Lords Sitting of 16 March 1987

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR On the Woolsack.
Prayers—Read by the Lord Bishop of Ripon.

Football Hooliganism: Control Plan
Lord Gainford: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government when they expect their eight-point plan, agreed with the football authorities in order to combat football hooliganism, to become effective.
Baroness Hooper: My Lords, the eight-point plan was agreed with the football authorities on 23rd February. The Football League has already asked its member clubs to prepare local plans on crowd control and to introduce membership schemes covering at least 50 per cent. of their ground capacity. The intention is that the whole of the plan should be in operation before the start of next season.
Lord Gainford: My Lords, I thank my noble friend for that Answer. Has the noble Baroness any information as to when we football fans can possibly enjoy a game of football as we did before the sacrifices enforced on us by the few who created the hooligan element?
Baroness Hooper: My Lords, this package of measures, together with measures already implemented, is seen as having the possibility of achieving the maximum effect. It reflects the determination of the Government, the police and the football authorities to work in partnership to tackle hooliganism in the interests both of public safety and of the future wellbeing of the game.
Lord Ross of Marnock: My Lords, will the noble Baroness make clear the fact that this applies to England and not to Scotland?
Baroness Hooper: My Lords, yes; I believe that that was the intention of the Question.
Lord Dean of Beswick: My Lords, is it not correct that there has been a reduction in the number of disturbances at football matches and disturbances related to football matches? Does not that augur well for the eight-point plan that the Minister has mentioned, which we hope will be put into effect as quickly as possible? Is it not a fact that the Football League, the Football Association and the clubs are giving the Government their fullest co-operation in attempting to deal with this difficult problem?
Baroness Hooper: My Lords, yes; and we welcome that co-operation. My right honourable friend the Home Secretary has yet to receive up-to-date statistics.
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However, the considered police view is that the marked and welcome improvement in behaviour last season has generally been maintained at league grounds this season. The alcohol controls, closed circuit television and effective policing have played a major part in the improvement to the extent that, in addition to hooliganism, the police are increasingly able to tackle other forms of unacceptable behaviour, such as obscene or racial chanting.
Lord Graham of Edmonton: My Lords, while I am sure that the whole House appreciates that progress is being made in these matters and that consultation has taken place with a range of people—the police, the league, magistrates and others—will the Minister say to what extent the views of the players and of supporters' clubs have been sought in order to make sure that any plan is implemented? Surely the Minister will agree that the players, through their representatives, and the responsible supporters' clubs are not only entitled to provide the missing ingredient in bringing peace to the terraces.
Baroness Hooper: My Lords, I am not able to quote chapter and verse on that matter. However, if I obtain any detailed information with which I can supply the noble Lord, I shall follow up the matter in the ususal way. My understanding is that the widest possible consultations have taken place in producing the eight-point plan. Certainly, in regard to local clubs and their local plans, wide consultation, which must include players as well as supporters' clubs, will take place.
Lord Taylor of Gryfe: My Lords, will the Minister say whether the experience of Scottish football has been studied in this connection? Hooliganism has disappeared from the Scottish football clubs, which are now playing to record attendances at all football stadia in Scotland. Is the practical experience of this dramatic change being studied by the Minister and the football authorities south of the Border?
Baroness Hooper: My Lords, yes. The Scottish experience has been considered and its results are welcomed. It was particularly reflected in respect of the alcohol provisions which were brought in last year.
Lord Mowbray and Stourton: My Lords, will my noble friend agree that if players are to make a major contribution to this important subject, the best contribution that they could make would be to play a good, clean game?
Baroness Hooper: My Lords, yes.
Lord Taylor of Blackburn: My Lords, will the Minister say whether this applies to rugby league? Does the Minister have any comments to make on the disgraceful behaviour at Cardiff Arms Park a week last Saturday?
Noble Lords: Rugby Union!
Baroness Hooper: My Lords, as I understand the matter, that question is slightly wide of the original Question on the Order Paper, because the football matches which we are discussing in the eight-point

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plan concern the Football League and the Football Association.
Baroness Phillips: My Lords, is the Minister aware that, with supreme irony, grounds where supporters have always behaved, such as Fulham, are being taken over by property developers and closed?
Baroness Hooper: My Lords, I believe that that is also another question.

Child Abuse Video: Use in Schools
2.42 p.m.
Lord Mellish: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government which schools in the London area have refused to allow police to show the video "Have Fun, Take Care"; and what action they will take concerning such refusal.
Baroness Hooper: My Lords, I understand that the police have not yet approached individual schools. However, my right honourable friend the Secretary of State for Education and Science has asked the leader of the Inner London Education Authority to act to ensure that teachers co-operate with the police over the showing of the video.
Lord Mellish: My Lords, I am obliged to the Minister for that Answer. Is she aware that when I tabled the Question there was some very bad publicity and a number of schools were refusing to show the video because of their detestation of the police? I do not understand the reason for that. However, since then, ILEA has displayed a progressive attitude and has urged every school to show the video. I have seen the video. I commend it as essential viewing for children in order that they should learn of the dangers in accepting lifts from strangers and so on. Will the noble Baroness do all she can to ensure that every school in London has a chance of showing this excellent video?
Baroness Hooper: Yes, indeed, my Lords. I believe that the hostility shown by the Inner London Teachers' Association at the idea of showing the video has been very much squashed, and I hope that schools will not refuse to show the video in view of the real concern of parents about child abuse in particular.
Lord Leatherland: My Lords, can the Minister tell us what this film is all about, because some of us have not seen it?
Baroness Hooper: My Lords, the film has been produced as a result of collaboration between the Metropolitan Police and the Inner London Education Authority. It is intented to teach children, particularly very young children, to be on their guard as regards possible abduction and child abuse. I believe that in the odd project where the film has been shown, it has been well received by the children in particular.
Lord Irving of Dartford: My Lords, would the noble Baroness accept that this scheme was introduced jointly by the Metropolitan Police and ILEA on 18th February, and therefore has the fullest support of ILEA? Will she further accept that it has never been the policy of ILEA to exclude the police from schools but rather, to work in the fullest co-operation with them? With regard to the comments, properly made by the noble Lord, Lord Mellish, about the remarks made in Hackney, the secretary claims that he was misquoted, and the Hackney Teachers' Association is now in support. The Inner London Teachers' Association has taken no steps to resist the video, and the Inner London Education Authority anticipates no difficulty in ensuring that it will be seen in every school.
Baroness Hooper: My Lords, we certainly welcome the co-operation of the Inner London Education Authority in this matter. However, we understand that the Inner London Teachers' Association did display hostility initially, and I can only say that for any head teacher to adopt a hostile attitude towards the police in this matter as in any other would be both deplorable and unprofessional.
Lord Hutchinson of Lullington: My Lords, can the Minister think of any motto which is better for the guidance of adult life than this one?
Baroness Hooper: Not offhand, my Lords.

Building Societies: Supervision
2.45 p.m.
Lord Campbell of Croy: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they intend that a self-regulatory organisation (SRO) will be established to supervise building societies.
Lord Beaverbrook: My Lords, if their application to become a designated agency under the Act is successful it will be for the Securities and Investments Board to recognise self-regulating organisations. An organisation can only be recognised if it satisfies the criteria for recognition set out in the Act.
Lord Campbell of Croy: My Lords, I am grateful to my noble friend for that reply. Is he aware that the Securities and Investments Board visualise that building societies should be with the Financial Intermediaries, Managers and Brokers Association, known as FIMBRA, whose present members are very different from building societies, and that FIMBRA at present apparently cannot recognise the scheme of regulation operated by the Building Societies Commission, therefore making it difficult if not impossible for a building society to join?
Lord Beaverbrook: My Lords, the bodies which intend to apply for recognition are expected to apply to regulate specified kinds of investment activity. The membership of most applicant SROs will therefore include different types of firms engaged in a similar

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sort of investment business. The building societies will only be required to register with an SRO in respect of investment business, not in respect of business as building societies.
Lord Williams of Elvel: My Lords, would the noble Lord not accept that the noble Lord, Lord Campbell, is entitled to a rather fuller reply to his Question, which raises an important point? If FIMBRA fails to meet the requirements of the SIB and therefore cannot become an SRO, is it not the case that the SIB have to do the job themselves—in other words, that there is a special SRO set up for the purpose by the SIB? Or will the SIB try to push building societies and others into another SRO? What is the Government's attitude to all this? There is a problem here to which the Government need to pay attention.
Lord Beaverbrook: My Lords, without commenting on the fullness of any reply or question, I expect businesses to prefer to obtain authorisation through membership of an SRO, but the alternative of direct authorisation by the SIB will of course be available.
Lord Campbell of Croy: My Lords, is my noble friend aware that that would be extremely unwieldy and would almost certainly lead to duplication and unnecessary expense; and that the building societies are in future likely to play a substantial part in financial services?
Lord Beaverbrook: My Lords, I understand that the SIB have indicated that the five SROs preparing to apply for recognition will form a satisfactory structure capable of providing for the whole range of investment business. They will be looking carefully at FIMBRA's rules and regulations once they come forward for approval.
Lord Elwyn-Jones: My Lords, in view of what passed in the recent debate on the English language, would not a little economy in the use of acronyms be a useful contribution to the proceedings of the House?
Lord Beaverbrook: My Lords, I am inclined to agree. However, having been accused of giving a rather short answer to my noble friend, perhaps I may say that I might have run the risk of giving a rather long answer if I had spelt out the full title of a number of these organisations.
Lord Campbell of Croy: My Lords, does my noble friend agree that in the case of the three acronyms used each has been spelt out, one in my Question, one by my noble friend and the other in full by me?
Lord Beaverbrook: Yes, my Lords; I am sure they have.

EC Expenditure Outlook
2.50 p.m.
Lord Bruce of Donington: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
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The Question was as follows:
To ask Her Majesty's Government whether they have been informed by the EC Commission, formally or otherwise, of the projected overrun in Community expenditure for 1987; what is the estimated United Kingdom share of such overrun and the preferred manner for its discharge; and what effect it will have on the agreed arrangements for contribution rebates to the United Kingdom for 1987.
The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara): My Lords, a communication from the Commission on the 1987 budget outlook is expected shortly. The Commission's present estimate of the potential overrun on agricultural expenditure in 1987 is some 3·5 billion ecu. Its 1987–88 price fixing proposals would reduce this by about 1·3 billion ecu. The Commission has also indicated that it plans to bring forward additional proposals to deal with the remaining excess. The Government have made clear that the Community must live within its means in 1987. Any overrun would have no effect on the arrangements for the UK's abatement.
Lord Bruce of Donington: My Lords, is the noble Lord aware that the figure of the anticipated shortfall in 1987, which he put at 3 billion ecu is equivalent to £2,200 million, of which the United Kingdom's share would be somewhere in the region of £600 million? Can the noble Lord indicate whether the deficit figure of 3 billion ecu for 1987 contains or does not contain the deficit of some 750 million ecu incurred for the year 1986? Will he indicate how this state of affairs squares with the assurance of the Prime Minister following the Fontainebleau conference that strict financial discipline will in future be exercised within the Community?
Lord Brabazon of Tara: My Lords, the figure I gave in the first part of my Answer was 3·5 billion ecu, and that concerned agricultural expenditure. There is also a deficit of some 800 million ecu carried forward from 1986. That I think is the figure to which the noble Lord, Lord Bruce of Donington, referred. We are firmly of the view that the prospective deficit in 1987 must be contained within the resources available within the 1·4 per cent. VAT ceiling, and overall spending levels must be controlled accordingly.
Lord Bruce of Donington: My Lords, is the noble Lord aware that the expenditure envisaged in the 1987 budget cannot possibly be contained within the 1·4 per cent. limit on VAT? Will he say how much of the deficit which he envisages for both 1986 and 1987 will be "satisfied" by the queer payments of non-recoverable advances?
Lord Brabazon of Tara: My Lords, I cannot give a figure for that, of course; but the budget council reached agreement by a qualified majority on the draft budget for 1987 on 13th February. The United Kingdom opposed proposals since they included the negative reserves which would add to the pressures on expenditure, As regards the 1·4 per cent. VAT ceiling,

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the Fontainebleau Agreement says that the ceiling may be raised to 1·6 per cent. from 1st January 1988 only with the unanimous consent of member states. Her Majesty's Government see no scope for increases of the order proposed by the Commission.

Business
2.54 p.m.
Lord Denham: My Lords, it may be for the convenience of the House if I announce that the Committee stage of the Banking Bill will be adjourned at approximately 7 p.m. for approximately one hour, and that during this adjournment the Industrial Relations (Northern Ireland) Order 1987 will be taken.

Cardiff Bay Development Corporation (Area and Constitution) Order 1987
The Chairman of Committees (Lord Aberdare): My Lords; I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Lord Pitt of Hampstead be added to the Select Committee on the order in the place of the Lord Jacques.—(The Chairman of Committees.)
On Question, Motion agreed to.

