Anti-social Behaviour, Crime and Policing Bill

Lord Newby Excerpts

Tuesday 12th November 2013 Lords Chamber

Moved by

[Lord Newby]

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 7, Schedule 1, Clauses 8 to 13, Schedule 2, Clauses 14 to 26, Schedule 3, Clauses 27 to 31, Schedule 4, Clauses 32 to 69, Schedule 5, Clauses 70 to 106, Schedules 6 and 7, Clauses 107 to 114, Schedule 8, Clauses 115 to 120, Schedule 9, Clause 121, Schedule 10, Clauses 122 to 127.

Motion agreed.

Banking: Lending

Lord Newby Excerpts

Tuesday 12th November 2013 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what steps they will take to encourage banks to prioritise their lending to the manufacturing sector compared to the property sector.

[Lord Newby (LD)]

My Lords, the Government are committed to improving the flow of credit to all businesses, including those in the manufacturing sector. The Funding for Lending scheme has contributed to an improvement in the bank funding environment and banks are now passing this on to the real economy, including to small businesses. The Business Bank and the Business Finance Partnership are developing alternative sources of finance for smaller businesses.

[Lord Barnett(Lab)]

That is a very different story from the one given by the chief executive of RBS, who, as the noble Lord will know, has told us that the bank is working very closely with the Treasury—by which he means Treasury officials. RBS has now set up an internal bad bank, while the Chancellor, whom I assume the officials talk to occasionally, has refused to set up a bad bank. Between them, they have found £38 billion of high-risk assets which they have decided will go into the bad bank. They have also said that they propose to finish the rest after writing off £4.5 billion by 2016. For those who owe that money, there is now an incentive to wait until the very end, which will mean the bank having to write off even more. Is that something that the officials, with the Chancellor’s consent, have agreed to?

[Lord Newby]

My Lords, as the noble Lord knows, there was a review about whether there should be a formal good bank/bad bank split of RBS. The Government decided that the cost and disruption of doing this was not justified. However, as the noble Lord says, the bank has itself decided to make an internal split, enabling it to have a greater focus on lending and on dealing in a more orderly way with many loans which will not be repaid or will be only partially repaid. Many of these are related to the property sector.

[Lord Sharkey (LD)]

My Lords, in March it was noted that lending to SMEs had shrunk by 25% in real terms since 2009 and it has continued to decline since then. The Business Bank is intended to address the problem and BIS forecasts that the first SME loan portfolio guarantees will be in place by the end of this year. Can the Minister update the House on progress?

[Lord Newby]

My Lords, in respect of SME lending more generally, gross lending is now rising. The picture is clouded by the fact that a lot of SMEs are still paying back loans, so the net position is not as positive, but net lending is down by a much lower amount. As far as lending to SMEs as a whole is concerned, the picture is improving. The Business Bank was launched on 17 October and it aims to support economic growth by bringing together public and private sector funds to improve financial markets for SMEs. Very recently it announced its first commitment of £45 million from the initial £300 million investment programme.

[Lord Davies of Oldham (Lab)]

My Lords, does the Minister think that his answers thus far will have given any satisfaction to those vocal critics of the low level of lending by banks to business, who include the director-general of the British Chambers of Commerce, the International Monetary Fund and the Business Secretary, Vince Cable?

[Lord Newby]

My Lords, it is important to look at what is happening in the real world. The CBI’s SME trends survey, published yesterday, showed that SME business optimism was rising at the fastest rate since the survey began some 25 years ago. Among SMEs, output grew for the fourth quarter and is expected to grow more rapidly going into 2014. More generally, vacancies—the best indication of growing or falling demand for labour—are rising at the sharpest rate for more than six years.

[Lord Barnett]

My Lords, the noble Lord forgot to answer my question. Did the Chancellor agree with his officials in setting up the internal bad bank?

[Lord Newby]

My Lords, the decision on setting up the bad bank was, primarily, for the management of RBS. The Treasury and UKFI are obviously in regular contact with RBS.

[Lord Forsyth of Drumlean (Con)]

Does my noble friend not agree that one of the reasons that the banks have had difficulty in providing loans for small business is the disastrous state of their balance sheets, which was the responsibility of the ridiculous monetary policy followed by the previous Government?

[Lord Newby]

My Lords, that was clearly a major contributory factor. However, I refer noble Lords to the review undertaken by Sir Andrew Large for RBS, which found that the bank had failed to meet its own lending standards, had risk-averse staff and took longer to process applications than other banks, and that its treatment of customers in financial distress had led to major negative perceptions of the bank. The bank is now, at long last, moving to tackle many of those issues, but the failures in the way that RBS ran its business were a major contributory factor to its failure in recent years to lend to SMEs the amounts it set itself in its target.

[Lord Lea of Crondall (Lab)]

My Lords, does the Minister not accept that his characterisation is grossly inaccurate, and that in the past few years the huge fall in output in the western capitalist economies—I use that term advisedly—was due to the way in which Lehman Brothers and others at that time were able to cause that financial bubble and cause output to fall 10% below trend right across the western world? Simply to say that it was the fault of the Labour Government is ludicrous.

[Lord Newby]

My Lords, I may be mistaken but I do not think that I said it was the fault of the Labour Government.

[Noble Lords]

Oh!

[Lord Newby]

I attempt to take responsibility for things that I say at the Dispatch Box; it is beyond the scope of my responsibilities to take responsibility for the views of every other noble Lord.

[Lord Dobbs (Con)]

I congratulate my noble friend on accepting some responsibility at the Dispatch Box. Is that not far better than, in the case of Members opposite, apparently accepting no responsibility whatever for anything they ever managed to do in government?

--- Later in debate ---

[Lord Newby]

That is extremely kind but perhaps I may, as a final word, remind noble Lords—given the subject of the Question—not only that manufacturing output is up but that the Government have adopted a very wide range of proactive measures to promote manufacturing, including increasing the investment allowance to £250,000, supporting the Advanced Manufacturing Supply Chain Initiative, supporting high-value engineering and vastly increasing the apprenticeships scheme, including apprentices in manufacturing companies.

Financial Services (Banking Reform) Bill

Lord Newby Excerpts

Monday 11th November 2013 Lords Chamber

[Baroness Royall of Blaisdon (Lab)]

I support my noble friend Lord McFall of Alcluith and the Motion that he has moved. The vast number of amendments to the Financial Services (Banking Reform) Bill are extremely complex. Clearly, more time is needed to consider the amendments before Report. As my noble friend has pointed out, the banking commission, which includes the most reverend Primate the Archbishop of Canterbury, is joined by the President of the Supreme Court, the noble and learned Lord, Lord Neuberger, and the former Governor of the Bank of England in suggesting that that is the best way forward to delay the Report stage of this Bill until after the Christmas Recess.

The noble Baroness, Lady Anelay, the Chief Whip, said in our exchange of views on Wednesday that the increased length of the Bill was due to the Government responding positively to the recommendations made by the banking commission. Undoubtedly that played a part, but in a Bill of such importance for the future well-being for our financial system, it is critical that noble Lords have a longer opportunity to look at the Bill as a whole to see how the many amendments to the amendments to the amendments, as my noble friend pointed out, work together to provide a clear, cohesive and coherent system. My noble friend is right to point out that good legislation is critical, and the critique of the noble and learned Lord, Lord Neuberger, is salutary in this respect. Bad legislation is often complex legislation. In such situations, it is always the lawyers and accountants who win, and our country’s citizens who lose.

The Deputy Chief Whip is aware that my strong preference for business next Monday is to have debates on non-legislative reports. That seems to be a simple solution to the problem that was not, as I acknowledge, of the Government’s making, but the result of the will of the House in relation to the lobbying Bill. As I have explained to noble Lords and others inside and outside this Chamber, it is not possible to have the Second Reading of the Pensions Bill on 18 November, because the opposition spokespersons are not available. I stress that they are not, as some have suggested, on holiday. They have long-standing commitments that cannot be changed, and I respect their diary commitments.

As my noble friend said, we do have a duty to ensure the necessary transformation of our banking system. This requires longer consideration before the Report stage of the banking Bill. However, I recognise that the House is anxious not only to try to ensure that Report is put off until after Christmas, but also to ensure that all Members of your Lordships’ House who are members of the banking commission can participate at Report, including, of course, the most reverend Primate the Archbishop of Canterbury.

I suggest therefore that, even if it were not possible to delay the commencement of Report until after Christmas, there may be other legislative options that could be discussed in relation to business on Monday. I know that my noble friend Lord Bassam is happy to discuss other suggestions with the Deputy Chief Whip. I trust that this can be taken forward outside this Chamber. I am sure that most noble Lords, although clearly they are not in their place this evening, would be anxious to ensure that all members of the banking commission can participate in the Report stage and that proper consideration can be given by all Members of this House with an interest in this most important issue.

[Lord Newby (LD)]

My Lords, on the substance of the Motion of the noble Lord, Lord McFall, as the House knows I am one of the Government’s spokespeople on the Bill, as well as being Deputy Chief Whip.

The Government tabled 155 amendments at Committee stage. By my reckoning, 116 of them were to respond to the report of the Parliamentary Commission on Banking Standards and were welcomed by members of the commission. The remainder set up the payments systems regulator, and were equally welcomed across the House. All but one of the amendments were tabled more than a week ahead of the Committee stage debate, and with an open letter of explanation addressed to the participants. I believe that this was a classic example of good practice.

Off the Floor, my noble friend Lord Deighton and I and other Treasury Ministers have had highly constructive and productive discussions with those interested in the Bill, and we continue to do so. Committee stage finished on 23 October. Usual practice would have been to have Report stage start a fortnight later on 6 November; instead, it will be on 18 November. That is a degree of measured consideration.

That is the substance of the matter. I will address two further issues. The first is that of the Chief Whip adjusting our future business in response to events. The Chief Whip had to rearrange our provisional forward business but, as she made clear last week at the Dispatch Box, she did so only because of the pressure in the House to delay Part 2 of the lobbying Bill—a position not initiated by the Government. In order to have a proper pipeline of parliamentary debate and proper progress of government business, it is necessary to have legislative business next week. The Financial Services (Banking Reform) Bill was waiting for Report. It was well beyond the necessary minimum interval between stages, and the Opposition Chief Whip made no alternative proposal. I think the Chief Whip not only did the best she could in the circumstances but acted entirely properly and reasonably.

I cannot but regret that the Motion we find ourselves debating was tabled by the noble Lord, Lord McFall, not only minutes before House up on Friday afternoon, but without first agreeing a slot for the debate with the Chief Whip, or even consulting her. I realise that in theory every Lord has equal access to the Order Paper. Of course they do in theory, but that is not how we work in practice.

[Lord McFall of Alcluith]

Let me correct the Deputy Chief Whip. As a member of the Parliamentary Commission on Banking Standards, I was left in the dark regarding the Chief Whip’s negotiations with the usual channels. I was informed on Friday of the situation. I got on to the Table Office at about 1.30 pm and one of the first things I said was, “Contact the Government Whips so that they know this is going on on Monday”. I would have not needed to have done that if there had been proper channels of procedure between the Whips’ department and our department, and also the Parliamentary Commission on Banking Standards under the chairmanship of Andrew Tyrie, who has expressed deep regret at this situation. This Bill is different from all other Bills. The Government set up the Parliamentary Commission on Banking Standards. This is not government legislation; this is legislation that the Government are implementing as a result of a year-long inquiry that they set up. It is unique and different from all other aspects.

[Lord Newby]

My Lords, my understanding—and I have not been a Whip as long as a number of noble Lords in their places at the moment—is that if a noble Lord wishes to bring a Motion of this sort, the normal practice is to discuss it with the usual channels before laying it. That did not happen in this case, and I greatly regret it. It is for the good order of the House that that is how we do our business. That is not the substance of our debate this evening, although we have to look to at how we do our procedure.

There are a number of outstanding issues between the Government and the Parliamentary Commission on Banking Standards. It is proposed that the relevant Treasury Ministers should meet representatives of the commission within the next 24 hours. That offer has been made. Having looked at the outstanding issues, I believe that it will be possible to make progress on most of them, but not necessarily on every last one. That can be done within the next 48 hours. The number of issues between the Government and the Parliamentary Commission on Banking Standards is relatively small because we have dealt with so many of them already. I strongly urge members of the commission to go ahead with that process in the confident expectation that we will be able to reach an agreement on many of the outstanding issues in the very near future.

--- Later in debate ---

[Lord Newby]

As my noble friend the Chief Whip said last week, she was willing to hear alternative proposals from the Opposition Chief Whip about legislation for next Monday. As far as I understand, no proposals came forth. If the Opposition Chief Whip has some new proposals that he wants to make, obviously my noble friend’s door is always open. However, it is now very late and potentially unfair to people whose legislation might be coming next week to suggest changing the business for next Monday now.

[The Deputy Chairman of Committees (Lord Bassam of Brighton) (Lab)]

Would the noble Lord be prepared to consider some changes at this late stage, because I am sure we could have some further discussion on this?

[Lord Newby]

My Lords, the usual channels are always open.

[Lord McFall of Alcluith]

My Lords, the Parliamentary Commission on Banking Standards has been very open with the Government in everything we have done, and courteous in all our exchanges with them. In light of the heavyweight presence on that commission, in light of the reception it has received in the country and in the knowledge that if anything will change cultural standards in the UK’s financial services, it will be the recommendations of this commission, I should like the Government to reflect on the situation. The Minister should take it back to the Chief Whip and come back and say, “This commission has the best interests of Parliament and the country at heart. It wants time to look at it in a measured way and it is as simple a request as that”. It would be done courteously, and if it needs me to go to the Chief Whip and supplicate, I will be quite happy.

Families: Cost of Living

Lord Newby Excerpts

Thursday 31st October 2013 Lords Chamber

[Lord Newby (LD)]

My Lords, I thank the noble Baroness, Lady Prosser, for initiating this debate. I agree with many noble Lords, specifically the noble Baroness, Lady Drake, that what we have been discussing today is arguably the biggest challenge that we face with regard to economic policy—how we deal fairly with the bottom 50% of the workforce in terms of their earnings. I agree with the noble Baroness, Lady Prosser, that putting the current situation right is extremely challenging.

I agree very much with the noble Baroness’s analysis of the issues that are central to that challenge. Some of them, like the labour market changes that she and other noble Lords described, are very long-term challenges, while some have been exacerbated by the banking crisis. With regard to labour market changes, I agree with the noble Baroness, Lady Donaghy, who said that there is a real challenge because of, as it were, the hollowing out of the middle and the problem that people with intermediate skills have found their real wages squeezed. One of the reasons why we are keen to have a much higher level not just of apprenticeships but of advanced apprenticeships is to upskill many more people in that middle band so that they are more able to earn a higher income than they are at the moment.

I will talk later about low pay, but there has been quite sensible interest in and concern about what has been happening as part of a long-term trend on high pay. I was a member of the High Pay Commission, which looked at this whole issue. It has been very striking how over a couple of decades pay at the top has virtually lost touch with the reality of everything else and gone into the stratosphere. The Government are in the process of implementing the majority of the recommendations of the High Pay Commission, not least in giving shareholders a greater say in the pay of senior executives. It is a fact that bonuses have fallen by 85% since the peak year 2007-08, so something has happened in a way that we would all think was beneficial. However, I do not think anyone believes that we have gone as far as we should.

With regard to financial services, the remuneration code, which is in the process of being strengthened, will tie earnings much more closely to performance and lead to a much greater degree of deferred payment, which will not stop people being paid a lot of money but to a far greater extent will tie those earnings to what they have actually achieved. That, combined with greater shareholder control of earnings, will make some difference at the top end.

Fixing the economy is the Government’s first priority because this will raise everyone’s living standards. We are also keen to oversee a fairer tax system to ensure that jobs are created across the country and that those who make the most pay the most. However, we understand the immediate financial pressures that have been the main subject of today’s debate. I shall do my best to respond to as many of the issues that have been raised as possible—first, by looking at the way in which the Government’s economic policy is helping to keep employment as high as possible and interest rates low; secondly, by discussing the action that we have taken to protect standards of living; and, thirdly, by discussing our commitment to ensure that the impacts of our policies are as fair as possible.

First, on economic policy, we know, and have been discussing, the extent to which times are difficult. However, our view is that the only way to deliver a sustained improvement in living standards is to tackle the economy’s problems head-on and deliver a recovery that works for everyone. The Government’s economic plan is designed to equip the UK to secure a stronger economy and a fairer society and to help people who aspire to work hard and get on. The economy is turning a corner. Third-quarter GDP grew by 0.8%. This growth was broad-based across all sectors of the economy, and surveys of future intentions suggest that the growth will be sustained. This does not mean that we have eliminated all risks, but by cutting the deficit significantly, we have helped to secure near-record low interest rates which, as a result of the Bank of England’s forward guidance, are not likely to rise significantly in the short term. These low interest rates have supported hard-working families’ living standards, especially those families which have mortgages to pay. If mortgage interest rates rose by 1%, we would see average mortgage bills increasing by around £1,000 a year. It has been a central tenet of this Government’s policy to have a credible deficit reduction plan so that we can sustain low interest rates, and in this central aim, the Government have been successful.

Our economic policies are also helping people across the country get into work. There is obviously no better way to increase standards of living than by making sure that people are in work and securing a reasonable wage. There are now more people in employment than ever before: 1.4 million private sector jobs have been created over the past three years and 155,000 have been created over the past three months. It is pleasing that of the groups about which we have most concern the number of NEETs has fallen for the past five quarters. It has not fallen far enough, but there has been progress.

Last year, real household disposable incomes grew by 1.6% on average above inflation despite the squeeze, which was the fastest for three years, and according to the OBR, next year total earnings will increase above inflation and by 2015, they will be more than double the rise in inflation.

I realise that in the mean time pay, earnings and disposable income have been squeezed significantly, but one element of the issues that we face, which the noble Baroness, Lady Prosser, did not highlight, was that when this Government took office, there was no money left. This has been the leitmotif throughout all the policies we have had to adopt in order to get the deficit down and to keep interest rates down. We are also taking steps wherever we can directly to protect standards of living by pursuing measures that will keep cash in the pockets of hard-working people up and down the country. Noble Lords will be pleased to know that I am not going to list everything, but I shall mention the key points.

First, we are increasing the tax-free personal allowance to £10,000 by April next year. Taken together, this Government’s increases to the personal allowance will put £700 back into the pocket of each and every average taxpayer and will have taken around 2.7 million people on low incomes out of income tax altogether. We believe this is the most effective way to support those on low and middle incomes because it enables people to keep more of the money they earn. Achieving this in times of plenty would have been hard enough, but doing it under the economic circumstances we inherited makes it even more important. As a result of the changes that we have made, nine out of 10 working households will on average be almost £300 a year better off as a result of tax and benefits changes that took effect this year.

We are also taking a series of actions to keep consumers’ energy bills down. Although I agree that there is quite a row—to put it mildly—about what is happening to energy prices, and there is some suggestion that they are not actually rising very much, the wholesale price of gas this winter will be 8% higher than the price last year, according to Ofgem. That is the background ground to the price increases that we are seeing at the moment. The steps we are taking on energy bills include 2 million households getting help under the warm home discount, including well over a million of the poorest pensioners who will receive £135 off their electricity bill. Under the winter fuel payment, between £100 and £300 is available tax-free to those over 61 to help them pay their heating bills. A £900,000 Big Energy Saving Network will help the most vulnerable get the best deal for them. We are legislating through the Energy Bill to ensure that suppliers place all customers on the cheapest tariff that meets their preferences. We are making energy bills simpler, clearer and fairer, helping the 84% who do not switch and could be missing out on savings of up to £158. It simply is not the case that all electricity companies charge the same. There are savings to be made.

