§ 2.59 p.m.
§ Read a third time.
§ The Lord Chancellor (Lord Hailsham of Saint Marylebone)
My Lords, before calling Amendment No. 1, I must point out that the Marshalled List should have been entitled, "Amendments to be moved on Third Reading". I now call Amendment No. 1.
Clause 2 [The Board of Banking Supervision]:
Lord Williams of Elvel moved Amendment No. 1:
Page 2, line 30, leave out ("it is decided") and insert ("they decided").
§ The noble Lord said: My Lords, I beg leave to move Amendment No. 1 standing in the name of my noble 1237 friend Lord Bruce of Donington and myself. I make no apology on Third Reading for returning to the vexed question of the decision-making procedures of the Board of Banking Supervision, the nature of which is set out in Clause 2 of the Bill. We have had an extensive discussion on this clause, both at Committee stage and on Report in your Lordships' House, and we have tried to introduce certain amendments to this clause but your Lordships have decided not to accept them. We therefore turn finally to the burden of subsection (5) of Clause 2, which relates to the power of independent members to place before the Chancellor the reasons for their advice to the ex-officio members of the board when that advice has been disregarded.
§ Your Lordships will remember that at Report stage I moved an amendment arguing that it was the independent members of the board who should decide when their advice has been disregarded. It seemed to us to be an odd construction that the independent members should be allowed to place before the Chancellor the reasons for their advice, without at the initial stage having been able to take the collective decision—and we emphasised that it was a collective decision—that that advice be disregarded. Your Lordships decided that that was not an appropriate amendment for this Bill and I therefore come back to the simple and slightly technical problem, which I raised both at Committee and on Report, of how such decisions will be taken.
§ Subsection (5) uses the expression in line 30 on page 2 of the Bill, "it is decided". In other words, there is a process which is undetermined and the passive is used to express the emergence of a decision. I am bound to say to the Government that we are still unhappy about the nature of this wording and the implications that it has, because in reality the board is going to take decisions collectively; and if the board takes decisions collectively it will presumably be on some form of voting which will allow the independent members, who have a majority, to carry their opinion in the board. Therefore if it is the board taking a decision, the majority of the board will presumably carry weight and indeed will carry the day. So we could never arrive at a decision when the independent members, who constitute a majority of the board, find that their advice is disregarded, because by simple resolution of the board they impose on the ex-officio members a duty to observe the advice of the board as a whole.
If that is not to be the method of taking such a decision, what other methods are available? It seems to me that there are two methods available. The first is for the ex-officio members, who are,
the Governor of the Bank … the Deputy Governor of the Bank … and the executive director of the Bank for the time being responsible for the supervision of institutions authorised under this Act",
to say to the independent members, "Your advice is very interesting and very valuable. Nevertheless we decide that we are not going to accept it." It is in those circumstances that the independent members are entitled to place before the Chancellor the reasons for their advice.
§ There is another possibility, where the board as a whole takes a decision based on the advice of the independent members and the board as a whole is 1238 advised by an outside party, or indeed the ex-officio members of the board may be directed by an outside party not to attend to the advice proferred by the independent members. In other words, the outside party, which in this case almost certainly would be the Treasury, would say to the governor, "That is all very well. Nevertheless, we think that the Bank ought to do this and this". In those circumstances the advice of the independent members, although it was carried in a board decision, would be disregarded and the provisions of subsection (5) would be triggered.
§ We take the view that subsection (5) raises a number of difficulties, which were aired both in Committee and on Report, but particularly the difficulty that it is not seen under the operation of subsection (5) who exactly is empowered to take the decision to disregard the advice of the independent members. Furthermore, we do not believe it is right, if the Bank is to be charged with the supervision of the banking system, for the Bank to have to accept Treasury dictates. We therefore take the view that the only circumstances in which a decision could be taken to disregard the advice of the independent members—who I repeat have a majority on the board—are where the three ex-officio members collectively decide that they do not wish to take that advice. That is perfectly fair and proper and there is no reason why they should not do so.
§ But if that is to be done, then in our view it is right that that should be spelt out on the face of the Bill rather than being left in this rather nebulous expression, "it is decided". If you leave the Bill as it is with that expression, it is wholly unclear to Parliament, to the public or to authorised institutions what is the basis of decision which would trigger off the very important sanction in the Bill that the independent members are entitled to go to the Chancellor and say, "We gave our advice and it was disregarded".