Banking Bill
The Secretary of State for Employment (Lord Young of Graffham): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord Young of Granham.)
On Question, Motion agreed to.
House in Committee accordingly.
[The BARONESS SEROTA in the Chair.]
Clause 1[Functions and duties of the Bank of England]:
Lord Bruce of Donington Lord Bruce of Donington: moved Amendment No.1:
Page 1, line 17, leave out ("such manner as it thinks appropriate") and insert ("a manner the Treasury shall indicate").
The noble Lord said: In the course of our debates on the Second Reading of the Bill, on behalf of my colleagues I gave an indication that in general we welcome this Bill and that we would endeavour to make a series of constructive suggestions in the course of the Committee stage. This amendment, as with other later amendments, seeks to establish rather more firmly than is apparent from the text of the Bill the authority of Parliament through the government of the day to make the strategic decisions that are required in connection with the total management of the nation's financial affairs.
The Bank of England is, under the Bank of England Act 1946, wholly owned by the state through the agency of the Treasury. It is right that the Bill at all
1214
critical stages—and some perhaps not so critical—should reflect the ultimate responsibility of Parliament, and indeed the full control, where necessary, of the Government themselves. The amendment is a question of emphasis and authority. Clause 1(3) now reads:
"The Bank shall, as soon as practicable after the end of each of its financial years, make to the Chancellor of the Exchequer and publish in such manner as it thinks appropriate a report on its activities under this Act in that year; and the Chancellor of the Exchequer shall lay copies of every such report".
The amendment seeks to delete,
"such manner as it thinks appropriate"
and to substitute,
"a manner the Treasury shall indicate".
In other words, the responsibility for the contents, the methods of publication and the extent of publication shall not be a matter for the Bank itself, but shall be a matter for the Treasury.
I do not know to what extent the Treasury apparatus is capable in itself either of monitoring the Bank of England's activities in accordance with the original provisions of the 1946 Act (which gives the Treasury power to give such general directions as it thinks fit to the Bank) or to what extent the Treasury is equipped to do that; or, for that matter, to exercise the amount of supervision it must exercise if the provisions of this Bill are to have any bite. There is a division of the Treasury called the financial institutions division which, according to the published directory, has an overall responsibility for the Bank of England. One does not know how many personnel that department has. One does not know the nature and extent of liaison between that department and the Bank of England. In short, this is a matter about which the outside world knows very little.
Let us make no mistake. The fundamental reason for this Bill lies in the Johnson Matthey affair. I do not wish to rake over any old embers that relate to that. However, a re-reading of the Bank's report on the Johnson Matthey affair gives some indication as to the defects within the Bank's own system that existed at that time, most of which I am quite sure have since been remedied. Nevertheless, it gave an indication that, just as government departments are frail in parts, banks also are not exempt from the ordinary human frailties and can themselves, after prolonged habit and routine and by taking matters, possibly quite legitimately, on trust, become a little careless, with the results that we have already seen.
I am well aware, as I am quite sure are your Lordships, that the Bank of England even without this Bill has enormous powers at its disposal, particularly in the terms which it fixes itself with the joint stock banks, the merchant banks and the leading institutions. In general terms, its will throughout the City is, quite properly, absolute. The questions are: how can the will be enforced and how can it become all pervasive? I therefore suggest to your Lordships that the whole question as to the nature, extent and publication of the report made by the Bank to the Chancellor of the Exchequer should not be determined by the Bank itself. It ought to be determined where power ultimately lies, and power ought to lie, and ought to be seen to lie, with the Government themselves. I cannot possibly get into the mind of the

1215
financial institutions division of the Treasury and I very much hesitate to project myself into the mind of the Chancellor of the Exchequer, particularly at this time, the day before the Budget. However, I should have thought that the Chancellor himself and his permanent staff have a very good idea as to the kinds of responses and the kinds of reports they want from the Bank. They therefore should be the ones who should set the standard and whose will should prevail.
This amendment has been put down in entirely non-partisan terms. It ought not to be, within a Parliamentary democracy, a party matter because in these Houses of Parliament we are all dedicated, I should hope and believe, to the supremacy of Parliament; but it must be seen. This is a very small amendment and there are others which also seek to place Parliament and the Government in a similar position. To those we shall turn in due course; but it is with that objective and with no other that this change of emphasis, in our view, is necessary. It should not be for the Bank to determine what is appropriate. The Bank in the past has operated very much in its own way. Your Lordships will recall that it rescued Johnson Matthey by the injection of £100 million without telling the Chancellor of the Exchequer, but it told him the next day.
I am quite sure that things have improved since then and I am quite sure that the Bank is sensible, as it ought to be, of its own position. I just want to make quite sure that the supremacy of Parliament, through the Government, is quite unmistakably seen and, where appropriate in this Bill, is quite unmistakably indicated. I beg to move.
Lord O'Brien of Lothbury: After nearly half a century of service in the Bank of England, nobody would expect me to take a totally unbiased view on this question. Nevertheless, I strongly resist the amendment which the noble Lord, Lord Bruce of Donington, has put forward. The Bank of England has been in existence now for nearly 300 years and for most of that time—250 years—it was in private hands. At no time in its history has it questioned the supremacy of Parliament or that of the Treasury, with the Chancellor at its head, as the primary department with responsibility for economic and financial policy. As the noble Lord, Lord Bruce, has said, the Bank has great power and influence in its own area in the City. I think that for the good of us all it is to be hoped that that power and influence will continue.
In this particular amendment—and, as the noble Lord, Lord Bruce, has said, others are to follow and no doubt they will be of a similar character—it is merely a question of reporting. But reporting on what?—reporting on the discharge by the Bank, as agent of Her Majesty's Government, as laid down by Act of Parliament, on the reponsibilities it has exercised during the course of the previous year.
It seems to me, having regard to the stature of the Bank and its long history, only reasonable that it should be allowed to report in the manner which it thinks fit. Of course, given its very close association both with the Treasury and with the Chancellor, any views which may be expressed informally by either of those parties about matters of this sort will, I am sure,
1216
be taken into account by the Bank. But I see absolutely no reason for a direction, and I hope that the Government will resist the amendment.
Lord Beaverbrook: I am most grateful to the noble Lord, Lord Bruce of Donington, for setting out clearly the reasons for this amendment. I am also grateful to the noble Lord, Lord O'Brien, for giving your Lordships his opinion.
This amendment would take away from the Bank of England its discretion to decide the manner in which it publishes the annual report which it is obliged to make under the Bill. It would make the Treasury responsible for deciding the manner of publication.
The manner of publication of the annual report is not a matter of controversy. Indeed, the Bill's provisions in this respect are the same as those of the 1979 Act, and they have worked satisfactorily since then. After careful consideration, the Government see no good reason to change them. Since the 1979 Act was brought into force the Bank of England has regularly published its report under that Act. It is available both separately and bound with its annual report and accounts. Both are made available free of charge. Also of course the report is laid before this Chamber and in another place. I am not aware of any complaints about the manner of publication and I would ask the noble Lords opposite to agree that the Bank of England can continue to be trusted to determine the precise manner of publication. On that basis, I would have to resist this amendment.
Lord Bruce of Donington: I am sorry the noble Lord feels bound to resist the amendment and I must say I was not very much disarmed by the noble Lord, Lord O'Brien, who said that of course in all these matters the Bank would consult with the Government. A responsibility has to be somewhere, and one of the difficulties we have had over the past few years is that it is sometimes very difficult to realise where the powers of the Bank of England end and the powers of the Government begin.
The Bank of England has been no more free of error over the past seven or eight years than the Government themselves. Your Lordships will have seen in today's Financial Tunes the report of the letter concerning questions of economic and other policies which have been raised by four former very distinguished civil servants of the Treasury. It is quite clear that the Bank has almost universally endorsed the errors that were committed by the Government in 1979–80. The relationship in that sense is cosy, and I can quite understand why.
Although I do not want to intrude party politics into this matter, it is quite clear that the policies of the present government and the policies of the Bank of England are, in political terms, almost identical anyway. But, of course, governments change, and for the sake of future governments as well as this one I should like to see authority lie where it ought to lie, and in this case it ought to lie with the Treasury. If there is any question of what is appropriate, then the Treasury itself should decide. I am sorry that the noble Lord has seen fit to reject the amendment, but this is a question of principle on which I think it will be necessary to test the opinion of the Committee.
Lord Thorneycroft: May I just say a word on this subject to the noble Lord, Lord Bruce of Donington? I have no interest to declare in this matter. Indeed, if anything, I was on the other side, so to speak. I was brought up not in the Bank but in the Treasury. But I hope very much that he will not press this amendment to a Division.
This is a Bill which gives powers and responsibilities to the Bank. In a way, many of them are powers and responsibilities which the Bank has always had, but anyway they are with it now. I must say that if you have a great institution—and wherever we sit I think we would regard the Bank of England as a very great institution—discharging powers and responsibilities of that kind, it would be very helpful if it did the reporting, rather than have someone else trying to do the reporting for it as to how something went. In that way you get a much better report. To provide for a report from an outside body is an unhappy way of approaching these matters.
The relationship between the Bank and the Treasury—and it is a subtle one—exists not just when a Conservative Government are in power; it exists also when other governments are in power, and it is in the interests of everybody, wherever he sits in the House of Lords, to try to preserve that to the maximum effect. I appreciate the point that the noble Lord has made. I see the logic of it, and so on. But, as one who has spent quite a lot of time in that sort of area, I think that if he could possibly see his way not to press this amendment it would be wise.
Lord Taylor of Gryfe: On these Benches we had no view on this amendment and we were content to listen to the arguments. As the noble Lord, Lord Bruce of Donington, has said, this Bill is about banking supervision arising from the weaknesses that were revealed in the Johnson Matthey affair. This amendment of the noble Lord, Lord Bruce, raises another equally important question on the relationship between the Treasury and the Bank. This is not an easy relationship. It happens in many countries that there is difficulty in the relationships, particularly between a new government and its central bank. I have found in my own experience that many countries have looked to the Bank of England and to the relationship which exists in this country, based on habit, tradition and good sense, and have accepted the kind of relationship which exists. From these benches we should not feel justified in changing that relationship. I am much persuaded by the noble Lord, Lord Thorneycroft, who said: let the body which is reporting be responsible for its own report. It occurs to me therefore that the pressing of this amendment would hardly be justified and I could not recommend that my colleagues should support it.
Lord Beaverbrook: I should like to pick up a topic to which the noble Lord, Lord Bruce, referred. He mentioned the Treasury's broad power to give direction to the Bank of England which is contained in the Bank of England Act 1946. Although it has never been used, it is there. But I should say that my right honourable friend the Chancellor has no wish to be specifically responsible for the manner of publication of the report, and I should emphasis again that there
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have been no complaints of which we are aware about the Bank's normal method of publication.
3.15 p.m.
On Question, Whether the said amendment (No.1) shall be agreed to?
Their Lordships divided: Contents, 49; Not-Contents, 117.

DIVISION NO.1

CONTENTS

Beswick, L.

Mishcon, L.

Birk, B.

Molloy, L.

Bottomley, L.

Mulley, L.

Briginshaw, L.

Northfield, L.

Broekway, L.

Oram, L.

Bruce of Donington, L.

Phillips, B.

Campbell of Eskan, L.

Pitt of Hampstead, L.

Carmichael of Kelvingrove, L.

Ponsonby of Shulbrede, L [Teller.]

Cledwyn of Penrhos, L.

David, B.[Teller.]

Ross of Marnock, L.

Davies of Penrhys, L.

Russell, E.

Dean of Beswick, L.

Serota, B.

Elwyn-Jones, L.

Shackleton, L.

Ennals, L.

Silkin of Dulwich, L.

Ewart-Biggs, B.

Stallard, L.

Falkender, B.

Stewart of Fulham, L.

Fisher of Rednal, B.

Strabolgi, L.

Gallacher, L.

Taylor of Blackburn, L.

Graham of Edmonton, L.

Taylor of Mansfield, L.

Gregson, L.

Turner of Camden, B.

Heycock, L.

Underhill, L.

Jeger, B.

Wallace of Coslany, L.

Jenkins of Putney, L.

Williams of Elvel, L.

John-Mackie, L.

Wilson of Rievaulx, L.

Llewelyn-Davies of Hastoe, B.

Ypres, E.

NOT-CONTENTS

Alexander of Tunis, E.

Ellenborough, L.

Allerton, L.

Elliot of Harwood, B.

Amherst. E.

Elton, L.

Annan, L.

Ely, M.

Atholl, D.

Fraser of Kilmorack, L.

Aylestone, L.

Gainford, L.

Beaverbrook, L.

Gladwyn, L.

Belhaven and Stenton, L.

Gormanston, V.

Bellwin, L.

Grey, E.

Belstead, L.

Gridley, L.

Bessborough, E.

Grimond, L.

Blyth, L.

Haig, E.

Bonham-Carter, L.

Hailsham of Saint

Boyd-Carpenter, L.

Marylebone, L.

Brabazon of Tara, L.

Hampton, L.

Brougham and Vaux, L.

Harvington, L.

Bruce-Gardyne, L.

Hesketh, L.

Butterworth, L.

Home of the Hirsel, L.

Byron, L.

Hood, V.

Caithness, E.

Hooper, B.

Campbell of Alloway, L.

Hooson, L.

Campbell of Croy, L.

Hunt, L.

Carnock, L.

Hylton-Foster, B.

Constantine of Stanmore, L.

Kaberry of Adel, L.

Cowley, E.

Killearn, L.

Davidson, V.[Teller.]

Kinloss, Ly.

De Freyne, L.

Kitchener, E.

Denham, L.[Teller.]

Lane-Fox, B.

Denning, L.

Layton, L.

Diamond, L.

Limerick, E.

Donaldson of Kingsbridge, L.

Long, V.

Donegall, M.

Lovat, L.

Drumalbyn, L.

Luke, L.

Dudley, B.

McNair, L.

Dundee, E.

Mais, L.

Ebbisham, L.

Manchester, D.

Edmund-Davies, L.

Marley, L.

Effingham, E.

Mayhew, L

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Merrivale, L.

Shannon, E.

Morris, L.

Shrewsbury, E.

Mowbray and Stourton, L.

Simon of Glaisdale, L.

Munster, E.

Skelmersdale, L.

O'Brien of Lothbury, L.

Slim, V.

Pender, L.

Somers, L.

Perth, E.

Stedman, B.

Peyton of Yeovil, L.

Strange, B.

Porritt, L.

Strathcarron, L.

Portland, D.

Strathspey, L.

Rankeillour, L.

Taylor of Gryfe, L.

Reay, L.

Terrington, L.

Reilly, L.

Thorneycroft, L.

Ritchie of Dundee, L.

TordorF, L.

Rochdale, V.

Torrington, V.

Romney, E.

Trumpington, B.

Sainsbury, L.

Vaux of Harrowden, L

Saltoun of Abemethy, Ly.

WardofWitley, V.

Sanderson of Bowden, L.

Whitelaw, V.

Seear, B.

Wigoder, L.

Selborne, E.

Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.
3.23 p.m.
Lord Beaverbrook Lord Beaverbrook moved Amendment No.2:
Page 2, line 2, after first ("or") insert ("who is, or is acting as,")
The noble Lord said: This is a technical amendment to establish beyond doubt that the immunity of Clause 1(4) extends to those members of the Bank staff who are seconded to the Bank rather than being its permanent employees. Although directly employed by the Bank, they act essentially as employees. I beg to move.
Lord Williams of Elvel: I am grateful to the noble Lord for explaining exactly what the amendment means. I had taken the amendment to be similar to our Amendment No.3. However, from what the noble Lord has said, it applies only to those people who are seconded to the Bank and who are therefore part of the Bank staff at the particular moment when the Bank is performing its functions under the Act. As such, it is a welcome clarification. I was intending to include in the discussion our Amendment No.3. However, in the light of what the noble Lord has said, we shall move Amendment No.3 separately.
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.3:
Page 2, line 2, after ("servant") insert ("or agent")
The noble Lord said: This amendment raises a point which the House studied in relation to the Financial Services Act. It was also studied, although not at great length, in our consideration of the Building Societies Act. The question is whether or not there should be an extension of the immunity from damages of the supervisory body to agents who are required and requested by the supervisory body to act on its behalf.
A simple illustration will suffice to demonstrate what I mean. If the Bank conducts an investigation under this Act and if it employs a firm of accountants to conduct that investigation on its behalf, as I understand it, the accountants may, as the Bill is presently drafted, be liable in damages for anything they do during that investigation, whereas the Bank itself and its officers and servants will not be liable in damages unless it can be shown that an act or omission
1220
was in bad faith. This seems to us to be inequitable. Why should a firm of accountants, acting upon the specific instructions of the Bank, be liable in damages when the Bank enjoys immunity? I recognise that it is a difficult point and one which has been discussed elsewhere. However, I would argue that the immunity expressed in Clause 1(4) should at least extend to those who are acting for the Bank, on the instructions of the Bank, and pursuing its functions under the Act. I beg to move.
Lord Beaverbrook: We have carefully considered the amendment. We have come to the conclusion that it is not necessary to cover such groups of people, particularly reporting accountants or other investigators, because we feel that it would be anomalous to grant them immunity when inspectors appointed by the Secretary of State and by the Building Societies Commission do not enjoy similar protection.
An immunity such as this is to be granted only on a strictly limited basis; in this case, under Clause 1(4), to the supervisory body with statutory functions and to its personnel. That is necessary in order to ensure that the supervisors can act positively in the interests of depositors without being unduly constrained by threat of legal action. On balance, we feel that it would be dangerous to extend immunity further than that. For that reason, I cannot go along with the amendment.
Lord Williams of Elvel: I am grateful to the noble Lord for his response. In my introduction, I think I recognised that I was raising problems that had been discussed in the context of the Building Societies Act and the Financial Services Act. I realise that if a precedent were to be set here, it would have to be followed by amendments to those Acts. Nevertheless, I find it hard to accept the arguments of the noble Lord—just as hard to accept them today as when we were discussing the Building Societies Bill and the Financial Services Bill.
I understand that the Government are extremely reluctant to extend immunities further than is strictly necessary. However, it seems to me that if the Bank is to get good accountants and investigators acting as its agents, it will have to do something about giving them some form of immunity, if only in the form of a contractual indemnity against damages which the Bank would be entitled to do. I should prefer that to be on the face of the Bill, but I shall not push this matter to a Division. I hope that the noble Lord will think again, and we may come back to it on Report if we feel that to be necessary.
Amendment, by leave, withdrawn.
3.30 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.4:
Page 2, line 5, at end insert ("or contrary to law.").
The noble Lord said: I beg to move Amendment No.4 standing in the names of my noble friends Lord Bruce and Lord Morton of Shuna and myself. It may be for the convenience of the Committee if I speak also to Amendment No.18.
These two amendments are in the nature of probing amendments. By moving them I am trying to discover