We are going further. The Prime Minister has announced there will be an annual review into the state of the competition in the market. This review will be led by the OFT, Ofgem and the new Competition and Markets Authority, when it comes into existence, to report by next year. Further measures on energy will be announced shortly by my noble friend Lady Verma when she gives the annual energy Statement. I recommend that all noble Lords stay for that.

In addition to announcements today, last week the Prime Minister announced a review of green levies on energy bills and more details on that will be announced by the time of the Autumn Statement.

Finally on energy, I completely endorse the comments of my noble friend Lord Horam on Labour Party policy in this area. It is simply incredible to believe that a temporary price freeze would have the effect for which the Labour Party hopes. I suspect that that is why the majority of people, when polled about this last weekend, said that they did not believe that it would work. We have also helped local authorities to freeze council tax, and we have frozen fuel duties. All these measures help to reduce the day-to-day cost of living for millions of people up and down the country.

I turn to redistribution and the distribution of income more generally. Before the fiscal consolidation we are now implementing, the richest 20% contributed three and a half times as much in tax as they received from public spending. This has now increased to around four times as much. As noble Lords have already discussed, there has been a fall in income inequality to the lowest level since 1986. There may be a number of caveats around that, but it is the case that income inequality is at the lowest level since 1986. For those of us who wish to see less income inequality, that is something to be pleased about. We have also taken steps to ensure that the most vulnerable low-income groups have been protected against the effects of economic circumstances.

Not least are the measures that we have taken for pensioners. It is interesting that not a single noble Lord has mentioned pensioners in the debate. I suspect that the reason is that the Government have treated pensioners, if not overgenerously, then certainly very fairly over the past three years. Pensioners have seen above-inflation increases to the state pension. The triple lock means that the basic state pension is higher by £6.85 a week than if it had been increased by earnings only. The average person reaching state pension age in 2013 with a full basic state pension can expect to receive an additional £12,000 in basic state pension over their retirement. In April this year, following a 2.5% increase, the basic state pension was estimated to be almost 18% of average earnings, the highest it has been in any year since 1992. In times of austerity, this is a significant achievement.

The noble Baroness, Lady Tyler, and others talked about improved childcare for people on low incomes. She referred to the fact that we are doubling the number of disadvantaged two year-olds receiving 15 hours of free childcare a week to 260,000 by September next year. We have also implemented 15 hours a week for all three and four year-olds and have announced free school meals for all children in their first three years of primary school.

Almost every noble Lord who has spoken in the debate has talked about low pay, which is clearly a very significant issue. The problems we now face are in part the result of long-term trends in unemployment. For example, the noble Lord, Lord Monks, pointed out that many people moving from the public to the private sector have taken a cut in pay because, on average, public sector wages have become somewhat higher than private sector wages. We have had a big shift from public to private, which has obviously had an impact on many people’s wages. The Government agree with the analysis of the Milburn review in this area. Its conclusion was that,

“the taxpayer alone can no longer bridge the gap between earnings and prices”,

and that employers,

“need to step up to the plate by providing higher minimum levels of pay and better career prospects, enabled by better skills”.

On the minimum wage, as noble Lords have pointed out, my colleague Vince Cable has asked the Low Pay Commission to look at the scope for increasing the minimum wage without having detrimental effects on the level of employment. We hope very much that that will lead to a greater increase in the minimum wage. However, the minimum wage is the minimum, and the living wage is a level that the Government support and encourage employers to follow. As a number of noble Lords pointed out, when the minimum wage was introduced there was a lot of scaremongering about the employment costs, which proved to be completely false. It has been estimated that the living wage might cost 160,000 jobs if implemented overall. I do not know whether that is a realistic assessment, but certainly the work that we have asked the Low Pay Commission to do to increase the minimum wage will begin to tease that out.

My Lords, the noble Baroness, Lady Donaghy, called me something I have never been called in your Lordships’ Chamber—a “treat”, which is impressive given that yesterday in particular I was called quite a lot of things, all of which were extremely derogatory. It is a great pleasure to hear what I think is an undeserved accolade. The noble Baroness talked about compliance. When the minimum wage was going through, I remember expressing some concerns that the legislation seemed to have very little in it about compliance. Although I understand that greater arrears have been identified in the past year than there were a couple of years ago, more needs to be done. I will take up the point she raised about the website with BIS, as we ought to be able to do something about that.

I am extremely sorry that I have been unable to deal with many of the questions and points raised by noble Lords in today’s debate, but I am out of time. Again, I thank the noble Baroness, Lady Prosser, for tabling the Motion. If we do not try our very hardest to improve the quality of life for the hard-working people of the UK, then we are not doing our jobs properly. I can assure noble Lords that we understand the financial pressures that hard-working families are facing, and that we are taking and will continue to take what we believe are the right steps to help them.

Taxation: Tax Law Enforcement

Lord Newby Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Phillips of Sudbury]

To ask Her Majesty’s Government how they will enable those who enforce the tax laws to accomplish their tasks better.

[Lord Newby (LD)]

My Lords, this Government are investing in HMRC, so that it will be collecting £10 billion a year more from its compliance activities by 2015-16 than it was at the start of this Parliament. The number of HMRC staff in compliance roles fell under the previous Government; under this Government there will be around 2,500 more staff tackling tax avoidance and evasion in 2014-15.

[Lord Phillips of Sudbury (LD)]

My Lords, at a time when decent Brits are struggling to pay their full taxes, is it not wholly counterproductive that many of our richest citizens and companies are evading and avoiding tens of billions of pounds in taxation? According to the HMRC calculation, every extra pound spent on enforcement resources yields £10 to £30. Although the statistics are encouraging, surely we should be doing yet more to avoid the citizen disenchantment that is currently brewing.

[Lord Newby]

My Lords, I absolutely agree with my noble friend. I would remind him that this Government reinvested an additional £917 million in compliance activities in the 2010 spending round. They added another £77 million in last year’s Autumn Statement. Therefore, we have a track record of providing HMRC with additional funding, should it come forward with proposals that result in additional tax yield. It is not inconceivable that HMRC might come forward with such proposals in respect of this year’s Autumn Statement.

[Lord Davies of Oldham (Lab)]

My Lords, should Ministers not be taking some initiative, irrespective of HMRC and its officials? Are Ministers aware of the level of anger in the country, and not just against the multinationals? We all recognise that that is a challenging nut to crack and needs international co-operation. Internal British companies—not least the energy companies—are able to locate their senior companies in offshore tax havens in order to avoid paying their legitimate tax. Is the Minister not aware that action is necessary from Ministers and not just from HMRC officials?

[Lord Newby]

I think the decision taken by Ministers to give an additional £1 billion for compliance activities was pretty clear. Many of the problems that we see with multinationals paying less tax than would appear appropriate are international by nature. That is why we have put a lot of resources into the OECD. We put another £400,000 into the work that it is doing following the G20 summit earlier this year. There is a determination across the international community, to a degree that has not been apparent before, that companies cannot get away with avoiding taxes. This must be dealt with internationally, and that is what we are promoting effectively.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend agree that what the Treasury should be about is maximising the revenue that is taken in tax, and that the best way to achieve that is by having a lower, flatter, fairer tax system?

[Lord Newby]

My Lords, one of the things I learnt as a junior Customs and Excise official—

[Noble Lords]

Oh!

[Lord Newby]

It was a very long time ago, my Lords. While there are many good theoretical principles on which taxes need to be based, the single most important is the ability to collect the tax in the way you want. That must be a guiding principle. I do not believe that there is an easy answer to generating higher levels of tax revenue just by having a straightforward tax system. If it were as simple as that, it would have been tried by now.

[Lord Campbell-Savours (Lab)]

My Lords, what additional mechanisms, procedures and arrangements are being put in place to maximise the potentially substantial income available from the letting of residential property, particularly in London, by people overseas? At the moment that revenue is often not collected.

[Lord Newby]

My Lords, as the noble Lord will know, in last year’s Budget and Finance Bill, the stamp duty payable on high-value properties in those circumstances was significantly increased. That has led to a substantial increase in the overall yield of stamp duty on property transactions.

[Lord Tebbit (Con)]

My Lords, is my noble friend aware that a very good precedent has been set on the avoidance of tax by the immediate past Prime Minister, Mr Brown? He does not pay tax on the earnings that spring from the things he does as a former Prime Minister because he gives all those earnings to charity. Is that not an example which might be followed by other former Prime Ministers?

--- Later in debate ---

[Lord Newby]

My Lords, I think that that is way beyond my pay grade.

[Lord Foulkes of Cumnock (Lab)]

My Lords, I am not going to continue this attack on Sir John Major because it is disgraceful. With respect, the Minister has been giving us the same answer about extra staff for almost the past three years, yet we have illustration after illustration of evasion. First it was Starbucks, then it was Amazon, then it was Philip Green and Irvine Laidlaw; one after the other has been avoiding tax. Has the Minister not yet come to the conclusion that what is needed is legislation to close the tax loopholes?

[Lord Newby]

My Lords, leaving aside the fact that, sadly, I have not been a Minister for three years, the question of closing tax loopholes and dealing with companies that are international by their nature is an international problem. The level of activity now being undertaken via the OECD is on a scale that we have not seen for a generation. Some 15 work streams are currently under way, looking at different aspects of this problem, with a two-year deadline to resolve them. If it were possible to legislate in one country and deal with all these issues, not only we but the US, Germany, France and other countries that find themselves in the same boat would have done it. You cannot operate against multinationals on a domestic basis alone; it must be done internationally. That is what we are doing, and we are putting huge effort and impetus into that work.

Tackling Corporate Tax Avoidance: EAC Report

Lord Newby Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Newby (LD)]

My Lords, it is a great pleasure to respond to this debate. I start by thanking the committee for its work and for the characteristically thoughtful way in which the noble Lord, Lord MacGregor of Pulham Market, introduced the debate. I congratulate the noble Lord, Lord Leigh of Hurley, on his maiden speech. I hope that his understanding of the advantage of brevity does not diminish with the passing of the years as, sadly, it sometimes does among other Members of your Lordships’ House. His speech was extremely thoughtful, in a House that prides itself on its expertise but which in fact has relatively few experts on financial affairs. Those we have are extremely distinguished. Compared to, say, debates on anti-social behaviour, in debates on any aspect of the economy or finances, we are pretty short on people with real current or past expertise, so I am doubly pleased to welcome the noble Lord to your Lordships’ House and look forward to taking part in many more debates with him.

I start with a confession. I am an alumnus of the lamentable side of Customs and Excise. I worked for a number of years in that part of Customs and Excise that provided tax policy advice to the Treasury at a time when it had virtually no tax officials of its own. Although things have changed, I like to think that we were at least able to match our colleagues in the Inland Revenue, with whom we had an extremely friendly rivalry at the time. I do not want to go into detail about the way in which tax policy is currently organised, but say simply that both departments have a clear remit. HMRC has a strong operational tax policy role, whereas the Treasury is responsible for strategic tax policy, but they work very closely together—literally as well as figuratively. When I worked in Customs and Excise my office was several miles away from the Treasury, which meant that even if I wanted to have a quick chat with somebody it was quite difficult. There is a common and regular movement of staff between HMRC and the Treasury, so there is quite a lot of joined-up working.

I shall deal with the complaint from all sides of the House that the Government are complacent about the issues. We are not complacent in respect of three aspects of the problem that we are facing. First, we accept and completely understand the level of public discontent. Secondly, we believe that that discontent is realistic and soundly based, and thirdly, we are dealing with a major problem. We are far from complacent about the need to do more. I hope to explain both what we are doing and why we will be doing more. One thing that I must say, having been a Treasury spokesman for the Liberal Democrats in your Lordships’ House for nearly 15 years, is that for the first part of that 15 years there was never any movement on the issues that we are talking about today. Pressure groups came year after year, asking why we were not doing this or that. Many of the things that we argued for to no avail for a decade have now been implemented, and a whole raft of other initiatives that have been started very recently have the ability to make fundamental improvements in how we deal with this problem. We are now in the middle of a rapidly moving series of national and international activities, which definitely goes in the direction that the committee wants, and I shall attempt to set that out.

I should perhaps state the blindingly obvious—that the Government’s view on corporation tax is that while we are keen to drive forward tax competitiveness, such a policy does not mean that we should be soft on tackling tax avoidance. We are determined to rebalance the tax regime to ensure that it supports growth and investment, and we want a corporate tax regime that improves our business environment, helps to attract multinational companies and encourages investment. That is why, alongside other reforms, we have reduced the headline rate of corporation tax. Having created a competitive tax regime, we expect companies to play by the rules and to pay the tax that is due. I completely agree with the noble Lord, Lord Hollick, that companies have wider duties than simply to minimise the amount of tax they pay. The Companies Act 2006 lays out clear directors’ duties as well as duties for the company as a whole in terms of having regard to the impact of its activities on society, which was a new and welcome initiative by the previous Government. It means that the two-dimensional view that anything that increases profit is good and anything else is bad is no longer acceptable and no longer recognised in law.

I shall deal with the question of whether corporation tax has had its day. Corporation tax at the moment raises 8.7% of HMRC revenue, as the noble Lord, Lord Bilimoria, pointed out. It is not as much as the top three but it is far above any other in that middle league. As I said earlier today, from a pragmatic point of view, a tax that raises 8.7% of revenue is one that should be made to work better but not, in my view, replaced. The Government have a credible record to date in dealing with companies avoiding tax. That has been demonstrated both through the legislative and operational changes we have made since 2010 and by HMRC’s success in litigating through the courts. The number of cases has not only dramatically increased manyfold; the proportion of cases heard in 2012-13 resulted in a more than 80% success rate for HMRC. So far, we have made 33 changes to tax laws to close down numerous avoidance loopholes.

As noble Lords mentioned, we have introduced the first general anti-abuse rule, which is designed to tackle abusive tax avoidance schemes and is a key part of our plans to drive down tax avoidance. Now that it is happening it is put to one side as though it is a little tick in the box, but we campaigned for years to get some movement on a general anti-avoidance law. At long last it has happened, and while I accept that, as the law beds in, we might over time want to strengthen it, it is a major shift for the better. We have updated the public procurement rules so that any potential government suppliers bidding for large contracts must now declare occasions of significant tax non-compliance. The noble Lord, Lord MacGregor, specifically asked me about this point. These rules were introduced on 1 April this year. It is not so much a case of naming and shaming suppliers who avoid tax but of suppliers disclosing occasions of significant non-compliance so that departments can have a number of remedies at their disposal, up to and including contract termination.

On top of our domestic action, we have taken a lead in the international field. Indeed, a lot of the debate today has been around the international initiative that is now being carried forward through the OECD. The noble Lord, Lord Lawson, said that the Government should accept that corporation tax was not fit for purpose. Indeed, that is why the Government have taken the lead in pressing for international action. A number of noble Lords said that it is about time the Government took a lead. They made it clear that in their chairmanship of the G8, tackling tax avoidance was their top priority. The OECD initiative has come about largely because this Government have taken an international lead. I strongly agree with the noble Lord, Lord Brennan, that the OECD is a body that is capable of getting to grips with this. There is a key component that will be absolutely crucial in determining whether the good work that has started comes to a satisfactory conclusion, which is whether Governments keep their eye on the ball. If it is just left to the OECD and it is not being pressured by Governments to make quicker progress it will not.

We are seeing now a recognition, not just by this Government but by a number of Governments internationally, that they have to take firmer action and keep the pressure on. That is why we have agreed to fund the OECD to the tune of another €400,000, to make sure that it keeps up with the pace and produces what is an extremely ambitious work plan, and ensures that it has effect.

The noble Lord, Lord MacGregor, asked how that was going. The OECD has established 15 actions needed to deal with base erosion and profit-shifting, which include a specific task force to look into the tax challenges of the digital economy—what might be called the “Google and Apple Task Force”—and a review of transfer pricing rules, the “Starbucks Task Force”. This is being carried forward by a number of OECD working parties, which will report back next year and the following year.

Closer to home, as a number of noble Lords have said and as the committee pointed out, it is obviously key that HMRC is fit for purpose in tackling a very difficult issue and dealing with companies that have considerable resources at their disposal. That is why the Government are investing almost £1 billion over this spending review period, specifically to tackle tax avoidance and evasion and to reduce losses from fraud, error and debt. That will bring in an extra £9 billion a year by 2014-15.

The additional money is spent largely on people. There has been an increase in the number of graduate-level trainees and a significant increase in the amount of technical training inside the department, in part with the Association of Accounting Technicians and Manchester Metropolitan University. An increased number of people are working on transfer pricing, as the rules already allow us to deal with some aspects at least of egregious transfer pricing. That requires highly skilled people, and there are now more of them. As I said earlier today in your Lordships’ House, the Treasury will look at any request it receives from HMRC for additional resources in the run-up to the spending review.

We have also seen—and been actively participating in—a sea change in the way that tax information is exchanged between jurisdictions. Another major campaigning issue has been about the automatic disclosure of tax information between the UK and tax havens—between the UK and our Crown dependencies and overseas territories. That is now happening. Some have signed, while the others have agreed. That will make a huge difference to transparency, which a number of noble Lords mentioned and which we are keen to see promoted.

I will deal with a number of specific points, some from the committee and others raised de novo today. Staff are seconded from the big four to HMRC or the Treasury only when the Treasury or HMRC identifies a lack of expertise and knowledge. The number of people involved here is not huge. We believe that effective safeguards are in place to ensure that official information is treated confidentially. Although there is quite a lot of general talk about people going in and nicking lots of ideas from the Treasury and telling their clients about them when they get back to the private sector, I have yet to see any concrete evidence of that.

The noble Lords, Lord Lawson and Lord Hollick, talked about the rules on interest deductibility, which they felt were too generous. This is one of the areas being looked at currently by the OECD. A number of rules are already in place to limit how much interest a company can deduct from its tax liability, but I was rather depressed to hear from the noble Lord, Lord Leigh, quite how much of a bonanza that was proving for the professionals and tax experts.

On harmonising the treatment of debt and equity finance, I am afraid that I can only repeat what we have already said: we are reviewing the wider case for an allowance for corporate equity. Again, the challenge here is one of cost, because it would be very expensive to do it on a large scale. Would undertaking a comprehensive review of the operation of corporation tax add value at this point? As we are in the middle of the OECD process and of ramping up the number of people working in the area, we seem to have a process in place which, if successful, will meet the requirements of the committee. To have a major review of it in midstream would divert effort in the wrong direction.

A number of noble Lords raised the point about a joint committee. Perhaps this is because I was a taxman, but I personally find it extraordinary to think that we should be establishing a committee of politicians to review the way in which the tax authorities look at individual taxpayers’ concerns. If the Government had proposed it, there would have been absolute outrage. I believe that the way forward is for the NAO to undertake rigorous investigation in this area. If the Public Accounts Committee in another place feels that not enough resources are being devoted to it by the NAO, we hope it will discuss that with the NAO and we will get more resources devoted to it.