§ I am aware that subsection (5) of Clause 2 has been the object of considerable discussion here and indeed was the result of a compromise reached in another place. Nevertheless, we still feel that the content of Clause 2(5) is not adequate for proper guidance to be given to authorised institutions and to the public about where the burden of decision rests. If it is the Bank which decides to ignore the advice of the independent members, that is one thing. If it is some nebulous arrangement which emerges, that is another.
§ We would far rather have it absolutely clear cut and say that if the Bank is entitled to ignore the advice of the independent members, the Bank must say so as ex-officio members. That will trigger off the right of independent members to go to the Chancellor and place their views before him. It seems to us only a matter of logic that that should be right and proper. I beg to move.
§ Lord Bruce-Gardyne
My Lords, I must admit that I share a lot of the doubts which the noble Lord, Lord Williams, has about this whole clause. Indeed, I argued at Committee stage that the latter part of the clause about the right of independent advisers to take their case to the Chancellor was in itself fundamentally fairly offensive to the authority of the Bank and that there might be something to be said for removing that whole concept altogether. I know that that is not the line which the noble Lord and the party opposite take.
1239 I must confess that the noble Lord left me fairly confused about the precise purpose of this amendment, because he seemed to be envisaging circumstances in which the Treasury—that malign influence—would step in and tell the Bank that it was to ignore the advice that it would receive from the independent advisers. At that point the independent advisers apparently would go to the Chancellor and inform him that their advice had been overridden. I should have thought that this was a matter of which the Chancellor would conceivably already be aware, since he had instructed the Bank to override their advice in the first place. Therefore, I find it a little hard to follow the motivation for the amendment. If the noble Lord's concern is simply that the clause as drafted leaves a measure of doubt as to how the decision to override the independent members has been arrived at, that seems to be another matter.
The noble Lord assumes that there will be voting in such circumstances. I should have thought that there will often not be any voting. In any sensible committee, voting takes place only on matters which have no significance, such as how much will be spent on postage. Serious decisions are taken by an anxious process, as the noble Lord well knows. They take place by the process of arm-twisting, eyebrow lifting and other such arcane pursuits which eventually enable the committee to arrive at something like unanimity. Therefore, I am mystified as to what particular advantage would be gained by making the proposed change. In so far as the purpose is to make quite sure that the Chancellor is aware, when he has told the Bank to ignore the opinion of the independent members, that he must be confronted by the independent members with their dissent from the ruling which he has required the Bank to give, it seems to me to be an effort of some superarrogation.
§ Lord O'Brien of Lothbury
My Lords, as I understand the point put forward by the noble Lord, Lord Williams of Elvel, he is looking at the situation where the board—independent and ex-officio members alike—have reached a conclusion but, despite having reached such a conclusion, there is a danger that the Treasury will overrule. He therefore wishes to avoid such a circumstance arising, leaving the Bank, having the full support of the board, to carry forward its responsibilities. However, where the independent members disagree with the official members, they have the right to report their disagreement to the Chancellor. It is a situation which has to be resolved, presumably with the help of the Chancellor backed by the Treasury. The point made by the noble Lord, Lord Williams, seems entirely valid.
§ Lord Beaverbrook
My Lords, I am grateful to the noble Lord, Lord Williams, for his explanation of the purpose of the amendment. I appreciate the point which the noble Lord makes. However, the existing wording of the Bill in this subsection of Clause 2 has been carefully chosen to properly reflect the position of the board and its members.
Under the Bill, as under the 1979 Act, it is the Bank of England which is formally given the statutory supervisory powers and obligations, and the 1240 judgments involved in carrying out those functions are therefore formally made by the Bank. The constitutional position is such that the Bank of England is not synonymous with the ex-officio members of the board. Therefore, while in practice the decisions will of course fall mainly to the ex-officio members—the governor, the deputy governor and the director of banking supervision—the formal position remains that the statutory powers are exercised by the Bank of England. This is properly reflected in the existing wording.