1221
exactly where the boundaries lie of the Bank's operations under the Bill as it is before this Committee. The Bill as drafted says that the Bank shall not be liable in damages unless it is shown that an act of the Bank or an omission of the Bank was in bad faith. I ask the following question by means of these amendments. What happens if the Bank does something which is contrary to law, contrary either to this Act or any other Act? What happens if a servant of the Bank purports that the action he has taken is in the discharge of the functions of the Bank—here I am referring to Amendment No.18—when it is not in proper discharge of his functions under the Act? In other words, what is the scope of Clause 1(4)?
I should be most grateful to hear some comment from the noble Lord the Minister on that scope so that we may be quite clear where we stand. I beg to move.
Lord Denning: Perhaps I may say a word against this amendment. The Bank or its servants are in a position which is analogous to that of a judge or an arbitrator. They must he able to do their work honestly and fairly without fear of any action against them for negligence or for damages. Just as there is an appeal from judges to a higher court, so there are appeals set out in Clauses 27 and 28 of this Bill. That is the proper procedure when the Bank or its servants go wrong on points of law. An appeal is provided for. But in order to secure the independence of those who are acting, and to ensure that they are not deterred from doing right by fear of actions for negligence, it seems to me to be right to make them exempt from liability unless they are acting in bad faith.
The additional words "or contrary to the law" are really not necessary at all. They might be a deterrent to people in a responsible position in the undertaking of their duties. Therefore I am against the amendment.
Lord Bruce of Donington: With the permission of the Committee, I intervene to venture to ask the noble and learned Lord, whose views carry great weight, justifiably, not only in the judicial community but also in the country at large, whether I am correct in assuming from what he has said that if the Bank wishes it can act contrary to the law.
Lord Denning: That is putting it a little too high. It does not act contrary if it wishes, but it may by an honest mistake act contrary to the law. Let there then be an appeal to a higher authority, but do not make it liable in damages any more than a judge is liable in damages if he makes a mistake in law.
Lord Beaverbrook: For the convenience of your Lordships' Committee, I too will speak to this amendment and to Amendment No.18.
I understand the concern of noble Lords opposite, but I can assure them that the effect of subsection (4) is not to give the Bank or its servants any immunity from the ordinary process of the criminal law. All that the subsection does is to grant an immunity from damages for things done in the discharge of the Bank's function under the Bill. It is right that the Bank should feel able to operate confidently in its supervisory role and take prompt and robust action to protect
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depositors without contantly looking over its shoulder for fear of legal action.
There is a parallel provision in the Financial Services Act, at Section 187, to protect supervisors under that Act. The provision here does not remove the Bank from the discipline of the law; it does no more than provide immunity from damages. It does not put the Bank outside the authority of the courts or above the law in any way. I remind the Committee that it covers actions done in good faith. In the highly unlikely situation of the Bank or its servants acting maliciously the immunity would not apply.
I go on to speak to Amendment No.18. I am sure the Committee would agree that the Board of Banking Supervision should also feel able to do its work without being intimidated by threat of legal action. That is what subsection (7) provides. It would be wrong for members of the board acting in good faith to lose their immunity from damages if they reasonably but erroneously believe they are acting properly in the discharge of the functions Parliament has given them. I appreciate the Committee's concern that the board should not be given cart blanche to act improperly, but it must be remembered that the members would lose their immunity if it were shown that they had acted in bad faith.
I hope that with that reassurance the noble Lords will feel able to withdraw these amendments.
Lord Williams of Elvel: I am most grateful to the noble Lord. As I mentioned when I was moving both these amendments, they were in the nature of probing amendments to see what the scope and intention of Clause 1(4) was. There is no intention at all from these Benches to try to diminish in any way the role of the Bank in this respect. Clearly the supervisory authority must have immunity from damages when it is acting in a proper legal and sensible manner in accordance with the legislation which we are now discussing.
Nevertheless, I wonder whether the noble Lord can help me. He referred to the Financial Services Act and said a similar provision was there for the Securities and Investments Board. Is there a similar provision in the Building Societies Act for the Building Societies Commission? In other words, do all three pieces of legislation run in tandem or is the Building Societies Commission open to rather more exposure in this respect than the Bank or the Securities and Investments Board under the Financial Services Act? If that is the case, it seems that the Government need to look at this subsection again to line it up with the Building Societies Act. I say that particularly in the light of Amendment No.18 because if the Building Societies Commission does not have the same protection in the purported discharge of its functions the Government have some rather fast thinking to do. But perhaps the thinking is too fast, and I ask the Minister to respond on this point.
Lord Beaverbrook: The noble Lord asked about the Building Societies Act and the Building Societies Commission. It would probably be best for me to consider what the noble Lord has said and then write to him on the subject. It is a complicated matter and I should like to look at it further and study carefully what he has said.
Lord Williams of Elvel: I am most grateful to the noble Lord. I look forward to receiving his letter, and when we have it we shall decide what if anything we need to do at another stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No.5:
Page 2, line 5, at end insert—
("(4A) The Chancellor of the Exchequer may at any time request an interim report from the Bank on the specific exercise of its powers under this Act.").
The noble Lord said: In moving this amendment I should like to speak also to Amendment No.16, which is consequential on it. In this instance I hope that I am knocking at an open door with the Committee. The Bank is required by the Bill to give its normal annual report to the Chancellor. All this amendment seeks to do is to empower the Chancellor of the Exchequer to,
"request an interim report from the Bank on the specific exercise of its powers under this Act".
This would be a rare event, but as we have found out in connection with other legislation, and not particularly legislation affecting the banks or the institutions that are covered in this Bill, occasionally things go wrong.
The overall powers of the Bank of England are not, I am perfectly willing to accept, capriciously applied—and after this Bill becomes law and after the reorganisation that will take place with it they will probably be very diligently applied. But the days when the unspoken word of the Bank of England was law within the City, the times when as a matter of honour City institutions automatically did the right thing on pain almost of being sent to Coventry and put at disadvantage if they went wrong, are unhappily gone. We have only to look at the experience of recent months—I agree in another field but still within the City—to realise that occasionally things go very wrong indeed.
I am hopeful that if the Bill is rigorously enforced—and we shall deal with enforcement at a later stage of the Bill, under Clause 94—one of these financial scandals will not break out in connection with, or arising from, any of the institutions or authorities that are to be governed by the Bill. But it might happen. If it does happen, it will be of significance.
Despite the extra supervisory powers and despite the satisfactory reorganisation that has taken place at the Bank of England, nobody can guarantee that something major will not emerge. In that event—and I am willing to acknowledge that the possibility has receded very considerably following the Johnson Matthey affair—there may come a time when, in the light of revelations that come out in the press or elsewhere, the Government feel constrained in the public interest to call for a special report from the Bank. They should be entitled by law to do so.
The inclusion of this subsection in the Bill would act as an additional deterrent. The responsibility to provide an interim report to the government of the day or to the Chancellor of the Exchequer should not be
1224
laid on the Bank itself, but whenever the Chancellor of the Exchequer thinks fit, whenever he thinks circumstances arise which necessitate in the public interest the rendering of a report by the Bank, he should be entitled to call for one.
3.45 p.m.
Lord Bruce-Gardyne: I apologise for interrupting the noble Lord. I think it might be helpful to the Committee if the noble Lord could explain what inhibits the Chancellor at present from demanding in his discretion such a report from the Bank of England at any moment.
Lord Bruce of Donington: I am not in the mind of the Chancellor and I do not know what powers the Chancellor may think he has other than the powers of general direction that are given to him under the Bank of England Act 1946. My own view is that the Government ought to find this helpful as a reserve power. After all, and within noble Lords' memory, though it may be convenient to forget it, the Bank of England has been known to do a number of important things without consulting the Government at all. Therefore the Government have a right (and it is part of the general stance which I adopted earlier on this afternoon) on occasions to assert their authority in order to be seen to do it, and it ought therefore to be incorporated in the Bill itself. If the noble Lord is content to leave the position as it is, if the noble Lord says, "Well, it will not be necessary; the Bank will probably report of its own volition in the interim if it thinks it is necessary to do so", that is the noble Lord's view. I am only trying to help him.
Lord O'Brien of Lothbury: I do not know whether I can say something to help the noble Lord, Lord Bruce, in reference to the intervention by the noble Lord, Lord Bruce-Gardyne. If an untoward incident arose in the City which gave cause for concern to the Chancellor of the Exchequer and he were to ask for a report from the Bank of England, he would get it. That would require no legislation. It would be the normal course of events. It certainly would have happened in days which I remember, and I believe it would happen now.
Lord Boyd-Carpenter: I wonder why the noble Lord, Lord Bruce of Donington, thinks this is necessary. Unlike my noble friend Lord Thorneycroft, or for that matter myself—I served there for two terms—I do not think that the noble Lord has ever served in the Treasury. Surely those who have know what the noble Lord, Lord O'Brien of Lothbury, has just said is true. The relations between the Treasury and the Bank are close and in many ways are best kept informal. If you start building up legal rights to demand a formal report, you are at risk of formalising a relationship which perhaps is better as it is in its flexible form. If you legislate to give a power to demand information in one particular circumstance, you are at least creating the possibility that the other party may say, "This other situation is not covered by the legislation and therefore there is no right to demand this".
I suggest to the noble Lord that there is absolutely no reason to believe that if the Chancellor of the Exchequer of the day were to ask for information from

