(5 years, 7 months ago)
Lords ChamberMy Lords, the sunset clause is for two years, which is nearly half a Parliament. The fact that there is a sunset clause does not somehow legitimise everything that takes place in that period. There is no case for these provisions at all. Let us be clear that we are talking about further changes to the existing law; these are the provisions that are causing such difficulty for many of us in the House. We are prepared to grant the Minister powers to simply transpose existing provisions into UK law—indeed, I am not even sure that under the European Union (Withdrawal) Act he needs legal powers for that. The key issue here is that it all concerns further changes to the law. The statute book constantly needs to be capable of being updated; the whole purpose of Parliament is to debate further changes to the law, and we have established procedures which go back to time immemorial for doing that. They involve Second Reading, Committee, Report and Third Reading stages in both Houses of Parliament.
There is no reason whatever for subverting those principles simply because the Government are overloaded, which is essentially the argument at the moment. The answer is either not to make those changes in law, if effectively they can be made only by exercising powers by decree, or to create the necessary time to do so, which means the Government having the right priorities in what they put before Parliament. We always have to set priorities. As a former Minister, I know that what you do and do not put in the Queen’s Speech and the legislative programme is a matter of priorities. If necessary, the House must sit for longer.
Finally, if it comes down to whether this House should sit somewhat longer to debate major changes to the law of the land on financial services, I for one feel that it is our duty to sit here, debate these changes and not give the Government the power to legislate by decree. I hope that the noble Lord, Lord Hodgson of Astley Abbotts, feels the same because he has been responsible for financial services regulation in the past. That is effectively the power being granted here, potentially in significant areas that are not to do with simply transposing existing or in-flight European law into UK law. I am sorry to say this to the Minister, but the objections to the Bill are fundamental, not incremental. He may well find that, unless he can meet those objections, substantial parts of the Bill will be removed by the House on Report.
My Lords, I thank noble Lords for contributing to the debate and speaking to their amendments. Let me set out the Government’s position regarding the amendment moved by the noble Baroness, Lady Bowles, and the amendments spoken to by the noble Lords, Lord Sharkey and Lord Davies. I will then come back to some of the points made during the debate by the noble Baroness, Lady Liddell, and the noble Lord, Lord Adonis.
I will speak to Amendments 1, 3, 5 and 7 together, if I may. They relate to the breadth of the amending power, which was central to the speech of the noble Lord, Lord Adonis, and the ability to account for the UK’s specific position outside the EU for the two years in which the power would operate. As I understand it, Amendment 1, moved by the noble Baroness, Lady Bowles, stems from her concern—repeated by all Members who spoke in the debate—that the power is currently drafted too broadly. The amendment would require that no legislation can be made under this Bill which is corresponding but not similar, or vice versa, to the original EU legislation. It is clearly important that we go into the precise definition of each term, as they have different interpretations and implications. In doing so, I hope that we will add to the body of information that can be referred to in future to clarify the Government’s intent in this process.
First, we take “corresponding” to mean “identical in all essentials or respects”. The term “similar” means “having a resemblance in appearance, character, or quantity without being identical”. In practice, of course, the legal interpretation of the two terms can vary, with some judging that “corresponding” affords a wider latitude. However, it is nevertheless clear that on the basis of the current drafting, any exercise of the power would need to be limited in subject matter and purpose. It will be possible to exercise the power only to achieve the aim of the original EU legislation, with an option to make adjustments to account for the specificities of UK markets, rightly reflecting the fact that we will no longer be a member of the EU. It will not, therefore, allow for wholesale changes to the character and intent of the original legislation.
For example, if the Government were implementing a file on pensions regulation, they would need to seek to achieve the same purpose, even with adjustments, and remain focused on that subject matter—not extend it to another policy, such as insurance. However, the Bill provides the ability to best reflect UK circumstances in the implemented legislation, which is key. The intent is to clarify that, in a no-deal scenario, the UK has the tools to ensure that it remains an attractive and competitive place to do business and continues to implement the latest international standards, with regulation that reflects the best interests of UK markets and those international standards. The wording suggested in the amendment would allow provisions to be made under this Bill only should they be corresponding and similar. This would require the legislation as it is implemented to fulfil two different legal standards simultaneously. We consider that this would be a highly uncertain legal bar to pass and in some cases it may even make the power essentially unworkable.
I would also like to reassure the Committee that the formulation “corresponding, or similar” is well established and has been used—to provide recent examples—in the Pension Schemes Act 2015 and the Recall of MPs Act 2015. I hope that this will reassure the noble Baroness regarding the limitations that will apply and the formulation “corresponding, or similar”, for which there are precedents. In short, the current wording is already intended to ensure that the powers under this Bill cannot be used to create substantively new policy outside the bounds of the original EU legislation.
I turn to Amendment 3 tabled by the noble Lord, Lord Sharkey. I understand that this comes from a similar place, intending as it does to forbid the Government’s amending legislation in such a way that it would create significant new policy separate from the original EU legislation, a concern also expressed by the noble Lords, Lord Adonis and Lord Davies. I hope that my response to the amendment of the noble Baroness, Lady Bowles, will provide noble Lords with some degree of the reassurance that is needed. As drafted, the Bill would not allow the Government to significantly alter, expand or run contrary to the primary purposes of that original legislation.
I turn now to Amendments 5 and 7, tabled by the noble Lords, Lord Tunnicliffe and Lord Davies, and spoken to by the noble Lord, Lord Davies. They would limit the power in the Bill to make adjustments in a similar manner to the limitations in the EU withdrawal Act—limiting changes to legislation purely to a fixing of legal deficiencies. I understand the concern across the Committee that the power in this Bill goes beyond that of the EU withdrawal Act. I have already touched on the importance in a no-deal scenario of ensuring that European Union legislation implemented in domestic law best serves the interests of UK financial services, so I will not rehearse the same arguments again at length. However, I will reiterate that we cannot be certain about what files will look like once they are finalised or of the context in which the files will be implemented. The powers in the EU withdrawal Act are strictly limited, and the purpose of the legislation we are making under the Act is to ensure that there is a workable legal framework in place at the point of exit and to minimise disruption to financial services firms and their customers who currently operate under the existing EU rules. It is therefore appropriate to keep any changes made on exit day to a minimum.
There is a fundamental difference between this legislation and the EU withdrawal Act, and this comes directly to the point raised by the noble Lord, Lord Adonis. The withdrawal Act deals only with the legislation which has been agreed at the EU level, with the UK present at all stages of the negotiations. As my noble friend Lord Hodgson pointed out in his intervention, this Bill provides a temporary solution, specifically in a no-deal scenario, to deal with the dynamic regulatory landscape for the financial services industry after the UK has left the EU negotiating table and taken its own path. This is a different challenge that requires a different solution.
I am grateful to the Minister for giving way. In that case, why should there not be primary legislation?
For the points I will come to in a minute, which the noble Lord has slightly pre-empted. Obviously he has read the wind-up speech I gave at Second Reading—the arguments about volume of legislation and timeliness remain consistent—but I will come back to that.