A further factor to be taken into account is that the decision-making process will not always involve the ex-officio members of the board. It is quite possible that other Bank officials—perhaps those expert in particular areas—will be called upon to take part in decision-making. This would be normal practice in any large organisation. Exactly which officers of the Bank were involved would depend on the details of each particular case. I cannot give the noble Lord a hard and fast rule on that matter. But I think the general position is clear where decision-taking in an institution such as the Bank is involved. The reference to a decision must, under the legislation, be the decision of the Bank of England. The board is an advisory body; it is not an executive body.
We are dealing with the situation in which the advice of the independent members is not to be followed. The decision of whether or not to follow that advice is for the Bank itself. That decision must then be notified to the Chancellor. I hope that I have been able to explain the position clearly to your Lordships and that the noble Lord, Lord Williams, will feel able to withdraw his amendment.
§ 3.15 p.m.
§ Lord Williams of Elvel
My Lords, I am most grateful to the noble Lords, Lord Bruce-Gardyne and Lord O'Brien, and indeed to the Minister for speaking to the amendment. Perhaps I may take up the point made by the noble Lord, Lord Bruce-Gardyne. Clearly, if the Chancellor instructs the Bank to do something which is against the advice of the Board of Banking Supervision, it might be considered rather otiose for the independent members to go to him and present their advice which had been disregarded. Nevertheless, as the noble Lord and I well know, there are various ways and means of placing that advice before the Chancellor and of letting it be known that that advice was disregarded. Therefore, there is a lever which should not be underestimated.
The noble Lord, Lord O'Brien, made rather better than I did the point that the Bank should have the ultimate responsibility. That was taken up by the noble Lord, Lord Beaverbrook. If we are absolutely clear that the Bank has the responsibility for taking the decision and that the Bank, leaving aside the position of the ex-officio members, takes the decision and overrules in one way or another the advice given by the board which then triggers off the power of the independent members, I agree that the situation has been clarified and I shall be perfectly happy with that. On the other hand, if the Bank and the ex-officio members are in some way identified one with another, then I still believe that we have a problem.
1241 I hope that I heard the noble Lord say that it is for the Bank to make the decision and then to look at the advice which is received from the board, and that if the advice is disregarded, the independent members have a right to go to the Chancellor. If that is the case under the Bill as drafted, then I agree that my amendment is unnecessary. Before I sit down, perhaps the noble Lord will confirm that my understanding is correct.
§ Lord Beaverbrook
Yes, my Lords. I can confirm that that is the case. Depending on precisely what the issue is, the decision-making procedures within the Bank will of course vary. An organisation such as the Bank of England will develop decision-making procedures such as standard committee arrangements that it follows in these issues. Clearly, senior officers will have key roles as members of the Board of Banking Supervision. However, it is not the case that those ex-officio members will take every decision alone. The amendment would imply that that was the case, and we could not accept it for that reason.
§ Lord Williams of Elvel
My Lords, I am most grateful to the noble Lord for confirming my understanding. I am glad to have that matter on the record. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 23 [Objection by direction of the Treasury]:
Lord Bruce-Gardyne moved Amendment No. 2:
Page 18, line 13, at end insert—
("(4) A direction given in a case within subsection (1)(b) above shall be subject to affirmative resolution procedure.")
§ The noble Lord said: My Lords, this is a probing amendment. My excuse for tabling it is that I believe that circumstances have moved on since the discussion concerning Clause 23 in your Lordships' House on 6th April. My starting point is the statement of my noble friend the Secretary of State for Employment at col. 821 of the Official Report when he resisted an amendment moved by my noble friend Lord Elton which was designed to give a substantially greater measure of control over overseas takeover bids for British banks than that within the Bill.
In resisting that amendment, my noble friend said at col. 821:
If we start to introduce measures which are as obviously protectionist as this one, I suspect that we shall not be protecting ourselves but will begin to set in train a series of measures from which we shall suffer".
I very much support that sentiment. Indeed, if I had not been abroad on the day in question I would have been eager to support my noble friend in your Lordships' House.
§ However, since then a number of statements have been issued by members of Her Majesty's Government suggesting that the provisions of the Financial Services Act (and by extrapolation Clause 23 of this Bill) could be invoked and may be invoked in the very near future in order to deal with what was deemed to be the inadequate glasnost, if one can use the currently fashionable phrase, of Japanese markets, both financial and commercial.