1225
the Bank he would not get it. It would be contrary to what has been the working system for a great many years. Unless the noble Lord has some particular reason for believing it is likely to happen now, it seems to me to be a great mistake to tie up in strict legal formulae a relationship which works perfectly well at present. I think the noble Lord, Lord O'Brien, will agree that when a difficult situation arises the governor and his colleagues in the Bank are generally only too anxious to consult the Treasury and to have its assistance and guidance. To put a legal liability on them to make a formal report seems to me to be a retrograde step.
Lord Taylor of Gryfe: Like other noble Lords who have spoken, we, too, are rather puzzled by the amendment which suggests that there is some limitation on the Chancellor of the Exchequer requesting a report from the Bank of England. In my knowledge and experience, I should say that this is quite unlikely. Indeed, as has been said before, the Bill is before us today because of the weaknesses of the Johnson Matthey case. As I recall, the Chancellor and Parliament requested a report from the Bank of England on Johnson Matthey, received it and debated it publicly.
Like others, I am rather surprised. I should have thought that if the Chancellor of the Exchequer was seeking an interim report, apart from the annual report, on something that was vitally important to the financial structure of the country and the City it would be a constitutional outrage if that were refused. Therefore, I do not see the necessity for incorporating this in statute.
Lord Beaverbrook: I, too, do not believe that there is any practical problem that these amendments are needed to solve. Clearly, the Chancellor of the Exchequer may well on occasion request from the Bank of England papers on particular issues under the Bill. If appropriate, these could be published. And the Bank of England can, and frequently does, publish reports on specific aspects of supervision as the need arises. I am not aware of any dissatisfaction as to the quality or quantity of such reports made under the 1979 Banking Act. That Act contains no provisions such as those proposed. I believe that the provisions would be entirely redundant—my right honourable friend the Chancellor requires no additional authority in this respect—and would serve to imply that the Bank of England's record in such matters is inadequate. I do not believe that to be the case, and on that basis I should have to resist this amendment if it were pressed.
Lord Bruce of Donington: This has been a very interesting debate. From it I gather that the Alliance, the Independents and the Conservative Party spokesman in the person of the noble Lord, Lord Boyd-Carpenter, think that all is sweetness and light between the government of the day—
Lord Boyd-Carpenter: Will the noble Lord allow me to intervene?
Lord Bruce of Donington: I have only just started. I shall give way in a minute. They think that all is sweetness and light between Her Majesty's Government and the Bank of England; that, consequently, these relationships are best kept on an informal level, to use the noble Lord's words, and that the two of them together can be relied upon to produce a result which is, generally speaking, in the public interest.
Lord Boyd-Carpenter: I wish to correct the noble Lord on one point. I was in no respect whatever speaking as a Conservative Party spokesman. I was simply contributing as a Member of your Lordships' House who had the experience of serving some six years in the Treasury.
Lord Bruce of Donington: I am most grateful to the noble Lord, for whom I have a profound respect as a former high officer of state and whose contributions on this subject are, I can assure him, most deeply valued by myself. I should not wish to have misrepresented his position here this afternoon in any way. He has been known, from time to time, to express a startling independence of view, often when least expected. Therefore, I cast no reflection at all upon the noble Lord.
The argument that the relationship between the Bank and government can best be left on an informal and friendly basis is not, of course, a new one. When the need for the Financial Services Act was first mooted a considerable volume of opinion said, "These things are best solved informally. The City ultimately can regulate itself. The club will keep its club membership as clean as it possibly can: why is it necessary to have these various Acts of Parliament?" However, as time passed, the necessity for the Financial Services Act became more obvious. And, after Johnson Matthey, the necessity for this Bill became obvious.
In due course, if I may predict to the noble Lord, Lord Young of Graffham, I am afraid that Lloyd's will soon be on his plate again. There is already a volume of opinion in the City advocating that Lloyd's, rather than being self-regulatory, should be brought within a more comprehensive regulatory scheme.
I am not surprised that the Alliance Benches on this occasion should also be in favour of a very cosy relationship and should regard the amendment that I have put down, or rather the consequences of its application, as a constitutional outrage. These arguments do not surprise me. Indeed, they help to lay down the lines of demarcation between the Alliance, on the one hand, and those for whom I have the honour to speak on these Benches.
I repeat that we are trying to help the Government. We shall not seek to press the amendment. The opinions expressed have been most revealing, and I hope that they will be taken note of very widely. In the meantime, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1, as amended, agreed to.
4 p.m.
Clause 2[The Board of Banking Supervision]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No.6:
Page 2, line 16, leave out ("jointly")
The noble Lord said: Clause 2(2)(b) which deals with the appointment of six independent members to the new Board of Banking Supervision reads:
"six independent members, that is to say, members appointed jointly by the Chancellor of the Exchequer and the Governor, being persons having no executive responsibility in the Bank".
The purpose of appointing the Board of Banking Supervision with a majority of six independent members is that those members shall act independently. In the course of the Second Reading debate, when the argument was advanced, the noble Lord, Lord Young of Graffham, said that all that was being done in this particular Bill was to follow the precedent set in the Financial Services Act. Indeed, Schedule 7 of that Act, where the qualifications of designated agency are set out, says at paragraph 1(2):
"The chairman and other members of the governing body must be persons appointed and liable to removal from office by the Secretary of State and the Governor of the Bank of England acting jointly".
That section was quoted by the noble Lord in support of his disagreement with the deletion of the word "jointly" in this subsection. The position is entirely different. In the Financial Services Act we were dealing with a designated agency of which the Bank of England was not a member. One was dealing in effect with a body from whom the governor of the Bank of England and the Secretary of State were completely aloof.
However, in the Banking Bill, the board itself consists and is stated at Clause 2(2) to consist of:
"three ex officio members, namely, the Governor of the Bank for the time being, who shall be the chairman of the Board, the Deputy Governor of the Bank for the time being and the executive director of the Bank for the time being responsible for the supervision of institutions authorised under this Act;"
So this board already has three officials of the Bank of England upon it. That means that if the word "jointly" is left in, the Bank which already has three ex officio members on the board of banking supervision, can exercise a veto over the Chancellor of the Exchequer's appointment of independent members. This does not appear to me nor I hope to others to be the correct state of affairs.
In human life, particularly in organisations of human individuals, there is very often a desire to produce a sense of conformity in the composition of boards of directors. As I see it, the function of the independent members is to advise the ex officio members. Indeed, that is in the Bill itself. Is it really right that those who are being advised should have a veto—because this is what "jointly" means—over names that are put forward by the Chancellor of the Exchequer? Is it right that the views of the Chancellor of the Exchequer as to who should be an independent member of this supervisory board should be subject to the agreement of those by whom the independent members are going to be advised? I think this is highly dangerous. Surely the function of the independent members is to be independent.
Those of us in commerce, industry—and indeed in government for that matter—know the dangers of having people around us who cocoon us with their agreement. They are very acceptable to us because they are known to agree with us. There must always be a temptation when there are selections for a board for those who are already on it, while of course not neglecting the ordinary professional human character qualifications, to prefer people, generally speaking (to use the loose term), with whom one gets on pretty well. I think there is a danger here. The function of the independent members, functioning independently, when the occasion arises is to be hair shirts; to be, if necessary, firm; if necessary, abrasive. These are not always characteristics which are admired by people who are accustomed to getting their own way, who are already in positions of great power and influence, as the three ex-officio members of the board of supervision will be.
I hope Committee will concur in the view that it is far better that the independent members should be appointed by the Chancellor of the Exchequer after consultation with the Government. The words "after consultation" mean in law what they say: that there is a responsibility on the Chancellor of the Exchequer to consult. But with an important function of this kind I would have thought it right, bearing in mind the ultimate power of Parliament, that although the governor of the Bank of England should be consulted, and if possible agreement should be arrived at with him, the veto should not lie with the Bank. The Chancellor of the Exchequer, being responsible to Parliament, ought after consultation to be required to make the appointment. I beg to move.
Lord O'Brien of Lothbury: Since I seem to be getting on my feet rather often, perhaps I ought to say at this point that although I am still associated with three banks in the City of London—and as everyone knows I was in the Bank of England for many years—I have consulted no one about this Bill. I have not the least idea whether the present governor of the bank of England would agree with anything I say in the House of Lords on it. I feel free to say what I think in view of my past experience, and I hope that what I say will be congenial to the present governor—but we shall have to see.
As to the amendment proposed by the noble Lord, Lord Bruce of Donington, and the amendments which follow it, as I read them, these amendments display a continuing distrust of the Bank of England. I cannot say I am surprised at that because members of the party on the Opposition Benches have traditionally had a distrust of the Bank of England, as indeed they would have of all central bankers, since central bankers in general are wedded to financial rectitude, probity and good sense. All too often, I am afraid, Left-wing governments lose their sense of direction, to say the least.
It may seem to be a very small point whether the Chancellor of the Exchequer appoints members of this board after consultation with the Bank rather than appointing them jointly with the governor. Nevertheless, I think the difference is important. I would not in any way want to undermine the strength and influence of the Bank in this area—not for the sake

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of the Bank but for the sake of the country at large. The Bank is a national asset and one which we should use to the best advantage. We certainly do not do that by undermining such authority as it has, without presuming to give it authority which it should never have.
I would prefer to see the Chancellor of the Exchequer and the governor jointly concerned in these appointments. If they are so concerned, I do not believe the appointments would be just a cosy arrangement between friends to make sure they get people on the supervisory board who are congenial and easily manageable. No sensible Chancellor would have anything to do with that. But I think it is important that the board should be there to advise and help the Bank, not to stick an oar in unnecessarily nor to make the system more difficult to work.
I do not believe that anybody who accepted an appointment to such a board would be anybody's poodle, neither the governor's nor the chancellor's. If they were in the majority on the board, I believe they would exercise that majority function responsibly and fairly for the good of the system. Therefore, I oppose this amendment.
Lord Bruce-Gardyne: I am not sure what attitude my noble friends will take to this amendment. I hope that they will recommend that the Committee resists it, very much along the lines advanced by the noble Lord, Lord O'Brien. Like my noble friend Lord Boyd-Carpenter, I served in a much more humble capacity in the Treasury. From that experience I find that this amendment, and perhaps even more so a number of others to which we shall come shortly, are calculated to undermine the authority of the Bank of England. I share the anxieties which the noble Lord, Lord O'Brien, expressed in that capacity.
However, in respect of this amendment I should like to make just one separate point. Having served for a brief period in the Treasury and having been involved in the relationship between the Treasury and the financial system during that period, frankly I am somewhat bemused by the apparent conviction of the noble Lord, Lord Bruce, that the Treasury is better equipped to choose exclusively the members of the supervisory board than is the Bank. I have to say that I should be inclined to take precisely the opposite view.
The Treasury has many skills and qualities but its understanding of the market-place is almost by definition at one remove compared with that of the Bank. I cannot believe that a more authoritative report on the supervisory board is likely to be achieved if the choice is left to the overriding whims of the Chancellor and the Treasury. It seems to me to be essential that the Bank should have at least an equal role in the selection.
Lord Taylor of Gryfe: I agree with the general view that has been expressed by the noble Lords, Lord O'Brien and Lord Bruce-Gardyne, because, as I said during the discussion on an earlier amendment, I feel that in the relationship between the Treasury and the Bank the balance is just about right. I do not propose to rehearse that argument.
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Perhaps I may say to the noble Lord, Lord Bruce of Donington—and I am anxious to be helpful to him on this matter—that recent experience would suggest that joint appointments are desirable. I refer to the case, which I raised in this Chamber, of the appointment of Mr. John Kay, the distinguished director of the Institute for Fiscal Studies, whose appointment was agreed by the Bank and the SIB as a member of that important body. I understand that it was not a joint appointment and that it was vetoed by the Treasury. I suggest that that was a case in which joint discussion and joint appointment would perhaps have avoided embarrassment.
Like the noble Lord, Lord Bruce-Gardyne, I feel that perhaps the central bank is in as good a position to consider the suitability of appointments to the supervisory board as is the Treasury, and consequently I hope that the noble Lord, Lord Bruce of Donington, will withdraw this amendment.
Lord Young of Graffham: The method of appointment and other provisions in respect of the independent members of the Board of Banking Supervision have been the subject of extensive debate in another place. The provisions of the Bill that is now before the Committee reflect that debate following changes introduced by the Government.
The provisions for the appointment of independent members strike the right balance in that they require appointments to be made by my right honourable friend the Chancellor of the Exchequer acting jointly with the governor of the Bank of England. It will be a joint exercise. Many members of the Committte must feel as I do that nothing can be gained by adopting the proposed amendment whereby appointments will be made first by the Chancellor following consultation with the Bank of England. For the convenience of the Committee perhaps I may say that I hope that we are dealing with Amendments Nos. 6, 7 and 8 in connection with this matter, since they are all grouped together.
Surely something would be lost if we removed the former concept of joint appointments, which is that embodied in the provisions of the Financial Services Act recently approved by this Chamber in relation to the appointments to the Securities and Investments Board. There is a need for balance in these matters and I believe that the Bill strikes the right balance. It guarantees an independent voice on the Board of Banking Supervision and at the same time recognises that in order to operate effectively the independent members must work closely with the Bank's supervisors, pooling their advice and experience at the highest level. That is the purpose of these provisions which I believe that the Bill properly reflects.
Lord Bruce of Donington: I am disappointed that the Minister has seen fit to reject the power that I proposed to give to the Chancellor of the Exchequer in this matter. It seemed to me to be a proper reflection of the position that ought to exist between any Chancellor of the Exchequer and any governor of the Bank of England. The amendment that I propose provides for consultation—cosy consultation or informal consultation if one likes. Nevertheless, one should bear in mind that these members are to be independent

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members, advising three ex officio members, and that in the final analysis it is the Government, with responsibility to Parliament, who ought to have the ultimate authority.
I was a little surprised to learn from the noble Lord, Lord Bruce-Gardyne, that he did not think much of the Treasury officials' understanding of the marketplace compared with that of officials in the Bank of England. I have the utmost admiration not only for the officials in the Bank of England but also for those in the Treasury, who, after all, are responsible to the Chancellor of the Exchequer. From what the noble Lord, Lord Bruce-Gardyne, has said, I gather that the present Chancellor of the Exchequer, who has the responsibility for the Treasury, does not understand the working of the market-place either.
4.15 p.m.
Lord O'Brien of Lothbury: Perhaps I may intervene here. I have the greatest admiration for our Civil Service, and none greater than for those civil servants at the head of the Treasury with whom I have worked for many years. They are most admirable people in all respects. However, the fact is that the Bank of England is in the market every day of its life. It is part of the market and therefore it comes to know the market much more intimately than could anybody in Whitehall; and my Treasury friends will be the first to acknowledge that.
Lord Bruce of Donington: In the course of my remarks so far I have not referred to the position taken up by the noble Lord, Lord O'Brien. If I may, I shall touch upon that as politely as I can in the course of the next few minutes. However, it is not necessary for the Treasury to be in the market-place in order to understand it. I have said before many times that experts should be on tap and never on top. This is an occasion on which the Treasury, which is responsible to Parliament, ought to be seen to be on top.
I repeat I am surprised to learn from the noble Lord, Lord Bruce-Gardyne, that the Chancellor of the Exchequer, because he is not in the day-to-day market-place, similarly does not understand it. I have long suspected that many of those who advocate the freedom of the market and who believe in market forces do not really understand them anyway.
Lord Young of Graffham: Forgive me for interrupting, but I think that the point being made is not that my right honourable friend the Chancellor of the Exchequer does not understand the market, which is far from being the case, but that because the Bank is in day-to-day contact with the people in the market it will have better knowledge of individual people who are at that time practising in the market.
Lord Bruce of Donington: That makes it all the more necessary for an independent mind to be engaged on this matter. The market-place, particularly in the City, as the noble Lord, Lord Boyd-Carpenter, has pointed out, is a very cosy kind of place. For the sake of Parliament and indeed the country it is wise that there should be an occasional dose of astringency in the business rather than allowing everything to continue
1232
under the old pals act. I have endeavoured to keep party politics out of the debate. The noble Lord, Lord O'Brien, was frank. One can understand what the Bank of England as then constituted—I shall not pass any comment on as now constituted—felt about the policies of successive Labour governments.
Lord Boyd-Carpenter: Hear, hear!
Lord Bruce of Donington: That proves the point that I have been trying to make. When the chips are down, and the noble Lord, Lord O'Brien was kind enough endorse the point, the Bank of England is in fact the Tory party at the place of work.
Lord O'Brien of Lothbury: The point I wanted to make is that the central banker has a professional expertise and concern which he shares with other central bankers throughout the world. He is constantly meeting other central bankers. They always wail about the inadequacy of government and their straying from the path of rectitide. It is part of life. A central banker concerned with correct financial policies, as he sees them, is bound to be unhappy about politicians who stray from them. In the past, Labour may have strayed more often than the Conservatives, but both have strayed.
I always remember that one of Montagu Norman's greatest friends was Philip Snowden. He did not think that Philip Snowden strayed. They were on the same path. It has nothing to do with politics; it has to do with the impact of politics on people who are concerned with professional rectitude.
Lord Bruce of Donington: I am most grateful for the noble Lord's intervention. It reminds me of the observations made by John Kenneth Galbraith when he was American Ambassador to India. In a missive he sent to the then President in connection with domestic affairs he claimed that banking was a profession from which it was difficult to recover.
The purpose of the amendment is to assert, once again, the executive's ultimate responsibility. I understand that those on the Benches opposite find that inconvenient. I am sure that a number of governors of the Bank of England find the amendment repugnant; nevertheless, on the principle, and because we all profess adherence to parliamentary democracy, with governments responsible to Parliament and Parliament exercising ultimate authority, I propose—I am sorry that I shall be unable to attract the members of the Alliance to this concept once again—to divide the Committee on this issue.
4.23 p.m.
On Question, Whether the said amendment (No.6) shall be agreed to?
Their Lordships divided: Contents, 62; Not-Contents, 130.

DIVISION No.2

CONTENTS

Beaumont of Whitley, L

Briginshaw, L.

Beswick, L.

Brockway, L.

Blyton, L.

Bruce of Donington, L

Bottomley, L.

Campbell of Eskan L

1233

Carmichael of Kelvingrove, L.

Molloy, L.

Cledwyn of Penrhos, L.

Morton of Shuna, L.

David, B.

Mulley, L.

Davies of Penrhys, L.

Nicol, B.

Dean of Beswick, L.

Northfield, L.

Denington, B.

Oram, L.

Elwyn-Jones, L.

Phillips, B.

Ennals, L.

Pitt of Hampstead, L.

Ewart-Biggs, B.

Ponsonby of Shulbrede, L.[Teller.]

Falkender, B.

Fisher of Rednal, B.

Rea, L.

Fletcher, L.

Ross of Marnock, L.

Gallacher, L.

Russell, E.

Galpern, L.

Sefton of Garston, L.

Graham of Edmonton, L.[Teller.]

Serota, B.

Shackleton, L.

Gregson, L.

Shepherd, L.

Hatch of Lusby, L.

Silkin of Dulwich, L.

Heycock, L.

Stallard, L.

Jeger, B.

Stewart of Fulham, L.

Jenkins of Putney, L.

Strabolgi, L.

John-Mackie, L.

Taylor of Blackburn, L.

Kirkhill, L.