The increase in the tax gap from £34 billion to £35 billion, which the noble Lord, Lord Browne of Ladyton, was very keen to hear about, was largely due to an increase in the VAT gap of 1.5%, caused by the rise in the standard rate of VAT from 17.5% to 20%. It had nothing to do with the issue that we are discussing today.

The noble Lord, Lord Shipley, asked a very specific question, which I will need to write to him about. In terms of what the Government are doing, bilaterally and through the OECD, to ensure that developing countries have a say in the renegotiation of global tax rules, we are, first, doing quite a lot with capacity-building via a joint HMRC-DfID programme, so that these countries are more capable of doing the job themselves. They are involved in various aspects of the task force work. A number of noble Lords raised the problem of mispricing. The extractive industry transparency initiative and the EU accounting directive now mean that there is a lot more country-by-country accounting in those areas and a lot more transparency, which will yield results over time.

The noble Lord, Lord Hollick, asked whether HMRC looks at intra-year tax avoidance schemes. Yes, it does. Corporation tax is calculated on the end of year accounts, and where a scheme to reduce taxable profits takes place during the year but has ended before the end of the year, HMRC will investigate. The DOTAS regime requires companies to disclose tax avoidance schemes when they are undertaken.

The noble Lord, Lord McFall, made a very powerful case about establishing a register for beneficial ownership. Such a register is being set up, and the case for making that public is currently under active consideration by Ministers. As I have always said, as a Leeds United fan, I would very much like to have known whether Ken Bates really did own Leeds United—that is the side of the argument on which my vote comes down.

I hope that I have gone some way to answering the points that have been made and reassured noble Lords that the Government are not in the slightest bit complacent. This is an area that we take extremely seriously and on which we will continue to focus.

Banking: Co-operative Bank

Lord Newby Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Sharkey]

To ask Her Majesty’s Government to what extent their aims of producing more diversity in banking and of reforming banking culture will be affected by the change in ownership of the Co-operative Bank.

[Lord Newby (LD)]

My Lords, the Co-op Bank is negotiating a deal on its capital with its creditors. It will cease to be fully mutually owned, but will continue to compete in retail banking markets. The Government’s reforms will make the banking sector safer, more competitive and diverse. We are implementing the recommendations of both the independent and parliamentary banking commissions. These fundamental reforms will be unaffected by the change of ownership for the single bank.

[Lord Sharkey (LD)]

The fact is that the Co-op Bank will now be owned by a couple of vulture funds, which I suppose is diversity of a sort. What advice would the Minister give customers who are looking for ethical values in retail high street banking?

[Lord Newby]

My Lords, the Co-op is undoubtedly having a significant change in ownership, but one would hope that even vultures will be able to see that the Co-op’s USP is its particular ethical stance. Its strength appears to me, at least, to be very much in that direction. So for the development of the Co-op, one would hope that they would see continuation of those traits being in their own interests, as well as those of anybody else. Of course, there are other mutuals that the discerning customer can put their money with; the Nationwide is very successful, as are other building societies. We must be clear on the difference between “for profit” and “ethical”. I would not want to brand every other high street bank as unethical just because they are also making a profit.

[Lord Davies of Oldham (Lab)]

My Lords, I am grateful to the Minister for his comments on the Co-operative Bank, which after all is one of the few which did not go to the Government and to the taxpayer for support during these difficult times. However, what is the Minister proposing to do about increasing bank competition? Some 55% of the British population have never switched their accounts. The degree of switching and of competitive banking is low. Large banks owe their pre-eminence to historical development and being early in the field. Surely the Minister is going to take advantage of the Financial Services (Banking Reform) Bill to enact some of the proposals from the banking commission, chaired by Andrew Tyrie MP, and also amendments being tabled by the Labour Opposition to increase competition in the banking sector, which it sorely needs.

[Lord Newby]

My Lords, the banking Bill incorporates many of the proposals of the Parliamentary Commission on Banking Standards. On switching, a new seven-day switching service was introduced last month. In its first month, there has been an 11% increase compared with the previous year in the number of people who switched their bank accounts. One would expect that number to increase as the service becomes better known. This year the big change in terms of new entrants to the market is that the regulators have greatly reduced the time that it takes to become a new bank and greatly reduced the amount of money it takes to establish a new bank. Those are key drivers for getting new competitors into the market.

[Lord Flight (Con)]

My Lords, as the noble Lord, Lord Sharkey, has pointed out, it is perhaps somewhat of an irony that the Co-op Bank should being bailed out by hedge funds. The crucial point is that the Government have made clear that the time of taxpayers bailing out banks is over. Bluntly, if a bank cannot organise its own financial affairs, the resolution mechanism is the only alternative.

[Lord Newby]

My Lords, one of the key purposes of the Financial Services (Banking Reform) Bill is to provide, in ring-fenced retail banks, relatively risk-free places for ordinary customers to put their money. Beyond that, the key thing is that the Bill’s resolution provisions will require banks to put in place mechanisms to be activated if they got into financial difficulties, such that they would not need to come to government in those circumstances.

[Lord Tomlinson (Lab)]

Is the Minister aware that when giving evidence to the House of Commons Select Committee yesterday, the former chief executive of the Co-op Bank said that he was assured by the financial regulator about the safe state of the Britannia Building Society? The Co-op Bank takeover of the Britannia Building Society has given rise to the liquidity problems in the bank. Will he acknowledge that and inquire what the financial regulator was doing in giving that assurance?

[Lord Newby]

My Lords, I think the merger with the Britannia Building Society was one of the material causes of this problem. I cannot comment on what the regulator may have said. Generally, where banks of all sorts have sought to make large acquisitions and they have then gone wrong, the principal responsibility for due diligence rests with the management of the bank involved in the takeover. The role played by the regulator, whatever its scale, does not detract from the fact that responsibility for major corporate decisions of that kind lies primarily with management.

[Lord Naseby (Con)]

Will my noble friend confirm for all of us who believe in mutuality and are sorry that the Co-op Bank has got into its current situation—I believe that mutuality is supported by both sides of the House—that when the new owners have got the bank onto a stable footing and making a profit they will possibly return it to mutuality?

[Lord Newby]

Well, my Lords, that is possible but, as noble Lords know, the sad truth is that the process has tended to be something of a one-way street with regard to mutuality. When mutuals have ceased to be mutuals, they have tended to cease to be mutuals for good. Still, one can always hope. I should also have mentioned the raft of provisions in the banking reform Bill to bring building society legislation up to date and make it easier for them to compete in the marketplace.

EU: UK Contribution

Lord Newby Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Vinson]

To ask Her Majesty’s Government what action they are taking to raise public awareness of the United Kingdom’s net contribution to the European Union’s budget over the last six years exceeding £53 billion, as set out in the HM Treasury Pink Book 2013, and the effect that has on the United Kingdom’s public sector borrowing requirement.

[Lord Newby (LD)]

My Lords, to ensure transparency and increase public awareness, HM Treasury publishes details of UK contributions to the EU in its European Union finances and public expenditure statistical analyses publications. The previous Government gave up a significant portion of our abatement, and consequently our net contributions were always likely to increase. Following the real-terms cut to the 2014 to 2020 payment ceilings negotiated by the Prime Minister in February, they will now be going up by less.

[Lord Vinson (Con)]

My Lords, I thank the Minister for his considered reply. Perhaps I may illustrate my point. Recently, the Chancellor returned from China, pleased that he had raised £13 billion to build the new nuclear power station so desperately needed for our energy security. Is it not paradoxical that over the past six years our net contribution to the EU, which is substantially used for infrastructure, has been over £50 billion? That is enough to build at least three nuclear power stations. How is it that we can find the money to build other people’s infrastructure but not our own?

[Lord Newby]

My Lords, by looking at the net contribution to the EU, the noble Lord is concentrating on only one dimension of our relationship with the Union. He is ignoring the very substantial economic benefits that we enjoy through increased internal trade via the single market, increased external trade via, for example, the recently concluded EU-Canada trade agreement, and increased investment in the UK by companies such as Nissan. He is also ignoring the non-economic benefits of membership in the fields of the environment, justice and external affairs.

[Lord Tomlinson (Lab)]

Will the Minister take urgent steps to gain control of expenditure in the European budget? That can best be done by introducing a system of zero-based budgeting, such as my noble friend Lord Kinnock sought to introduce when he was a Commissioner. The Government have always said yes to this in principle but done nothing in practice.

[Lord Newby]

My Lords, the first thing that we sought to do on the European budget was to ensure that it was not increasing in real terms. As the noble Lord knows, the agreement made by the Prime Minister at the European Council in February will result in €80 billion less expenditure over the next budgetary period than the Commission proposed. The first step in getting the budget dealt with appropriately was to cap it.

[Lord Hannay of Chiswick (CB)]

Could the Minister say how many nuclear power stations the Government could have built with the rebates that we have received since 1975 under Mrs Thatcher’s arrangements?

[Lord Newby]

No, I could not.

[Lord Pearson of Rannoch (UKIP)]

Does the Minister agree with two things about the net payment to Brussels of £12.2 billion for the past year alone? First, that it equates to the £30,000 per annum salaries of 1,100 nurses, policemen or any other public servant per day. Secondly, that there is no such thing as EU aid to us, because for every £1 they now send us back we have sent them £2.56.

[Lord Newby]

My Lords, I am not going to get into a statistical analysis with the noble Lord, but I revert to my earlier point. Our membership of the EU brings with it a whole raft of benefits which do not simply relate to the EU budget. One area of expenditure that we incurred some time ago was dealing with a war in the Balkans, which cost this country more than £1 billion. Since the Balkan wars finished, Croatia has joined the EU and other Balkan states will join. We will not fight other Balkan wars. That does not fit into the noble Lord’s narrow formula.

[Lord Marlesford (Con)]

My Lords, following the good point made by the noble Lord, Lord Tomlinson, about the need to control the EU budget, does the Minister recognise that in the 1970s, when government spending in Britain got totally out of control, it was brought under control to a considerable extent by the noble Lord, Lord Healey, when he was Chancellor? Helped by Sir Leo Pliatzky, the Second Permanent Secretary to the Treasury, he introduced cash limits. At the moment, the Commission constantly argues that more money is needed to fulfil the obligations of earlier policy undertakings. Cash limits would do it, or help do it. Will the Government try to get the EU to introduce cash limits?

[Lord Newby]

My Lords, there is a cash limit. There is an overall payment ceiling of €908.4 billion over the next budget period. That is a cash limit.

[Lord Ashdown of Norton-sub-Hamdon (LD)]

Regarding my noble friend’s last answer, I do not know how much the European Union spent on creating a sustainable peace and a functional state in Bosnia-Herzegovina. However, I wonder if my noble friend would accept from me that, however much was spent, the figure amounted to tens of times less than it would have cost everybody, including British taxpayers, if there had been a return to conflict.

[Lord Newby]

My Lords, I am grateful to the noble Lord. I completely agree with him.

[Lord Stoddart of Swindon (Ind Lab)]

Will the noble Lord confirm that the gross cost to the taxpayer is not £55 million per day but £18 billion every year? If we were not paying that amount in exchanges, would not the Government be able to reduce the deficit on expenditure very much more quickly than they intend to at the present time?

[Lord Newby]

My Lords, the net payment over the past six years has been about £34.8 billion. This equates to less than 1% of our total public expenditure over that period. It is a very substantial amount, but, as I have now said several times, you have to set against that amount all the economic and other benefits, including those mentioned by my noble friend Lord Ashdown, that the UK derives.

EU: UK Membership

Lord Newby Excerpts

Thursday 24th October 2013 Lords Chamber

[Lord Newby (LD)]

My Lords, I thank all noble Lords for their contributions to the debate today and, in particular, the noble Lord, Lord Shipley, for initiating it. It is a huge pleasure to be able to congratulate my noble friend Lord Wrigglesworth on his maiden speech. As his speech demonstrated, he speaks with great authority about the economy of the north-east, and with great authority more generally. The noble Lord, Lord Giddens, described his speech as witty, meaty and suave. It struck me that these are fitting epithets for him as a whole.

[Lord Giddens]

My Lords, I do not want to damage the life of the noble Lord in the House of Lords, because the word “suave” might chase him forever, but it was intended as a compliment, so perhaps that subject should be dropped—in a suave sort of way.

[Lord Newby]

I took it as a compliment.

I first met my noble friend 32 years ago, when I went to work in the Whips Office of the SDP. Like my noble friend Lady Falkner, I was one of the workers and he was a grandee. Therefore, it gives me particular pleasure now to be his Whip and to make sure that he is in every respect a model Member of your Lordships’ House—as I am sure he will be.

The Government are clear that membership of the EU is in the UK’s interest. The EU helps to advance UK national interests, influence and values. It provides freedom for British people to live, work, study and retire in Europe, and supports UK jobs, prosperity and growth through increased trade, both inside the single market and through free trade agreements.

The principal economic benefits of our membership of the European Union can be categorised under the headings of trade through our access to the single market, encouraging investment and promoting competition, thus driving down prices for British consumers. I shall deal with each of those three principal areas in turn.

The UK’s EU membership supports jobs, prosperity and growth in this country through increased trade. Our membership gives UK companies access to the world’s largest single market, with a GDP of about £11 trillion and 500 million consumers, without customs or tariffs. Free trade agreements through the EU lower trade barriers and increase access to markets. If the EU completed all trade deals currently under negotiation, EU GDP could be increased by about £275 billion. In particular, independent analysis commissioned by the Government has found that the net benefits to the UK of the EU-US free trade agreement currently under negotiation could add up to 0.35% to the UK’s economy. I absolutely agree with my noble friend Lord Watson that our ability to conclude such free trade agreements in a world where the WTO is a declining influence is immeasurably enhanced by being part of the EU. The idea that you can go into such negotiations with the same strength as a single country is surely completely mistaken.

Europe remains the main destination for UK exporters, with just over 50% of our goods exports destined for Europe in 2012. That has real benefits for UK businesses: 80% of businesses believe that the single market delivers concrete benefits to them and the Department for Business, Innovation and Skills forecasts that the EU will remain the UK’s most important market for at least the next 10 to 20 years. That strong trade relationship due to our membership delivers clear employment benefits, with one in 10 UK jobs to some degree dependent on trade with the EU.

The CBI study and others which have been quoted show truly remarkable levels of support for continuing EU membership. Underneath the fact that 80% of companies, broadly speaking, say that they wish us to remain in the EU, it is interesting that 47%—almost half—said that without EU membership, they believe that it would be more difficult to hire skilled workers. It is not just access to the market but access to workers.

I say two things about trading elsewhere to the noble Baroness, Lady Noakes. First, as several noble Lords have said, there is no trade-off between trading to the EU and to the rest of the world. The more a company trades in one part of the world, the more likely it is to be good at trading somewhere else. Secondly, we want many more companies to start trading, and the logical place for them to start, particularly if they are small, is with the EU. For a small company thinking about foreign trade, the prospect of doing it in Brazil, China and India is almost a bankrupting prospect. You do not have the time. You do not have the money. You do not have the knowledge to do it. The only logical place to start is the EU. That will continue to be the case.

Secondly, being part of the single market helps UK businesses to attract inward investment from both inside and outside Europe, enabling them to operate on a more efficient and global scale. The UK is the top destination in Europe for inward investment, attracting 21% of all foreign direct investment projects in Europe last year.

Our access to the single market is a key motivation for foreign investment in the UK economy, with half of all foreign investors in 2010 citing access to the single market, among other factors, as a key reason for investing in the UK. A number of noble Lords have dwelt on this point. The noble Lord, Lord Shipley, made the point that Nissan, which provides 6,000 jobs in his region, is there because of our EU membership. If we were to leave, the number of jobs would shrink.

The City of London Corporation, in the representation made to us which the noble Lord quoted from, said that many EU European banks locate in London to access the markets in which London has accrued specialities. Many non-UK EU firms choose to list on the London Stock Exchange in order to access the capital on offer there, directly channelling capital to European businesses from London. If we were not members of the EU, the idea that the City would be able to continue sailing serenely along with no threat from competitor centres in the EU seems implausible.

The single market also encourages competition and innovation across the EU, bringing down prices for consumers and increasing productivity in the UK. We are clear, however, that the EU could do better to become more competitive to deliver further economic benefits. That is in the interests not just of the UK but of all member states. The EU must become more competitive if we are to continue to improve the standard of living which Europeans currently enjoy, firstly by completing the single market in services, particularly in the digital and energy sectors. I give the noble Lord, Lord Liddle, an absolute assurance that the Government are committed to promoting the single market. It has been a centrepiece of our engagement with the EU. When my colleague in another place, Ed Davey, was at BIS he set up a group of like-minded countries, which eventually involved a majority of EU member states, to promote the single market in an effective way. It shows, incidentally, how the UK can take a lead in the EU even though we are not in the eurozone area. The completion of the single market is a central goal of the Government.

The second important role in making the EU more competitive revolves around agreeing the international trade agreements to which I have already referred. Finally, we are committed to cutting red tape to allow the engines of growth in the eurozone and across the EU the space that they need to flourish.

Completing the single market by removing all barriers to trade is estimated to increase UK GDP by about 7% and prices would fall by approximately 5% due to increased competition. In this tough economic climate, this would obviously provide a real boost if we could achieve it for UK businesses and consumers.

On the international free trade agreements with both advanced and emerging economies, progress continues to be made. The landmark deal reached between the EU and Canada, to which my noble friends Lord Maclennan and Lord Watson of Richmond referred, will benefit the UK economy and businesses by over £1.3 billion a year. As I have already said, the potential deal with the US would dwarf that.

Cutting red tape from the EU is crucial to allow small businesses to start up and then expand. Last week, six senior business leaders presented a report to the Prime Minister on reducing the burden of EU regulation; the noble Lord, Lord Liddle, referred to this. Their findings are based on research carried out across Europe. They have found that there is potential to save EU businesses billions of pounds by improving the regulatory environment. Their aim is not to abandon all regulation; they want to reduce the burden on small and medium-sized firms who create the vast majority of new jobs in Europe, and employ two-thirds of the workforce. The Government support their views, and are committed to ensuring that EU regulation does not hold UK businesses back.

The noble Lord, Lord Liddle, referred to a number of proposals in this report. The one which seems to be a classic of the kind of change we need, and which should be achievable, is the proposal to press for an urgent increase in the public procurement thresholds which significantly hold back small businesses in bidding for public sector work.

As the noble Lord, Lord Shipley, pointed out, these views are increasingly being accepted across the EU. The days when greater harmonisation was almost seen as an article of faith by member states are now over. We are in a strong position to take a lead in making EU regulation proportionate and growth promoting.

The noble Lord, Lord Liddle, asked whether the Government were speaking with one voice in terms of the single market and in terms of the report to which he and I have both referred. I can assure the noble Lord that the Government are speaking with one voice. He described the Government’s attitude as an assault on social Europe. This is a grotesque caricature of both the Government’s position and the proposals in the report. It does not reflect the Government’s attitude in any respect.

One question that is commonly asked or implied is whether the UK, given its semi-detached nature, is able to make progress with the kind of reform agenda to which I have been referring. We believe that we are and that we can. For example, we have secured the first ever exemption of micro-businesses from new EU proposals from the start of this year. We have also secured agreement on a single European patent after 23 years of EU negotiation, with the new patent court based in London for key pharmaceutical and life sciences sectors. This will be an important engine of growth for the UK’s R&D sector.