Would I be correct in describing the reason for that legislation as enabling us to meet equivalence requirements going forward if we have not otherwise dealt with things?
Equivalence is one of a range of considerations that could be taken into account at that point.
We will have amendments discussing equivalence more directly later, but will the Minister confirm that nothing could be done to step away from or undermine equivalence, or does this allow that? That is certainly the way it has been read by most Members of this House.
We will have the debate under the future group of amendments on equivalence. We are not setting here the test or the bar as one of equivalence. We are simply talking about the specific directives and regulations before us and mentioned in the Bill: the 15 here; the four already agreed, which are mentioned on page 1 of the Bill; and the further 11 mentioned in the Schedule accompanying it, which have not yet been agreed. Because they have not been agreed and may be under debate or amendment without the UK at the negotiating table, we are simply adding in that greater level of power to say that the UK, in the event of leaving without a deal, would need to look after the interests of the UK financial and industry sector and could not give a blank cheque in the opposite direction to the EU to pass whatever regulation that we would automatically implement because of adherence to a notion of equivalence. That cannot be right for UK financial services. We need to look at what comes to us, then act within the interests of the UK financial services sector at that time.
I will deal with some of the specific points raised. The noble Lord, Lord Sharkey, talked about the recommendation of the Delegated Powers and Regulatory Reform Committee. I pay tribute to the work it did on this and the quick turnaround and punchy conclusions it arrived at. We are considering its recommendations, which the noble Baroness, Lady Liddell, asked us to look at. I will be happy to meet with noble Lords ahead of Report to discuss where we stand. I thank the Delegated Powers and Regulatory Reform Committee for its work and recognise that it raised some very pertinent issues. We want to look at them in greater detail, and I would be happy to discuss that with noble Lords ahead of Report.
I hope I have gone some way to addressing noble Lords’ points at this stage. We will come to a number of the other points in future debates and groups.
It seems the Minister has relied heavily in his responses on Clause 1(1)(a) by using this to demonstrate that there is really a tight restriction on what kind of things can be done by Clause 1. But he has not at all mentioned Clause 1(1)(b), which in many ways is the root of the problem because it contains the word “adjustments” and the phrase “consider appropriate”. To many of us, that seems to extend without limit the reach of the Treasury’s powers. That was the underlying purpose behind almost all the amendments in the first group. Could the Minister speak to Clause 1(1)(b)?
I am happy to do that. As the negotiations on these files continue, further amendments may be agreed, proposed or dropped that the Government will wish to domesticate or remove using the powers under this Bill. As the final outcome on many of these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This might, for example, include areas where the final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, with global standards or with the UK’s position as an open global financial market. It is important therefore that we have the power to adjust these inconsistencies when bringing them into UK law. I acknowledge that this is a—
I am sorry, but the Minister just said that Clause 1(1)(b) allows an interpretation not to remain with the objective described in the European directive. His whole argument under Clause 1(1)(a) was that the words “corresponding” and “similar” provide, in different legal ways, for us to take steps only where it is consistent with the objective of the European directive. He is now directly saying that Clause 1(1)(b) allows us to take steps that are directly opposed to or completely inconsistent with the European directive. Could he provide us with some clarity on this? It seems that the power allows the Government to move in any direction they wish, and that is exactly the issue we are trying to raise here. Under those circumstances, is that for Parliament to decide or for the Treasury to decide through statutory instrument?
I thank the noble Baroness for her intervention. There is a difference between the two elements and between the use of “adjustments” and the terms used earlier, “similar” and “corresponding”. Effectively, they relate to the two different groups that we have here. The first group is those for which we have been party to the negotiations and to agreeing. Following engagement, we know that the industry is keen to see those transposed into UK law, and we support it in that respect. Then there are those other elements that are incomplete, the final shape of which we do not yet know. Once the final shape is known—in all likelihood, that will be after the date in this scenario and once we have left the European Union and the negotiating table—we will have the power to adjust. Those are the two different elements.
My Lords, the noble Lord speaks as if there is not that power at the moment. There is: it is the power to introduce primary legislation. The Government do not lack this power; it is the power the Government have, in all cases, to recommend to Parliament changes in the law. What he has not made the case for is why the power should be given to the Government to make these changes by decree, which is, let us be clear, what Orders in Council amount to, with just a straight yes/no power in respect of the whole provision. He has not made that argument at all.
The Minister says that it is restricted, but the restrictions are entirely unsatisfactory. There is a time restriction of two years, which is more than enough time for the Government to do what they like with large parts of the statute book. The second, to which the Minister has just referred as though it is some kind of safeguard, are the measures listed in Schedule 1. But the list is incredibly extensive. These are fundamental and wide-ranging changes to the law, which in many cases, as the noble Lord himself has just said, we will not have played a part in agreeing within the democratic institutions of the European Union. Effectively, the Minister is saying that we will neither have played a part in agreeing them within the democratic processes of the European Union, nor will this Parliament have a proper role to play. The only people who will agree them are the Minister, the Chancellor of the Exchequer and a few officials in the Treasury, and we will then be expected to rubber-stamp them. I am afraid that that is totally unsatisfactory.
That is not the case. I accept that the noble Lord is presenting a caricature of the situation that proves a particular point, but of course that is not what will happen. First of all, certain guarantees are presented in terms of reporting, which we will come on to again later. There are certain processes in terms of scrutiny of secondary legislation, not only by the Secondary Legislation Scrutiny Committee, which does incredible work and of course has a role set out in Standing Orders as to how it must scrutinise secondary legislation. Also, the affirmative SIs must be debated in your Lordships’ House. In addition to that, we have also undertaken that there should be proper engagement with the industry in talking about this and with other stakeholders too. There is a wide range of things.
We will delve deeper into some of the points in the noble Lord’s own amendments later. I appreciate that the role and purpose of Committee is to elicit from the Government further explanations about what these terms mean. We may have a difference about whether the noble Lord’s view is shared by the Front Bench, and whether all these matters should be dealt with by primary legislation in 15 Bills or by secondary legislation, which has been the convention, particularly when it comes to financial services.
I will just finish this point if I may. That is why the noble Lord, Lord Tunnicliffe, and I and indeed the noble Baronesses, Lady Kramer and Lady Bowles, spent so much time in Grand Committee talking through various pieces of secondary legislation on financial services. That has been the conventional way in which we have worked. The noble Lord, Lord Adonis, believes that the legislation ought to be primary in this case. That is his view. It is not the Government’s view and it is my job to outline the Government’s view on this. We are following established procedures and providing powers under scrutiny to allow us to deal with a unique set of circumstances, which we have never had to deal with before.
My Lords, this is genuinely a question of clarification. Is the Minister saying to me—I cannot read it in the language of the Bill—that Clause 1(1)(b), which states:
“with any adjustments the Treasury consider appropriate”,
excludes the category of in-flight legislation described as,
“specified EU financial services legislation”?