Taylor of Mansfield, L.

Leatherland, L.

Underhill, L.

Listowel, E.

Wallace of Coslany, L.

Llewelyn-Davies of Hastoe, L.

Williams of Elvel, L.

Lovell-Davis, L.

Wilson of Rievaulx, L.

Mischon, L.

Ypres, E.

NOT-CONTENTS

Alexander of Tunis, E.

Gray of Contin, L.

Allerton, L.

Greenway, L.

Amherst, E.

Grey, E.

Atholl, D.

Gridley, L.

Attlee, E.

Haig, E.

Auckland, L.

Hailsham of Saint

Aylestone, L.

Marylebone, L.

Bancroft. L.

Hampton, L.

Beaverbrook, L.

Harris of Greenwich, L.

Belhaven and Stenton, L.

Harvington, L.

Belstead, L.

Hemphill, L.

Bessborough, E.

Henderson of Brompton, L.

Blyth, L.

Hesketh, L.

Bonham-Carter, L.

Hirshfield, L.

Borthwick, L.

Holderness, L.

Boyd-Carpenter, L.

Home of the Hirsel, L.

Brabazon of Tara, L.

Hood, V.

Brougham and Vaux, L.

Hooper, B.

Bruce-Gardyne, L.

Hylton-Foster, B.

Butterworth, L.

Ironside, L.

Caithness, E.

Killearn, L.

Campbell ofCroy, L.

Kinloss, Ly.

Carnock, L.

Kitchener, E.

Coleraine, L.

Lane-Fox, B.

Constantine of Stanmore, L.

Layton, L.

Cottesloe, L.

Limerick, E.

Cowley, E.

Long, V.

Craigavon, V.

Lothian, M.

Davidson, V.[Teller.]

Luke, L.

De Freyne, L.

Lyell, L.

De La Warr, E.

McAlpine of West Green, L.

Deeds, L.

McNair, L.

Denham, L.[Teller.]

Marley, L.

Denning, L.

Merrivale, L.

Diamond, L.

Molson, L.

Donaldson of Kingsbridge, L.

Morris, L.

Donegall, M.

Mowbray and Stourton, L.

Drumalbyn, L.

Munster, E.

Dundee, E.

Nugent of Guildford, L.

Ebbisham, L.

O'Brien of Lothbury, L.

Eccles, V.

Pender, L.

Edmund-Davies, L.

Peyton of Yeovil, L.

Elliot of Harwood, B.

Pike, B.

Elliott of Morpeth, L.

Portland, D.

Elton, L.

Rankeillour, L.

Fanshawe of Richmond, L.

Reay, L.

Fraser of Kilmorack, L.

Reigate, L.

Gainford, L.

Ridley, V.

Gibson-Watt, L.

Ritchie of Dundee, L.

Gladwyn, L.

Rochdale, V.

Gormanston, V.

Romney, E.

1234

Saltoun of Abernethy, Ly.

Terrington, L.

Sanderson of Bowden, L.

Teviot, L.

Sandford, L.

Teynham, L.

Seear, B.

Thorneycroft, L.

Selborne, E.

Tordoff, L.

Shannon, E.

Torrington, V.

Skelmersdale, L.

Tranmire, L.

Somers, L.

Vaux of Harrowden, L.

Stedman, B.

Waldegrave, E.

Strange, B.

Ward of Witley, V.

Strathcarron, L.

Whaddon, L.

Strathcona and Mount Royal,

Whitelaw, V.

L.

Wigoder, L.

Strathspey, L.

Wolfson, L.

Taylor of Gryfe, L.

Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.
4.32 p.m.
[Amendments Nos. 7 and 8 not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 9:
Page 2, line 17, at end insert ("or any institution authorised under this Act.").
The noble Lord said: I beg to move Amendment No. 9, standing in the names of my noble friend Lord Bruce of Donington, myself, and my noble friend Lord Morton, in the words on the Marshalled List. It may also be for the convenience of the Committee if I speak also to Amendment No.20.
As the noble Lord, Lord Young of Graffham, said, we are here dealing with the balance on the board and the balance of the board's responsibilities vis-à-vis the ex-officio members. The amendments that we have tabled are in the nature of probing amendments to elicit from the Government, if that is possible, what view they take about executive members of banks serving on the Board of Banking Supervision. We are assured that the members will be truly independent. They are described as being independent members in the Bill. At present in what one would call the shadow board there is a mixture of those who are in some cases chairmen of banks, in one case a partner in a senior accounting firm, and in one case the deputy chairman of British Telecom. There is a mix between those who are involved in banking and those who are involved in banking only in a wholly non-executive role. It is always difficult to discern whether the role of a chairman of a clearing bank is an executive or non-executive role; it varies between banks. However, for the moment I shall call it a non-executive role.
I believe that many Members of the Committee would be concerned if all the independent members of the Board of Banking Supervision were executives in an authorised institution. Some Members of the Committee might be concerned if none of the independent members of the Board of Banking Supervision were executive members of an authorised institution. There is presumably some middle ground which would preserve the independence of the independent members so that the advice that the ex-officio members will be receiving will be properly balanced while keeping the sense of the practitioner relationship—the people who are actually in touch with the day-to-day goings-on of banks.
I am quite happy to accept it if the noble Lord says that my amendment is too extreme. Nevertheless, I hope very much that he will give us the benefit of his

1235
views and those of the Government as to where the Government think that the balance should be struck in the group of independent members on the Board of Banking Supervision between those who are not involved on a day-to-day basis with executive responsibilities in banking, and those who are. I beg to move.
Lord Young of Graffham: I appreciate the purpose of these amendments and the need to avoid conflicts of interest arising on the board. But the board is intended to be an expert arm of supervision and in order to play that role it is vital that the board includes—among others—experienced commercial bankers who can bring first-hand knowledge of prevailing banking practices into the supervisors' decision-making process.
There is no reason why this should produce undesirable conflicts of interest. The standard, accepted practice in such circumstances is for a member of a board to declare an interest and to stand aside from any decision of the board that bears directly on that interest. That is the practice that will be followed on the Board of Banking Supervision. Indeed, it would put us under grave difficulty if we were to depart from that standard. All Members of the Committee will agree that it would be a considerable loss to the quality of supervision if a blanket prohibition on bankers playing a role on the board were to be introduced, or that it should be confined to those who have recently retired from playing an active role as a banker. In those circumstances, with all the safety practices which I hope the Board of Banking Supervision will follow to ensure that they stand aside if there is any question of conflict of interest, I invite the noble Lord to withdraw his amendment.
Lord Williams of Elvel: I am grateful to the noble Lord. He responded to my half invitation to say that my amendment was too extreme. I believe that was the thrust of what he had to say. I admitted that the amendment was perhaps designed to elicit some further response than simply that it would not work.
Perhaps I may elaborate for a moment. Practising bankers are not necessarily executive members of a bank. Leaving aside the question of whether a chairman of a clearing bank is executive or nonexecutive—as I say, that is sometimes difficult to discern—on the present shadow board there is the chairman of the Royal Trust Company of Canada, who is a director of the TSB, and indeed a former chief executive of Arbuthnot Latham, who is certainly a banker with enormous experience in banking; but unless I am mistaken I do not think that he has an executive post inside any of those banks that I have mentioned. There is the deputy chairman of British Telecom, who happens to be a director of Barclays Bank as well. I do not think, however, that as a director of Barclays Bank he is an executive of that bank.
There is the chairman of M&G, who is also a director of Kleinworts, but I believe that he is, so far as I know, an executive director of Kleinworts. The noble Earl, Lord Limerick, is correcting me—he is not an executive director of Kleinworts. He is a banker but not an executive director of the bank. There is the
1236
senior deputy chairman of Standard Chartered Bank, who is about to resign from the shadow Board of Banking Supervision once he takes over from the noble Lord, Lord Barber, as chairman of that bank. There is therefore a mix on the board at the moment between those who have a day-to-day involvement in an executive capacity and those who have not necessarily a day-to-day involvement but an involvement which allows them to keep in touch with the market and to meet their colleagues on the boards of banks.
I very much hope that the noble Lord can say a little more about the balance that he would expect to be struck, not just to avoid conflicts of interests but to make sure that the outside world has an impact on the board and on the ex-officio members. I draw the analogy with the Securities and Investments Board. It was written into the Financial Services Act that the public should be represented on that board. I am not saying that the public necessarily need to be represented on the Board of Banking Supervision. Nevertheless, I think that the outside world has to be represented; it has to be there. The organisation should not simply be a group of executive bankers, because they will certainly have an interest collectively in ensuring that the Bank of England does things which are to their own profit. I am afraid that is the way of the world.
Perhaps I may ask the Secretary of State to give a little more guidance on how the Government see the balance being struck between non-executive directors of banks, executive directors of banks and people who are neither executive directors of banks nor non-executive directors.
Lord Young of Graffham: I think it is very difficult, if not dangerous, to be drawn in at this stage in settling policy for decades ahead, or for as long as these boards will continue to exist. What is important is that this is a board that has a very real and vital role to perform. In order to perform a supervisory role it must have at its disposal sufficient knowledge of current banking practice. If we accepted the amendment in any way we should first of all get into definitional difficulties about what is the "executive" or "non-executive" role, which can cause a whole raft of problems for the future. Secondly, we would be excluding from the board the very people who are most aware of the latest practices and the direction in which the market is going. They are also most aware of situations which require changes, perhaps in supervision or changes in order to ensure that this board has teeth; that it actually performs properly. It is a way in which the world is changing; it is a fast-changing world, as we have all come to realise.
I wish that I could go some way down the path which the noble Lord asks me to go in talking about the balance. That really has to depend upon the circumstances at the time, as they arise. I could not accept the assertion of the noble Lord, Lord Williams of Elvel, that bankers are totally interested in self-interest, or in the profit which they themselves, or institutions, may make. I suspect that the interest of all who are serving on this board will be to see that the sector itself, the whole banking institution of the City of London will actually prosper and will perform their

1237
proper role. In those circumtances we say simply this: that the members on the board will be those which it is thought at the time to be the most suitable members. Above all else, we will ensure that there will be no conflict of interest on individual decisions that the board itself will take.
Lord Williams of Elvel: I am grateful to the noble Lord, and I recognise the difficulty which he is in. He cannot set policy for the next six months. Therefore, we shall have to wait and see what appointments are made to the board. Nevertheless, I should draw his attention again to the problem that I have outlined. I should also draw his attention to the fact that, so far as I am aware, these arrangements are not only different to the Securities and Investments Board, but also to the Building Societies Commission which does not have building societies executives forming the whole of the independent sector of the Building Societies Commission. As much as the Government have tried to introduce this as the third part of a financial regulatory system—if I may put it that way—we have a system in the Bill, the crucial system of the Bill, which is the Board of Banking Supervision. That is different in nature to the others. That is the point upon which we have to reflect. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.45 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No.10:
Page 2, line 19, after ("fit") insert ("and in such a manner as they think fit")
The noble Lord said: In speaking to this amendment, I shall, with the permission of the Committee, also speak to Amendment No.11. After listening to the tenor of the debate that has so far taken place, I am quite sure that the Goverment will reply that these particular amendments are completely unnecessary.
All that the first amendment seeks to do is to give the independent members not only the right to give such advice as they think fit, but also in such a manner as they think fit. For example, some members may be constrained to put their objections in writing, which is something we think they ought to be able to do.
The next amendment to which I am speaking states:
"The independent members may at their sole discretion communicate the advice they have given to ex officio members to the Treasury at any time and in whatever manner they think fit."
I am quite sure the noble Lords, Lord O'Brien, Lord Young of Graffham, and possibly also Lord Bruce-Gardyne and others take the view that this situation will never arise, and that in point of fact, there is most unlikely to be disagreement between the independent members and the ex-officio members. As Members of the Committee will recall, this is a possibility to which I gave some support earlier. In short, any resistance to these amendments is based on the supposition that the relationship between the independent members and the ex-officio members will be supportive rather than critical. However, that is in disagreement with the observations which fell from the lips of the noble Lord, Lord Young of Graffham, when he spoke to the previous amendments.
The noble Lord said that under the Bill the independent members had teeth. I may be a little old-fashioned, but I had always understood that the function of teeth was that when the occasion arose, they were able to bite. Therefore, if, according to the noble Lord under the Bill the independent members should have teeth, then if they consider it necessary, they must be able to bite. Should they decide to bite for whatever reason, these amendments give them the facility for doing so. In particular, Amendment No.11 gives them the right to communicate the advice that they have given to ex-officio members to the Treasury at any time.
Quite clearly this provision envisages a disagreement between the independent members and the ex-officio members. This may be repugnant to those who have red-tinted or rose-tinted spectacles and who envisage a set-up of eternal harmony and amity on this board, the independent members of which are supposed to have teeth. It may cause a revolution in their minds to imagine that such an occasion could ever happen.
The Bill itself is devised to correct a situation which, two and a half years ago, nobody thought would happen. Therefore, how is it possible to be certain? It will be familiar to the noble Lord, to whom I made the opening remarks at Committee stage, that we seek to place the emphasis where we think the emphasis should lie. In this case, independence is quite obviously a virtue. But, so-called independence where none exists at all can be a cloak, a mere pretence that something really independent is being done and, in the words of the noble Lord, that some teeth have been given to the independent members. I do not think that we ought to mislead the country on this point. If differences of opinion are never envisaged at all, why have a board? If on occasions the board, on the basis of its experience and expertise, believes that the e-officios are wrong, it ought to be free to express itself independently.
In conclusion, I am not seeking to anticipate an antagonism that I hope will never exist. I and my colleagues sincerely hope that the supervisory board will work in amity. We do not seek to provoke trouble of any kind. However, sitting where we sit, it is our responsibility to make sure that the word "independent" has a value. The word and the status implied by the term ought to have value. Therefore, in cases which we do not foresee but which might arise, the board ought to be permitted, in the words of the noble Lord, Lord Young of Grafiham, to bite. I beg to move.
Lord O'Brien of Lothbury: As the noble Lord, Lord Bruce of Donington, has referred to Amendment No.11, I should like to comment on that amendment. The noble Lord spoke of the need for the independent members of the board being able to bite. It seems to me that if they have access to the Chancellor of the Exchequer they are able to bite. Naturally, one accepts that the occasions on which they wish to bite will be rare, but the fact that they are able to bite will make it doubly necessary for the Bank to be mindful of their views, as the Bank would in any case. The Bank's influence and knowledge, being concerned on an everyday basis with the question of banking control,

