Financial Services (Implementation of Legislation) Bill [HL]

Lord Davies of Oldham Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

The Government are looking to give themselves quite unnecessarily wide powers in this Bill. It is surely unnecessary, as well as unwise, to allow HMT to create new policies and laws for our critical financial services industry without full, proper parliamentary scrutiny. The promised consultations are no substitute for primary legislation. Nor, emphatically, is our affirmative SI procedure. We should restrict this Bill’s delegation of powers in the light of departure from the EU to do two things: to rectify any defects in retained EU law, and to incorporate into UK law elements of the specified in-flight legislation. Amendment 3 is aimed at imposing those restrictions.

[Lord Davies of Oldham (Lab)]

My Lords, there is no need for me to repeat the arguments put forward in respect of the earlier measures considered here, so I will speak predominantly to Amendment 5. I looked carefully at the Minister’s summing up at the end of Second Reading. These issues had been articulated widely and we did not think that the Minister was at that time in a position to make forthright improvements, but we are worried now because we are now in Committee and we all recognise the privations of time. It seems to me that, with issues as serious as they are, the Minister ought to consider whether there is a basis for discussion between us outside the Chamber to resolve what, after all, is an essential part of the Bill but is not satisfactory, as it reads at present, to the Opposition parties.

Amendment 5 limits the adjustments—I notice that the word “adjustments” covers a multitude of potential activity and I am not sure that I am entirely happy with that as a defence of where the Government expect the Treasury to go—that the Treasury may make to specified EU financial services legislation to,

“adjustments in connection with the withdrawal of the United Kingdom from the EU”.

At present there is no restriction on these adjustments: they could be made in the context of circumstances other than the main purpose of the Bill. We must all recall that this is a Bill of a very specific kind; namely, to cope with a no-deal situation, with the expectation on the Government’s side that it will not become law—that is, it will not be necessary for it to become law because a deal will have been achieved. That is a position that verges on the optimistic at this point, but of course it will be clarified by debates both in this House and in the Commons over the next few days.

As currently drafted, the Bill allows the Treasury to make any adjustments it may consider appropriate. That is the dreamland of the Treasury. I should think it is probably the dreamland of any adviser to the Minister, or any Minister, on any Bill, that he should have that capacity; that there should be provision for adjustments to be made subsequently. Of course, these will be adjustments that the Treasury—the Government—considers to be appropriate. That is scarcely anything other than a pretty outrageous position to adopt.

I also want to comment on Amendment 7, which limits the adjustments—that word again—that the Treasury may make to provisions of specified EU financial services legislation

“to preventing, remedying or mitigating deficiencies in retained EU law”,

and prevents the regulations under Clause 1 from making policy changes,

“other than to reflect the United Kingdom’s new position”,

if we have a deal and have left the EU, vis-à-vis the European Union. The wording of this amendment comes directly from what the Minister said to the House at Second Reading. It comes from the Government’s own explanation of the powers they are using under the EU withdrawal Act for onshoring SIs. I cannot see how the Government can resist accepting the concept of this amendment. They surely do not want to arrogate to themselves powers different from those defined in Amendment 7, which follow the position the Government have adopted up to now. But the Minister must be sufficiently anxious that, in addition to the amendments we have just discussed, from both the Liberal Benches and ours, we have real anxieties about the way in which the Bill stands before the House. The response we received at Second Reading satisfied none of us; otherwise, we would not have felt moved to table these amendments. We will need to make progress because as far as the Opposition are concerned, these are central issues to the Bill if it eventually becomes law.

[Baroness Liddell of Coatdyke (Lab)]

My Lords, at Second Reading it was obvious to many of us across the House that the Bill was a useful safety net for in-flight legislation. As such, there was a spirit of collaboration and helpfulness. However, since then we have received the report of the Delegated Powers and Regulatory Reform Committee, which is quite scathing about some of the inconsistencies in the Bill. I quote from paragraph 5:

“Furthermore, the assumption that the Bill will only apply in a ‘no deal’ scenario has led in our view to inconsistencies in the drafting of the Bill”.


I still recognise the importance of getting the Bill on to the statute book but we cannot allow it to become a blank cheque. It is important to recognise that there are inconsistencies in the Bill. Indeed, the Delegated Powers Committee drew attention to the comments it had made during its consideration of how HMRC was covered in the withdrawal Bill, saying:

“We judge powers not on how the Government say that they will use them but on how any Government might use them”.