I assume that it includes that. Therefore, the Minister’s argument is that the Government will have to stick with the underlying objective for specified EU financial services legislation—which is what Clause 1(1)(a) is talking about—but the same legislation can then be overturned and dealt with completely differently under Clause 1(1)(b), which frankly allows adjustments as long as a piece of string. That is what I am trying to clarify. I understand that they are two different groups, but paragraph (b) surely applies to both groups.
Perhaps it would be helpful at this stage to agree that these issues will be addressed in future groups. We will choose some wording—if not today, then certainly before Report—that is quite rightly required by the Committee to reassure itself about what is and is not referred to in that respect. With that, and with the undertaking to meet with colleagues specifically on the report of the Delegated Powers and Regulatory Reform Committee before Report, I invite noble Lords not to press this amendment.
As a member of the Delegated Powers Committee, I specifically draw the Minister’s attention and the attention of the Committee to our paragraph 16, which states that:
“The power to make adjustments is a very broad one with no restrictions”.
We have very deep concerns about the powers proposed in the Bill. I hope, listening to the Minister, that he will address this issue and recognise that it is fundamentally important.
I am happy to give that undertaking. I thank the noble Lord for his work on the committee and thank it for its report, which raises specific concerns. I will address those initially through a meeting with interested colleagues ahead of Report and then, more formally on the record as a result of that, on Report.
I am not proposing an amendment to an amendment, but I wonder whether it would help clarity of thinking for all of us and for the Minister, when he is reflecting on the various arguments that have been put forward in the debate, if we took out “(i)” and “(ii)”, put “(b)” before “any provision”, and took out “but” and that “(b)”, so that the provision read:
“corresponding, or similar, to the provisions, or any of the provisions, of any specified EU financial services legislation, or
(b) any provision that might”.
We could then limit the adjustments point to the second part.
Her Majesty’s Government are, of course, very frugal and are always willing to take free legal advice, particularly when it comes from such a distinguished source. I shall add that suggestion to the others that I will take away. We appreciate it. Oh, something has miraculously appeared. It cannot be in response to the last suggestion—that would be far too quick—but is in response to the point made by the noble Baroness, Lady Kramer. “Adjustments” applies to both provisions, but the limitations come from “corresponding, or similar” and the limitation implied by the word “adjustments” itself in the glossary. Just for clarification at this stage, let me add the definition that we are working to so that people can see it. “Adjustments” means that it will be possible to exercise the power to achieve the aim of the original EU legislation only with an option to make adjustments to account for the specificities of UK markets, rightly reflecting the fact that we will no longer be a member of the EU. It will not therefore allow for wholesale changes to the character and intent of the original legislation. “Adjustments” is an inherently limiting word. With that, and with the commitments that I have given to reflect on the comments made by noble Lords and the legal advice that has been given, I invite the noble Baroness to withdraw the amendment—
What the Minister has said was clearly written for him by the Box: “‘Adjustments’ is an inherently limiting word”. Will he explain to the House how it inherently limits?
The noble Lord is familiar with the way this works. I used to sit on that side of the House while he was having similar words prepared for him. Adjustment leads to an altered version of the original. Changes that produce something completely different go beyond adjustments. Dictionaries make it clear that adjusting is about making small changes to achieve a desired fit or to adapt to a new situation. I hope that helps.
Therefore only small changes can be made, not large changes. My reading of the provisions in the Schedule is that they involve large, not small, changes.
I am getting a certain sense of déjà vu having sat through the early morning debates on the EU withdrawal Bill, as it was at that stage, on words such as “appropriate”. I do not particularly want to rehearse them here. It is very important that, when we use terms, the Government are required to define what they mean by them. I have presented what we believe is meant by “adjustments”, which is that it is inherently limiting in capacity. Should we wish to clarify that further, we will do so on Report. Similarly, if noble Lords have further suggestions, they are at liberty to table amendments suggesting additional wording at future stages.
Let us be grown up about this. The Minister knows that people disagree about the meaning of “limited” in these contexts. I do not think that we think that the Minister’s assurance that the provision will be limited amounts to much, because then we will of course have a big argument about what “limited” means. The only way we could have a meeting of minds on this would be if there were some satisfactory procedure for deciding what “limited” means. The procedure which comes to mind is an independent committee, such as the Delegated Powers and Regulatory Reform Committee. The Minister is extremely open-minded about suggestions from the Committee. Would he suggest introducing an amendment on Report giving the committee responsible for deciding on these regulatory powers the power to decide whether in fact a regulation meets the word “limited” in respect of adjustments?
I am not going to direct what committees of this House opine on—it is certainly not within my powers to do so—and of course they are at liberty to express their views. From a constitutional point of view, having placed on the record, as a Minister of the Crown, our belief of the interpretation and meaning of the word “adjustment” in this context, I think that, when assessing an affirmative statutory instrument against the measures in this Bill, bodies such as the Secondary Legislation Scrutiny Committee will seek to link the two to test whether that is in fact the case. I am sure that the very fact that I have made that remark will be picked up in years to come as the various statutory instruments make their journey through your Lordships’ House. However, we will of course reflect on all these elements between now and Report.
My Lords, as the chairman of a regulatory organisation, I find the discussion about the word “adjustment” very disturbing. I shall give the Minister an example. If a door is open and then you close it, you adjust the door, but it is still in essence the same piece of wood moving within a frame. Taking that over to financial regulation, if a particular regulatory structure permits a given activity and you then close the door and that activity is no longer permitted, that is an adjustment within a given framework. I suggest that when the noble Lord takes this back, the word “adjustment” should be considered very carefully, because in a regulatory context it does not work in the way that he has described.
I certainly defer to the noble Lord’s great experience in this area of regulation. One purpose of this Bill is to give assurances and certainty to precisely the people whom he has spoken of—the regulators—so that they are clear about the Government’s intent. When we spoke to the regulators and the industry, they pointed out that we do not know what will be contained in these files once they land in a legislative context post Brexit in the unlikely event of no deal. Therefore, there has necessarily been a widening of the powers to cope with potentially changing circumstances of which we are not aware at this stage. However, I will certainly take back the points made by the noble Lord and others, and I thank Members of the Committee for raising their concerns.
I want to make one point. When we were dealing with the withdrawal Bill, one of our greatest fears concerned these Henry VIII powers. This is the first time that we are having to apply them in a specific Bill, and we are already scared about the consequences. Noble and learned Lords are already asking, “Have you thought about wording such as ‘adjustments’ and the interpretation of words?” From my experience, every time there is a grey area in a contract, it can be interpreted in different ways. It leaves the door open, and that is very dangerous. I ask the Minister, whom the whole House respects, to take all that into account; otherwise, on Report this will be badly defeated because a precedent is being laid here with a fear that the Henry VIII powers will demolish our whole democracy and the reason for our Parliament. That is really frightening.
I hear what the noble Lord and the Committee have said. That is what a Committee stage is for: it is for the Government to listen to what noble Lords have to say. I am grateful for what they have said, and I undertake to take it back, reflect on it and discuss it with colleagues ahead of Report. In the meantime, if the noble Baroness is happy to withdraw her amendment, I shall be grateful.
