Financial Services (Implementation of Legislation) Bill [HL] Debate
Full Debate: Read Full DebateLord Sharkey
Main Page: Lord Sharkey (Liberal Democrat - Life peer)Department Debates - View all Lord Sharkey's debates with the Department for International Development
(5 years, 11 months ago)
Lords ChamberMy Lords, this very brief Bill has a perfectly reasonable objective, which we support. It makes obvious sense to deal with the in-flight files relating to financial services against the possibility that we crash out of the EU on 29 March. I entirely accept that we need to ensure the functioning of our statute book against the possibility of a chaotic exit from the EU. I entirely accept that we need a certain flexibility in the way we do this. We need to have the ability to incorporate pending EU legislation to which we have contributed significantly and which will bring clear benefits to the UK, but will not be incorporated, as the Minister said, by the EU withdrawal Act.
This need is not confined to the financial sector. I expect that the Government will want to bring forward similar legislation to cover other sectors. In particular, I would welcome equivalent legislation to cover the clinical trials regulation, which has been adopted but not yet applied. I realise that this is outside the Minister’s brief, but might he have a quick word with his colleagues in the Department of Health and Social Care about the Bill’s in-flight mechanism?
The Bill before us may be short but it raises a number of substantive questions. The first concerns policy change. It seems clear that the proposed in-flight mechanism will allow the Government to make policy changes by delegated legislation, as section 2 of the de minimis impact assessment makes explicit. That is specifically prohibited in the EU withdrawal Act because it would significantly reduce parliamentary scrutiny. The same objection applies here. Making or changing policy via SIs will equally diminish parliamentary scrutiny. If doing this was wrong for the EU withdrawal Act, why is it okay for this Bill? Is it right to change policy, perhaps significantly, without substantive parliamentary debate? The affirmative procedure certainly does not count as substantive parliamentary debate. I would be grateful for the Minister’s thoughts on the matter.
The second question relates to the schedule. The provisions in it are not the only in-flight financial services proposed legislation. For example, the UK Sustainable Investment and Finance Association points out two other provisions. The first is the European Commission’s proposal of May 2018 for a regulation establishing a framework to facilitate sustainable investment. The second is a proposal for a regulation on disclosure relating to sustainable investments and sustainability risks. Why were those two in-flight proposals not included in the schedule list? More generally, on what basis were the items in the list chosen and on what basis were they excluded?
I can easily see that some items in the schedule are critical. The Capital Requirements Regulation II and the Capital Requirements Directive V will allow us to update the rules on minimum capital requirements derived from the international Basel standards. The Central Counterparty Recovery and Resolution Regulation will ensure that CCPs and the Bank have mechanisms for acting defensively in a crisis to ensure financial stability and the continued functioning of CCPs. I probably do not need to remind your Lordships that the Bank of England’s chief economist, Andy Haldane, has pointed out that if CCPs were to fail chaotically or be unable to continue to function, it would be 2008 on steroids.
My real difficulty with the Bill lies with Clause 1. “Similar” in subsection (1)(a) seems to give very wide discretion. Who is to decide what is similar, and on what basis? Subsection (1)(b) appears to give the Treasury extreme latitude. What is the force of the word “adjustments”? Does it imply any limitation on the changes that may be made? If it does, what are they and should they not be in the Bill? There is then even wider latitude: these adjustments can be made as the Treasury considers “appropriate”. Would it not be better to limit what currently seems an absolute and unfettered discretion for the Treasury to decide what is appropriate? Should not “appropriate” be qualified? Would it not be better to specify a purpose and to know “appropriate” for what purpose or objective? In any case, we need some indication of what tests will be applied in deciding when an adjustment is appropriate.
The wording of subsection (1) makes it clear, given the wide powers, that policy change can be brought about by SIs, limiting parliamentary scrutiny. This becomes evident when we consider the wording in parentheses, which makes it plain that the Treasury adjustments do not even have to have anything to do with our withdrawal from the EU.
A further question arises from Clause 1(9). It is not clear to me—I know that this may be entirely my fault—what this subsection actually does. In particular, I am unclear about the phrase, “in that following year”. I am not sure what that refers to or what it means and I would be very grateful if the Minister would explain.
The policy note issued by the ministry has been very helpful in working through the Bill, but it raises one additional question. On page 3, paragraph 1.8 talks about the safeguards contained in the Bill. The final bullet point states that the power,
“cannot be used to impose taxation; make retrospective provision; create some criminal offences; establish a public authority; implement a withdrawal agreement; or amend the Human Rights Act 1998 or the devolution settlements”.
It follows from this that the power can create some criminal offences. It would be very helpful if the Minister would spell out for us just what criminal offences may not be created and, by extension, under what circumstances the Treasury would want to create new offences and what these might encompass.
Overall, the Bill effectively allows the introduction of fundamental new law by SI. There is no natural, native parent for these SIs. There will have been no primary legislation to allow thorough parliamentary scrutiny. We will be relying, if that is the right word, for proper scrutiny on the EU institutions, which we will have left and whose interests may not be aligned with ours. Perhaps we need a sunset clause for the effects of these SIs, and not just for the powers within the SIs themselves, so that there will be an opportunity for proper scrutiny as they are incorporated in new primary legislation. I am sure that we will come back to this in Committee.
As I started by saying, we support the objectives of the Bill but have some serious concerns about the unfettered nature of the powers it contains and the implications for parliamentary scrutiny. I hope that the Minister will be able to put our minds at rest, at least somewhat.