1239
may outweigh that of the six independent members. It is all the more important that those members should be able to hold their own and not, as I said on an earlier occasion, be members of the boilermakers union brought in to represent the public. They must be able to stand their ground in relation to the high expertise of the Bank of England.
With their access to the Chancellor, they can stand their ground and see that their views are taken into account. I believe that the Bank will endeavour to operate the supervision in a sensible and intelligent manner. Therefore, the ex-officio members will rarely fall out with the six independent members. I am very much against the latter having access to the Treasury if they disagree with the bank. They may have access to the Chancellor of the Exchequer by all means, but access to the Treasury means downgrading the position of the Bank in this area, and I believe that that would be wrong.
Lord Tordoff: I wonder whether the noble Lord, Lord Bruce of Donington, can assist me? It seems to us on these Benches that Clause 2(5) covers the principle of what he is saying. I accept the distinction made by the noble Lord, Lord O'Brien of Lothbury, in relation to the Chancellor on the one hand and the Treasury on the other hand. However, the principle behind the remarks of the noble Lord, Lord Bruce of Donington, is surely covered by subsection (5), save only with reference to Amendment No.15.
Lord Williams of Elvel: I should like to reply to the noble Lord, Lord Tordoff, on behalf of my noble friend Lord Bruce of Donington, and also make one or two comments concerning the intervention of the noble Lord, Lord O'Brien.
The point raised by the noble Lord, Lord Tordoff, is true: namely, that under Clause 2(5) independent members can have access to the Chancellor of the Exchequer, once the ex-officio members have given written notice to the Chancellor of the Exchequer in any case in which it is decided that the advice of the independent members shall not be followed. That is interpreted by the noble Lord, Lord O'Brien, as meaning access to the Chancellor of the Exchequer, and I accept what he says about the Chancellor of the Exchequer rather than the Treasury. I think that it is a perfectly fair comment as regards our amendment.
Nevertheless, this formulation—which is a revised formulation arising from debates in another place—is not without considerable difficulty. It is presumably not intended that independent members should meet separately in order to draw up a collective statement of their advice to ex-officio members. I hope that the noble Lord, Lord O'Brien, will agree that the board will work better if it works together, rather than one group drawing up something which is called "advice" and communicating that formally to the ex-officio members.
In practice there will be a variety of views on any given topic. Members will be sitting around the table, views will be expressed, and no doubt modified, in the light of the discussion which takes place. It is perfectly possible to imagine that the independent members will
1240
not all be of one mind: they may differ in opinion one from another.
Further, it is not entirely clear exactly how one notes the process of decision. When dealing with matters of general policy it is sometimes difficult to say: "Now we decide this". The case is even more difficult where the ex-officio members of the board must say: "Now we decide this; the advice of the independent members is that; and we therefore note a particular situation where a decision has been taken contrary to the advice of the independent members", and the Act (as it will then be) starts to bite. That formulation is difficult and, though I am sure that the Governor, his colleagues and the chosen independent members will be able to handle the matter, I should not like Members of the Committee to think that that will be particularly easy.
Our view is that the independent members, at their own discretion (not if the ex-officio members decide that they will write to the Chancellor saying that they disagree with the advice of the independent members) should have access to the Chancellor. They should be able to say: "We have discussed the matter fully in the board, and, although the Governor felt that he was taking our advice, we must point out to the Chancellor that we do not think the Governor was taking our advice". That situation is not one which is provided for in the Bill as it stands, and that is the purpose of the amendment.
Lord Bruce-Gardyne: If the noble Lord, Lord Williams, accepts the point made by the noble Lord, Lord O'Brien, concerning the desirability of the access being to the Chancellor rather than to the Treasury at official level, I am not clear why his name is appended to the amendment, because Amendment No.11 says the opposite.
Lord Williams of Elvel: When tabling amendments, Members do not necessarily stick to every conceivable word in Committee. We are allowed to change our minds in the light of discussion.
5 p.m.
Lord Bruce-Gardyne: That is absolutely right and proper, and I accept entirely what the noble Lord has said by way of explanation. I thought that the substantive points made by the noble Lord, as regards the complexities of defining precisely the circumstances of divided opinions within the supervisory board and between the independent and ex-officio members, were valid points. However, I submit that they substantially call into question the whole substance of subsection (5). I have substantial reservations about subsection (5) as it is now drafted.
In introducing the two amendments, the noble Lord, Lord Bruce of Donington, said that he expected to be told that they were unnecessary. I do not think that they are simply unnecessary; I regard them as profoundly offensive. However, I am inclined to feel that the wording of Clause 2(5) in the Bill as it stands, and as altered by the Government following the debates in another place, is somewhat offensive in its approach to the relationship between the Bank and the Treasury. I would remind the Committee that originally subsection (5) ended with the words that the

1241
advice of the independent members should not be followed. It is only in the Bill as before the Committee today that the phrase,
"and the independent members shall be entitled to place before the Chancellor the reasons for their advice",
has been added.
I find this a kind of gratuitously offensive double banking. I think we need to watch carefully the evolution of the relationship between the Treasury and the Bank in recent years. I suppose it has always been a relationship of constructive tension—or tension at any rate: perhaps it was not always overwhelmingly constructive in the days when I was involved in these matters. But since then I suggest that there has been a substantial shift of assertiveness from the Bank towards the Treasury, no doubt as a consequence of the Johnson Matthey affair, to which the noble Lord, Lord Bruce, referred and which of course is bound to be substantially at the back of our considerations throughout the perusal of this Bill.
It is important that the Government should beware of the vital importance to the Treasury and the Government that the authority of the Bank, as the overriding supervisory control within the City, is not undermined and diminished. I am not talking about the noble Lord's Amendment No.11, which, as I say, I would regard as profoundly offensive to the Bank and to the authority of the Bank, but I have to say that in my view even subsection (5), as it stands in the Bill after amendment following debates in another place, is somewhat gratuitously offensive to the authority of the Bank.
The Government should beware of doing anything which further undermines the authority of the Bank if they want the Bank to perform the essential supervisory role it has to perform, because for the reasons we discussed on Amendment No.5 I do not believe that the Treasury is qualified to perform that role in the market place. We need to look carefully at the maintenance of the authority of the Bank and do nothing which further diminishes that authority.
Lord Tordoff: Is not the noble Lord, Lord Bruce-Gardyne, supposing that the independent members are in fact Treasury moles rather than independent members? Is that what he is saying?
Lord Young of Graffham: I think I should at the outset remind the Committee that my remarks about the Board of Banking Supervision having teeth referred to the whole board and not to just certain members. In fact I hope they will all have teeth, and I hope they will all use them. We have before us today two amendments, and they are rather different. Amendment No.10, I suspect, goes without saying. The board is empowered by paragraph 4 of Schedule 1 to determine its own proceedings. I feel about this that the words already include giving advice "in such manner as they think fit", and I do not think that we should go much further, but I shall listen to what everybody has to say.
Amendment No.11 is altogether different. I hope—and I think we all hope—and expect that the ex-officio and the independent members of the board will work together in a constructive manner. I am sure that that will be the case. The experience of the shadow
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board which has been set up in anticipation of this legislation supports that view. But it is right that the Bill should provide for difficult cases, disputes or differences, which turn out to be irreconcilable. That is the purpose of subsection (5) of this clause. I heard what my noble friend Lord Bruce-Gardyne had to say, but we are not discussing the clause itself but a proposed amendment to the clause. However, I listened with great care to what he said, and I do take note of his words.
Subsection (5) provides that where the advice of independent members is not to be followed, then the ex-officio members must notify the Chancellor of the fact, and in such cases the independent members are given the explicit right to approach the Chancellor to explain the reasons for that advice. These are adequate safeguards. The expectation must be that in the majority of cases the issues will be resolved within the board itself, and only occasionally will it be necessary for issues to be referred to the Chancellor.
This is a very powerful weapon indeed. The fact that the members can go directly over the head of the Governor of the Bank of England to the Chancellor of the Exchequer seems to me to be a powerful weapon. I do not think that it adds to it, or does anything else, to have the right to speak to nameless officials within the Treasury.
That seems to confuse the whole position, because the amendment seems to assume that the independent members will be communicating with the Treasury on a regular or frequent basis. There is nothing in this Bill to prevent such communication, but surely it is not the intention, nor is it necessary or even desirable, that the Bank of England and not the Treasury should be responsible for day-to-day supervision under the Bill. I feel strongly that this particular amendment is one that we should reject.
Lord Bruce of Donington: This has been a most interesting debate on these two amendments. I am bound to accept the view that subsection (5) in all effective circumstances gives the independent members an entitlement to place before the Chancellor the reasons for their advice. Provided, therefore, that the ex-officio members give the written notice where it is decided that the advice of the independent members shall not be followed, then the independent members have that right.
Once again the course of the debate, and particularly the contribution of the noble Lord, Lord Bruce-Gardyne is a little indicative of a mood that seems to be governed by the almost complete veneration to which the Bank of England is held to be entitled. I took the words of the noble Lord down: "the Government should not offend the Bank". Those were his words. He can see them in tomorrow's Hansard. Why not, if it is necessary?
The Bank is a corporate institution. If every criticism of the Bank is to be rejected as an offence, or as being offensive to the Bank, then parliamentary proceedings mean nothing. I tend to regard as amiable those people who, by and large, tend to agree with me. This is a human characteristic which I think we all have in common. But I do not necessarily take offence because somebody disagrees with me, or because somebody offers criticism.

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Even criticism is not offered either by the subsection to which the noble Lord referred, or indeed by the amendment. Is the Bank composed of super-sensitive people who take any criticism as a mortal blow to their dignity? If one regards the amendment as offensive—or if, as the noble Lord said, even subsection (5) itself is regarded as in some way insulting or offensive—to the Bank, then all parliamentary proceedings in your Lordships' House and in another place are to some degree offensive. There ought to be no offensiveness in honest and straightforward argument and expression of view. Unless these matters are expressed in personal terms, they should give no cause for offence. They are a legitimate expression of views which in a democracy very frequently differ. The Bank of England, no more than anybody else, should be entitled to be immune from criticism, express or implied.
However, I have taken note of the noble Lord's observations about the Treasury in Amendment No.11. Perhaps at Report stage, if we are so minded, and after mature consideration of the debate, we may introduce a similar amendment. I am not saying that we shall, but we could remedy the point made by the noble Lord, Lord Bruce-Gardyne, by putting in "the Chancellor of the Exchequer". That might be more in keeping. I trust that the noble Lord will not thereupon turn round and say that we are being offensive to the Chancellor of the Exchequer.
In the light of the debate and having sensed the feeling in the Committee, I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.11 not moved.]
Lord-Williams of Elvel Lord-Williams of Elvel moved Amendment No.12:
Page 2, line 25, leave out ("regular") and insert ("monthly").
The noble Lord said: It may be for the convenience of the Committee if I also speak to Amendments Nos. 13, 14, 15 and 17. The amendments deal with Clause 2(4) which lays on the Bank a responsibility to make reports to the board on matters which are relevant and to provide the board with such information as it needs. I paraphrase that subsection because there are some points in it, to which the amendments are addressed, which I think need certain clarification. It is clearly important that the board be properly briefed by the Bank on matters and it is clearly important that matters should not be irrelevant. There is no point in briefing the board on irrelevant matters.
Nevertheless, I have some problems with the wording of the subsection as it stands. My first question is what is meant in this context by the word "regular"? I have inserted 'monthly" in Amendment No.12, but it could be "quarterly" or any other period. I certainly want to know what "regular" means? Is it on a regular basis or as events occur which happen to occur regularly? Will it be a quarterly piece of information or a weeky bulletin? How will this all happen? I shall return to this if I can, but if it is to be left to the Bank then I cannot see why it is on the face of the Bill.
The next question concerns the expression,
"which the Bank considers relevant".
In other words, the criteria of deciding whether matters are relevant or not to the board rests with the Bank. It is the Bank which decides whether a matter is
"relevant to the discharge by the independent members of their duty under subsection (3) above".
Finally, there is a further qualification on the information that the board may receive; that is the limitation of reasonable requirement. Clearly, it is not to require information which is unreasonable. But I should prefer to see a phrase such as "entitled to" in place of "reasonably require".
These are not matters of world-shaking importance. But, clearly, if we are to have something on the face of the Bill, it is important, first, that it should be clear, and, secondly, that the Committee should fully understand what it is intended to mean. I am bound to say that I have some difficulty in understanding exactly what the responsibility of the Bank is in subsection (4) in respect of the board and the information to be communicated to it. It is so hedged around that either it means everything or it means nothing.
The amendments to which I am speaking would at least make the matter precise. They may make it undesirably precise in the Government's view. I think that they would make the legislation comprehensible as well as precise. If the Government decide that the Bill should be left wholly imprecise, then there is a reasonable formulation which says that the Bank shall keep the board more or less informed about matters it is discussing. These are very general words, but presumably the Bank would do that anyway. I should be grateful for the noble Lord's comments. I beg to move.
5.15 p.m.
Lord Harmar-Nicholls: The noble Lord said that his amendment made the wording more precise. I do not believe that is a proper description of what the amendment would do. There would be rigidity; every month, this would have to be done. That rigidity would create a lot of unnecessary work. Taking all the amendments together, we are very near the point to which the noble Lord, Lord Bruce of Donington, objected on the last amendment—the point where, particularly if one felt in a liverish mood, it could be deemed an unnecessary criticism of the Bank to the extent perhaps of being marginally offensive. At the moment, as the words stand, "regular intervals" mean having to be kept informed when there was something to be informed about.
Lord Tordoff: May I—
Lord Harmar-Nicholls: May I just finish this point? To say that you do not trust the Bank to interpret "regular" to mean that, and to tie it down to "monthly", is a rigidity that stretches behind the point.
Lord Tordoff: With respect to the noble Lord, Lord Harmar-Nicholls, "regular" is restrictive. "Regular" means at a regular frequency. The Bill does not say what that frequency shall be, and the noble Lord, Lord