My Lords, I thank the Minister for his replies. Part of his early response sounded quite encouraging when he said that things would not move outside the bounds of the original EU legislation, but it got a bit worse later on when he said this meant that things could still be domesticated or removed to match the peculiarities of the UK financial markets, which basically means not doing it if we do not feel like doing it. That is certainly how it was presented, interpreted and ended up in the EU when I was in charge of putting through a lot of this legislation.
With regard to my own amendment, I think he has said that “corresponding” is tight, in that the provision has to be identical in all respects. But he went on to say that this is one of two definitions that give wider latitude; “similar” was somehow a looser term but did not have that same latitude. He made the point that trying to satisfy two different legal criteria can be confusing, and I would side with that view. He also said, I think, that one of the terms was meant to apply to one category of the legislation and the other, looser term—whichever that turns out to be—applied to the other.
If I understood correctly, he said that the list that appears in subsection (2)—which is the finished though not yet active legislation: there are no changes, it is all done and we know what it says—would be subject to the tighter of the definitions, which is possibly “corresponding”. Those in the annex, which have not been finished and possibly might not be finished until after we have left—so we will not be involved in the last tweaks—may need to be tweaked more and will be subject to the term “similar”. This starts an interesting discussion, which we can continue when we talk on other groups, of whether we should completely separate out how we deal with the legislation that we already know about and can already analyse regarding whether it works for the UK markets, as opposed to where things are not definite and one needs more reservations. I push that out as a point.
Other amendments, particularly Amendment 3 in the name of the noble Lord, Lord Sharkey, would also solve some points, as they go back to the question of the “primary purposes”. The key anxiety is that this Bill enables legislation to be made through a secondary method which is incapable of having scrutiny and will not necessarily have had scrutiny even at the European level by way of the adjustments, and there is no way to amend it. It could depart from the purpose, no matter what is said, because the Bill does not actually say there is to be no departure from the purpose. If you put in Amendment 3, or some other amendments that we will come to later, then you can tie it down and make clear where you will depart and where you cannot do so.
Let us be clear that one of the elephants in the room is whether we will implement the legislation at all. There is nothing compelling this. One can cherry pick it—we will come on to that in the next group of amendments—but there is nothing that says it will be onshored, so one could simply not have it at all. It is absolutely clear if you look at the first articles in subsection (2)(a),
“Articles 6 and 7 of the Central Securities Depositories Regulation”—
we know what the issue is there. I am sure there are people in this Chamber right now who could debate the benefits and otherwise of those particular articles. It was thought that the EU might not be able to make the technical standards, or that they would somehow be withdrawn. But no, the technical standards have been made; we know what they are and the likelihood that they will become active in 2020. The question could be put now: are we going to have it, or are we not? If we are not going to have it, should that be at the whim of the Treasury? This has significant repercussions on all kinds of other parts of the market where we may or not be deemed to have equivalence. We might as well discuss this now. It should not be someone sitting in an office and saying, “Well that can go and damn the consequences”.
We have a lot more to discuss around this as we go into the next groups but for the time being I beg leave—
I apologise for not leaping to my feet before the noble Lord, Lord Tunnicliffe; I was looking at something else—I am very sorry. Perhaps I may be allowed to say just a few words in support of the general idea behind Amendment 6.
We are going to embark on a huge body of secondary legislation. I have spoken in this House on a number of occasions about secondary legislation and I think that my views on its dangers are quite well known to a number of Members. One problem with secondary legislation, if we are honest, is that we have no idea what we are looking at. When secondary legislation comes through, I doubt whether more than 1% of the Members of this House actually look at it; I doubt whether more than 5% of the Members of the other place look at it, and it goes through.
We are here dealing with very complex legislation and doing it as best we can in a hurry, in the demanding situation that we are in. Would it not be helpful for an explanation to be given about any individual piece of secondary legislation, identifying, for example, the legislation in the EU with which it corresponds or to which it is similar? We could then look at it and say, “Yes, that’s fine. No need to argue about it”. Otherwise, we tend to leave it so that we examine it blind. There is something to be said for us knowing what is going on.
My Lords, I thank noble Lords on all sides for their constructive suggestions during this short debate. I am grateful for these contributions. The noble Lord, Lord Tunnicliffe, made a fair point about the approach we have taken on considering secondary legislation in Committee. We have brought through 16 statutory instruments so far—we have the joy of another four awaiting us in Grand Committee tomorrow afternoon—out of a total package of some 60, 47 of which will use the affirmative procedure. So there is an element of scrutiny. The noble Lord rightly focused on the provisions of the EU withdrawal Act, which is the substance of Amendment 7, but then we were dealing with known entities and rules.
In introducing this amendment, the noble Baroness, Lady Bowles, made a very fair point and the noble Baroness, Lady Kramer, added to it. If I am paraphrasing her correctly, she recognises that, had she not been there, the legislation coming across to us might not have been dealt with in the interests of the United Kingdom financial services industry. I agree with that, from what I know of her role on that committee in that Parliament. Her input—and that of other members—at that stage was vital in shaping the legislation which subsequently came across. We thank her for that service. She is no longer there and, in the scenario for the future files that we are dealing with, neither will her successors be. Therefore, there needs to be a difference in the way these are treated—between the narrow definition in the EU withdrawal Act, when we knew what we were dealing with, and directives and regulations into which we may have had no input and no responsibility for shaping. These could, potentially, be damaging to the UK financial services industry. There is a long way to go with this debate, but that is the crux of it.
I turn to Amendments 2, 4 and 6, the aim of which is to require the publication of a report three months prior to the exercise of the powers under the Bill. This report would need to explain any policy adjustment or decision to omit aspects of the originating file. The noble and learned Lord, Lord Judge, also referred to this. I reassure noble Lords that the Government’s clear intention would be to set out this information in the reports currently required by the Bill.
Further to that, as is standard practice, the Government would of course seek to engage with interested parliamentarians and the industry on the legislation before taking any statutory instruments forward. Where the secondary legislation omits aspects of any EU files, it would certainly be in the public interest to be open about the choices the Government have made in not implementing them.
Regarding the requirement to publish the reports three months ahead of each exercise of the power, the Bill currently sets the requirement that any implementing legislation be subject to the affirmative procedure. This would require laying the relevant statutory instrument before Parliament, and an accompanying Explanatory Memorandum setting out the policy intent, before the debate on the SI itself and well ahead of implementation. This is the established process for scrutinising such statutory instruments and for this reason it is the model we have chosen to follow.
I am also mindful of the fast-moving nature of financial services. In particular, there may be a need to respond quickly to market developments, and it may be important to avoid imbalances with the EU for even a short period—for example, where the files may be of a deregulatory nature. With respect, I suggest that a three-month gap between a report and laying is too long to respond to market developments. Such a three-month requirement would place at risk the basic aim of the legislation, which is to safeguard the reputation, competitiveness and efficiency of UK financial markets. However, having listened to the points that the noble Baroness, Lady Bowles, made in moving her amendment and to the subsequent points of the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and the noble and learned Lord, Lord Judge, I am willing to consider, ahead of Report, exactly how a process might run in the future to keep noble Lords better informed. Just to manage expectations, we will probably regard three months as too long for what might need to be very fast changes to ensure that UK financial services are not disadvantaged, but I signal my willingness to discuss the issue with the noble Baroness and see whether we can find an acceptable way forward.