The Minister is an extremely honourable man, probably one of the most honourable in your Lordships’ House. It would be of enormous value to the Committee if we could get this cleared up. It may not be possible at this stage but certainly by Third Reading we should at least have something in the record of the debate that deals with these inconsistencies on a sequential basis. Noble Lords have already referred to some of the difficulties. There will be further opportunities to explore these in the amendments that we will be considering in due course. But this is an important and necessary piece of legislation and it does not help anybody to have gaps left in it that can create difficulties for the future.

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Moved by

[Lord Davies of Oldham]

10: Clause 1, page 2, line 1, leave out “8(5) and (7)” and insert “8(7)”

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[Lord Davies of Oldham]

My Lords, I can be brief because we have already had at least four debates this afternoon on the exact issues that this amendment and Amendment 11 in my name and that of my noble friend Lord Tunnicliffe deal with. It all revolves around the fact that we are not prepared to give the Government and the Treasury primary powers over issues that would normally require primary legislation just because this Bill has some exceptional qualities to it. It does indeed have exceptional qualities, as has been pointed out on all sides. It is meant to have a lifetime of a bare two years. The vast majority—I will withdraw that remark; I cannot qualify it. Some people who have spoken today have sought to make some improvements to the Bill but I do not have the slightest doubt that they hope that the Bill will never be necessary and that we will not crash out of the European Union without an agreed position.

Two debates ago, the noble Baronesses, Lady Bowles and Lady Kramer, did exactly what we seek to do with this amendment—that is, to identify just where our limits are with regard to the intention in the Bill and to point out that it is misconceived because it attributes to the Treasury powers that we ought not to allow it to have. We thought that we had spotted the area where the debate would flare up most significantly in Henry VIII powers terms, but in fact these issues have already been discussed without the need to mention that moniker too often.

I therefore move this amendment on the basis that the Committee and the Minister know only too well the strength of feeling on all sides that this Bill cannot be a Trojan horse to allow the Treasury and the Government to introduce measures that they would ordinarily introduce through primary legislation but which they are trying, through the enabling quality of this Bill, to introduce through statutory instruments and Treasury adjustments. We have debated this matter long and hard. We all know where we stand and I therefore beg to move, although I do not expect too much in the way of contributions in support.

[Baroness Kramer]

I will just say from these Benches that we agree.

[Lord Bates]

My Lords, first, I am sure that I speak for the whole Committee in thanking the noble Lord for his succinctness in presenting his amendment. I recognise the old adage that everything needs to be said but not everyone needs to say it. That is a good principle. In following him in that spirit, I will put on the record a few comments that I believe will be helpful for our wider debates.

We appreciate the concerns across the Committee regarding the Henry VIII powers and, where they are proposed, it is clear that their necessity must be well evidenced. In the case of the financial services legislation, to which the power in this Bill will apply, I hope that noble Lords will accept the need for such a power.

An inability to amend existing primary legislation such as the Financial Services and Markets Act 2000 will render it impossible to implement this necessary body of legislation. Further, as noble Lords will be aware, the exercise of many functions under financial services legislation is carried out by the independent regulators—the Financial Conduct Authority and the Bank of England. The capacity and expertise of the financial regulators will be absolutely crucial to the effective implementation of these pieces of legislation and, consequently, to the resilience and prosperity of the financial services sector here in the UK.

The amendment would remove the ability to delegate to the regulators because, as a general rule, a power to make secondary legislation does not include a power to sub-delegate. An inability to effectively delegate powers to the regulators in implementing the legislation contained in this Bill would severely undermine the value of transposing the original legislation into UK law. In many cases, it would effectively render legislation unenforceable, and the Bill would simply not be able to achieve its central goal of ensuring that the UK continues to be an attractive and competitive place to do business in the immediate two-year period post exit, in the unwelcome and unlikely event of a no-deal scenario. Given this context and the context of the previous debate, I invite the noble Lord to consider withdrawing his amendment.

[Lord Davies of Oldham]

My Lords, I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

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[Baroness Kramer]

I want to make one very quick comment to add to those of the noble Lord, Lord Sharkey. There is a real danger that the pattern within this Bill becomes a precedent, and that for future financial legislation we in effect see this process of Treasury decision enacted through statutory instrument. This sunset clause would make that impossible. It would make sure that this was, in effect, a one-off, and that there was a return to normal practice following the end of four years.