We have persuaded the European Commission to review the body of EU legislation to identify existing obligations from which micro-businesses could be exempted. Finally, we have delivered the first ever real-terms cut in the EU’s seven-year budget while protecting the UK’s rebate.

We had an interesting discussion, principally between the noble Baroness, Baroness Noakes, and the noble Lord, Lord Desai, about—

[Lord Hannay of Chiswick]

I know that time is short, but would the noble Lord not agree that the word “semi-detached” is an extremely unfortunate one to apply to the Government’s policy? We are talking about instances of variable geometry which have existed in the European Union since the 1980s and which are still continuing to develop. Would it not be better to expunge the word “semi-detached”?

[Lord Newby]

My Lords, I use the word “semi-detached” because that is in the common parlance. I do not believe that it is an accurate reflection of the approach that the Government are taking. It is only reasonable to deal with the criticism of the Government head on, by explaining that our current position enables us to exert influence and to make significant positive progress.

I was referring to the interchange between the noble Baroness, Lady Noakes, and the noble Lord, Lord Desai, about the quantitative costs of EU membership. The noble Lord, Lord Desai, sensibly in my view, suggested that this was an extremely difficult area, not least because it is impossible to state a compelling counterfactual. Many of the rules and regulations against which costs are attached would almost certainly be required in some form or another were we not members of the EU. To count potential costs of such regulations on the assumption that they would not exist if we were out seems, again, to be pretty implausible. Equally, as other noble Lords have said, the suggestion that we could get a better deal from Norway and Switzerland if we were out seems not to be borne out by any logic. Given the circumstances of a divorce, which would be almost certainly politically pretty unpleasant, it is difficult to see how we would find ourselves in such a better position.

The noble Baroness, Lady Donaghy, talked about the role of national parliaments and the importance of increasing that role. The Government strongly agree with that. We are working with EU partners to increase the role of national parliaments. We welcome moves by both Houses to use the tools that they currently have to hold EU decision-makers to account more effectively. We want to consider possibly extending the scope of the “yellow card” system by introducing a red card. We absolutely agree that getting greater national engagement with this Parliament is strongly to be recommended. In saying that, I of course commend the work that your Lordships’ House already does through its European Union Committee and its sub-committee.

The noble Lord, Lord Giddens, asked me a specific question about the debate on the EU and how to promote it within the UK. Apart from the normal business, as it were, of making major speeches on the subject, which both the Prime Minister and Deputy Prime Minister have done in recent months, the Government have initiated a balance of competences review that seeks to engage with a wide range of people—not just think tanks, academics, businesses and Parliament but also the public—to produce as far as we can an analysis of the effect and effectiveness of the current powers and competences of the EU, with a view to deepening the public understanding of the nature of EU membership and reform. This is a difficult business, as the noble Lord will be aware, because we are doing it against the background of a media that find it literally impossible to treat a story about the EU on its merits. Still, the balance of competences review is a significant process and I encourage all noble Lords with interests in some of these areas to engage with it.

A number of noble Lords, such as the noble Lord, Lord Haskel, mentioned the European Space Agency. This is, as it were, a classic example of where working together within the EU serves our interest, and where trying to do it on our own would almost certainly have ceased because we simply do not have the resources to do so. As we look across the piece, we find many similar examples, as many noble Lords have exemplified in their speeches today.

To conclude, the Government believe that membership of the European Union is in our national interest and that there are significant economic benefits of our membership, from the single market through to trade, investment and competition. We are advancing and protecting the UK’s national interest in the European Union and will continue to do so, ensuring that our voice is heard and our interests are protected in order to promote growth and prosperity, which is the Government’s central purpose.

Financial Services (Banking Reform) Bill

Lord Newby Excerpts

Wednesday 23rd October 2013 Lords Chamber

[Lord Watson of Invergowrie (Lab)]

My Lords, I support my noble friend Lord McFall and his colleagues on Amendment 98. I am also in favour of the two amendments tabled by the noble Lord, Lord Phillips of Sudbury. My noble friend drew on his experience as a member of the banking commission when he talked eloquently about the serious matters behind LIBOR and the other issues that contribute to the need for serious whistleblowing legislation to protect those who are, in effect, doing the country a great service.

In reading out those e-mails, my noble friend Lord McFall described the situation very graphically. At one stage I thought that he was going to break into the voice of Robert de Niro or Al Pacino, but his dulcet Dunbartonshire tones were sufficiently menacing to get across the message that the people involved in this crime were playing no games at all, and that it was very serious.

The seriousness of the whole question of LIBOR was brought home to many of us yesterday when we opened our newspapers and saw photographs of people who had been appearing in court charged with offences related to the LIBOR scandal. The first thing that struck me was that the people were relatively young. The “ringleader”, if that is the appropriate term, is barely in his thirties now and was in his twenties in 2008 when the offences were committed, and the other two are not much older. Surely there were older, more experienced people further up the chain who must have known what was going on. If they did not know, they certainly should have done. That is the heart of the matter with regard to whistleblowing. Those responsible have to be held to account.

Amendment 98 works by adding excluded activities under FiSMA or the Financial Services Act 2012 to the list of justifications for making what is known as a qualified disclosure. As noble Lords may know already, the list includes reporting that someone’s health and safety is in danger, damage to the environment, and a criminal offence that a company is not obeying the law or that someone has covered up wrongdoing. Those are generic terms, but many of them would apply to the finance sector. For the new banking system to work well and be policed effectively, protections have to be in place for staff who believe that wrongdoing exists in their organisation and they are not prepared simply to sit on their hands or, as happens in many cases, simply leave the job in the hope of finding employment somewhere else because they fear the consequences of raising the issue.

This amendment is a further attempt to trigger a cultural change in financial services, which I think noble Lords on all sides have acknowledged is necessary. A bank employee may well wrestle with their conscience before deciding to break ranks; it is inevitable that they would. If an honest trader suspects that wrongdoing is under way and is considering informing the authorities, surely protections have to be in place for him or her to guard against a situation where they are held to be at fault. They are the victim because they perhaps lose their job, which in banking, of course, could be a very well paid job indeed. Once the word goes round that someone has left a bank or financial institution for this reason, how difficult will it be for him or her to find other employment?

The LIBOR scandal illustrates the importance of making it easier to report wrongdoing. At the time that we now know the LIBOR rate was being manipulated, certain newspapers did speculate about the accuracy of those claims, and indeed about the accuracy of the LIBOR rate itself. But as we know, no one came forward because no one had the confidence, even if they had the evidence, to break the surface and bring the scandal out into the open. It would have been much easier had it been brought into the open then rather than when it eventually emerged. Surely it is essential that people feel confident about being able to do that in the future.

Amendment 98 simply seeks to bolster the maintenance of law and order, something that I suggest we are entitled to expect that the Minister and his colleagues would agree with. The amendment would make it easier for the regulator and banks’ own compliance teams to do their job. We have heard from my noble friend Lord Brennan that this is being done very effectively in the USA. How could the coalition oppose it being introduced in this country as well?

[Lord Newby (LD)]

My Lords, the amendment would introduce a system under which the regulators would be able to award compensation against a firm that mistreated a whistleblower. Whistleblowing is an important issue and the Government agree that we need to have a proper system for protecting whistleblowers in the financial services industry as elsewhere. However, I do not think that the noble Lord’s amendment would be a helpful addition to the legislative framework, particularly at this point. Let me explain why.

In the summer, the Government launched a call for evidence on the whistleblowing framework to see whether there was a case for reforming the law protecting whistleblowers. This will be able to take account of submissions from the financial services regulators as well as from other interested parties. The call for evidence closes on 1 November and, once the evidence has been assessed, the Government will consider what if any action needs to be taken. It would not be sensible to prejudge the outcome of the call for evidence and implement changes without first looking at all the evidence available to support any changes. Moreover, the Government do not think that it would be appropriate to have different laws or protections for whistleblowers in different sectors. It would not be right to suggest that whistleblowers were more deserving of protection in some sectors than in others. I am sure that this is not what the noble Lord intended, but there is a risk that giving the regulators a special role in protecting whistleblowers in the financial services sector will be seen as special treatment for that sector.

Finally, this power does not seem consistent with the role and competence of the financial services regulators. There is a comprehensive system of protection for employees in employment law, which applies across the board, protecting workers in every sector. It provides a route of redress using employment tribunals for individuals who have suffered a detriment or dismissal as a result of blowing the whistle.

[Lord Lawson of Blaby (Con)]

I think my noble friend may have slightly missed the point. It is well documented that what happens normally is not that the whistleblower is dismissed—then, of course, there is the protection of employment law—but that he is stuck in that job and will never ever have any further promotion. I may be wrong, but I do not think there is any redress under employment law for that.

[Lord Newby]

My Lords, to the extent that there is or is not redress for that, the review which is under way will be looking at that element of the system as well as everything else. The evidence submitted, including by those who are keen to see the law changed and strengthened in that respect, will be able to take account of all that.

[Lord Phillips of Sudbury]

I am sorry to interrupt my noble friend again but it is important for the House to know a little more about this public consultation. I suspect that not one single person here tonight is aware that there is a consultation out there and that it is closing in a matter of a few days. Can the Minister tell us how widely this has been advertised, because it is news to me?

[Lord Newby]

My Lords, I am very happy to write to the noble Lord about the process that has been followed up until now. The whole process of this Bill has demonstrated, as the noble Lord has said, that there is tremendous activity—whether in terms of the regulators producing documents or of other regulatory initiatives, which are very hard to keep up with. I will ensure that we write as a matter of urgency to all noble Lords about this exercise.

Before coming on to what the regulators are already doing in this area, I want to stress the basic point about this review. First, it is wide ranging. Secondly, it aims to beef up the current system. Thirdly, it will apply across the board because the Government do not believe that the financial services sector has a different status in terms of whistleblowing to, say, the oil and gas sector or the pharmaceutical sector. What we need is a common approach across all sectors.

The FCA is already extremely active in supporting and encouraging whistleblowing. The number of whistleblowing contacts received is growing rapidly. There was a 370% increase between 2007 and 2012. The SEC has done very well. It received 3,001 reports in 2012. In the same year, the FSA received 3,929 reports. The impression has been given that the Americans have this system which is generating huge quantities of people coming forward and that the City is absolutely in fear to the extent that no one is coming forward. The figures totally contradict that view. I am not saying for a minute that the system is perfect, cannot be improved or will not be improved, but that the numbers of people coming through in the City are higher than is the case in the States. The FCA’s whistleblowing procedures have been revised to actively track whistleblowing outcomes across the FCA while cases are actively monitored to provide feedback, wherever legally possible, to whistleblowers.

On the point that the noble Lord, Lord Brennan, raised, the regulators have a role in enforcement and protection. The Dodd-Frank Act brought in protections for whistleblowers which, to a considerable extent, already existed in the United Kingdom. The American scheme is of course not what is proposed in the UK, as the noble Lord said. Under that scheme, whistleblowers can receive a proportion of any penalty received from successful enforcement action arising from tips that they provide. That is different from what this amendment proposes. Although the PCBS said that it would like research to be undertaken in this area, it did not suggest an incentive scheme. The regulators are undertaking research, as requested by the parliamentary commission.

The regulators are therefore already doing a lot, including undertaking research, while the Government are undertaking a review of the whole issue across all the sectors. In the light of that, I hope that the noble Lord will withdraw his amendment.

[Lord McFall of Alcluith]

My Lords, the Government’s response to every amendment is, “Manana, manana”. There is nothing in the response but, “Tomorrow, tomorrow”. There is, for example, a public consultation that we know nothing about. As noble Lords have said tonight, this is a very modest proposal. The Minister really has the wrong end of the stick here when he asks why we should protect whistleblowers in the financial services industry and what is different here from in the oil and gas industry. The Government themselves think that it is different. Why? Because they appointed the noble Lords, Lord Lawson and Lord Turnbull, and me to a Parliamentary Commission on Banking Standards, along with Members of the House of Commons. We spent a year of our lives—10,000 questions and 180 hours in committee—before presenting a report to the Government. That is why the financial services industry is different from others.

[Lord Newby]

My Lords, is the noble Lord seriously suggesting that whistleblowing in the financial services sector—we are talking about whistleblowing here—is of a different order of public interest from whistleblowing in, say, the pharmaceutical or oil industry?

[Lord McFall of Alcluith]

We have had the biggest financial crisis ever but not one whistleblower. That is the magnitude of the problem which the Minister does not grasp and that is why we looked at this issue. Goodness gracious, look at the fines: £85 million for Barclays and £13 billion for JP Morgan today. There is a litany we could go through, so what is the problem?

The Government set up a commission to look at culture and standards. What did the Parliamentary Commission on Banking Standards find? It found that the culture was rotten and the standards were abysmally low. This whistleblowing amendment—a modest amendment—is being put forward to ensure that we have a better culture, and that we have legal and compliance teams in companies that might have the nerve and confidence to go the FCA and say, “Look, there is wrongdoing in this company and we do not feel that we can assuage our conscience on this. We need to report it to the FCA to ensure that we have a better organisation here”. This has failed totally. That is the magnitude of the problem facing us and that is why we have this modest amendment.

The USA was mentioned. We had two witnesses before us from the USA who were very clear that we did not scrape the ground with the FSA. My noble friend Lord Brennan has given his wisdom on the situation in the USA tonight. We are asking the Government and the FCA to look at the experience in the USA to see if that aspect can be adapted. As the noble Lord, Lord Phillips, said, his charity did not have one person from the City. That backs up the evidence that we heard and gives the initiative to the FCA. That is the purpose of this amendment.

We received representations from trade unions in a sub-committee evidence session. The trade unions were very clear to us that their members at the grass-roots level felt pressurised but were scared stiff to do anything about it. I have a number of examples but will give the Minister one in particular. An individual I have known in my own town of Dumbarton for years, who worked in one of the banks for 25 years, left to become a care worker at less than half the salary. I asked her why she left. She said, “John, I was being forced every week to sell products that were not only unsuitable for people but were making their lives miserable. I could not partake in that, so I left”. There was someone who had been committed for 25 years being pressured on issues like that. Surely we should have a system to say “That person has given loyal service. That’s a person who wants to serve their bank and their community. Let’s establish an appropriate structure so that we protect that person, and also make the company better”.

I suggest to the Minister that there is a link between the almost £30 billion that we will be paying out in fines for PPI and the conduct of a company. If the proper procedure was in place and that information came up from the bottom, we probably would not have the abysmal situation we have with the £30 billion.

This amendment is about not just changing the culture and standards but helping the safety and soundness of companies. It was a responsibility given to us, the Parliamentary Commission on Banking Standards, by the Government to give recommendations to change the culture. This is a sound way of doing that and I would have expected a more sympathetic and engaging response from the Minister than we received tonight.

--- Later in debate ---

[Lord Eatwell]

My Lords, this amendment refers to portable account numbers. I am sure that noble Lords will have read in yesterday’s Financial Times the story about the voluntary endeavour by the banks to increase the possibility of customers switching their accounts from one bank to another. The current switching drive does not include portability of account numbers. As the Financial Times boldly declared:

“Account switching drive fails to dislodge customers”.

The general assessment is that the complications associated with the non-portability of account numbers—that is, the complications of changing account numbers—are a significant disincentive to customers to switch their account from one bank to another. This is of course a considerable diminution of competition. The Government have argued very strongly that they are in favour of competition and choice in the retail sector. The noble Lord has repeated that position in discussing some of the amendments that we have already looked at this evening. However, here there is a clear opportunity to increase the possibility of competition in a very concrete way through the portability of account numbers.

The noble Lord will recall how successful this process has been in the telephone industry. The portability of telephone numbers has very evidently provided a significant competitive boost, which suggests that being able to move a number would increase competition significantly in the banking industry as well. I understand that this would be more difficult within the banking industry. For example, the amendment refers specifically to both portable account numbers and sort codes. That makes the issue more difficult because two individuals who bank at different banks may have the same account number but, of course, different sort codes; their entire identification is in the combination of the two. Therefore, a new means of identifying the core bank would have to be developed, and I understand that that would have various knock-on effects.

However, the idea that this would all cost £5 billion, as has been argued by the banking industry, seems to be vastly overstated. We had the same situation with telephony. We were told that this process was going to cost an enormous amount but, in the end, introducing transferable telephone numbers resulted in a tiny proportion of the costs which the industry had said it would need to incur.

Therefore, if we are really going to get competition and choice for the consumer, this seems to be a necessary step. The attempt to develop such competition through facilitating switching but without portability has, it seems, failed. Given that, if the Government are really going to put themselves on the side of the consumer in a competitive market, it is their responsibility to require the possibility of portable account numbers. I beg to move.

[Lord Newby]

My Lords, it goes without saying that the Government are fully behind the objective of increasing competition in banking and making sure that customers who wish to switch banks can do so without impediment. The notion of portable account numbers was considered by the Independent Commission on Banking and in its final report the ICB chose to recommend a new account switching service over portable account numbers. It considered that such a service, if designed correctly, would provide the majority of the same benefits as portability, but with significantly reduced risk and cost.

The Government acted quickly on this recommendation to secure a commitment from the banking industry to deliver current account switching in two years. This was an ambitious timetable for such a big project, but the banks have met the challenge. The new current account switching service was launched on schedule in September and covers almost 100% of the current account market. It has been designed to meet all the ICB’s criteria for tackling customer concerns over switching and to give customers the confidence they need to make the banks improve their services by ensuring that their customers can vote with their feet.

However, it is important that the new system delivers on its promises. That is why the Government continue to engage closely with the Payments Council, which has delivered the service on behalf of the industry, on the progress of switching.

[Lord McFall of Alcluith]

The noble Lord mentioned the Parliamentary Commission on Banking Standards and talked about account portability. But that was not as firm a recommendation as he has suggested, because one of the questions we asked was: why can the banks not allocate an account number that works in the way that mobile telephone numbers do, so that people can swap them around in the same way? The banks replied that the IT costs would be too high, but a cursory examination—that is all we did—of the IT aspect indicated that there were legacy problems with the IT. As we have seen with the horrendous examples involving RBS and others, the IT system is in a very poor state. So now is the ideal time to raise our ambitions and ensure that we get for bank customers the portability that telephone customers have.

[Lord Newby]

My Lords, I did not mention the parliamentary commission; I was referring to the Independent Commission on Banking. None the less, I shall come to the substantive point that the noble Lord has just made.

As I was saying, to aid transparency we have asked the Payments Council to publish statistics regularly, including switching volumes on a monthly basis and more detailed statistics every quarter, which include data on awareness and confidence in the new service. The Government consider that making this information public is the best way to hold the current account switching service to account. As has been mentioned, the Payments Council has just published the first set of data, covering the four-week period following the switching service becoming fully operational. The numbers show that 89,000 switches were completed—an 11% increase on the 80,000 completed during the same period last year. I am a great fan of the Financial Times, but to describe a scheme that has been running for a month as a failure, when it has already got 9,000 extra people to switch, is clearly complete rubbish.