Does the Minister accept that the problem he faces is bigger than that? It is not just about this group but about the fundamental fact that we parliamentarians dislike secondary legislation that changes the law. He faces a significant defeat in this House if we cannot come to some compromise agreement that seriously limits the ability of the Executive to impose law upon this Parliament. It is important that he recognises that—otherwise, we will end up deciding what the Bill says, and that is usually not good in terms of using the law in the future.
I am always willing to engage and it is helpful, if I may say so, to engage in that debate, because the point the noble Lord is making is more on general principles than on detail. I subscribe to that, provided that we can agree to recognise that what the Government are seeking to do here is to deal with, effectively, processes that I am not aware have ever been dealt with before. We may be giving an undertaking to implement certain directives and regulations over which we have not had control and of which we do not yet know the precise nature. That is a different challenge from the normal routine of the types of onshoring that we are doing with the other statutory instruments. I am prepared to accept the noble Lord’s point if he will recognise the difference that we are dealing with between those two different types: that would be helpful.
I recognise that there is a difference, but at the end of the day my noble friend Lord Adonis’s point is valid: in day-to-day life the world changes, we have to react quickly to it and, where needed, we have to enact primary legislation. We are not creating a new environment where the Government enjoy executive power to change the laws in this area; surely we are seeking only to manage the transition. I do not see that it is the end of the world if the Government see something develop in Europe, say it is wrong, and say that that will not be covered by this Act and that we will have to bring forward primary legislation. We have done it in the past and we will have to do it after two years; that is the way new ideas should be introduced to this Parliament.
I hear what the noble Lord is saying. Without wanting to rehearse Second Reading again or to undermine any of the progress that I feel we have already made on this in Committee, I will conclude by saying that from my perspective, the noble Baroness has made a proposal to deal with the length of time and the reporting—to address the noble and learned Lord’s point—about where there are changes, what changes have been made and why, and whether that report could be received in advance of the statutory instrument being laid and then debated in the House. In the spirit of recognising the points referred to, I have said that I am prepared to look at that. Three months may be too long but I am prepared to have a discussion ahead of Report on whether another time period may be more acceptable. With that, I hope that the noble Baroness will feel able to withdraw her amendment.
My Lords, we are superficially attracted to this amendment and we await the Minister’s comments with interest.
I thank noble Lords for their contributions to this debate. I shall begin by looking at what I think is an area of common ground: we all recognise the importance of the financial services industry to the UK. Perhaps I may pick up on a point made by my noble friend Lord Flight, that one of the main purposes of this Bill is to ensure that the UK remains an attractive and competitive place to do business, retaining our place as a world leader in financial services. To do this in a no-deal context, it is essential that the UK retains sovereignty over our rules. From the perspective of financial stability and protecting the UK taxpayer, it is essential that the Government, the Bank of England and the FCA have the tools available to ensure that the UK markets are appropriately and effectively regulated.
It would be wrong to set a condition over the UK’s regulatory framework that means decisions which are made about the UK’s future regime are determined through the lens of maintaining equivalence to the EU, irrespective of the quality of those rules and how future legislation and the market itself may evolve.
I think that there may be a misunderstanding. This would mean that statutory instruments could not be used to create divergence—it does not mean that primary legislation could not be used to do so. That is the underlying point.
The legislation we are dealing with is in its very composition a temporary measure; it is a temporary piece of primary legislation with a sunset clause.
I know that we will discuss the sunset clause later. It does not mean that the statutory instruments created under this legislation die after two years, it means only that the powers in the overarching legislation will die. However, those two years are the critical period, so the sunset clause does not have the consequence that I think the Minister might suspect it does.
To go back to first principles, I am saying that the power in this Bill is not in effect to make policy—rather, it is the ability to produce secondary legislation that has a policy content to it and which would then be subject to scrutiny in this House. That power is being put in place for an extraordinary set of circumstances—I think we all agree that these are extraordinary circumstances and in fact I should underscore that we hope that these powers will not be required to be acted upon, because there will be a deal and we will continue to have access to the market in financial services across the EU. That is our aim, but we are preparing for all eventualities.
The noble Baroness will be aware that equivalence determinations are autonomous decisions with the EU and, in turn, the UK retaining autonomy for determining if a foreign jurisdiction has equivalent standards and supervision. The EU takes a varied approach to assessments of equivalence, tailoring its approach to individual regimes with regard to how the assessment is conducted. The Commission itself has stated:
“It is the equivalence of regulatory and supervisory results that is being assessed, not a word-for-word sameness of legal texts”.
Indeed, for a recent example, one need to look only at the EU’s statements on equivalence in a no-deal scenario. Within these, the EU has been clear that equivalence decisions of the UK will be made where justified in the interest of the Union and its member states, with time limits and conditions to their decisions where appropriate. As such, it is very difficult to judge what the EU will take into account in its future assessments and how its autonomous third-country regime will evolve. Such an approach, plus the breadth and variety of considerations that form part of equivalence determinations, from the rules themselves to supervisory approaches, means that it would be very difficult to determine what effect, if any, a change or adjustment that the UK makes to our laws might have on a future equivalence determination in a given area, given that these are autonomous decisions taken by the EU. It is therefore difficult to see how the test set out in this amendment could be met.
Let me reiterate the importance of, in the case of a no-deal situation, retaining the ability to adjust our legislation so that it best serves the aims and objectives of the UK once we have left the EU, as my noble friend Lord Flight has identified. It is crucial to ensure that we can bring into force pieces of legislation in a way that works best for the interests of UK markets. The Government are also committed to doing this as transparently as possible, which is why we have set out the strict reporting requirements to which I know we will return on Report. In the light of that, I invite the noble Baroness to withdraw her amendment.
I thank the Minister for his response. I shall deal first with the point that this might be legislation that will never need to be implemented. But the fact is that something like this will probably be needed when we get to the next cliff edge, and in any event by passing this Bill, we will also set a precedent for what might then follow in subsequent legislation. You cannot get some dodgy things through on the basis of reasoning, “Oh, we might never need it”. We know only too well the effect of having let something slip through once. I can assure the Committee that that is not something I had a reputation for in Europe and I would not allow it here if I had anything to do with it.
Like my noble friend Lady Kramer, I fully accept the point made by the noble Lord, Lord Flight, that the legislation might not be “sensible” when looked at from the UK perspective. This is what is meant by not being able to fit in with the specificities of the UK. However, the trouble is that that is a very vague description. We would need far more of an indication of what is meant by that to allow it to be any kind of gatekeeper. I think that the point about equivalence is fundamental and it can be a gatekeeper. It is probably completely wrong not to contemplate having an equivalence Bill which actually lays out in more detail the sort of tests that would be applied. Looking further into the distance of how we deal with financial services legislation, we are not going to bring to the Floor of this House all the detail set out in the regulations and directives that I had to negotiate. The majority of that will no doubt be passed off to the Treasury and the regulators in some way that will not concern us. I am not sure that I agree with that, but I can see the writing on the wall. However, something big such as whether we want to stay aligned or whether we think that it has progressed too far—it is too uncertain, we cannot deal with this kind of uncertainty, and what are the tests?—could well be put into legislation.
