taker’s business, as they may perceive that a significant execution risk is attached to the transfer. A transfer to a private sector purchaser is unlikely to be arranged unless commercial counterparties are certain that they will obtain complete control over the property transferred to them. I hope that clarifies the points that have been raised by hon. Members, and that the amendment can be withdrawn.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

We have strayed on to the European convention on human rights and I will return to it in the stand part debate. On the Minister’s comments on my amendments, I am not clear about what “in any other way”, for amendment No. 134, or “by any name”, for amendment No. 135, might mean. I am not sure what those words add to the clause. I take the Minister’s point that it is important that the transferor—the private sector purchaser—is certain of complete control, but I do not see how “by any name” assists in that process. Equally, however, I do not see how the phrase does any harm, so I shall not press for a Division.

Reluctantly, I shall not press for a Division on anything else, even though I do not think that the Minister gave the Committee a full answer as to why the wording is necessary, but we are in bipartisan times. I do not know whether the Minister wants to intervene and have another crack at it.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The heart of clause 31 is about providing certainty in a transfer—ensuring that it occurs and that the Government go as far as they can to provide certainty. Does the Minister acknowledge that the effect of clause 31 is deeply constrained, by necessity, for the reasons that my hon. Friend the Member for Wellingborough identified. First, European Union law overrides the provisions of subsection (3), and, secondly, convention rights and, in particular, the Human Rights Act 1998, contain provisions about respecting private property.

Does the Minister agree that challenges to the effects of the Bill, regardless of the provisions set out in clause 31, are likely to come from European law or the Human Rights Act? The provisions will not be effective in dealing with such challenges and will not provide the certainties for the transferor that the Government seek. I do not make that point in a particularly hostile or antagonistic way, and no doubt the Minister will assert that he is confident that nothing that occurs under the  Bill, once enacted, will breach the Human Rights Act, but that will be for the courts to determine. I merely raise what appears to be an unavoidable situation. Clause 31 contains some holes and does not provide complete certainty of control because of the structure of our law, the Human Rights Act and European Union law.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I should like to follow up on what my hon. Friend has said. If we accept the clause, we shall be doing something that is probably unique. We will definitely be passing, in common parlance, a piece of legislation that states it will overrule EU Acts. That is clearly the Government’s intention. If the Bill’s provisions had to be implemented following a disaster, the national emergency would clearly be such that we would not care two hoots what the EU said and would carry on doing what was in the interests of the British nation. The Government are correct in that view and should be congratulated on it, but they should not be congratulated on pretending that such an emergency would not happen, because it clearly could. Members on the Conservative Benches have given the Government an opportunity to spell that out, but they have declined to do so. However one reads things, we are clearly saying that we will do what is right in the national interest to protect the financial system and we will ignore what the EU says.

Equally, the Chancellor’s statement that the Bill is compatible with the convention on human rights is clearly contrary to the facts. Those rights cannot be taken away in such a manner, for the protection of financial stability in a crisis, without affecting the individual’s human rights. I am afraid that is neither proportional, nor a proper manner, and for that reason the statement should not be on the front page of the Bill. I congratulate the Government on what they are about to do, but I am afraid that I do not congratulate them on lacking the courage to put in the Bill what they actually mean. The Government, whichever party was in power, would stick up for the rights of the nation, but it is a shame that this Government will not put that in the Bill.

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 31 describes the effect of a transfer of a failing bank’s property rights and liabilities, and its real purpose is to ensure that the transfer of property is able to provide certainty of outcome and speed of execution, in spite of any restrictions that might otherwise exist. Despite the comments of the hon. Member for South-West Hertfordshire, I believe that the clause and the Bill as a whole help to provide certainty of outcome.

The clause makes similar provisions to those in clause 16, which provides for the effect of a share transfer instrument or order, and members of the Committee will recall that we discussed that in the light of the amendments tabled by the hon. Member for Wellingborough regarding European Community law. As I said then, we believe that the Bill is compatible with European Community law and with our responsibilities under the convention on human rights.

Photo of Roger Gale Roger Gale Conservative, North Thanet

Order. In a moment I shall suspend the Committee for two minutes. For the benefit of Members who were not present at the start, Members will be invited to rise. If any Member does not wish to participate, given that they are already in the Room, I suggest that they remain seated.

The Committee observed a two-minute silence.

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

Discussing the amendments to clause 31 a few moments ago, I mentioned the importance of acting in a proportionate manner and in the public interest. Article 1 of the first protocol of the European convention on human rights provides for the protection of property rights, but that protection is not absolute. Property rights may be interfered with where it is in the public interest and proportionate to the aim pursued.

Very powerful public interests are demonstrated by the satisfaction of the general and specific conditions in the SRR. In addition, the Bill makes provision for the assessment of compensation that would demonstrate that a fair balance has been struck when intervening under the SRR to protect financial stability and depositors. We believe that the actions we are taking are very much proportionate and in the public interest. We have consulted on them extensively, as the Committee is aware.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am grateful to the Minister for his comments and am not surprised by what he said. Will a court ultimately determine whether the actions taken under the Bill are proportionate? I expect the Government to say that those actions will, of course, be proportionate and will need to comply with the European convention on human rights, but does the Minister recognise—I do not attack the Government on this—that there will always be a slight question, because of the nature of the European convention on human rights and the Human Rights Act 1998?

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

I understand the point that the hon. Gentleman makes. We think that the actions that we propose are in the public interest and are needed to protect depositors, and we believe strongly that they are proportionate. It may be possible to construct a legal opinion that suggests otherwise, but that would be quite difficult, as we feel very confident of our grounds. There is widespread recognition that we need powers to deal with failing banks and building societies. That is why we are discussing the Bill and why we had to take action under the Banking (Special Provisions) Act 2008. It would be difficult to construct an argument that we are not acting in a proportionate way through the Bill. It is vital that provision be made to make it clear that a transfer takes effect notwithstanding any restrictions in contract, legislation or any other form, which is why we have phrased the clause in the way we have.

Question put and agreed to.

Clause 31 ordered to stand part of the Bill.