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Banking Bill

My Lords, I am grateful to noble Lords for their contributions to the debate. I am particularly grateful to those who kindly met with my noble friend Lord Myners, officials and me on Thursday to look at these issues in some detail. That examination has been reflected in today’s contributions. I am a bit less grateful to my noble friend Lord Barnett. He may think that I am so short in the tooth that if he dangles before me the prospect of reducing the level of his Question tomorrow, I will give him a decent answer today—but there is not a hope of it having that effect. I will not be able to give him the response that he wanted, save in so far as to say that any variation of a director’s contractual entitlements would be affected under provisions such as Clause 20, in respect of banks subject to special resolution, and not under this clause. Clause 75 will not be needed here, nor could it be used. I am prepared to wager that that will shorten my noble friend Lord Barnett’s Question tomorrow, and make the task of my noble friend who replies to it that much the easier. I looked very carefully at the point raised by the noble Lord, Lord Higgins, and can give him an assurance on it. I hope to spell out exactly what Clause 75(3) will do and to put it into context so that he can see why we should safeguard against the anxiety that he expressed—the proper anxiety that someone might become an unintended victim of powers which we never intended to use in those terms. Throughout the debates in Committee and on Report, as well as in our meeting last Thursday, noble Lords rightly sought to ascertain exactly what the retrospective power under Clause 75 will be used for. On Report, this debate coalesced around subsection (3), which provides that the Treasury may use the power if it considers it either, "““necessary or desirable for giving effect to a particular exercise of power””," under Part 1. The Constitution Committee under the chairmanship of the noble Lord, Lord Goodlad, had already made it clear—the noble Lord reinforced the point in the Chamber both today and on Report—that only by considering examples of how the Treasury intends to use the power could the House come to a reasoned view on whether the power was justified. I gave a number of examples on Report, although I am not sure that they impressed any members of the committee; my noble and learned friend Lord Morris indicated today that they certainly did not impress him. I said on Report that the Government could not amend the power to the extent that it would become unusable. That remains the Government’s position, from which we cannot move. However, in response to the concerns that have been expressed on the several occasions when these issues have been considered, we have brought forward amendments today in order to delineate this power more carefully. In the process, it is necessary to correct some drafting problems with this clause. When I have finished dealing with the substantive arguments that have been deployed today, to which I am under an obligation to respond, I will talk about the amendments that my noble friend Lord Myners has tabled to help to solve these drafting problems. However, those are within the framework of the main case that I am about to deploy. Let me remind the House of the existing public law limits on the use of Clause 75(3). I will then look in detail at the amendments that have been put forward and finally I will come to the government amendments. In our debates so far, I have focused on justifying the existence of Clause 75 per se and, in particular, the presence of subsection (3), which confers the retrospective power and which has been the focus of anxieties. We have had wide-ranging debates, but I do not believe that we have yet addressed in full the existing constraints on this retrospective power or how we can enhance the safeguards around the use of the power. That is what I hope to do today. The constraint on the use of the power provided for in the Bill—the ““necessary or desirable”” test, on which this debate is focused—is not, of course, the only limit on the use of the retrospective power. There is a significant risk that the use of a retrospective power can give rise to unfairness and it must not be undertaken lightly. I want to reassure noble Lords that Ministers and the Treasury, in preparing this Bill, have been all too well aware of the anxieties of this House. I almost said, ““of this House in particular””, but that would be grossly unfair to our colleagues in the other place. However, there was no doubt that this House would express anxieties about retrospective legislation, and so it has proven. We should recognise that the retrospective power in the Bill does not exist in a vacuum; it exists within a highly developed constitutional framework. It is important to recognise the range of constraints on the use of the power. Not all these appear on the face of the Bill, nor would noble Lords expect them to. First, there are the convention rights. Article 7 is an absolute bar on the retrospective imposition of criminal offences or the increase in penalties. The use of this particular retrospective power may also engage Article 1 of the first protocol: the right to the peaceful enjoyment of property. Retrospective interference with property rights needs particularly careful justification, where the action must be proportionate to the public interest pursued. The range of cases where it will be compatible with the convention rights to interfere retrospectively with the property rights protected by Article 1 of the first protocol is very limited. Secondly, the Government have a duty to act reasonably. What ““reasonably”” means in practice will, of course, depend on the context. The more unusual or potentially unfair the proposed course of action, the more it will be necessary to justify, by way of reason, any government action. I speak as a layman. Several noble Lords who spoke in the debate are distinguished lawyers, but I have no claim at all to expertise in the law. But in layman’s