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Williams of Elvel, is specifying that the frequency shall be monthly. To put in the word "regular" means that there has to be a report at regular intervals which means a rolling programme.
Lord Harmar-Nicholls: I think the noble Lord and I agree. It is in the judgment of the Bank to interpret the word "regular", whereas the amendment says "monthly", tying it down.
Lord Williams of Elvel: Does the noble Lord, Lord Harmar-Nicholls, not recognise that the rigidity he is talking about is there whether one uses the word "regular" or "monthly"?
Lord Harmar-Nicholls: I am suggesting that the words that the noble Lord has in his amendment make the Bill offensively rigid. As it stands, it recognises the responsibility of the people who have to decide the regularity of reports. A bank is no different to running one's own business. Where the board of any business which meets at irregular intervals says that it wants a weekly or a monthly report and that this shall not be at the discretion of the executive who has to give it, that can give the impression that you do not have a lot of confidence in your executives. It can imply that you do not think they can decide that sort of thing. I do not know what my noble friend will do.
While I had a little sympathy with the noble Lord, Lord Bruce of Donington, when he objected to this offensive stuff, this is getting near to a point where, if I was in the executive, I would begin to wonder whether I had the full confidence of a board which wanted to tie me down as rigidly on giving details as these amendments seem to do.
Lord Young of Graffham: It is a surprising world in which we live. I occasionally hear complaints about how people take offence at programmes on television or the radio or in connection with other matters, but I little thought the day would come when the wording of the Banking Bill would turn out to be quite so offensive. It just goes to show!
The Bill requires the Bank of England to provide the board with regular reports on matters relevant to its functions. "Regular" is the key point. Perhaps it would be as well to look into the present practice of the shadow board, which meets monthly. Since this is in line with the pattern of its meetings, it gets a monthly briefing; but in addition ad hoc briefings are received on matters of special interest should the occasion arise.
We are actually putting in additional rigidities, and as a Minister who has some responsibility for deregulation I should hate to introduce unwittingly some new regulations to specify whether the report should be weekly, monthly or whatever. I think it is a slightly unnecessary form of bureaucracy. The word "regular" really means that it should be at periodic intervals but that those intervals could vary as and when the demands of the market might dictate.
Lord Tordoff: With respect to the Minister, surely "regularly" cannot mean that. "Regularly" means regularly, and what the noble Lord is describing is irregularly, or as and when required. If the Bill said
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that there shall be recourse to these reports as and when required but not less than quarterly, or something like that, we might have some common ground. But it says "regularly", and once you have started you have to repeat it at those kinds of intervals.
Lord Harmar-Nicholls: I suppose one can put what interpretation one likes on the word "regular", but the point of my intervention is that you are letting the Bank itself decide the necessity and to decide what is "regular". I think that is right. If you have confidence in it to do the job you have given it to do, it ought to be in a position to decide just that.
Lord Tordoff: I am not disagreeing with the noble Lord, Lord Harmar-Nicholls. I am saying that the Bill at the moment says "regularly", and that means at regular intervals and not as and when people feel like it.
Lord Young of Graffham: I am sorry, but what I said a moment or two ago is simply this. The Bill requires the Bank of England to provide the board with regular reports on matters relevant to its function. There may well be times of particular difficulty when the regularity of that report might have to be increased to weekly, or even daily. Who can tell? Merely to provide for "not less than quarterly" does not take us any further. The important point is that there should not be an occasional report. It is seen clearly in the Bill that they should be at regular intervals—but those intervals can vary if the need should arise to make them more frequent. I cannot imagine the need would arise to make them less frequent, but I cannot tell what circumstances may dictate. Also, when one considers that the independent members of the board are empowered to require any further information they may need, over and above the regular reports from the Bank of England, there is that additional safeguard.
On the second amendment, I believe there is a similar case for the retention of the provision stating that the reports to be made by the Bank are those that it considers relevant to the functions of the independent members. What other test could there be for such reports? Even if the proposed words were removed it must still in practice be the Bank's judgment of "relevance" which determines what reports are made. Once again, if the independent members do not share that judgment the safeguard is provided by their power to call for further information.
The third amendment would remove the word "reasonably" from the provision. It states that the independent members may require further information. I take it the noble Lord does not intend that the members should make unreasonable requests, and in that case I see no real purpose to the amendment. The point of the present drafting is perhaps more presentational than substantial because no attempt to exercise these rights in an unreasonable way could or would be enforced by the courts. But on balance it seems better to retain the words. However, I leave that to the noble Lord.
Lord Williams of Elvel: I am most grateful to the Secretary of State. I think this has been a very useful exchange because we have established that there is a certain rigidity, though its type may change. I hope

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that the Secretary of State was not ruling out irregular reports, in the sense that there may be special occasions when a report might be necessary at a moment's notice. He seemed to refer to the regular report, the frequency of which might change.
Lord Young of Graffham: If the noble Lord will allow me, irregular as to timing but not as to content, I trust.
Lord Williams of Elvel: I am most grateful. We now see that the Bank shall make regular or irregular reports, as the case may be. It is very important to get these understandings absolutely clear in our minds. They are important and we need to have the board, and particularly the independent members, properly informed about what is going on. I take the noble Lord's point absolutely about the independent members having the power, under the clause as drafted, to ask for supplementary information. They can clearly use that should they consider the information they are getting, which the Bank considered relevant, not to be relevant. They can ask for more information. As long as the request for further information is reasonable, as I am sure it would be, there is the necessary power under that clause. So I take the noble Lord's point on that and I shall not press the amendment. I am still very interested in looking at what the noble Lord said about the regular reports and regularity. I shall read his remarks carefully in Hansard.
Lord Tordoff: Just before the noble Lord seeks perhaps to withdraw his amendment, I thought we were coupling Amendment No.17 with these amendments, but I may be wrong. Nobody seems to have spoken on Amendment No.17.
Lord Williams of Elvel: As it happens, I was not going to move Amendment No.17. If that satisfies the noble Lord, Lord Tordoff, I now beg leave to withdraw this amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 13 to 18 not moved.]
Clause 2 agreed to.
Schedule 1[The Board of Banking Supervision]:
5.30 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No.19:
Page 79, line 9, leave out ("the Bank and").
The noble Lord said: I beg to move the amendment standing in my name and the names of my noble friends. I propose to speak also to Amendments Nos. 21 and 22. As drafted, paragraph 1(2) reads as follows:
"An independent member may resign his office by written notice to the Bank and the Chancellor of the Exchequer".
My amendment would seek to eliminate from that wording the words "the Bank and". That would leave the responsibility of the independent member to write direct to the Chancellor of the Exchequer with his resignation. That would be his responsibility. There is of course no reason why he should not simultaneously
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inform the Bank, but in our view the written notice should be sent to the Chancellor of the Exchequer.
Amendment No.21 concerns the removal from office of an independent member. Paragraph 2 says:
"An independent member may be removed by the Bank with the consent of the Chancellor of the Exchequer if it is satisfied".
Amendment No.21 seeks to eliminate the following words:
"the Bank with the consent or'.
It lays on the Chancellor of the Exchequer the responsibility for removal, and Amendment No.22 is consequential on that. Once again we are on the point of the independence of the member himself. That is why we want the relationship between the Chancellor of the Exchequer and the independent member to be firmly established. That is the purpose of these amendments and they follow very much the same tenor as many of those that have been put previously.
For the avoidance of doubt, I have to say that these amendments are not put down with any object of being offensive to the Bank of England, the sensibilities of which have been perhaps a little exaggerated by the noble Lord, Lord Bruce-Gardyne, who seems to be super-touchy about anything that conceivably might be interpreted by the Bank as offensive. They are not intended in that way at all. They are to put the responsibility in this respect where the responsibility ought to lie and ought reasonably to lie. The word "independent" and the incorporation of the members in the Board of Banking Supervision implies that, although they are working with the Bank, they are not of the Bank. To give the Bank the responsibility either of accepting their resignation or of ordering their removal puts the Bank in a more elevated position than it ought to be in. It is no more or less than that.
There are those who regard any such suggestion that the Chancellor of the Exchequer ought to have anything to do with it as somehow being offensive to the Bank of England. I cannot see that at all. I am well aware that members of Her Majesty's present Government are so fully in concert, agreement and harmony that there is almost a love match between themselves and the Bank of England, but this is not always necessary for the correct conduct of the nation's affairs. The Chancellor is entitled to have his own view independent of the Bank, unless he is so scared stiff, or the Government are so scared stiff, of the Bank of England that they are reluctant to do any thing that might even slightly ruffle its feathers, breathing, as well they might, with the gentleness of a zephyr. This seems to be an extraordinary state of affairs.
I think that these amendments are reasonable. They tend to put the responsibility where it ought to lie in respect of independent people who may on occasion have to be severely critical of the Bank's conduct, and quite legitimately so; and the Government ought to place themselves more squarely behind the independent members of the supervisory board. Otherwise with the best will in the world—and it will not need any words from me—people will tend, with some justification, to regard the independent members of the supervisory board as creatures of the Bank itself.
I am quite sure that this was not the intention of the legislation. I am quite sure that, if the noble Lord,

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Lord O'Brien, were the governor, he would not regard them as such. I acquit him of any responsibility. Nevertheless, this is what may be thought, and legitimately thought. Why not place it beyond all reasonable doubt and give to the independent members that direct contact—after all, they are important people exercising a very responsible function—with the Chancellor himself in the circumstances envisaged by the paragraphs to which I have referred. I beg to move.
Lord O'Brien of Lothbury: Before commenting on this series of amendments, perhaps I may say a word about the extreme sensitivities of the Bank of England. They do not exist. The Bank of England is well able to take care of itself and anyone else. It does not like criticism—who does? It does not like criticism which it feels is not justified—who does? But its main efforts to avoid criticism are by doing its job in the best manner possible and it takes whatever criticism comes. So do not let us worry too much about the sensitivities of the Bank of England.
But this Committee, following what happened in another place, has decided at an earlier stage of this Bill that this board should be appointed jointly by the governor and by the Chancellor of the Exchequer. That being so, it seems to me that these amendments simply fall. If the members are appointed jointly, they have to tender their reservations jointly to both the governor and the Chancellor, and it seems to me entirely reasonable that if they fail in their duties and responsibilities as members of the board the governor, with the agreement of the Chancellor, should remove them from it. So I think that none of these amendments should be supported.
Lord Harmar-Nicholls: I think that all that needs to be said has been said by the noble Lord, Lord O'Brien, but I get a little disturbed by the noble Lord, Lord Bruce of Donington. He said it is right that there should be direct contact with the Chancellor. The members have it. What these amendments are trying to do is to stop them having any contact with the governor, with the Bank. It is a joint matter as it stands. They have contact with both. As regards the possibility of ending their membership, and not wanting the Bank to be in a position to give any indication on that, they are the ones who would know whether it is desirable to dispense with their services. The noble Lord, Lord O'Brien, talks with greater authority than anybody as to whether or not the Bank of England is likely to be sensitive, but I think that once again this is to some extent by implication downgrading what we think is the role of the Bank and we ought not to do that. It is bound to be detrimental.
Lord Young of Graffham: I take great comfort from the words of the noble Lord, Lord O'Brien of Lothbury, that the Bank will not be irrevocably damaged by our comments in the Committee this afternoon. What we are dealing with now in Amendments Nos. 19, 21 and 22 is voluntary and involuntary removal from the board. It seems to me just a matter of common courtesy that if a member is appointed on a joint basis he should at least be allowed to retire on a joint basis and to write to both the Chancellor of the Exchequer and to the governor of
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the Bank. I am afraid that I see very little merit in Amendment No.19.
As regards the other amendments which deal with involuntary retirement from the board and the circumstances in which an independent member may be removed, apart from specifying the grounds for removal the clause provides for removal by the Bank with the consent of the Chancellor. This reflects the simple fact that the Bank will be in the best position to know whether any of the specified circumstances have been met, but as a check if you like, the Chancellor must also agree. This seems eminently reasonable to me. I fear that I do not appreciate the desire of the noble Lord, Lord Bruce of Donington, to impose on the Chancellor the sole responsibility, since after all the Chancellor will be less well placed to initiate appropriate action. I fear that we could not accept either of these amendments.
Lord Taylor of Gryfe: We have dealt with the question of joint appointments before on a previous amendment and I simply subscribe to what I said on that occasion. I agree that throughout the amendments so far discussed there seems to be an implication or a suggestion that, somehow or other, the Bank is associated with some cosy City club and therefore we have to establish the supremacy of the Treasury.
Let me say to the noble Lord, Lord Bruce of Donington, that if he has been down in the City of late he will know that it is not just a cosy club. There is no need to repeat the fact that I believe the balance is right at the moment and it would be wrong to upset the balance. It is an arrangement admired in many parts of the world. There are difficult situations in all central banking-Treasury relationships and so far we seem to have it just about right. I do not know whether the noble Lord, Lord Bruce of Donington, is influenced by some political consideration, such as the unlikely assumption that there may be a Labour Chancellor one of these days. If that is his assumption, the balance would still be wrong and consequently we cannot support the amendment.
Lord Bruce of Donington: I am grateful for the remarks which have fallen from the lips of the noble Lord, Lord Taylor of Gryfe. I am glad to affirm that I am in Parliament for a political purpose. Politics, after all, is about the determination of a policy. I am sorry that the reaction of Members of the Committee, with whom I am on terms of normal personal amity, should consistently be such as to suggest that I am the villain of the piece. It is as though I am such a disturbing influence or said to be a disturbing influence in what is evidently an intimate relationship between the Bank and Her Majesty's present Government that to even be party to the suggestion of a rift is almost regarded as akin to high treason. I am sensible of the personal risks which I run in this matter. It may well be that I shall be severely disadvantaged if on any future occasion I find myself seeking facilities from the banking system for my own affairs. It looks very much as though I shall not be able to get a very good reference, other than one saying that I am being (so-called) offensive to the Bank of England.
I think that the amendment is sensible. I draw the Committee's attention to paragraph 2(d) dealing with

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removal from office. The first three conditions set out in sub-paragraphs (a), (b) and (c) are obvious enough. However, sub-paragraph (d) contains a sweep-up clause for the removal of an independent member if he,
"is otherwise unable or unfit to discharge his functions as a member of the board".
I can understand "unfit". However, "unable" may be a matter of opinion. "Unable" may mean unable to put forward views amenable to his colleagues or being disadvantaged in some way by being the odd man out. That may well come within the category of "unable". The words are here and I am entitled to put any reasonable construction upon them.
In any event, I still consider that the independence of independent members ought to be established all the way through on the basis that they are not the creatures of the Bank, in spite of their relationship with the ex-officio members. They must be what they are supposed to be—independent.
Having sensed the mood of the Committee, through the views of the sole representative for the Alliance and the remainder of the Committee on the Government Benches and the Cross-Benches, it would be a waste of time for me to press this amendment to a Division. I am not satisfied with the replies which have been given. At any rate, replies have been ventilated and that is sufficient for our present purposes. With the leave of the Committee, I shall withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 20 to 22 not moved.]
5.45 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No.23:
Page 79, line 25, at end insert—
("(2) The Chancellor of the Exchequer shall report to Parliament on the reasons for his removing an independent member from office.").
The noble Lord said: I fear that I must be at it again in moving this amendment. Line 25 in page 79 deals with the removal from office of an independent member. My amendment states:
"The Chancellor of the Exchequer shall report to Parliament on the reasons for his removing an independent member from office".
I am well aware that in the context of previous debates and the amendments which have been rejected, in strict terms removal, as the Bill now stands, must be a joint matter. However, even if that were the case, it should still be the function of the Chancellor of the Exchequer to report to Parliament on the reasons for his concurring in the removal of an independent member from office; that is a matter which could be amended, if necessary, at Report stage. But the general thrust of the argument is that Parliament should be informed.
We must decide how important independent members of the supervisory board are. They have been put there and the Bill is clearly drawn so that six independent members will be included on the board. That may be thought insulting, though I sincerely hope that it will not be because Her Majesty's
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Government are not normally insulting to the Bank. In any case, it is the considered view of the Government that in addition to the loyal, devoted and skilful servants of the Bank, in exercising the supervisory function there should be independent members.
Some Members of the Committee may say that that in itself is offensive. But what else could be expected after the Johnson Matthey affair and what it revealed? I do not wish to rake that matter up again, though I have the report here. It is something which could be discussed if the Committee wished to prolong the discussion on this point. But I have no wish to rake up old embers and I have made few references to that in this Chamber since it occurred because it has been dealt with thoroughly in another place.
If an independent member is removed, a report on the reasons ought to be made to Parliament because Parliament has insisted on the inclusion of independent members. That is of vital significance to Parliament. The report could be short, terse and to the point. In the event of removal for ordinary reasons of sickness or something of that nature, it could be quite formal. However, Parliament should be officially informed because it is vital in this matter. As I informed the noble Lord earlier, we are back to the question of the relative status of Her Majesty's Government on the one hand and the Bank on the other. This amendment is a reflection of my view that Parliament is ultimately supreme and should be informed. It is moved for no other reason. I beg to move.
Lord O'Brien of Lothbury: Once again I find myself in opposition to the noble Lord, Lord Bruce of Donington. It seems to me, as we are now agreed that independent members of the panel should be appointed jointly by the governor and the Chancellor, that the matter of their going should not be unduly advertised. The noble Lord, Lord Bruce, talks about a report to Parliament being terse and to the point. Can you imagine a terse report saying: "Mr. So-and-So has been removed from the council because he has lost his marbles"? That is indeed terse and to the point.
Whatever the reason for a man going, or a woman—because there may be women on this panel in due course—the manner of going should be tactful. The fact that it is achieved by the governor and the Chancellor in concert must surely be good enough for Parliament. I hope I have as great a respect for Parliament as the noble Lord, Lord Bruce, does, but I do not see why every little thing has to come to Parliament. I should have thought that it could be left to the Minister and the governor to effect this on Parliament's behalf in the most discreet manner possible.
Lord Thorneycroft: I hope that the noble Lord, Lord Bruce of Donington, will take note of what has been said by the noble Lord, Lord O'Brien. When people are asked to join boards and institutions, the object is to try to get the best people available in the country for the job. If the time comes for a member to go, one does not advertise all over the country the reasons, which may be rather personal to the member himself. He may have taken to the bottle; he may fall asleep too