Account portability is a more complicated issue. I am not necessarily disagreeing with the noble Lord, Lord McFall, but the only way to make a properly informed assessment as to whether, or how, steps towards portable account numbers should be taken is to conduct a comprehensive analysis. I must say, almost in parenthesis, that I do not believe that the analogy with telephone numbers takes us as far as might appear at first sight. For a start, as an individual I am quite happy if lots of people know my telephone number —but I am very unhappy if anybody knows my bank account details. This means that I have a completely different view about how I want to deal with that account. That is one of a number of different reasons why this is a complicated issue. It is not, however, an issue that the Government have just pushed to one side. We have made a commitment to ask the new payment systems regulator to undertake the comprehensive analysis that is required.

There has not yet been a proper study of account portability in the UK, but it is clear that operating the payments systems alongside account portability would be one of the significant challenges. That is why we think that the payment systems regulator is the right body to carry out this work. It will have the appropriate expertise and will be able to give an independent view. To be clear, the payment systems regulator will have the powers described in subsection (2) of the proposed new clause. There would be no need to confer new powers on the regulator in order to implement the recommendations of a review. In order to get a complete picture of what benefits account portability could bring, the experience of the current account switching service will need to be fully considered. Therefore, the Government expect the success of the switching service to be firmly within the scope of the payment systems regulator’s view of portability. The switching service is new and the regulator is not yet established. In our view, the logical step is to let them both become properly established and bedded in and then have a proper and comprehensive analysis. On the basis of that, a decision can be taken.

[Lord Eatwell]

The noble Lord just said that the payment systems regulator is going to be asked to do this. What timetable is the regulator going to be given?

[Lord Newby]

The regulator will be asked to make this one of its top priorities once it has been established, but it is impossible to say at this point that it will have to do it within three or six months. We think that that would be overly prescriptive. However, it is one of the priority tasks that it will be given from its inception.

[Lord Eatwell]

My Lords, that is why the amendment specifies 12 months. It seems that what the Government are saying is that they are behind the concept of competition but they are not behind the means of making that concept actually work. However, I must say that it is encouraging that the payment systems regulator is being asked to study this matter. It would be more encouraging if we were given some clarity that this will not simply be kicked into touch but will actually be presented to Parliament within a given timescale.

This is a matter of considerable importance if the Government are serious about competition and giving competitive advantage to consumers. It is therefore a matter to which we must inevitably return. In the mean time, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Eatwell]

My Lords, I am delighted that the Liberal Democrats are coming behind the proposals developed by my noble friend Lord Mitchell. I hope they acknowledge his success in having the various clauses limiting payday loans and high-cost credit agreements inserted during the passage of the Financial Services Act 2012.

Given that that Act is now in place and the measures advanced by my noble friend Lord Mitchell are on the statute book, the argument of the noble Lord, Lord Sharkey, as I understand it, is about why nothing is happening and why there is a lack of movement towards getting appropriate regulation in place. If he is indeed correct that things are moving so slowly—I have no reason to believe that he is not—the Government owe him an explanation as to why that is the case. Obviously, one is sympathetic to getting my noble friend Lord Mitchell’s measures going as fast as possible, but I have a couple of questions about the amendment.

First, do we really feel that there is a simple read-over between state government in the United States and a local authority in the UK? It seems that we pile responsibilities on local authorities without giving them sufficient funding, in many cases, to fulfil their responsibilities. I do not see that the amendment provides for any resources to go to local authorities to enable them to do the job.

Secondly, as far as I understand it, quite a lot of payday lending is done online. The amendment will do absolutely nothing to address loans that are made online because it is all geographically defined. A payday lender may have a registered address but that may have absolutely nothing to do with the location of the customers of that payday lender. The disjuncture between the registered address and the location of the customers suggests that knowledge of local needs would not necessarily be very relevant in such a case.

I am very sympathetic to the need to get things moving and look forward to the Government telling noble Lords how energetic they are being and giving us some concrete evidence of how my noble friend Lord Mitchell’s measures are being effectively brought into being. I would also like the Government to consider whether the noble Lord, Lord Sharkey, has, with the notion of the local authority—or indeed any other authority—identified a means of getting things moving more quickly.

[Lord Newby]

My Lords, the Government wholeheartedly agree with my noble friend that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. As noble Lords have pointed out, the Government fundamentally reformed the regulatory system governing these lenders to protect borrowers by transferring the regulation of consumer credit to the Financial Conduct Authority in the Financial Services Act 2012.

The FCA takes up this new regulatory responsibility on 1 April but has already demonstrated that it is serious about cracking down on high-cost lenders. It is absolutely unfair on it to say that nothing has happened since the Act was passed last year.

On 3 October, as the noble Lord, Lord Sharkey, has pointed out, the FCA set out an action plan on high-cost lending to protect consumers, with tough new rules covering a number of issues, including a limit on rollovers and restricting the use of continuous payment authorities. These proposals have won widespread support and will profoundly change how this industry operates. I completely agree with the noble Lord, Lord Sharkey, that self-regulation has failed, but the industry is not going to be self-regulated any more.

Turning now to the noble Lord’s amendment specifically, I am surprised that he thinks that local authorities should be given additional responsibility for regulating high-cost lenders. I can see why it might work in the States, and having looked at the Florida scheme I completely agree that it has been an extremely successful scheme there. I hope that there are a number of additional elements of that scheme that might, in time, be introduced into the UK. However, I frankly cannot see the case for duplicating regulatory effort within such a small geographic area of the UK, especially as consumers will find this confusing. Nor can this be considered a good use of public funds, given that the FCA, which is fully funded by the industry, already has this responsibility.

Most payday lenders have a national reach, especially the biggest players which dominate the market and, by definition, those which are online, so it does not make sense to permit scores of local authorities, in addition to the FCA, to all regulate the same lender. We believe that a well-resourced and empowered single national regulator will provide the best outcome for consumers. Consumers will be better protected by having a regulator with the resources, expertise and national consistency of the FCA. I am not convinced of the benefits for consumers of a federal approach to regulation. In fact, this could lead to more consumer harm; payday lenders are more likely to target consumers in local authority areas where the authority is less active.

The nub of the amendment is, of course, that the noble Lord has framed it to ensure that the Secretary of State imposes a cap on the cost of high-cost credit. While I entirely support the noble Lord’s ambition to bring down the cost of such loans, I am not convinced that the best way to do that is via a mandatory cap. The Government do not believe that current evidence provides sufficient justification to support a cap on the cost of credit.

The noble Lord has referred to the work commissioned by the Government from the University of Bristol. It does not, as he says, say that the main arguments against a cap on the rate relate to loan sharks. It does point out that although that may happen in some cases, lenders may try to bypass the cap by introducing other charges or fees which are not subject to it. Evidence shows that, with a cap in place, lenders may be less likely to show understanding if customers get into repayment difficulties.

While the Government are not convinced that a mandatory cap is the best overall solution for consumers now, they have made it clear that the FCA has a specific power to impose a cap in future, should it decide that it is needed to protect consumers. The FCA has already committed to start analysis on use of this power from April 2014.

Capping the cost of credit is a major intervention with potentially profound consequences for consumers, so it is right that the FCA contemplates use of this power in a responsible and evidence-based way, which is what it will now do. Noble Lords should not be in any doubt about the FCA’s commitment to using its powers to protect consumers whenever it feels it is necessary. The Government stand ready to support the FCA to ensure the best overall outcome for consumers.

I know it is extremely frustrating that we have not got a comprehensive solution in place, but the Government have moved with considerable alacrity in setting up a new, effective regulatory framework. The regulator has acted quickly to set out proposals and on that basis, I hope that the noble Lord will feel able to withdraw his amendment.

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[Lord Eatwell]

My Lords, my noble friend has made a very strong case. He needed to add one other element to persuade the Government, which is that this would enhance competition. If one improved information in this way, then, given the enhancement of consumer choice, the competitive objective of the Government would be better served. This would be a diminution of some of the severe problems of asymmetric information that distort competition in financial services, especially retail financial services. If it was developed with care it would be a considerable boost to the overall efficiency of retail financial services in this country.

It is very easy to say, “The time is not ripe; it is not really quite the time; there are unintended consequences”. All that is required is a consistent bias towards transparency. The Government should approach this issue by saying, “In principle, we are in favour of transparency”. The argument should be made for not being transparent. In other words, the strong case has to be made for not revealing something. The fundamental prejudice should be that this information should be transparent. Effective transmission of information is a key element in creating an efficient market and enhancing the competitive goal that the Government claim to be their own.

[Lord Newby]

My Lords, as the noble Lord, Lord McFall, pointed out, we debated this issue at great length during proceedings on the previous Financial Services Bill. Sections 348 and 349 of FiSMA govern the treatment of confidential information obtained by the regulators and the ability of the regulators to disclose such confidential information. The noble Lord argued at the time, and repeated today, that there was inadequate transparency and insufficient disclosure of information in the financial services regulatory regime. This led to the argument that Section 348 should be amended to make it as unrestricted as possible.

In response, the Treasury undertook a careful review of Section 348 and its associated provisions. The review concluded, first, that it would be difficult to amend Section 348 without negative consequences. Scaling back Section 348 would increase the risk that firms would become less willing to share information with the regulators, undermining those important relationships and the regulators’ ability to protect consumers. Secondly, even with Section 348 in place, the FCA could and should do more to increase transparency.

With that in mind, the Government decided at the time not to amend or delete Section 348 but agreed with the FSA, as it then was, for it to carry out a fundamental review of how transparency would be embedded in the new FCA regime. This was published as a consultation in April of this year and received positive feedback from consumer groups—that is, the very people the new or changed approach was intended to benefit. The review covered use of disclosure as a regulatory tool by the regulator, disclosure of information by firms, both voluntarily and as a result of FCA rules, and transparency on the part of the regulator.

In terms of publishing details of enforcement action, the FCA is already required to publish details and information about decisions and final notices that it considers appropriate. It can also publish the fact that a warning notice has been issued in respect of disciplinary action. In response to the recent PCBS recommendation that it should require firms to publish more information, the FCA has outlined its plans to issue a call for evidence next year on data that it should require firms to publish to help consumers better understand the firm and product quality.

I hope the noble Lord will agree that this is exactly what the PCBS was seeking to achieve and that it can be done without further amendment to Section 348.

[Lord McFall of Alcluith]

My Lords, again the Government’s response is a little timid. However, the hour is late. It is an appropriate time to say, “Mañana” and we will fight it another day.

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[Lord Turnbull]

My response to that is that it is completely unsatisfactory. We shall need to come back to it. I hope that there can be some discussion, maybe with officials in the Bill team. I am not satisfied that applying these various provisions simply to deposit takers covers all the areas of conduct that really need to be covered.

One other issue came to light in the course of this evening’s discussions about the remuneration regime. The noble Lord, Lord Newby, read out a list of people who are covered. Those are the people who are covered by the current remuneration regime. What was being proposed in my amendment was in effect a senior tier particularly for banking. Once you do that, you have to find a definition of a bank. I thought that we were a bit nearer to getting an answer until I heard from the noble Lord, Lord Eatwell. It is something we need to sort out, otherwise we shall find a serious area of misconduct in an investment banking area only to be told that when we legislated we forgot to cover these kinds of people. That would be completely unacceptable.

[Lord Newby]

My Lords, I thought that I read out virtually verbatim last week what the noble Lord has read out from the Bank of England. We are going to confirm that in a letter. However the most important point is the one that the noble Lord, Lord Turnbull, raised about the scope of the senior managers regime and the criminal offence that goes with it. I can confirm now what I attempted to say last time, that my Treasury colleagues are considering the scope of the new regime and of the new criminal offence of reckless misconduct in the management of a bank in the light of the previous debate. I can assure the House that they take your Lordships’ views extremely seriously.

[Lord Turnbull]

I infer that I should pay more attention to the letter of the noble Lord, Lord Newby, of 22 October than I should pay to the Bank of England’s response, because I think the former is a more constructive response than that of the Bank of England. On that basis, I beg leave to withdraw Amendment 104E.

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Moved by

[Lord Newby]