[Lord Davies of Oldham]

My Lords, it is time to be kind to Ministers when one gets to this end of the Bill. My advice to the Minister is to indicate what a logjam of SIs there would be four years on from the consequences of this strategy. I understand entirely, and sympathise very much with the intent behind the amendment, but if I were the Minister I think I would point out a few of the practical difficulties.

[Lord Bates]

There speaks the voice of experience. From his time speaking from this side of the Chamber, the noble Lord has perhaps pre-empted some of the concerns that we would have about this proposal, but let me put them on the record.

I am grateful to the noble Lord for giving us an opportunity to debate this important area. In implementing files under the Bill, it will be necessary to amend existing legislation to reflect updates to the regime. Should all powers under the Bill lapse at a stroke, without replacement, the legal effect on amended legislation would be unclear.

At a time when we should be seeking to provide industry with clarity and certainty, I am afraid that the amendment would have the unfortunate and unintended effect of providing just the opposite. Rather than minimising the cliff-edge risks, it would create a new series of cliff-edge challenges to be faced in the coming years. The potential for this legislation to lapse without replacement does not provide certainty to firms. Compliance with new regulatory regimes can be costly, and it would have a negative effect on firms’ confidence in the Government’s ability to set effective and proportionate regulation should we implement vital legislative reform only for it to drop away after a given period.

I appreciate the noble Lord’s concern that regulations made using this power will have a lasting effect on the structure of the UK’s financial services regulatory framework. This is why the power can apply only to a limited set of important files, which have been set out on the face of the Bill. In a no-deal scenario, implementing those files could be crucial to avoid conceding a competitive advantage to businesses operating in EU-based markets or to remain compliant with the Basel rules and meet our G20 commitment to international standards.

The noble Lord is clearly right, however, in pointing out that this cannot be a long-term model for a regulatory framework. Beyond this temporary solution, once we have left the EU in a no-deal scenario, the Government recognise the clear need for an approach that balances parliamentary oversight of financial services legislation with maintaining the flexibility and competitiveness of our regime. To that end, we will take forward proposals for a sustainable, long-term model in due course.

It is perhaps worth pointing out also that the Small Business, Enterprise and Employment Act 2015 requires the inclusion of a statutory review clause in secondary legislation that regulates business if the legislation continues to have effect five years after its entry into force. When taking forward SIs under the Bill, the Government will therefore be under a duty to make provision to undertake a post-implementation review after five years or to publish a statement that it is not appropriate in the circumstances to do so. In this light, I hope that the noble Lord will feel able to withdraw this amendment.

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I realise that these matters are rather complex and may have become more so as the debate has gone on. I wonder whether the Minister would be prepared to meet me and others before Report to discuss the issues further. In the meantime, I beg to move.

[Lord Davies of Oldham]

My Lords, I, too, raised this issue at the conclusion of my speech at Second Reading. I quite understood, with the vast range of issues that the Minister had to respond to on that day, his feeling unable to go into great detail on this one. That is why I was delighted to sign up to the amendment put forward by the noble Lord, Lord Sharkey. The Minister has a real case to answer here, and I hope that we will have a constructive response.

[Lord Bates]

My Lords, I hope I can oblige the noble Lord, Lord Davies, with a constructive response to end Committee. I thank all noble Lords who have taken part. I understand that several Members have received representations from the sustainable finance industry. This amendment seeks to add to the Bill’s Schedule two EU files that complete the European Union sustainable finance package.

As I have mentioned already, the Government acknowledge that the power being sought in this Bill is broad. That is why it has been designed with a number of safeguards and limitations in place. One of these is for the power to be limited to a specified set of EU legislative proposals, named on the face of the Bill. In order to focus the power as narrowly as possible, the list of files in the Schedule to the Bill was determined through an assessment of the importance of files to the stability and competitiveness of the UK’s financial services sector. The noble Lord, Lord Sharkey, highlighted this as one of his concerns when moving his amendment. In short, these are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario.

I will, of course, be very happy to meet the noble Lord, and the noble Lord, Lord Davies, on this issue. I think we are already going to be meeting quite a bit between now and next week. I have listened carefully to the arguments in favour of the merits of adding these files to the Schedule, and I undertake to reflect on the matter ahead of returning to it on Report. In the light of this, and of the discussions that will take place, I invite the noble Lord to consider withdrawing his amendment at this stage.