I reject the notion that we cannot have a limitation such as this in some form or other as a guardian within this legislation because of the attitude of the EU and how it makes decisions. You know for sure that doing certain things would remove any chance of equivalence—such as leaving out a couple of articles of the main legislation. Boom! Not equivalent. There is no question. Because certain things are done in a slightly different way, maybe tweaking a little bit in a delegated Act would not be a bar, so that could possibly pass the test and go through.
I come back to subsection (2). The very first item there is a yes/no decision: are we having this, or will we neuter it to the extent that we do not have the buy-in regime of the CSDR? That is what it is all about. If we did not have the buy-in regime of the CSDR, we would not be equivalent in quite a lot of things to do with securities transactions, and maybe in things to do with our clearing houses or our exchanges. I remind the House of my interest as a director of the London Stock Exchange. These things are under active consideration, so doing something like that would, in my personal judgment, put equivalence at risk. I think you can make a dividing line through this.
Especially if there is some tentative encouragement from the Labour Front Benches, I think this is one of those amendments that usefully goes into the pot that we should be working on. The alternative is that you get even less, probably a very tight and improved version of Amendment 7, because an amendment such as this might offer not a great deal but a tad more flexibility—a tiny bit more. With that, I beg leave to withdraw my amendment.
My Lords, I again thank all noble Lords who have taken part in this debate, particularly my noble friend Lord Leigh. His amendment touches on the critical point with regard to the Bill, which is the importance of safeguarding the competitiveness of the UK’s world-leading financial services industry as well as maintaining proportionality in the regulations that govern these markets. These are two of the key reasons this Bill has been introduced. It will ensure that our regulatory system remains up to date in the period following a no-deal exit and that UK firms are not left at a competitive disadvantage as regulations are updated in the EU. I can of course assure my noble friend that the Treasury will exercise its powers under this Bill with competitiveness and proportionality firmly in mind, which my noble friends Lord Flight and Lord Hodgson encouraged, and which my noble friend Lord Deben urged it to do.
When people are talking about the market in the City, people instinctively think of very large institutions, but having worked in the financial services industry, I recognise that it is made up of many small firms delivering outstanding benefits and value to their clients. There are some 58,000 small and medium-sized businesses operating in financial services.
In answer to the points raised by the noble Lord, Lord Adonis, the reason the UK is so successful and the City of London so respected around the world is the strength of the regulatory basis. Reputation and trust are all when it comes to conducting financial services. If people are investing their life savings or pensions with organisations, they need to have confidence that the organisations they are investing in will look after them well and that they will get the return or benefit that they anticipate.
I therefore appreciate my noble friend’s helpful and well-intentioned amendment. However, I am mindful of the difficulties of placing these assurances on a statutory footing, given the difficulties of defining these terms clearly in legislation. In particular, judging the exercise of powers against a hypothetical case—for example, the state of the UK financial market had the UK not left the EU—would be highly challenging. It is also worth noting that many of the files are themselves being designed, with the UK’s input, at the moment, to aid competitiveness and proportionality issues. It is right that we put that on record at this point. My noble friend Lord Leigh set out clearly at the beginning that we pay tribute to the work of the Commission in listening to the voice of small business, a point to which my noble friend Lord Deben returned. Examples are the prospectus regulation listed in Clause 1, which creates a more proportionate regime for all firms, including SMEs, and key measures such as the introduction of a new growth prospectus—a lighter, less burdensome document—to be used by SMEs within the regulation. I hope my noble friend will recognise that the Government are alert to his concerns in this area and support the need to maintain the competitiveness of the UK financial services industry and to ensure that any regulatory burdens are applied to small and medium-sized enterprises in a proportionate way. In the light of these reassurances, I hope my noble friend feels able to withdraw his amendment.
I thank my noble friends Lord Flight and Lord Hodgson for supporting this amendment. They have become the wise old birds. I was very pleased to have two people supporting this amendment who have started financial services businesses in London and grown them to be global financial services businesses. It goes to show the power and expertise that resides in this House.
I thank the noble Lord, Lord Adonis, for his comments. I am sure he was not seeking to stereotype Tories. Curiously enough, although many people would regard captains of industry as natural Tories, one finds that the large multinationals are the companies that want more, not less, regulation because it consolidates their position. From the perspective of small businesses, as the noble Lord, Lord Adonis, said, we look for more appropriate regulation, rather than less regulation.
I am very grateful to him and to my noble friend Lord Bates for picking up my complimentary remarks about the EU Commission. I am a bit worried that I will be drummed out of the ERG after this. Nevertheless, it is true that the Commission has listened. My worry is that it listened to us because we had a voice. However, if we leave under a hard Brexit, we will not have a voice through bodies such as the QCA and therefore, because it does not really understand AIM and other aspects of the financial services industry in London, it will produce inappropriate regulation. We will need a very effective and immediate reaction to that, which I believe the Treasury is capable of doing.
I say to the noble Baroness, Lady Kramer, that the naked short selling by market-makers in the AIM market is essential to liquidity. It is not to be confused with naked short selling by hedge funds, which is a very risky and different proposition. It just goes to show that it is a complicated area. I will be honest: I am not wholly sure that I understand it or how it works but I understand that much—that it is essential to liquidity.
The noble Lord, Lord Tunnicliffe, is right. Essentially this is about unintended consequences; none the less, it is always nice to get into legislation protection for the financial services sector and small businesses.
With the very welcome reassurances from my noble friend Lord Bates, I beg leave to withdraw the amendment.
My Lords, first, I am sure that I speak for the whole Committee in thanking the noble Lord for his succinctness in presenting his amendment. I recognise the old adage that everything needs to be said but not everyone needs to say it. That is a good principle. In following him in that spirit, I will put on the record a few comments that I believe will be helpful for our wider debates.
We appreciate the concerns across the Committee regarding the Henry VIII powers and, where they are proposed, it is clear that their necessity must be well evidenced. In the case of the financial services legislation, to which the power in this Bill will apply, I hope that noble Lords will accept the need for such a power.
An inability to amend existing primary legislation such as the Financial Services and Markets Act 2000 will render it impossible to implement this necessary body of legislation. Further, as noble Lords will be aware, the exercise of many functions under financial services legislation is carried out by the independent regulators—the Financial Conduct Authority and the Bank of England. The capacity and expertise of the financial regulators will be absolutely crucial to the effective implementation of these pieces of legislation and, consequently, to the resilience and prosperity of the financial services sector here in the UK.