105: Before Schedule 2, insert the following new Schedule—
ScheduleBail-in stabilisation optionPart 1Amendments of Banking Act 20091 The Banking Act 2009 is amended as follows.
New stabilisation option: bail-in2 After section 12 insert—
“12A Bail-in option
(1) The third stabilisation option is exercised by the use of the power in subsection (2).
(2) The Bank of England may make one or more resolution instruments (which may contain provision or proposals of any kind mentioned in subsections (3) to (6)).
(3) A resolution instrument may—
(a) make special bail-in provision with respect to a specified bank; (b) make other provision for the purposes of, or in connection with, any special bail-in provision made by that or another instrument.(4) A resolution instrument may—
(a) provide for securities issued by a specified bank to be transferred to a bail-in administrator (see section 12B) or another person;(b) make other provision for the purposes of, or in connection with, the transfer of securities issued by a specified bank (whether or not the transfer has been or is to be effected by that instrument, by another resolution instrument or otherwise).(5) A resolution instrument may set out proposals with regard to the future ownership of a specified bank or of the business of a specified bank, and any other proposals (for example, proposals about making special bail-in provision) that the Bank of England may think appropriate.
(6) A resolution instrument may make any other provision the Bank of England may think it appropriate to make in exercise of specific powers under this Part.
(7) Provision made in accordance with subsection (4) may relate to—
(a) specified securities, or(b) securities of a specified description.(8) Where the Bank of England has exercised the power in subsection (4) to transfer securities to a bail-in administrator, the Bank of England must exercise its functions under this Part (see, in particular, section 48V) with a view to ensuring that any securities held by a person in the capacity of a bail-in administrator are so held only for so long as is, in the Bank of England’s opinion, appropriate having regard to the special resolution objectives.
(9) References in this Part to “special bail-in provision” are to provision made in reliance on section 48B.
12B Bail-in administrators
(1) The Bank of England may, in a resolution instrument, appoint an individual or body corporate as a bail-in administrator.
(2) A bail-in administrator is appointed—
(a) to hold any securities that may be transferred or issued to that person in the capacity of bail-in administrator;(b) to perform any other functions that may be conferred under any provision of this Part.(3) The Bank of England may appoint more than one bail-in administrator to perform functions in relation to a bank (but no more than one of them may at any one time be authorised to hold securities as mentioned in subsection (2)(a)).
(4) Securities held by a bail-in administrator (in that capacity, and whether as a result of a resolution instrument or otherwise) are to be held in accordance with the terms of a resolution instrument that transfers those, or other, securities to the bail-in administrator.
(5) For example, the following provision may be made by virtue of subsection (4)—
(a) provision that specified rights of a bail-in administrator with respect to all or any of the securities are to be exercisable only as directed by the Bank of England;(b) provision specifying rights or obligations that the bail-in administrator is, or is not, to have in relation to some or all of the securities.(6) A bail-in administrator must have regard, in performing any functions of the office, to any objectives that may be specified in a resolution instrument.
(7) Where one or more objectives are specified in accordance with subsection (6), the objectives are to be taken to have equal status with each other, unless the contrary is stated in the resolution instrument.
(8) See sections 48I to 48K for further provision about bail-in administrators.”
3 After section 8 insert—
“8A Specific condition: bail-in
(1) The Bank of England may exercise a stabilisation power in respect of a bank in accordance with section 12A(2) only if satisfied that the condition in subsection (2) is met.
(2) The condition is that the exercise of the power is necessary, having regard to the public interest in—
(a) the stability of the financial systems of the United Kingdom,(b) the maintenance of public confidence in the stability of those systems,(c) the protection of depositors, or(d) the protection of any client assets that may be affected.(3) Before determining whether that condition is met, and if so how to react, the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(4) The condition in this section is in addition to the conditions in section 7.”
Further provision about the bail-in option4 After section 48A insert—
“Bail-in option48B Special bail-in provision
(1) “Special bail-in provision”, in relation to a bank, means any of the following (or any combination of the following)—
(a) provision cancelling a liability owed by the bank;(b) provision modifying, or changing the form of, a liability owed by the bank;(c) provision that a contract under which the bank has a liability is to have effect as if a specified right had been exercised under it.(2) A power to make special bail-in provision—
(a) may be exercised only for the purpose of, or in connection with, reducing, deferring or cancelling a liability of the bank;(b) may not be exercised so as to affect any excluded liability.(3) The following rules apply to the interpretation of subsection (1).
1. The reference to cancelling a liability owed by the bank includes a reference to cancelling a contract under which the bank has a liability.2. The reference to modifying a liability owed by the bank includes a reference to modifying the terms (or the effect of the terms) of a contract under which the bank has a liability.3. The reference to changing the form of a liability owed by the bank, includes, for example—(a) converting an instrument under which the bank owes a liability from one form or class to another,(b) replacing such an instrument with another instrument of a different form or class, or(c) creating a new security (of any form or class) in connection with the modification of such an instrument.(4) Examples of special bail-in provision include—
(a) provision that transactions or events of any specified kind have or do not have (directly or indirectly) specified consequences or are to be treated in a specified manner for specified purposes;(b) provision discharging persons from further performance of obligations under a contract and dealing with the consequences of persons being so discharged. (5) The form and class of the instrument (“the resulting instrument”) into which an instrument is converted, or with which it is replaced, do not matter for the purposes of paragraphs (a) and (b) of rule 3 in subsection (3); for instance, the resulting instrument may (if it is a security) fall within Class 1 or any other Class in section 14.
(6) The following liabilities of the bank are “excluded liabilities”—
(a) liabilities representing protected deposits;(b) any liability, so far as it is secured;(c) liabilities that the bank has by virtue of holding client assets;(d) liabilities with an original maturity of less than 7 days owed by the bank to a credit institution or investment firm;(e) liabilities arising from participation in designated settlement systems and owed to such systems or to operators of, or participants in, such systems;(f) liabilities owed to central counterparties recognised by the European Securities and Markets Authority in accordance with Article 25 of Regulation (EU) 648/2012 of the European Parliament and the Council; (g) liabilities owed to an employee or former employee in relation to salary or other remuneration, except variable remuneration;(h) liabilities owed to an employee or former employee in relation to rights under a pension scheme, except rights to discretionary benefits;(i) liabilities owed to creditors arising from the provision to the bank of goods or services (other than financial services) that are critical to the daily functioning of the bank’s operations.(7) The following special rules apply in cases involving banking group companies—
(a) a liability mentioned in subsection (6)(d) is not an excluded liability if the credit institution or investment firm to which the liability is owed is a banking group company in relation to the bank (see section 81D);(b) in subsection (6)(i) the reference to creditors does not include companies which are banking group companies in relation to the bank.48C Meaning of “protected deposit”
(1) A deposit is “protected” so far as it is covered by the Financial Services Compensation Scheme.
(2) A deposit is “protected” so far as it is covered by a scheme which—
(a) operates outside the United Kingdom, and(b) is comparable to the Financial Services Compensation Scheme.(3) If one or both of subsections (1) and (2) apply to a deposit, the amount of the deposit “protected” is the highest amount which results from either of those subsections.
(4) In subsections (1) and (2) and section 48B(6)(a), “deposit” has the meaning given by article 5(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544), but ignoring the exclusions in article 6.
48D General interpretation of section 48B
(1) In section 48B—
“client assets” means assets which the bank has undertaken to hold on trust for, or on behalf of, a client;“contract” includes any instrument;“credit institution” means any credit institution as defined in Article 4.1(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, other than an entity mentioned in Article 2.5(2) to (23) of Directive 2013/36/EU of the European Parliament and of the Council; “designated settlement system” means a system designated in accordance with Directive 98/26/EC of the European Parliament and of the Council (as amended by Directives 2009/44/EC and 2010/78/EU);“employee” includes the holder of an office;“investment firm” means an investment firm as defined in Article 4.1(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council that is subject to the initial capital requirement specified in Article 28(2) of Directive 2013/36/EU of the European Parliament and of the Council;“pension scheme” includes any arrangement for the payment of pensions, allowances and gratuities;“secured” means secured against property or rights, or otherwise covered by collateral arrangements.(2) In subsection (1)—
“assets” has the same meaning as in section 232(4) (ignoring for these purposes section 232(5A)(b));“collateral arrangements” includes arrangements which are title transfer collateral arrangements for the purposes of section 48.(3) For the purposes of section 48B(6)(h), a benefit under a pension scheme is discretionary so far as the employee’s right to the benefit was a result of the exercise of a discretion.
48E Report on special bail-in provision
(1) This section applies where the Bank of England makes a resolution instrument containing special bail-in provision (see section 48B(1)).
(2) The Bank of England must report to the Chancellor of the Exchequer stating the reasons why that provision has been made in the case of the liabilities concerned.
(3) If the provision departs from the insolvency treatment principles, the report must state the reasons why it does so.
(4) The insolvency treatment principles are that where an instrument includes special bail-in provision—
(a) the provision made by the instrument must be consistent with treating all the liabilities of the bank in accordance with the priority they would enjoy on a liquidation, and(b) any creditors who would have equal priority on a liquidation are to bear losses on an equal footing with each other.(5) A report must comply with any other requirements as to content that may be specified by the Treasury.
(6) A report must be made as soon as reasonably practicable after the making of the resolution instrument to which it relates.
(7) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.
48F Power to amend definition of “excluded liabilities”
(1) The Treasury may by order amend section 48B(6) by—The Treasury may by order amend section 48C or 48D.
(a) adding to the list of excluded liabilities;(b) amending or omitting any paragraph of that subsection, other than paragraphs (a) to (c).(3) The powers conferred by subsections (1) and (2) include power to make consequential and transitional provision.
(4) An order under this section—
(a) must be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.(5) The Treasury must consult before laying a draft order under this section before Parliament.
48G Priority between creditors
(1) The Treasury may, for the purpose of ensuring that the treatment of liabilities in any instrument that contains special bail-in provision is aligned to an appropriate degree with the treatment of liabilities on an insolvency, by order specify matters or principles to which the Bank of England is to be required to have regard in making any such instrument.
(2) An order may, for example, specify the insolvency treatment principles (as defined in section 48E(4)) or alternative principles.
(3) An order may specify the meaning of “insolvency” for one or more purposes of the order.
(4) An order may amend sections 44C(4) and 48E(4).
(5) An order —
(a) is to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.48H Business reorganisation plans
(1) A resolution instrument may require a bail-in administrator, or one or more directors of the bank, to—
(a) draw up a business reorganisation plan with respect to the bank, and(b) submit it to the Bank of England within the period allowed by (or under) the instrument.(2) “Business reorganisation plan” means a plan that includes—
(a) an assessment of the factors that caused Condition 1 in section 7 to be met in the case of the bank,(b) a description of the measures to be adopted with a view to restoring the viability of the bank, and(c) a timetable for the implementation of those measures.(3) Where a person has submitted a business reorganisation plan to the Bank of England under subsection (1) (or has re-submitted a plan under subsection (4)), the Bank of England—
(a) must approve the plan if satisfied that the plan is appropriately designed for meeting the objective mentioned in subsection (2)(b);(b) must otherwise require the person to amend the plan in a specified manner.(4) Where the Bank of England has required a person to amend a business re-organisation plan, the person must re-submit the amended plan within the period allowed by (or under) the resolution instrument.
(5) Before deciding what action to take under subsection (3) the Bank of England must (for each submission or re-submission of a plan) consult—
(a) the PRA, and(b) the FCA.(6) A business reorganisation plan may include recommendations by the person submitting the plan as to the exercise by the Bank of England of any of its powers under this Part in relation to the bank.
(7) Where a resolution instrument contains provision under subsection (1), the instrument may—
(a) specify further matters (in addition to those mentioned in subsection (2)) that must be dealt with in the business reorganisation plan;(b) make provision about the timing of actions to be taken in connection with the making and approval of the plan;(c) enable any provision that the Bank of England has power under paragraph (a) or (b) to make in the instrument to be made instead in an agreement between the Bank of England and the bail-in administrator.(8) For the purposes of subsection (2)(b) the viability of a bank is to be assessed by reference to whether the bank satisfies, and (if so) for how long it may be expected to continue to satisfy, the threshold conditions (as define in section 55B of the Financial Services and Markets Act 2000).
48I Bail-in administrator: further functions
(1) A resolution instrument may—
(a) authorise a bail-in administrator to manage the bank’s business (or confer on a bail-in administrator any other power with respect to the management of the bank’s business);(b) authorise a bail-in administrator to exercise any other powers of the bank;(c) confer on a bail-in administrator any other power the Bank of England may consider appropriate;(d) provide that the exercise of any power conferred by the instrument in accordance with this section is to be subject to conditions specified in the instrument.(2) A resolution instrument may require a bail-in administrator to make reports to the Bank of England—
(a) on any matter specified in the instrument, and(b) at the times or intervals specified in the instrument.(3) If a resolution instrument specifies a matter in accordance with subsection (2)(a), it may provide for further requirements as to the contents of the report on that matter to be specified in an agreement between the Bank of England and the bail-in administrator.
(4) A resolution instrument may—
(a) require a bail-in administrator to consult specified persons before exercising specified functions (and may specify particular matters on which the specified person must be consulted);(b) provide that a bail-in administrator is not to exercise specified functions without the consent of a specified person.48J Bail-in administrator: supplementary
(1) A bail-in administrator may do anything necessary or desirable for the purposes of or in connection with the performance of the functions of the office.
(2) A bail-in administrator is not a servant or agent of the Crown (and, in particular, is not a civil servant).
(3) Where a bail-in administrator is appointed under this Part, the Bank of England—
(a) must make provision in a resolution instrument for resignation and replacement of the bail-in administrator;(b) may remove the bail-in administrator from office only (i) on the ground of incapacity or misconduct, or (ii) on the ground that there is no further need for a person to perform the functions conferred on the bail-in administrator.48K Bail-in administrator: money
(1) A resolution instrument may provide for the payment of remuneration and allowances to a bail-in administrator.
(2) Provision made under subsection (1) may provide that the amounts are—
(a) to be paid by the Bank of England, or (b) to be determined by the Bank of England and paid by the bank. (3) A bail-in administrator is not liable for damages in respect of anything done in good faith for the purposes of or in connection with the functions of the office (subject to section 8 of the Human Rights Act 1998).
48L Powers in relation to securities
(1) A resolution instrument may—
(a) cancel or modify any securities to which this subsection applies;(b) convert any such securities from one form or class into another.(2) Subsection (1) applies to securities issued by the bank that fall within Class 1 in section 14.
(3) A resolution instrument may—
(a) make provision with respect to rights attaching to securities issued by the bank;(b) provide for the listing of securities issued by the bank to be discontinued. (4) The reference in subsection (1)(b) to converting securities from one form or class into another includes creating a new security in connection with the modification of an existing security.
(5) The provision that may be made under subsection (3)(a) includes, for example—
(a) provision that specified rights attaching to securities are to be treated as having been exercised;(b) provision that the Bank of England, or a bail-in administrator, is to be treated as authorised to exercise specified rights attaching to securities;(c) provision that specified rights attaching to securities may not be exercised for a period specified in the instrument.(6) In subsection (3)(b) the reference to “listing” is to listing under section 74 of the Financial Services and Markets Act 2000.
(7) The provision that may be made under this section in relation to any securities is in addition to any provision that the Bank of England may have power to make in relation to them under section 48B.
48M Termination rights, etc
(1) In this section “default event provision” has the same meaning as in section 22.
(2) A resolution instrument may provide for subsection (3) or (4) to apply (but need not apply either).
(3) If this subsection applies, the resolution instrument is to be disregarded in determining whether a default event provision applies.
(4) If this subsection applies, the resolution instrument is to be disregarded in determining whether a default event provision applies except so far as the instrument provides otherwise.
(5) In subsections (3) and (4) a reference to the resolution instrument is a reference to—
(a) the making of the instrument,(b) anything that is done by the instrument or is to be, or may be, done under or by virtue of the instrument, and(c) any action or decision taken or made under this or another enactment in so far as it resulted in, or was connected to, the making of the instrument.(6) Provision under subsection (2) may apply subsection (3) or (4)—
(a) generally or only for specified purposes, cases or circumstances, or(b) differently for different purposes, cases or circumstances.(7) A thing is not done by virtue of a resolution instrument for the purposes of subsection (5)(b) merely by virtue of being done under a contract or other agreement rights or obligations under which have been affected by the instrument.
48N Directors
(1) A resolution instrument may enable the Bank of England—
(a) to remove a director of a specified bank;(b) to vary the service contract of a director of a specified bank;(c) to terminate the service contract of a director of a specified bank;(d) to appoint a director of a specified bank.(2) Subsection (1) also applies to a director of any undertaking which is a banking group company in respect of a specified bank.
(3) Appointments under subsection (1)(d) are to be on terms and conditions agreed with the Bank of England.
48O Directions in or under resolution instrument
(1) A resolution instrument may—
(a) require one or more directors of the bank to comply with any general or specific directions that may be set out in the instrument; (b) enable the Bank of England to give written directions (whether general or specific) to one or more directors of the bank.(2) A director—
(a) is not to be regarded as failing to comply with any duty owed to any person (for example, a shareholder, creditor or employee of the bank) by virtue of any action or inaction in compliance with a direction given under subsection (1)(a) or (b);(b) is to be immune from liability in damages in respect of action or inaction in accordance with a direction.(3) A director must comply with a direction within the period of time specified in the direction, or if no period of time is specified, as soon as reasonably practicable.
(4) A direction under subsection (1)(a) or (b) is enforceable on an application made by the Bank of England, by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.
48P Orders for safeguarding certain financial arrangements
(1) In this section “protected arrangements” means security interests, title transfer collateral arrangements, set-off arrangements and netting arrangements.
(2) In subsection (1)—
“netting arrangements” means arrangements under which a number of claims or obligations can be converted into a net claim or obligation, and includes, in particular, “close-out” netting arrangements, under which actual or theoretical debts are calculated during the course of a contract for the purpose of enabling them to be set off against each other or to be converted into a net debt;“security interests” means arrangements under which one person acquires, by way of security, an actual or contingent interest in the property of another;“set-off arrangements” means arrangements under which two or more debts, claims or obligations can be set off against each other;“title transfer collateral arrangements” means arrangements under which Person 1 transfers assets to Person 2 on terms providing for Person 2 to transfer assets if specified obligations are discharged.(3) The Treasury may by order—
(a) restrict the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;(b) impose conditions on the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;(c) require any instrument that makes special bail-in provision to include specified provision, or provision to a specified effect, in respect of or for purposes connected with protected arrangements;(d) provide for an instrument to be void or voidable, or for other consequences to arise, if or in so far as the instrument is made or purported to be made in contravention of a provision of the order (or of another order under this section);(e) specify principles to which the Bank of England is to be required to have regard in exercising specified powers—(i) that involve protected arrangements, or(ii) where the exercise of the powers might affect protected arrangements.(4) References to exercising a power within the scope of paragraph (a) or (b) of subsection (3) are to making an instrument containing provision made in reliance on section 12A(3)(a) or 44B (special bail-in provision).
(5) An order may apply to protected arrangements generally or only to arrangements—
(a) of a specified kind, or (b) made or applying in specified circumstances.(6) An order may include provision for determining which arrangements are to be, or not to be, treated as protected arrangements; in particular, an order may provide for arrangements to be classified not according to their description by the parties but according to one or more indications of how they are treated, or are intended to be treated, in commercial practice.
(7) In this section “arrangements” includes arrangements which—
(a) are formed wholly or partly by one or more contracts or trusts;(b) arise under or are wholly or partly governed by the law of a country or territory outside the United Kingdom;(c) wholly or partly arise automatically as a matter of law;(d) involve any number of parties;(e) operate partly by reference to other arrangements between parties.(8) An order—
(a) is to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.48Q Continuity
(1) A resolution instrument may provide for anything (including legal proceedings) that relates to anything affected by the instrument and is in the process of being done immediately before the instrument takes effect to be continued from the time the instrument takes effect.
(2) A resolution instrument may modify references (express or implied) in an instrument or document.
(3) A resolution instrument may require or permit any person to provide information and assistance to the Bank of England or another person, for the purposes of or in connection with provision made or to be made in that or another resolution instrument.
48R Execution and registration of instruments etc
(1) A resolution instrument (other than an instrument that provides for securities to be transferred) may permit or require the execution, issue or delivery of an instrument.
(2) A resolution instrument may provide for any provision in the instrument to have effect irrespective of—
(a) whether an instrument has been produced, delivered, transferred or otherwise dealt with;(b) registration.(3) A resolution instrument may provide for the effect of an instrument executed, issued or delivered in accordance with the resolution instrument.
(4) A resolution instrument may—
(a) entitle a person to be registered in respect of a security;(b) require a person to effect registration.48S Resolution instruments: general matters
(1) Provision made in a resolution instrument takes effect despite any restriction arising by virtue of contract or legislation or in any other way.
(2) A resolution instrument may include incidental, consequential or transitional provision.
(3) In relying on subsection (2) a resolution instrument—
(a) may make provision generally or only for specified purposes, cases or circumstances, and(b) may make different provision for different purposes, cases or circumstances.48T Procedure
(1) As soon as is reasonably practicable after making a resolution instrument in respect of a bank the Bank of England must send a copy to—
(a) the bank,(b) the Treasury,(c) the PRA, (d) the FCA, and(e) any other person specified in the code of practice under section 5.(2) As soon as is reasonably practicable after making a resolution instrument the Bank of England must publish a copy—
(a) on the Bank’s internet website, and(b) in two newspapers, chosen by the Bank of England to maximise the likelihood of the instrument coming to the attention of persons likely to be affected.(3) Where the Treasury receive a copy of a resolution instrument under subsection (1) they must lay a copy before Parliament.
48U Supplemental resolution instruments
(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) with respect to a bank.
(2) The Bank of England may make, with respect to the bank, one or more resolution instruments designated by the Bank of England as supplemental resolution instruments.
(3) Sections 7 and 8A do not apply to a supplemental resolution instrument (but it is to be treated in the same way as a resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).
(4) Before making a supplemental resolution instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(5) The possibility of making a supplemental resolution instrument in reliance on subsection (2) is without prejudice to the possibility of making a new instrument in accordance with section 12A(2) (and not in reliance on subsection (2) above).
48V Onward transfer
(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) providing for securities issued by a specified bank to be transferred to any person.
(2) The Bank of England may make one or more onward transfer resolution instruments.
(3) An onward transfer resolution instrument is a resolution instrument which—
(a) provides for the transfer of—(i) securities which were issued by the bank before the original instrument and have been transferred by the original instrument or a supplemental resolution instrument, or(ii) securities which were issued by the bank after the original instrument;(b) makes other provision for the purposes of, or in connection with, the transfer of securities issued by the bank (whether the transfer has been or is to be effected by that instrument, by another instrument or otherwise).(4) An onward transfer resolution instrument may not transfer securities to the transferor under the original instrument.
(5) Sections 7 and 8A do not apply to an onward transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).
(6) Before making an onward transfer resolution instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(7) Section 48U applies where the Bank of England has made an onward transfer resolution instrument.
48W Reverse transfer
(1) This section applies where the Bank of England has made an instrument (“the original instrument”) that is either—
(a) a resolution instrument providing for the transfer of securities issued by a bank to a person (“the transferee”), or(b) an onward transfer resolution instrument (see section 48V) providing for the transfer of securities issued by a bank to a person (“the onward transferee”).(2) In a case falling within subsection (1)(a) the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the transferee (whether or not they were transferred by the original instrument).
(3) In a case falling within subsection (1)(b), the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the onward transferee.
(4) A reverse transfer resolution instrument is a resolution instrument which—
(a) provides for transfer to the transferor under the original instrument;(b) makes other provision for the purposes of, or in connection with, the transfer of securities which are, or could be or could have been, transferred under paragraph (a).(5) Except where subsection (6) applies, the Bank of England may make a reverse transfer resolution instrument under subsection (2) only with the written consent of the transferee.
(6) This subsection applies where the transferee is—
(a) a bail-in administrator, or(b) a person who is not to be authorised to exercise any rights attaching to the securities except on the Bank of England’s instructions.(7) The Bank of England may make a reverse transfer resolution instrument under subsection (3) only with the written consent of the onward transferee.
(8) Sections 7 and 8A do not apply to a reverse transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes including for the purposes of an application of a power under this Part).
(9) Before making a reverse transfer resolution instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(10) Section 48U applies where the Bank of England has made a reverse transfer resolution instrument.”
Transfers of property5 (1) After section 41 insert—
“41A Transfer of property subsequent to resolution instrument
(1) This section applies where the Bank of England has made a resolution instrument.
(2) The Bank of England may make one or more property transfer instruments in respect of property, rights or liabilities of the bank.
(3) Sections 7 and 8A do not apply to a property transfer instrument under subsection (2).
(4) Before making a property transfer instrument under subsection (2) the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.”(2) In section 42 (supplemental property transfer instruments)—
(a) in subsection (1) for “12(2)” substitute “12(2) or 41A(2)”;(b) in subsection (4) for “and 8” substitute “, 8 and 8A”;(c) in subsection (6) for “or 12(2)” substitute “, 12(2) or 41A(2)”.(3) After section 44 insert—
“44A Bail in: reverse property transfer
(1) This section applies where the Bank of England has made a property transfer instrument in accordance with section 41A(2) (“the original instrument”).
(2) The Bank of England may make one or more bail-in reverse property transfer instruments in respect of property, rights or liabilities of the transferee under the original instrument.
(3) A bail-in reverse property transfer instrument is a property transfer instrument which—
(a) provides for a transfer to the transferor under the original instrument;(b) makes other provision for the purposes of, or in connection with, the transfer of property, rights or liabilities which are, or could be or could have been, transferred under paragraph (a) (whether the transfer has been or is to be effected by that instrument or otherwise).(4) The Bank of England may make a bail-in reverse property transfer instrument only with the written consent of the transferee under the original instrument.
(5) Sections 7 and 8A do not apply to a bail-in reverse property transfer instrument (but it is to be treated in the same way as any other property transfer instrument for all other purposes, including for the purposes of the application of a power under this Part).
(6) Before making a bail-in reverse property transfer instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(7) Section 42 (supplemental instruments) applies where the Bank of England has made a bail-in reverse property transfer instrument.
44B Property transfer instruments: special bail-in provision
(1) A property transfer instrument under section 12(2) or 41A(2) may make special bail-in provision with respect to the bank (see section 48B).
(2) In the case of a property transfer instrument under section 12(2), the power under subsection (1) to make the provision described in section in section 48B(1)(b) (see also rule 3(a) and (b) of section 48B(3)) includes power to make provision replacing a liability (of any form) of the bank mentioned in subsection (1) with a security (of any form or class) of the bridge bank mentioned in section 12(1).
(3) Where securities of the bridge bank (“B”) are, as a result of subsection (2), held by a person other than the Bank of England, that does not prevent B from being regarded for the purposes of this Part (see particularly section 12(1)) as being wholly owned by the Bank of England, as long as the Bank of England continues to hold all the ordinary shares issued by B.
44C Report on special bail-in provision
(1) This section applies where the Bank of England makes a property transfer instrument containing provision made in reliance on section 44B.
(2) The Bank of England must report to the Chancellor of the Exchequer stating the reasons why that provision was made in the case of the liabilities concerned.
(3) If the provision departs from the insolvency treatment principles, the report must state the reasons why it does so.
(4) The insolvency treatment principles are that where an instrument includes special bail-in provision—
(a) the provision made by the instrument must be consistent with treating all the liabilities of the bank in accordance with the priority they would enjoy on a liquidation, and(b) any creditors who would have equal priority on a liquidation are to bear losses on an equal footing with each other.(5) A report must comply with any other requirements as to content that may be specified by the Treasury.
(6) A report must be made as soon as reasonably practicable after the making of the property transfer instrument to which it relates.
(7) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.”
(4) In section 48A (creation of liabilities), in subsection (1), after “44(4)(c)” insert “, 44A(3)(b)”.
Compensation6 (1) In section 49 (orders)—
(a) in subsection (1), for “three” substitute “four” and for “and property transfer instruments” substitute “, property transfer instruments and orders and resolution instruments”;(b) after subsection (2) insert—“(2A) A “bail-in compensation order” is an order establishing a scheme for determining, in accordance with section 52A, whether any transferors or others should be paid compensation.”
(2) After section 52 insert—
“52A Bail-in option
(1) Subsection (2) applies if the Bank of England makes—
(a) a resolution instrument under section 12A(2),(b) a property transfer instrument under section 41A(2), or(c) a supplemental resolution instrument under section 48U(2).(2) The Treasury must make a bail-in compensation order (see section 49(2A)).
(3) A bail-in compensation order may include provision for—
(a) an independent valuer (in which case sections 54 to 56 are to apply);(b) valuation principles (in which case section 57(2) to (5) is to apply).”(3) In section 53 (onward and reverse transfers), in subsection (1)—
(a) after paragraph (f) insert—“(fa) the Bank of England makes a reverse property transfer instrument under section 44A(2),(fb) the Bank of England makes a supplemental property transfer instrument by virtue of section 44A(7),”;(b) omit the “or” after paragraph (g);(c) after paragraph (h) insert—“(i) the Bank of England makes an onward transfer resolution instrument under section 48V(2),(j) the Bank of England makes a reverse transfer resolution instrument under section 48W(2) or (3), or(k) the Bank of England makes a supplemental resolution instrument by virtue of section 48V(7) or 48W(10).”(4) In section 54 (independent valuer)—
(a) in subsection (1), after “compensation scheme order” insert “or bail-in compensation order”;(b) in subsection (4)(b), after “order” insert “or bail-in compensation order”.(5) In section 56 (independent valuer: money), in subsection (2)(b) for “or third party compensation order” substitute “, third party compensation order or bail-in compensation order”.
(6) In section 57 (valuation principles), in subsection (1), after “order” insert “or bail-in compensation order”.
(7) After section 60 insert—
“60A Further mandatory provision: bail-in provision
(1) The Treasury may make regulations about compensation arrangements in the case of—
(a) resolution instruments under section 12A(2) and supplemental resolution instruments under section 48U(2), and(b) instruments (made under any provision) that include special bail-in provision.(2) Regulations may—
(a) require a compensation scheme order, a third party compensation order or a bail-in compensation order to include provision of a specified kind or to specified effect;(b) make provision that is to be treated as forming part of any such order (whether (i) generally, (ii) only if applied, (iii) unless disapplied, or (iv) subject to express modification).(3) Regulations may provide for whether compensation is to be paid, and if so what amount is to be paid, to be determined by reference to any factors or combination of factors; in particular, the regulations may provide for entitlement—
(a) to be contingent upon the occurrence or non-occurrence of specified events;(b) to be determined wholly or partly by an independent valuer (within the meaning of sections 54 to 56) appointed in accordance with a compensation scheme order or bail-in compensation order.(4) Regulations may make provision about payment including, in particular, provision for payments—
(a) on account subject to terms and conditions;(b) by instalment.(5) Regulations—
(a) are to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.60B Principle of no less favourable treatment
(1) In making regulations under section 60A the Treasury must, in particular, have regard to the desirability of ensuring that pre-resolution shareholders and creditors of a bank do not receive less favourable treatment than they would have received had the bank entered insolvency immediately before the coming into effect of the initial instrument.
(2) References in this section to the initial instrument are—
(a) in relation to compensation arrangements in the case of property transfer instruments under section 12(2), to the first instrument to be made under that provision with respect to the bank;(b) in relation to compensation arrangements in other cases, to the first resolution instrument to be made under section 12A with respect to the bank.(3) The “pre-resolution shareholders and creditors” of a bank are the persons who held securities issued by the bank, or were creditors of the bank, immediately before the coming into effect of the initial instrument.
(4) References in this section to insolvency include a reference to (i) liquidation, (ii) bank insolvency, (iii) administration, (iv) bank administration, (v) receivership, (vi) composition with creditors, and (vii) a scheme of arrangement.”
(8) In section 61(1) (sources of compensation),—
(a) omit the “and” at the end of paragraph (c);(b) after paragraph (c) insert—“(ca) bail-in compensation orders,”;(c) after paragraph (d) insert, “, and(e) regulations under section 60A.”(9) In section 62(1) (procedure), omit the “and” at the end of paragraph (b), and after that paragraph insert—
“(ba) bail-in compensation orders, and”.Groups7 (1) After section 81B insert—
“81BA  Bail-in option
(1) The Bank of England may exercise a stabilisation power in respect of a banking group company in accordance with section 12A(2) if the following conditions are met.
(2) Condition 1 is that the PRA is satisfied that the general conditions for the exercise of a stabilisation power set out in section 7 are met in respect of a bank in the same group.
(3) Condition 2 is that the Bank of England is satisfied that the exercise of the power in respect of the banking group company is necessary, having regard to the public interest in—
(a) the stability of the financial systems of the United Kingdom,(b) the maintenance of public confidence in the stability of those systems,(c) the protection of depositors, or(d) the protection of any client assets that may be affected.(4) Condition 3 is that the banking group company is an undertaking incorporated in, or formed under the law of any part of, the United Kingdom.
(5) Before determining whether Condition 2 is met, and if so how to react, the Bank of England must consult—
(a) the Treasury,(b) the PRA, and(c) the FCA.(6) In exercising a stabilisation power in reliance on this section the Bank of England must have regard to the need to minimise the effect of the exercise of the power on other undertakings in the same group.”
(2) After section 81C insert—
“81CA  Section 81BA: supplemental
(1) This section applies where the Bank of England has power under section 81BA to exercise a stabilisation power in respect of a banking group company.
(2) The provisions relating to the stabilisation powers and the bank administration procedure contained in this Act (except sections 7 and 8A) and any other enactment apply (with any necessary modifications) as if the banking group company were a bank.
(3) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2) (“the bank”)—
(a) the provisions in this Act relating to resolution instruments are to be read in accordance with the general rule in subsection (4), but(b) that is subject to the modifications in subsection (5);and provisions in this Act and any other enactment are to be read with any modifications that may be necessary as a result of paragraphs (a) and (b).(4) The general rule is that the provisions in this Act relating to resolution instruments (including supplemental resolution instruments) are to be read (so far as the context permits)—
(a) as applying in relation to the bank as they apply in relation to the parent undertaking, and(b) so, in particular, as allowing any provision that may be made in a resolution instrument in relation to the parent undertaking to be made (also or instead) in relation to the bank.(5) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2) (“the bank”)—
(a) section 41A (transfer of property subsequent to resolution instrument) applies as if the reference in subsection (2) to the bank were to the parent undertaking, the bank and any other bank which is or was in the same group; (b) section 48V (onward transfer)—(i) applies as if the references in subsection (3) to “the bank” included the bank, the parent undertaking and any other bank which is or was in the same group, and with the omission of subsection (4) of that section, and(ii) is to be read as permitting the transfer of securities only if they are held by (or for the benefit of) the parent undertaking or a subsidiary company of the parent undertaking;(c) section 48W (reverse transfer) applies as if the references in subsections (2) and (3) to “the bank” included the bank, the parent undertaking and any other bank which is or was in the same group.(6) Where section 48B (special bail-in provision) applies in accordance with subsection (4) (so that section 48B applies in relation to the bank mentioned in section 81BA(2) as it applies in relation to the parent undertaking mentioned in subsection (3)), the provision that may be made in accordance with section 48B(1)(b) (see also rule 3(a) and (b) of section 48B(3)) includes provision replacing a liability (of any form) of that bank with a security (of any form or class) of the parent undertaking.
(7) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2)—
(a) section 214B of the Financial Services and Markets Act 2000 (contribution to costs of special resolution regime) applies, and(b) the reference in subsection (1)(b) of that section to the bank, and later references in that section, are treated as including references to any other bank which is a subsidiary undertaking of the parent undertaking (but not the parent undertaking itself).”(3) In section 81D (interpretation: “banking group company” etc)—
(a) in subsection (6), for “, 81C” substitute “to 81CA”;(b) in subsection (7) for “section 81B” substitute “sections 81B to 81CA”.Banks regulated by the Financial Conduct Authority8 In section 83A (modifications of Part 1 as it applies to banks not regulated by the Prudential Regulation Authority), in the table in subsection (2) insert the following entries at the appropriate places—