§ I have much more warmth for the statement of my noble friend the Secretary of State for Employment 1242 during the Report stage, to which I have already referred, than I have for one or two of the comments which have emanated from official circles since that time. Such comments concern the possible corrective action which may be taken in the event of the Japanese failing to show a greater openness.
§ Apart from the reasons which led my noble friend at Report stage to resist the amendment of my noble friend Lord Elton—and I will be very interested to hear my noble friend's reply from the Front Bench this afternoon concerning this point—I should have thought it was quite improper to contemplate using the provisions for reciprocity under the Financial Services Act, and still more so to use the provisions contained in Clause 23 concerning the issue of reciprocity, to withdraw or deny a licence to a Japanese finance house which is operating, or seeks to operate, in the City of London because Cable and Wireless has failed to come to the terms which it seeks for participation in the Japanese telecommunications market. It does not seem to me that this provision of the Bill could conceivably be an appropriate response to such an eventuality. That is one anxiety I have about some of the things which have been said since this matter was debated on Report.
§ My second anxiety is that we seem to be in danger of getting tunnel vision in so far as concerns Japan. Are we sure that we should take kindly to the acquisition by Sony of a dominant share in British Telecom's or our own telecommunications network? Do we have any reason at all to imagine that British Telecom or Mercury could make acquisitions, for example, in the German telecommunications market? Why are we singling out Japan in this context? I should have thought that the resistance of the Germans to penetration of their financial markets is far more flagrantly in conflict with the terms of the Treaty of Rome and their obligations within the European Community than is the attitude of the Japanese towards the entry of firms such as Cable and Wireless into their telecommunications market in conflict with their wider obligations under, for example, the GATT. I have no qualms at all about the basic concept contained in Clause 23; namely, that Her Majesty's Government should have a reserve power to refuse access to UK financial markets to operators which come from countries which refuse our operators access to their financial markets.
§ A few years ago the Allianze bid for Eagle Star was a very good case in point. It was then quite clear that if a British insurance company had made a bid for Allianze it would have been ruled out of court immediately by the Germans, regardless of their obligations under the Community treaties. The Monopolies Commission made it quite clear when the matter of the Allianze bid for Eagle Star came before it that this was not a matter for the commission. Therefore, it is entirely appropriate that the Government should be taking action under this clause to achieve reciprocity. However, I think we need an assurance from my noble friend before the Bill departs from us that first of all we are not going to distort the purposes of this clause in order to try to achieve access to the Japanese market, not in the banking sector for which this is designed but, for example, in the 1243 telecommunications market, or indeed for that matter in the whisky market or other such markets.
§ My second anxiety is that we should seek to invoke the powers under this clause to deny licences to Japanese finance houses which wish to practise in the City of London or to withdraw those that are already there because of the dilatoriness of Japanese access propositions for our own finance houses to their stock market. That is a perfectly legitimate use of the clause which I do not dispute. However, we should be cautious about how we use such powers and beware of the fact that if the City of London were to refuse access to or to withdraw access from major Japanese finance houses the implications for the City of London's position as one of the three principal international financial market places may be rather serious. It is sometimes argued that the Japanese cannot have a great deal to lose. However, I hope that we will not lose sight of the fact that, as my noble friend the Secretary of State for Employment pointed out in response to my noble friend Lord Elton, we too are very much at risk and arguably more at risk than the Japanese.
§ It is a mistake to believe that we can confer a one-way benefit to Japanese finance houses seeking to operate in London who could conceivably transfer their activities without too much difficulty to Munich, Turin or even, as the Irish Government suggest, to Dublin. That may be an inherently improbable prospect but it highlights the fact that these services are mobile, and we should be a little careful before we take action which may be shortsighted in order to induce a behaviour on the part of the Japanese which some of our other trading partners do not observe, whatever their international obligations may be. That is the purpose which lies behind this clause. I hope my noble friend can shed some reassurance around the scene. I beg to move.
§ 3.30 p.m.
§ Lord Elton
My Lords, I rise only because my noble friend may have left it in your Lordships' minds that I tabled amendments earlier in our proceedings in order to keep specifically the Japanese, or any other financial institutions, out of the City of London. That was very far from the case, as I hope my noble friend will realise when he re-reads Hansard, as I counsel him to do. I was guarding against the possibility of an invasion of the high streets to an extent that they are dominated by foreign banks.