The amendment would remove the ability to delegate to the regulators because, as a general rule, a power to make secondary legislation does not include a power to sub-delegate. An inability to effectively delegate powers to the regulators in implementing the legislation contained in this Bill would severely undermine the value of transposing the original legislation into UK law. In many cases, it would effectively render legislation unenforceable, and the Bill would simply not be able to achieve its central goal of ensuring that the UK continues to be an attractive and competitive place to do business in the immediate two-year period post exit, in the unwelcome and unlikely event of a no-deal scenario. Given this context and the context of the previous debate, I invite the noble Lord to consider withdrawing his amendment.
My Lords, we have an open mind on the amendments. The noble Lord, Lord Deben, hit the nail on the head in saying that the gap between primary legislation and the SI process is too wide. Since we are shovelling a lot of stuff into the statutory instrument process, this is a good time to consider some intermediate action. I do not move from my commitment to tighten up what is available for secondary legislation under this Act, and we will be pursuing that, but I shall listen to the Minister’s response with care to see whether this would be the occasion to make some progress in this important area and give two views of a piece of secondary legislation, instead of the usual process. No matter how hard the Minister and I, and colleagues on the Liberal Democrat Benches, try to give some life to the affirmative SI process, we know in our hearts that we are not going to vote against it because we are not going to provoke a constitutional crisis. Some process in between the two—this may be the right one—deserves careful consideration.
I thank the noble Lord, Lord Adonis, for introducing his amendment, and all noble Lords who have spoken. I will touch on some of the points made, but before I do, perhaps I may say that, as we are moving rapidly through the different groups, it is important that we keep updating where we are. In earlier groups, I was responding positively to my noble friend Lord Deben’s point that the legislature needed to be better informed about the effects where changes are made and where we are derogating from existing directives that are in flight. I dealt with the concerns that had been raised by the Delegated Powers and Regulatory Reform Committee, and agreed to meet and talk further about them—so as we move along I do not want to lose sight of the fact that this is an unfolding story. Already, three hours into Committee, we have agreed to undertake and look carefully at some of the points raised.
I recognise the immense wealth of expertise which is here, not least in ministerial office from the noble Lord, Lord Adonis. I would not dare try to calculate the years of ministerial office represented by my noble friend Lord Deben, especially when I have my noble friend Lord Young of Cookham to my left; between them they could put up a cricket score of years.
There needs to be proper scrutiny; I accept that. The Secondary Legislation Scrutiny Committee already scrutinises all instruments laid before each House that are subject to parliamentary proceedings, and it is required to draw to the special attention of the House those instruments which are politically or legally important, or which give rise to issues of public policy likely to be of interest to the House. In addition, Standing Orders set out that the Joint Committee on Statutory Instruments must report on affirmative statutory instruments before debates can be scheduled. This is the established process for scrutinising statutory instruments, and it is a model we have sought to follow.
I certainly was talking in terms of what was delegated and how it was dealing with the things that it then had to deal with. I am not sure that that was the same as the mover’s view, but mine was in the category of doing what was within its power.
I agree, in that spirit, to take back that point and look at it in the wider context of my opening remarks in responding to the noble Lord, Lord Adonis. I hope that he will feel able to withdraw his amendment at this stage, because we will return to these issues in some detail at Report, hopefully with some more to say.
My Lords, I am grateful to the Minister for that characteristically open-minded and engaging response. I would welcome the opportunity for further discussions. The interaction between my amendments and Amendment 7 is crucial. If Amendment 7 is carried, the scope of the changes we are talking about reduces so markedly that the need for advice also reduces. In particular, if Amendment 7 is carried, it is not clear to me that the generality of the issues in the Schedule would come before the House in the form of statutory instruments anyway; they would come before the House in the form of primary legislation.
Primary legislation is of course subject to all those processes of parliamentary scrutiny and decision-making that deal with the underlying concern that there will not be enough exposure of the issues at stake to debate and consultation. The interaction between Amendment 7 and my amendments is crucial. A good deal of the case for my amendments depends on what the Government and the House decide to do in respect of the issues raised in Amendment 7.
However, the wider issue that has come out in this debate and comes up time and again in this House is well worth us considering further on Report: namely, how Parliament deals with secondary legislation and statutory instruments. The point made by the noble Lord, Lord Deben, my noble friend Lord Tunnicliffe and the noble Baroness, Lady Bowles, is completely right. I thought it was neatly put by my noble friend: there is far too big a gulf between the way we consider statutory instruments and the way we consider primary legislation.
The noble Lord, Lord Hodgson, mentioned bars. We have a very high bar for changing the law by primary legislation, with hour after hour of debate—in discussing this two-clause Bill we are now in our fourth hour of Committee. We have had a Second Reading, and we will have Report and Third Reading. Those procedures are tried and tested.
When it comes to secondary legislation, much of which introduces changes to the law—particularly under this Bill, potentially—that are equivalent to changes brought about by primary legislation, our consideration of these changes is cursory. It is a brief debate if you are lucky when a statutory instrument is debated by the House, and there is no power to amend it. As my noble friend Lord Tunnicliffe said, if we try to reject it we will get immediately into a constitutional crisis because there cannot then be the process of reconciliation between the two Houses that takes place in the case of ordinary legislation.
Time and again we come up against this issue. To be blunt, time and again we duck it, because there is no great desire on the part of the Government to give us powers to amend statutory instruments or to have more elaborate procedures for discussing them, precisely because that would, in fact, make your Lordships more powerful on statutory instruments because we could then amend them and ask the House of Commons to think again. The issues raised by the Bill and all the requirements to do with leaving the European Union put this in stark relief, because a very substantial part of the legislative business of Parliament over the next two to three years if we leave the European Union will be conducted by means of statutory instruments, including all the fundamental changes to the financial regulatory system set out in the Schedule.
The conclusion I draw from all this is precisely the same as that of the noble Lord, Lord Deben: we are at one on the fundamental issue that we should not be leaving the European Union in the first place. One of the reasons why we should not be doing so is that we are not taking back control but giving the Government unprecedented powers to rule by decree—which is, of course, farcical. We have far more control at the moment, from the combination of our established procedures for primary legislation when it comes to our changes in the law, plus all the democratic processes we have within the European Union in respect of changes to the law made at the European Union’s behest, than we will ever have by leaving it and having no role to play in the changes recommended or brought about by the EU, and then having to go through this truncated rule by decree process in this Bill and the EU withdrawal Act.
So the right response to all the debate we have had today is not to leave the European Union and to have a people’s vote to give us the opportunity to express the ever more pronounced view of the public that this whole thing is deeply antipathetic not just to the best interests of the country but to our proper parliamentary procedures. But it is probably going a bit too far to press the Minister to accept that whole case just in responding to my one amendment, so just for now I will beg leave to withdraw.
My Lords, we have constantly been debating the same issue, which this amendment addresses from another direction. I am afraid that my experience of government producing annual reports is that, on average, they tend to appear every 18 months, rather than 12 months. I am not quite sure what the last report of the two does anyway, and the idea of one meaningful report every six months has a lot to commend it. Being prescriptive about its contents would also be quite useful, and I look forward to the Minister’s response.