“Section 8A	Subsection (3)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.”
“Section 41A	Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.”
“Section 44A	Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.”
“Section 48H	Subsection (5)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.
Section 48U	Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.
Section 48V	Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.
Section 48W	Subsection (9)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.”
“Section 81BA	Subsection (5)(b) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.”

Recognised central counterparties9 In section 89B (application of Part 1 of the Act to recognised central counterparties)—
(a) in subsection (1), before paragraph (a) insert— “(za) subsection (1A),”;(b) after subsection (1) insert—“(1A) The provisions relating to the third stabilisation option (bail-in) are to be disregarded in the application of this Part to recognised central counterparties.”;
(c) in subsection (2), in the substituted section 13(1), for “third” substitute “fourth”.Insolvency proceedings10 In section 120 (notice to Prudential Regulation Authority of preliminary steps to certain insolvency proceedings)—
(a) in subsection (7)(b)(ii), after “Part 1” insert “(and Condition 5 has been met, if applicable)”;(b) after subsection (8) insert—“(8A) Condition 5—
(a) applies only if a resolution instrument has been made under section 12A with respect to the bank in the 3 months ending with the date on which the PRA receives the notification under Condition 1, and(b) is that the Bank of England has informed the person who gave the notice that it consents to the insolvency procedure to which the notice relates going ahead.”(c) in subsection (10), omit the “and” at the end of paragraph (b), and after paragraph (c) insert “, and(d) if Condition 5 applies, the Bank of England must, within the period in Condition 3(a), inform the person who gave the notice whether or not it consents to the insolvency procedure to which the notice relates going ahead.”;(d) After subsection (10) insert—“(11) References in this section to the insolvency procedure to which the notice relates are to the procedure for the determination, resolution or appointment in question (see subsections (1) to (4)).”
State aid11 After section 256 insert—
“State aid256A State aid
(1) This section applies where—
(a) the Treasury are of the opinion that anything done, or proposed to be done, in connection with the exercise in relation to an institution of one or more of the stabilisation powers may constitute the granting of aid to which any of the provisions of Article 107 or 108 of the Treaty on the Functioning of the European Union applies (“State aid”), and(b) section 145A (power to direct bank administrator) does not apply.(2) The Treasury may, in writing, direct any bail-in administrator, or any director of the institution, to take specified action to enable the United Kingdom to pursue any of the purposes specified in subsection (3) of section 145A (read with subsection (9) of that section).
(3) Before giving a direction under this section the Treasury must consult the person to whom the direction is to be given.
(4) The person must comply with the direction within the period of time specified in the direction, or, if no period of time is specified, as soon as is reasonably practicable.
(5) A direction under this section is enforceable on an application made by the Treasury, by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.”
Other amendments of the Act12 (1) Section 1 (overview) is amended as follows.
(2) In subsection (2)(a), for “three” substitute “four”.
(3) For subsection (3) substitute—
“(3) The four “stabilisation options” are—
(a) transfer to a private sector purchaser (section 11), (b) transfer to a bridge bank (section 12),(c) the bail-in option (section 12A), and(d) transfer to temporary public ownership (section 13).”(4) In subsection (4)—
(a) for “three” substitute “four”;(b) before paragraph (a) insert—“(za) the resolution instrument powers (sections 12A(2) and 48U to 48W),”;(c) in paragraph (b), after “33” insert “, 41A”.13 In section 13 (temporary public ownership), in subsection (1), for “third” substitute “fourth”.
14 In section 17 (share transfers: effect)—
(a) in subsection (1), after “order” insert, “or by a resolution instrument”;(b) in subsection (5), after “order” insert “or a resolution instrument”;(c) in subsection (6), after “order” insert “or a resolution instrument”.15 In section 18 (share transfers: continuity), after subsection (5) insert—
“(6) This section applies to a resolution instrument that provides for a transfer of securities as it applies to a share transfer instrument (and references to transfers, transferors and transferees are to be read accordingly).”
16 In section 21 (ancillary instruments: production, registration etc), after subsection (5) insert—
“(6) This section applies to a resolution instrument that provides for a transfer of securities as it applies to a share transfer instrument.”
17 In section 44 (reverse property transfer)—
(a) in subsection (2), after “more” insert “bridge bank”;(b) in subsection (3), after “more” insert “bridge bank”;(c) in subsection (4), for “A reverse” substitute “A bridge bank reverse”;(d) in subsection (4A)—(i) after “make a” insert “bridge bank”, and(ii) in paragraph (b), for “the reverse” substitute “the bridge bank reverse”;(e) in subsection (5), for “a reverse” substitute “a bridge bank reverse”;(f) in subsection (6), for “a reverse” substitute “a bridge bank reverse”;(g) in subsection (7), for “a reverse” substitute “a bridge bank reverse”;(h) in the heading, for “Reverse” substitute “Bridge bank: reverse”.18 In section 63 (general continuity obligation: property transfers), in subsection (1)(a), for “or 12(2)” substitute “, 12(2) or 41A(2)”.
19 In section 66 (general continuity obligation: share transfers)—
(a) in subsection (1)(a), after “13(2)” insert “, or which falls within subsection (1A)”;(b) in subsection (1)(d)(i), after “11(2)(a)” insert “, or in a case falling within subsection (1A)”;(c) after subsection (1) insert—“(1A) A bank falls within this subsection if a resolution instrument (or supplemental resolution instrument) has changed the ownership of the bank (wholly or partly) by providing for the transfer, cancellation or conversion from one form or class to another of securities issued by the bank (and the reference in subsection (1)(b) to “the transfer” includes such a cancellation or conversion).”
20 In section 67 (special continuity obligation: share transfers), in subsection (4)(c), after “order” insert “or resolution instrument”.
21 In section 68 (continuity obligations: onward share transfers), in subsection (1)(a), after “transferred by” insert “a resolution instrument under section 12A(2) or supplemental resolution instrument under section 48U(2) or a”.
22 In section 71 (pensions), in subsection (1)—
(a) omit the “and” at the end of paragraph (b);(b) after paragraph (c) insert “, and(d) resolution instruments.”23 In section 72 (enforcement), in subsection (1)—
(a) omit the “or” at the end of paragraph (b);(b) after paragraph (c) insert “, or(d) a resolution instrument.”24 In section 73 (disputes), in subsection (1)—
(a) omit the “and” at the end of paragraph (b);(b) after paragraph (c) insert “, and(d) resolution instruments.”25 In section 74 (tax), in subsection (6), for “or 45” substitute “, 45, 48U or 48V”.
26 After section 80 insert—
“80A Transfer for bail-in purposes: report
(1) This section applies where the Bank of England makes one or more resolution instruments under section 12A(2) in respect of a bank.
(2) The Bank of England must, on request by the Treasury, report to the Chancellor of the Exchequer about—
(a) the exercise of the power to make a resolution instrument under section 12A(2),(b) the activities of the bank, and(c) any other matters in relation to the bank that the Treasury may specify.(3) In relation to the matters in subsection (2)(a) and (b), the report must comply with any requirements that the Treasury may specify.
(4) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.”
27 In section 81A (accounting information to be included in reports under sections 80 and 81)—
(a) in subsection (1), for “or 81” substitute “, 80A(2)(b) or 81”;(b) in the heading, for “and 81” substitute “, 80A(2)(b) and 81”.28 In section 85 (temporary public ownership), in subsection (1), for “third” substitute “fourth”.
29 In section 136 (overview), in the Table in subsection (3), for “152” substitute “152A”.
30 After section 152 insert—
“152A Property transfer from transferred institution
(1) This section applies where the Bank of England—
(a) makes a resolution instrument that transfers securities issued by a bank (or a bank’s parent undertaking), in accordance with section 12A(2), and(b) later makes a property transfer instrument from the bank or from another bank which is or was in the same group as the bank, in accordance with section 41A(2).(2) This Part applies to the transferor under the property transfer instrument made in accordance with section 41A(2) as to the transferor under a property transfer instrument made in accordance with section 12(2).
(3) For that purpose this Part applies with any modifications specified by the Treasury in regulations; and any regulations—
(a) are to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”31 In section 220 (insolvency etc), after subsection (4) insert—
“(4A) The fact that ownership of an authorised bank is transferred or otherwise changed as a result of a resolution instrument (or an instrument treated as a resolution instrument) does not itself prevent the bank from relying on section 213.”
32 In section 259 (statutory instruments)—
(a) in the Table in subsection (3), in Part 1, in the entry relating to section 60 for “Third party compensation” substitute “Third party compensation: partial property transfers”;(b) in the Table in subsection (3), in Part 1, at the appropriate places insert—

“48F(1) and (2)	Power to amend definition of “excluded liabilities”	Draft affirmative resolution
48G	Insolvency treatment principles	Draft affirmative resolution
48P	Safeguarding of certain financial arrangements	Draft affirmative resolution
52A	Bail-in compensation orders	Draft affirmative resolution”
“60A	Third party compensation: instruments containing special bail-in provision	Draft affirmative resolution”;

(c) in the Table in subsection (3), in Part 3, at the appropriate place insert—

“152A

Property transfer from transferred institution

Draft affirmative resolution”;

(d) in subsection (5), after paragraph (d) insert—“(da) section 60A (special resolution regime: instruments containing special bail-in provision),”;(e) in subsection (5), after paragraph (k) insert—“(ka) section 152A (bank administration: property transfer from transferred institution),”.33 In section 261 (index of defined terms), in the Table, at the appropriate places insert—

“Bail-in compensation order	49”
“Resolution instrument	12A”
“Special bail-in provision	48B”.