Looking at the clause to which my noble friend has directed our attention, I see that in page 18, line 6, in the description of the power that is invoked, it states:disqualification or restriction of persons connected with overseas countries which do not afford reciprocal facilities for financial business".Therefore it does not seem to me that this clause is available for the dire purpose for which—I agree with my noble friend—it should not be used. Neither does it provide a statutory instrument which can be subject to the affirmative procedure. However, that is a quibble. My noble friend has put his argument on record and that is why he moved his amendment.
Lord Bruce of Donington
My Lords, we on this side of the House hope that the Minister will resist the 1244 amendment tabled by the noble Lord, Lord Bruce-Gardyne. While we entirely agree that when making a direction under this clause the Government should exercise very great prudence to safeguard themselves against any or all of the dangers that are apprehended by the noble Lord, Lord Bruce-Gardyne, in so far as the dangers are relevant to the clause, we do not think that the direction should be subject to an affirmative resolution and all the delay that that implies. I am given to understand it is a minimum of some 31 days.
Your Lordships are well aware that the moment the Treasury issues a direction the Chancellor of the Exchequer becomes answerable to another place and is subject to questions and to all kinds of representations there. Surely that is an adequate safeguard. We do not want directions under this clause to be made subject to an affirmative resolution.
§ Lord Beaverbrook
My Lords, I appreciate the concern expressed by my noble friend Lord Bruce-Gardyne and I believe that I can give him some reassurance on what I think is the essential point of principle.
As the Government have made clear on a number of occasions, both here and in another place, the purpose of the reciprocity provisions in the Financial Services Act and in this Bill is not to erect barriers to trade or to close down or clear the City of overseas institutions. The purpose is not to put a fence around British financial markets. The purpose of the provisions is to encourage other countries to adopt a more open approach to their own markets—the sort of open approach for which London is rightly renowned. I am sure that my noble friend supports that objective.
The United Kingdom has benefited greatly from that open approach which has helped to contribute to London's eminent position among world financial centres. Your Lordships need have no fears that the Government are unaware of that. However, it has been accepted by your Lordships and in another place that the Government should have available reserve powers aimed at encouraging others to open their own markets on a reciprocal basis. It is not acceptable to the Government that other countries should have the advantage of open access here but not offer reciprocal opportunities to British firms. The Government hope that it will not prove necessary to use these powers.
As your Lordships know, the Government are pursuing the question of access to other markets on a number of fronts. I have nothing further to add on that at this stage, but we will continue to pursue our case vigorously. We are fully aware of the sensitivity of this issue and any action will be taken only after the fullest possible consideration.
My noble friend Lord Bruce-Gardyne asked two specific questions. As regards Cable and Wireless, we do not believe that it would help our case at all to link access to financial markets to other forms of trade. The Government decided from the beginning that as a matter of principle reciprocity powers in respect of financial services should not be available for use in other areas of trade. Besides, trading goods is governed by obligations in the General Agreement on Tariffs and Trade. Therefore I can confirm that the powers both in the Financial Services Act and in this Bill apply explicitly to lack of reciprocity in other financial areas 1245 and are therefore not directly relevant to the Cable and Wireless case.
On my noble friend's second specific point, I agree with him that any action that requires careful thought and assessment—and the Financial Services Act itself—requires that the Government be satisfied that such action is in the national interest. Clearly the Government will have to weigh the various factors in the balance and the answer will depend on the circumstances at the time.
As regards my noble friend's amendment, I do not think it usual or necessary for powers of this kind to be subject to the affirmative resolution procedure. For example, it is not the case under the Financial Services Act. However, I hope that what I have said about the Government's approach to this issue reassures my noble friend and that he will not feel it necessary to press his amendment.
§ Lord Bruce-Gardyne
My Lords, I am grateful to my noble friend for that reply. In conclusion, I assure my noble friend Lord Elton that I was not suggesting that his amendment was designed to exclude the Japanese from our market; it was more the response from my noble friend the Secretary of State for Employment which I though was worth reiterating.
I am grateful to my noble friend for the reassurances he has given. They are helpful in the light of some of the comments made, perhaps in the heat of the moment, during the past few weeks. On the basis of those assurances I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ The Lord Chancellor
My Lords, I understand that it is convenient for the Statement to be read now.