terms: if the Government are proposing to legislate with retrospective effect they need to be especially reasonable when they do so. I should like to elaborate a little on how this second point relates to the amendments in front of us today. Since Report stage the Government have been involved in intensive discussions on how to put further limitations on Clause 75 in order to allay concerns expressed by noble Lords both on Report and in the work of the Constitution Committee. As part of that we have looked very seriously indeed at the form of words that the noble Lord, Lord Goodlad, proposes in Amendment 21, which seeks to introduce a ““compelling reasons”” test to the retrospective power. We have gone back to our parliamentary draftsman on this point. In light of the intensive discussions that we have had, we consider that there are difficulties with this form of wording in the amendment. The requirement to have ““compelling reasons”” for legislating with retrospective effect in effect mirrors the effect of existing administrative law. Put differently, even as the text stands, the Treasury could enact retrospective legislation only if it had compelling reasons to do so. So adding these words to the text would not add anything of substance. In a sense, the Government’s reasons have got to be compelling. A reason that is not compelling is simply no reason at all for a power of this kind, constrained in the ways that I have sought to make explicit. A further difficulty with the amendment is that spelling out the ““compelling reasons”” test in this legislation would in fact lead to doubt about many other cases where the rules of administrative law require—as we would anticipate—strong reasons for acting but where no express reference to compelling reason is found elsewhere. It would therefore be undesirable for us to introduce it into this clause. The third constraint on the exercise of retrospective powers is the Government’s respect for the rule of law and legal certainty. Despite the rather critical—I would not go so far as to say cynical—comments that may sometimes be made in response to such statements, the Government always take very seriously their duty to act fairly and appropriately. We fully recognise the values of fairness and legal certainty, values which are the bedrock of the common law system of justice in this country. Therefore, in considering whether retrospective legislation is appropriate, we will reflect not just on whether legislative proposals are compatible with convention rights or are intra vires of enabling powers but also on whether the proposed exercise of the power satisfies standards of fairness and propriety. I cannot emphasise strongly enough that we do not take retrospective legislation lightly. As I said on Report, there are also measures in the Bill that should provide reassurance on how Clause 75 will be used. Subsection (1) of the clause requires the Treasury in exercising Clause 75 in any case, including cases where the power is exercised retrospectively, to have regard to the special resolution objectives. These are defined clearly and precisely under Clause 4, and they are another great limiting factor on the context within which this retrospective legislation might be deployed. Of course, the Government recognise that these public law constraints may not be enough to provide sufficient certainty. We also accept that the House has not been reassured by the restrictions implicit in the special resolution objectives to which I have alluded. We recognise that we need to go further. The Government have looked seriously at the noble Lord’s Amendment 21 because we agree with the thrust of the argument that there must be ““compelling reasons”” for the use of the retrospective power. However, as I said, we cannot agree to the amendment because it simply reiterates existing public law requirements on necessity with the undesirable side-effect that it may call these requirements into question in other contexts where they have not been explicitly set out in powers enabling administrative action. We want to add something material to the range of existing constraints, which I have just described, and to avoid the potential for casting doubt on the existing safeguards provided by public law. We believe that Amendment 22 does just that, by positively affirming the public interest in avoiding retrospection. Before I come on to the detail of the government amendment, I should like to comment a little further on Amendment 20. I think that it would help if I gave an account of the original drafting of the text. I am reluctant to detain the House for as long as I was obliged to do on Report, when I sought to give examples of where the Treasury might consider it necessary to use the retrospective power. However, I should like to expand briefly on why we need to retain the word ““desirable””, given that the Treasury considers those examples ““necessary””. One example that I gave on Report is the possibility that the resolution of a bank might raise issues that had never been dealt with before and that, in the process of making the order, we might miss something, running the risk that the directors of the bank or other third party could be subject to a regulatory penalty or even a criminal sanction. The prospect of a person being exposed to a penalty in such cases is obviously unpalatable. The penalty may have occurred as a direct result of the transfer, rather than any action by the person subject to the penalty. He may have had no knowledge of the sanction and may not have been in a position to avoid it. I argue that under this circumstance it would be common sense and reasonable to use the retrospective power, but would it really be necessary in the strictest sense of the word? The person may be perfectly able to satisfy the penalty or be easily able to pay the fine, for example. Either way, the trouble with the word ““necessary”” in that sense is that there could be legal uncertainty, and we are anxious about any dubiety regarding how the Bill will operate when it becomes an Act. In other examples—I give way to the noble Lord.