Part 2Modification of Investment Bank Special Administration Regulations 201134 (1) This section modifies the application of the Investment Bank Special Administration Regulations 2011 (S.I. 2011/245) (“the regulations”) in cases where a resolution instrument has been made under section 12A of the Banking Act 2009 with respect to the investment bank in the relevant 3-month period.
(2) In subsection (1) “the relevant 3-month period” means the 3 months ending with the date on which the FCA receives the notification under Condition 1 in regulation 8 of the regulations.
(3) In their application to those cases, the regulations have effect with the modifications in sub-paragraph (4); and any enactment that refers to the regulations is to be read accordingly.
(4) In regulation 8 (in its application to those cases)—
(a) in paragraph (5)(c)(ii), for “appropriate regulator” substitute “Bank of England” and after “notice” insert “and the appropriate regulator”;(b) in paragraph (6), omit sub-paragraph (a) (but continue to read “that” in sub-paragraph (b) as a reference to the insolvency procedure to which the notice relates);(c) after paragraph (6) insert—“(6A) Where the FCA receives notice under Condition 1, it must also inform the Bank of England of the contents of the notice.
(6B) Where the Bank of England receives notice under subsection (6A), it must, within the period in Condition 3, inform the person who gave the notice and the appropriate regulator whether or not it consents to the insolvency procedure to which the notice relates going ahead.””

--- Later in debate ---

Moved by

[Lord Newby]

106: Before Schedule 2, insert the following new Schedule—
ScheduleConsequential amendments relating to Part 4Financial Services and Markets Act 20001 (1) Section 59 of FSMA 2000 (approval for particular arrangements) is amended as follows.
(2) In subsection (1), for the words from “the appropriate regulator” to the end substitute “that person is acting in accordance with an approval given by the appropriate regulator under this section.”
(3) In subsection (2), for the words from “the appropriate regulator” to the end substitute “that person is acting in accordance with an approval given by the appropriate regulator under this section.”
2 (1) Section 59A of FSMA 2000 (specifying functions as controlled functions: supplementary) is amended as follows.
(2) In subsection (1)(a) and (b), for “significant-influence” substitute “senior management”.
(3) After subsection (3) insert—
“(3A) “Senior management function” has the meaning given by section 59ZA.””
3 (1) Section 63 of FSMA 2000 (withdrawal of approval) is amended as follows.
(2) In subsection (1A)(a), for “significant-influence function” substitute “relevant senior management function”.
(3) For subsection (1B) substitute—
“(1B) In subsection (1A) “relevant senior management function” means a function which the PRA is satisfied is a senior management function as defined in section 59ZA (whether or not the function has been designated as such by the FCA).”
4 In section 63A of FSMA 2000 (power to impose penalties), in subsection (2), for paragraph (b) substitute—
“(b) P, when performing the function, is not acting in accordance with an approval given under section 59.”5 (1) Section 66 of FSMA 2000 (disciplinary powers) is amended as follows.
(2) In subsection (3), for paragraph (ab) (and the “or” following it) substitute—
“(ab) impose, for such period as it considers appropriate, any conditions in relation to any such approval which it considers appropriate;(ac) limit the period for which any such approval is to have effect;”.(3) In subsection (3A), for “restriction” substitute “condition”.
(4) In subsection (3B), for “or restriction” substitute “, condition or limitation”.
(5) In subsection (3C), for “restriction” substitute “condition”.
(6) In subsection (3D)—
(a) in paragraph (a), for “or restriction” substitute “, condition or limitation”,(b) omit the “or” at the end of paragraph (a),(c) in paragraph (b), for “restriction” substitute “condition”, and(d) after that paragraph insert—“(c) vary a limitation so as to increase the period for which the approval is to have effect.” (7) In subsection (9), for “restriction” substitute “condition”.
6 (1) Section 67 of FSMA 2000 (disciplinary measures: procedure and right to refer to Tribunal) is amended as follows.
(2) In subsection (1), for “or (ab)” substitute “, (ab) or (ac)”.
(3) In subsection (2A), for “restriction” (in both places) substitute “condition”.
(4) After subsection (2A) insert—
“(2B) A warning notice about a proposal to limit the period for which an approval is to have effect must state the length of that period.”
(5) In subsection (4), for “or (ab)” substitute “, (ab) or (ac)”.
(6) In subsection (5A), for “restriction” (in both places) substitute “condition”.
(7) After subsection (5A) insert—
“(5B) A decision notice about limiting the period for which an approval is to have effect must state the length of that period.”
(8) In subsection (7), for “or (ab)” substitute “, (ab) or (ac)”.
7 In section 69 of FSMA 2000 (statement of policy), in subsection (1)—
(a) in paragraph (a), for “or restrictions” substitute “, conditions or limitations”;(b) omit the “and” at the end of paragraph (b);(c) in paragraph (c), for “restrictions” substitute “conditions”;(d) at the end of paragraph (c) insert “; and(d) the period for which approvals under section 59 are to have effect as a result of a limitation under section 66.”8 In section 138A of FSMA 2000 (modification or waiver of rules), in subsection (2), before paragraph (a) insert—
“(za) rules made by either regulator under section 64A (rules of conduct);”.9 In section 138D of FSMA 2000 (actions for damages), in subsection (5), before paragraph (a) insert—
“(za) rules under section 64A (rules of conduct);”.10 In section 140A of FSMA 2000 (interpretation), in the definition of “regulating provisions”—
(a) in paragraph (a)—(i) omit sub-paragraph (iii), and(ii) in sub-paragraph (iv), omit “64 or”;(b) in paragraph (b), omit sub-paragraphs (ii) and (iii).11 In section 347 of FSMA 2000 (the record of authorised persons etc.), for subsection (9) substitute—
“(9) “Relevant authorised person”, in relation to an approved person, means the person on whose application approval was given.”
12 In section 387 of FSMA 2000 (warning notices), in subsection (1A), for “or 55I(8)” substitute “, 55I(8) or 61(2D)”.
13 In section 388 of FSMA 2000 (decision notices), in subsection (1A), for “or 55I(8)” substitute “, 55I(8) or 61(2D)”.
14 In section 395 of FSMA 2000 (supervisory notices), in subsection (13), after paragraph (a) insert—
“(aa) 63ZC(4), (8) or (9)(b);”.15 (1) Section 415B of FSMA 2000 (consultation in relation to taking certain enforcement action) is amended as follows.
(2) In subsection (4)—
(a) in paragraph (b), for “significant-influence” substitute “relevant senior management”, and(b) omit the definitions appearing after that paragraph.(3) After subsection (4) insert—
“(5) In subsection (4)—
“arrangement” has the same meaning as in section 59; “relevant senior management function” means a function which the FCA is satisfied is a senior management function as defined in section 59ZA (whether or not it has been designated as such under section 59(6B) or (6C)).”16 In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), in paragraph 8(3)—
(a) in paragraph (b), omit “64 or”;(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.17 In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority), in paragraph 16(3)—
(a) omit paragraph (b);(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.Financial Services Act 201218 In section 14 of the Financial Services Act 2012, omit subsection (4).
19 (1) Section 85 of the Financial Services Act 2012 (relevant functions in relation to complaints scheme) is amended as follows.
(2) In subsection (4)—
(a) in paragraph (b), omit “64 or”;(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.(3) In subsection (5)—
(a) omit paragraph (b);(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.”

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Moved by

[Lord Newby]

111: Schedule 2, page 34, line 11, at end insert—
“2A (1) Part 25 of FSMA 2000 (injunctions and restitution) is amended as follows.
(2) In section 380 (injunctions), in subsection (6)(a), omit the “or” at the end of sub-paragraph (i) and after sub-paragraph (ii) insert “or
(iii) which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part;”. “(3) In section 382 (restitution orders), in subsection (9)(a), omit the “or” at the end of sub-paragraph (i) and after sub-paragraph (ii) insert “or
(iii) which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part;”.(4) In section 384 (power of FCA or PRA to require restitution), in subsection (7), omit the “and” at the end of paragraph (a) and after paragraph (b) insert “or
(c) a requirement which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part.””

[Lord Newby]

These amendments address a minor and technical point in connection with Sections 380, 382, and 384 of FiSMA, which govern when the regulators may seek an injunction or a restitution order from the court, or require restitution themselves. To exercise these powers, the regulator must demonstrate that the person concerned has contravened a “relevant requirement”. The current definition of “relevant requirement” in FiSMA does not include the new offences created under Part 7 of the Financial Services Act 2012, which deal with misleading statements, misleading impressions, and misleading statements in relation to benchmarks such as LIBOR. This means that regulators are unable to seek an injunction or restitution in relation to these offences. That was not the Government’s intention. These amendments correct this oversight by extending the definition of “relevant requirement” to bring these offences within the scope of the regulators’ powers to seek an injunction or restitution. I commend these amendments to the House.

Amendment 111 agreed.

Moved by

[Lord Newby]

112: Schedule 2, page 34, line 11, at end insert—
“2B (1) In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), paragraph 20 (penalties) is amended as follows.
(2) In sub-paragraph (3)(b), after “this Act” insert “or under a provision mentioned in sub-paragraph (4A)”.
(3) In sub-paragraph (4), after paragraph (c) insert—
“(ca) its powers under the relevant competition provisions (as applied by Part 16A of this Act),”.(4) After sub-paragraph (4) insert—
“(4A) “The relevant competition provisions” are—(a) section 31E of the Competition Act 1998 (enforcement of commitments);(b) section 34 of that Act (enforcement of directions);(c) section 36 of that Act (penalties);(d) section 40A of that Act (penalties: failure to comply with requirements);(e) section 174A of the Enterprise Act 2002 (penalties).”(5) In sub-paragraph (5)—
(a) in paragraph (a), for “FSMA 2000” substitute “this Act”,(b) in paragraph (b), for “that Act” substitute “this Act”,(c) in paragraph (c), omit “of that Act”, and(d) after paragraph (c) insert— “(ca) offences under Part 1 of the Competition Act 1998,(cb) offences under Part 4 of the Enterprise Act 2002,”.”

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Moved by

[Lord Newby]

113A: Clause 17, page 28, line 38, leave out subsections (2) and (3) and insert—
“(2) A statutory instrument containing an order or regulations under this Act is subject to annulment in pursuance of a resolution of either House of Parliament, unless—
(a) the instrument contains only provision made under section 21 (commencement), or(b) the instrument is required by subsection (4) or any other enactment to be laid in draft before, and approved by a resolution of, each House.(3) Subsection (4) applies to a statutory instrument that contains (with or without other provisions)—
(a) regulations under section 8 (building societies: power to make provision about ring-fencing);(b) an order under section (Meaning of “payment system”)(4) (meaning of “payment system”);(c) an order under section (Power to make further consequential amendments) (power to make further consequential amendments) that amends or repeals primary legislation;(d) an order under paragraph 6 of Schedule (Conduct of FMI administration) (conduct of FMI administration).(4) A statutory instrument to which this subsection applies may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(5) In subsection (3)(c) “primary legislation” means—
(a) an Act of Parliament,(b) an Act of the Scottish Parliament,(c) a Measure or Act of the National Assembly for Wales, or(d) Northern Ireland legislation.”

[Lord Newby]

My Lords, these are technical amendments relating to a number of the new powers introduced to the Bill as a result of the Government’s amendments in your Lordships’ House.

Amendment 113A amends Clause 17 of the Bill to specify the procedures applying to statutory instruments made under the new powers. It provides that the affirmative resolution procedure will apply to: orders made by the Treasury to exclude certain systems from the definition of “payment systems” for the purposes of the new clauses establishing the new payments regulator; orders to make amendments, which are consequential to the Bill, to other primary legislation, under the power introduced by the second amendment in this group, to which I will return in a minute; and orders made under paragraph 6 of the schedule on the conduct of financial market infrastructure administration, which allows the Treasury to make further modifications to primary legislation to make appropriate provision for FMI administration. Orders made under other provisions of the Bill will be subject to the negative resolution procedure, unless they are required to be made using the affirmative procedure, or they are commencement orders.

Amendment 114 enables the Treasury to make amendments consequential to the Bill—and any statutory instruments made under it—to other primary and secondary legislation. For example, it is likely that this power will be used to bring other legislation in line with the terminology of the new senior managers regime. This power can be used only in certain circumstances and the Treasury can make orders under the power only if it considers it necessary or expedient to do so as a consequence of a provision in the Bill. Furthermore, the power applies only to legislation which is made before the Bill is passed, or which is made in the same Parliamentary Session in which the Bill is passed. I beg to move.

[Lord Eatwell]

My Lords, first, with respect to Amendment 113A, it is useful to see the use of the affirmative procedure here. However, the noble Lord will recall that the Delegated Powers Committee recommended an amendment which referred to the amendment of clauses that deal with ring-fencing. I asked more than two weeks ago how the Treasury would react to the Delegated Powers Committee in this respect and was told that I would receive a reply. I have not, as yet, received a reply. As we are now reaching the end of the Committee stage, it would be very helpful to know whether the Government are simply ignoring the Delegated Powers Committee, in which case we would require an explanation, or what the Government intend to do about this.

On Amendment 114, these powers are sometimes referred to as Henry VIII powers. Given this new clause, the good King Henry would regard it as rather excessive and would be taken aback by the power that the Treasury takes,

“amending, repealing, revoking or applying with modifications any enactment to which this section applies”.

The enactment applies to,

“any enactment passed or made before the passing of this Act”,

so, presumably, since the birth of Henry VIII. The new clause then refers to,

“any enactment passed or made on or before the last day”.

That I understand. What scrutiny will be given to these measures? We have been through a Committee stage which has identified a consistent rejection of proposals by the banking commission and particularly of the amendments that have been put forward. I have not heard the Government accept a single amendment put forward on behalf of the banking commission—not one—so there has been a consistent rejection of those. Now we are told that we will have the possibility of,

“amending, repealing, revoking or applying with modifications”,

a series of quite controversial measures in which the Government have attempted to water down the proposals of the banking commission. I would like to feel that I could get some reassurance that this power is to be used sparingly and is to be used only if there is some oversight or accountability to Parliament when it is used.

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[Lord Turnbull]

Because of the piecemeal way in which the Bill has been constructed, we now have a piecemeal presentation of the secondary legislation procedure as it applies to each bit—and I have completely lost track of it. The first thing that needs to be done is to set out, for the whole Bill—the bits that were there originally and the bits that have been added—what the secondary legislation provisions are. Then we can make a judgment on whether they are appropriate: whether the right things have been assigned to the negative procedure and the right things assigned to the positive procedure. However, it is virtually impossible to do this on the basis of this piecemeal presentation.

Amendment 114 raises enormous issues. The Minister is shaking his head and may try to reassure us, but there are important provisions here that need to go to various committees which we have set up in this House to examine such things.

[Lord Newby]

My Lords, three issues have been raised. The first is whether we have responded to the Delegated Powers Committee. I explained at some length last week what the Government’s response was. Subsequently, I wrote to the chair of the committee, reiterating what I had said. I am sorry if noble Lords have not seen the letter; I will make sure that it gets to them. I will repeat what I said and what the letter said.

The Government’s view, bearing in mind that the committee said it was for the House to decide and did not make a recommendation on the procedure to be followed, is that, given the technical nature of these statutory instruments, the best way forward, in the light of the Government’s response to the consultation process that they have just completed, is to invite noble Lords who are interested in the secondary legislation to the Treasury to have an informal discussion on the issues, and to see what they feel might be done, and whether any amendments are required. The Treasury does not have a fixed view on the detailed provision of that secondary legislation, and would welcome the further views of Members of your Lordships’ House.

Secondly, I find literally incredible the suggestion of the noble Lord, Lord Eatwell, that the Government took no account of the recommendations of the PCBS.

[Lord Eatwell]

Which amendment proposed by the PCBS have the Government accepted?

[Lord Newby]

The noble Lord may or may not remember that at the start of today’s discussions the noble Lord, Lord Lawson, pointed out that the size of the Bill had expanded multiple times. I admit that part of this relates to the Government’s amendments on bail-in. However, every other amendment is in order to implement a recommendation of the PCBS. That is what we spent nearly all of last week discussing.

[Lord McFall of Alcluith]

There is a real communication problem here. I was at a meeting with the noble Lords, Lord Turnbull and Lord Lawson, and with Andrew Tyrie, and they all complained about the expansion of the Bill from 35 pages to 199. If the Minister, incredibly, is saying that this is to help the Parliamentary Commission on Banking Standards, perhaps the Government should start communicating with us on this, because we are dismayed by the number of pages in the Bill, not accepting of it.

[Lord Newby]

My Lords, I am sorry; with the exception of the bail-in provisions, the expansion of the size of the Bill is specifically in order to implement recommendations of the parliamentary commission, such as the senior managers regime, the criminal sanctions and the enhanced electrification power. The reason that the Government have not today accepted everything that the PCBS has recommended is that we have already accepted the majority of the commission’s recommendations and put them in the Bill. It is simply not the case that we have accepted no recommendations of the parliamentary commission—quite the opposite.

The final issue is specifically about the powers in this amendment. The powers can only be used to make consequential amendments—that is, those which are needed to deal with the provisions passed in the Bill. The example I gave was in relation to the senior persons regime, and I can reassure the noble Lord, Lord Brennan, that there is nothing sinister or unusual in what is being proposed. These powers are commonly taken in Bills which make significant changes to existing law. I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate. The hour is late, but I can assure the House that we are not doing anything here that is in the slightest way unusual.

[Lord Eatwell]

Will the noble Lord agree that Amendment 114, at least, should be withdrawn until it can be considered by the Constitution Committee and the Delegated Powers and Regulatory Reform Committee? He has plenty of time to bring it back on Report if he then has substantial justification for it, and it would give considerable comfort to the Committee.

[Lord Newby]

My Lords, I do not think that we need to withdraw the amendment. As I say, it is a standard provision. Interestingly, the specific reason that I gave for requiring it relates to the implementation of a recommendation of the Parliamentary Commission on Banking Standards. However, as I say, this provision is not in any way unusual. Therefore, I do not believe it needs the process that the noble Lord suggests.

Amendment 113A agreed.

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Moved by

[Lord Newby]

114: After Clause 18, insert the following new Clause—
“Power to make further consequential amendments
(1) The Treasury may by order make such provision amending, repealing, revoking or applying with modifications any enactment to which this section applies as they consider necessary or expedient in consequence of any provision made by or under this Act.
(2) This section applies to—
(a) any enactment passed or made before the passing of this Act, and(b) any enactment passed or made on or before the last day of the Session in which this Act is passed.(3) Amendments and repeals made under this section are additional to those made by or under any other provision of this Act.”

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Moved by

[Lord Newby]

115: Clause 21, page 29, line 33, at end insert—
“( ) Section (Building societies) and Schedule (Building societies), apart from paragraph 4 of that Schedule, come into force at the end of the period of 2 months beginning with the day on which this Act is passed.”

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Moved by

[Lord Newby]

118:In the Title, line 4, after “insolvency;” insert “to make further provision about payment systems and securities settlement systems;”

[Lord Newby]

My Lords, this amendment is consequential upon government Amendments 60A to 60YYV introducing a Payments Systems Regulator, and government Amendments 61 to 78, 107 and 108 which introduced a special administration regime for the operators of financial market infrastructure companies. It amends the Long Title of this Bill to reflect the fact that its scope now extends to payment systems and securities settlement systems and therefore ensures that the Long Title matches the content of the Bill. I commend this amendment to your Lordships.

Amendment 118 agreed.