I thank my noble friend Lord Hodgson for ably introducing this amendment. A substantial part of my speaking notes is remarkably similar to those for Amendment 2, when I responded to the comments made by the noble Baroness, Lady Bowles, on early reporting. Again, we have made some progress, so let us perhaps just leave that on the record.
I will make a couple of specific points about my noble friend’s amendments, and those which the noble Baroness, Lady Bowles, has put her name to as well. These amendments would require the Government to lay reports on the use of the power every six months, rather than every year; to set out why the power would need to be used; and to include a table setting out the provisions of the EU legislation that have or have not been transposed into domestic legislation, as the noble and learned Lord, Lord Judge, mentioned in an earlier debate. Again, I can assure noble Lords that the Government’s intention has always been to set out such reasoning and detail as part of the reports referenced in subsections (8) and (9).
As to the frequency of the reports, the current drafting has been designed so that the reports will provide an overview of how the powers have been used in the first year, and how the Government propose to use them in the second year. The intention behind this is to allow enough time to pass for a meaningful report to be drawn together. I hope this helps to clarify the Government’s intention to be as transparent as possible in the exercise of these powers.
As with the amendments tabled earlier by the noble Baroness, Lady Bowles, I have listened carefully to the arguments being presented on all sides, and particularly in this instance by my noble friend Lord Hodgson. It may be that we need to consider further exactly how such a process can run, so that we can provide the House and Parliament with the necessary assurances that it seeks. In that regard, I ask my noble friend to withdraw his amendment, given my commitment that we will look again at this issue and seek to make some constructive suggestions on a new way forward at Report.
I thank all those who have taken part. I thank the noble Lord, Lord Tunnicliffe, for his two-thirds of a loaf, and the noble Baroness, Lady Bowles, whose amendment I should have referred to in my opening remarks; it was rude of me not to have done so. A table of derivations and destinations is what I think such a table would be called in UK law; it would be a very helpful addition to the schedule to the reports that we have in mind. My noble friend was smooth—to the point that I thought he was going to turn me down on, but at the end the horse swerved in and jumped the fence. I am glad that he has agreed to put this into the mix. I am grateful to him and happy to withdraw the amendment for the time being.
My Lords, it is time to be kind to Ministers when one gets to this end of the Bill. My advice to the Minister is to indicate what a logjam of SIs there would be four years on from the consequences of this strategy. I understand entirely, and sympathise very much with the intent behind the amendment, but if I were the Minister I think I would point out a few of the practical difficulties.
There speaks the voice of experience. From his time speaking from this side of the Chamber, the noble Lord has perhaps pre-empted some of the concerns that we would have about this proposal, but let me put them on the record.
I am grateful to the noble Lord for giving us an opportunity to debate this important area. In implementing files under the Bill, it will be necessary to amend existing legislation to reflect updates to the regime. Should all powers under the Bill lapse at a stroke, without replacement, the legal effect on amended legislation would be unclear.
At a time when we should be seeking to provide industry with clarity and certainty, I am afraid that the amendment would have the unfortunate and unintended effect of providing just the opposite. Rather than minimising the cliff-edge risks, it would create a new series of cliff-edge challenges to be faced in the coming years. The potential for this legislation to lapse without replacement does not provide certainty to firms. Compliance with new regulatory regimes can be costly, and it would have a negative effect on firms’ confidence in the Government’s ability to set effective and proportionate regulation should we implement vital legislative reform only for it to drop away after a given period.
I appreciate the noble Lord’s concern that regulations made using this power will have a lasting effect on the structure of the UK’s financial services regulatory framework. This is why the power can apply only to a limited set of important files, which have been set out on the face of the Bill. In a no-deal scenario, implementing those files could be crucial to avoid conceding a competitive advantage to businesses operating in EU-based markets or to remain compliant with the Basel rules and meet our G20 commitment to international standards.
The noble Lord is clearly right, however, in pointing out that this cannot be a long-term model for a regulatory framework. Beyond this temporary solution, once we have left the EU in a no-deal scenario, the Government recognise the clear need for an approach that balances parliamentary oversight of financial services legislation with maintaining the flexibility and competitiveness of our regime. To that end, we will take forward proposals for a sustainable, long-term model in due course.
It is perhaps worth pointing out also that the Small Business, Enterprise and Employment Act 2015 requires the inclusion of a statutory review clause in secondary legislation that regulates business if the legislation continues to have effect five years after its entry into force. When taking forward SIs under the Bill, the Government will therefore be under a duty to make provision to undertake a post-implementation review after five years or to publish a statement that it is not appropriate in the circumstances to do so. In this light, I hope that the noble Lord will feel able to withdraw this amendment.
In the light of the Minister’s very informative response, for which I am very grateful, I am delighted to be able to withdraw the amendment.
My Lords, I, too, raised this issue at the conclusion of my speech at Second Reading. I quite understood, with the vast range of issues that the Minister had to respond to on that day, his feeling unable to go into great detail on this one. That is why I was delighted to sign up to the amendment put forward by the noble Lord, Lord Sharkey. The Minister has a real case to answer here, and I hope that we will have a constructive response.
My Lords, I hope I can oblige the noble Lord, Lord Davies, with a constructive response to end Committee. I thank all noble Lords who have taken part. I understand that several Members have received representations from the sustainable finance industry. This amendment seeks to add to the Bill’s Schedule two EU files that complete the European Union sustainable finance package.
As I have mentioned already, the Government acknowledge that the power being sought in this Bill is broad. That is why it has been designed with a number of safeguards and limitations in place. One of these is for the power to be limited to a specified set of EU legislative proposals, named on the face of the Bill. In order to focus the power as narrowly as possible, the list of files in the Schedule to the Bill was determined through an assessment of the importance of files to the stability and competitiveness of the UK’s financial services sector. The noble Lord, Lord Sharkey, highlighted this as one of his concerns when moving his amendment. In short, these are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario.
I will, of course, be very happy to meet the noble Lord, and the noble Lord, Lord Davies, on this issue. I think we are already going to be meeting quite a bit between now and next week. I have listened carefully to the arguments in favour of the merits of adding these files to the Schedule, and I undertake to reflect on the matter ahead of returning to it on Report. In the light of this, and of the discussions that will take place, I invite the noble Lord to consider withdrawing his amendment at this stage.
My Lords, I am very grateful for the Minister’s answer and look forward to what may be several meetings between now and Report. As the last speaker tonight, I hope that the Committee will allow me to make a very quick, general observation. As I listened to the debates today, it seemed to me that there was a real, structural problem with the Bill. It sets out to do two things: first, to onshore approved, but not applied, EU legislation; and, secondly, to make possible the onshoring of specified in-flight legislation. The problems we are discussing tonight are largely because we are trying to do both of those things using the same mechanism. That is going to be very difficult.
It might be better to consider simply applying the strict rules of Section 8 of the European Union (Withdrawal) Act—or Amendment 7—to all those approved, but not applied, pieces of legislation listed in Clause 1(2)(a) and (b); and, separately, to require primary legislation to deal with the in-flight legislation coming our way, as suggested by the noble Lord, Lord Adonis.
I thank the Minister again for his observations on Amendment 18 and beg leave to withdraw.