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regularly at meetings. There may be a dozen different reasons. All of us have known and worked with people whom we think could be eased out, or promoted to the House of Lords or some other occupation. But the idea that these delicate matters should become the subject of parliamentary debate is remote from the realities of the world, and I hope that the noble Lord will reflect on that.
Lord Young of Graffham: I thought that my noble friend Lord Thorneycroft gave the perfect definition of a member of a board supervising my activities: one who would fall asleep whenever we came to discuss them. But this is a serious point, and I do not think I need to draw attention in this Committee to the circumstances in which members can be removed from boards, including physical or mental incapacity and bankruptcy. It would be invidious for the Chancellor to be required to provide as a matter of course details of the reasons for a member's removal on such grounds. If there were anything controversial, if something happened which caused great debate—of course Ministers are answerable to Parliament for all matters under this Bill—that could then be raised.
If I may say so, what is regrettable in the tone of some of the comments of the noble Lord opposite is that there is some cosy arrangment—he used "cosy" in a slightly derogatory way—between the Bank of England and the Government. The Bank of England is an essential pivot in what is one of the fastest growing areas in our economy. I hope the Government, the Bank of England and the City of London will play their proper roles in the growth of that economy. There is no cosy arrangement of which I know. This is yet another amendment which I must resist.
Lord Bruce of Donington: I am very sorry that noble Lords have seen fit to take this view on the amendment that I have ventured to lay before the Committee. In Schedule I there are two ways in which an independent member can leave the board. He can resign his office by written notice or he can be removed. I too have lived within the City and I too have had some experience on the boards of companies, in commerce and in industry. I am much in favour of discreet departures of directors or, in this case, of independent members of boards.
The amendment I am proposing does not deal with those circumstances that provide for discretion. We all know what happens when it is decided that a member—possibly for a variety of reasons—is no longer suitable for the position that he occupies. In compliance with the conditions set out so clearly by the noble Lord, Lord O'Brien, conversations take place following which the director, or in this case the member, tenders his resignation. That does not call for any report to Parliament by the Chancellor of the Exchequer.
This amendment relates only to those cases in which a director is removed from office. When you remove a director from office as distinct from being discreet and persuading him to resign, which happens under Clause 2, you are rupturing an associaton by force; you are removing somebody. There is no queston of persuading him to resign. I can quite envisage the circumstances which the noble Lord, Lord
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Thorneycroft, had in mind, where somebody gets a bit doddery. Heaven forbid that an independent member of such a high-ranking board should ever be doddery or that he should go to sleep over his claret after lunch or dinner, but this could happen even in the best of regulated families.
In spite of the energies and the skill of the governor of the Bank of England in selecting personnel, failings might occur within months or perhaps years of the appointment—small failings that might ultimately induce a member's colleagues to ask him to resign. We are not dealing with that situation. We are dealing with a situation not of resignation and all the circumstances in which that might be tactfully or discreetly arranged, but of removal. It is my considered view that removal is markedly different from being eased out as the noble Lord opposite described it.
Removal should happen very rarely indeed, but it might happen. I sincerely hope that the occasion will never arise. But we are trying to revise the law that is proposed. In those rare circumstances—and they are bound to be very rare—Parliament should be given the reasons. I am very sorry that the Committee is not prepared to assimilate that view. I greatly regret that I shall have to divide the Committee on this issue.
Lord Harmar-Nicholls: Surely the noble Lord recognises that his amendment as it stands is unnecessary. If Parliament wishes to know the reasons it does not have to wait for a report from anybody. Parliament has the power to ensure that it gets the reasons. If the noble Lord is concerned that Parliament should eventually know, in the circumstances that he has described Parliament will know. These words are therefore unnecessary, and there is no reason for the implication which the words carry, even with the explanation which the noble Lord has given, since Parliament has all the power which he wants it to have.
Lord O'Brien of Lothbury: Before the noble Lord divides the Committee perhaps I may ask him whether he would be satisfied if the report which the Bank of England has to make to Parliament on these matters at regular intervals simply stated, "With the agreement of the Chancellor of the Exchequer So-and-So ceased to be a member of the board from such-and-such a date and someone else was appointed in his place"; or alternatively, "With the agreement of the Chancellor of the Exchequer So-and-So resigned from the board from such-and-such a date and someone else took his place". Is there a need to say any more?
Lord Taylor of Gryfe: I hope that the noble Lord, Lord Bruce, will not divide on this matter. If there is an extraordinary case of the Chancellor of the Exchequer exercising his authority and removing an independent member from office, would not Parliament provide the facilities for discussing this by a Private Notice Question or a debate of some kind? The Chancellor of the Exchequer is answerable to Parliament. If it were an extraordinary case, it would presumably be raised as a subject of public debate in the same way as the appointment of John Kay and the SIB was a matter of general comment and debate. That facility is available. To insist that the Chancellor

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of the Exchequer "shall report" on the removal is quite unnecessary so long as these facilities are operating.
Lord Bruce of Donington: Perhaps I may answer noble Lords on this matter. Theoretically, of course, those in another place can demand explanations from government in regard to specific actions, but there is no obligation on government to reply. In my own experience over a number of years some matters remained unexplained in spite of questions having been asked in another place. It is right that Members of another place should have a right to ask but there is no legal obligation on the Government to reply. They can take the political consequences of not replying in some instances but there is no constitutional obligation on them to provide an explanation on request.
I very much prefer to have it written into the Bill, because then the Chancellor of the Exchequer will have to make a report. As to what opportunities may or may not be afforded for debate on these matters, that depends on how the usual channels operate in another place. I prefer not to speculate on that, any more than I should like to speculate as to what would happen through the usual channels in this place if there were a demand for a debate. In order to make the position quite clear I should very much prefer the amendment that I have ventured to lay before the Committee to be formally incorporated into the structure of the Bill.
6.2 p.m.
On Question, Whether the said amendment (No.23) shall be agreed to?
Their Lordships divided: Contents, 47: Not-Contents, 124.

DIVISION No.3

CONTENTS

Blyton, L.

Llewelyn-Davies of Hastoe, L

Borthwick, L.

Lovell-Davis, L.

Boston of Faversham, L.

Milner of Leeds, L.

Brockway, L.

Molloy, L.

Brooks of Tremorfa, L.

Morton of Shuna. L.

Bruce of Donington, L.

Nicol, B.

Campbell of Eskan, L.

Oram, L.

Carmichael of Kelvingrove, L.

Phillips, B.

Cledwyn of Penrhos, L.

Pitt of Hampstead, L.

David, B.[Teller.]

Ponsonbv of Shulbrede, L.[Teller.]

Dean of Beswick, L.

Donoughue, L.

Prys-Davies, L.

Elwyn-Jones, L.

Ross of Marnock, L.

Ennals, L.

Sefton of Garston, L.

Fitt, L.

Shackleton, L.

Gallacher, L.

Silkin of Dulwich, L.

Galpern, L.

Stallard, L.

Graham of Edmonton, L.

Stewart of Fulham, L.

Hatch of Lusby, L.

Strabolgi, L.

Houghton of Sowerby, L.

Taylor of Blackburn, L.

Jeger, B.

Underhill, L.

Jenkins of Putney, L.

Wallace of Coslany, L.

John-Mackie, L.

White, B.

Kirkhill, L.

Williams of Elvel, L.

NOT-CONTENTS

Ailesbury, M.

Attlee, E.

Allerton, L.

Auckland, L.

Amherst, E.

Aylestone, L.

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Beaverbrook, L.

Layton, L.

Belhaven and Stenton, L.

Limerick, E.

Belstead, L.

Lindsey and Abingdon, E.

Bessborough, E.

Long, V.[Teller.]

Birdwood, L.

Lothian, M.

Blyth, L.

Luke, L.

Bonham-Carter, L.

Lyell, L.

Boyd-Carpenter, L.

McGregor of Durris, L.

Brabazon of Tara, L.

McNair, L.

Broadbridge, L.

Marley, L.

Brougham and Vaux, L.

Merrivale, L.

Bruce-Gardyne, L.

Mottistone, L.

Butterworth, L.

Mowbray and Stourton, L.

Caithness, E.

Munster, E.

Campbell of Alloway, L.

Napier and Ettrick, L.

Campbell of Croy, L.

Nugent of Guildford, L.

Carnock, L.

O'Brien of Lothbury, L.

Coleraine, L.

Orr-Ewing, L.

Colwyn, L.

Pender, L.

Constantine of Stanmore, L.

Peyton of Yeovil, L.

Cowley, E.

Pike, B.

Craigavon, V.

Portland, D.

Davidson, V.[Teller.]

Rankeillour, L.

De La Warr, E.

Reay, L.

Denham, L.

Reigate, L.

Diamond, L.

Renwick. L.

Dilhorne, V.

Ridley, V.

Donegall, M.

Rochdale, V.

Dundee, E.

Russell of Liverpool, L.

Ebbisham, L.

Saltoun of Abernethy, Ly.

Eccles, V.

Sanderson of Bowden, L.

Elliot of Harwood, B.

Seear. B.

Elliott of Morpeth, L.

Shannon, E.

Elton, L.

Sharpies, B.

Ferrers, E.

Skelmersdale, L.

Fraser of Kilmorack, L.

Stedman, B.

Gibson-Watt. L.

Stockton, E.

Gormanston, V.

Strange, B.

Greenhill of Harrow, L.

Strathclyde, L.

Grey, E.

Strathcona and Mount Royal

Gridlev, L.

L.

Haig, E.

Swansea, L.

Hailsham of Saint

Taylor of Gryfe. L.

Marylebone, L.

Terrington, L.

Hampton, L.

Teynham, L.

Harmar-Nicholls, L.

Thorneycroft, L.

Harris of Greenwich, L.

Tordoff, L.

Hemphill, L.

Torrington, V.

Hesketh, L.

Tranmire, L.

Home of the Hirsel, L.

Vaux of Harrowden, L.

Hood, V.

Waldegrave, E.

Hooper, B.

Ward of Witlev, V.

Hylton-Foster, B.

Whaddon, L. '

Inglewood, L.

Whitelaw, V.

Kaberry of Adel, L.

Wigoder. L.

Kilmarnock. L.

Windlesham, L.

Kimball. L.

Winterbottom, L.

Kinloss. Ly.

Wise. L.

Kitchener, E.

Wolfson, L.

Lane-Fox. B.

Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.
6.11 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.24:
Page 79, line 29, at end insert ("provided that the proportion of ex officio and independent members of the Board under section 2(2) of this Act is maintained.").
The noble Lord said: I beg to move Amendment No.24 standing in the name of my noble friend Lord Bruce of Donington, myself and my noble friend Lord Morton of Shuna. This amendment refers to Schedule 1(3) by virtue of which, as the schedule is at present drafted:
"The Treasury may …by order increase or, subject to section 2(2) of this Act, reduce the number of ex officio or independent members of the Board."

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As I understand this, the Treasury may make an increase by simple order: that is, there is no particular control under Clause 2(2) on the increase but there is a control under Clause 2(2) on any decrease. The object of the amendment is to make sure that, if the Treasury increases the totality of the board and then subsequently decides to decrease the number of the board, the proportions of independent members against ex-officio members are maintained.
The noble Lord may say that this amendment is unnecessary and that that provision is built in. I wish to make it absolutely clear that there could be no prospect of the Treasury flooding the board, so to speak, and then reducing the proportion so that the independent members no longer had a majority on the board. I beg to move.
Lord Young of Graffham: These provisions are already fairly detailed, and I believe that there is a danger of creating impractical requirements if we accept this amendment. It is clear from the existing provisions that the Government's intention is that there should be a substantial majority of independent members on the board. It may in future prove desirable to increase the numbers and that is why this schedule provides for such increases. If the need for an increase were to deal with a temporary situation, then subsequent reductions might be required, and this too is provided for; but it would not be sensible to insist on a strict retention of the proportion of one sort of member to the other. If it proves desirable to increase the number of independent members, for example, it does not automatically follow that it would be efficient or necessary for the ex-officio members also to be increased. And how would one cope with an increase of a single independent member? The strict proportion could in no way be maintained. I do not believe the amendment is workable; nor, alas, do I think it necessary.
Lord Williams of Elvel: I am grateful to the noble Lord. Do I understand that it is the government's intention to maintain always a majority of independent members on the board?
Lord Young of Graffham: Yes. I think that there is a provision that there is a majority of independent members and I think that the Government would wish to keep the same majority. However, it is not always possible to keep the same proportion.
Lord Taylor of Gryfe: I am grateful for that assurance. I have some sympathy with the point of view expressed by the noble Lord, Lord Williams of Elvel, but with that assurance from the Government I hope that he will not press this amendment to a Division. The position is satisfactory.
Lord Williams of Elvel: I am most grateful to the Secretary of State and to the noble Lord, Lord Taylor of Gryfe. This is exactly the assurance I was looking for—that there will be at all times a majority of independent members on the board of supervision. Having received that assurance from the Government, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.25:
Page 79, line 36 at end insert—
("(3) The Board shall report on its procedure in its annual report prepared under section 2(6) of this Act.")
The noble Lord said: I regret to say that in the Marshalled List there is a printing error in this amendment. For "proceedings" it should read "procedure". Although the title of that part of the schedule is "Proceedings", nevertheless sub-paragraph (1) indicates that the board "shall determine its own procedure." It is to this procedure that the amendment is directed.
Again, it is a question, if I may put it like this, of transparency; to ensure that nothing happens in the board by way of procedure that would be in any sense undesirable and could be objected to. It is vitally important that the board not only is a proper adviser to the ex-officio members, and hence should be a proper board of banking supervision, but should be seen to be such.
As in any company, there are documents and articles of association setting out procedures on how shareholders operate, what they should do and how they should conduct themselves—indeed many boards of directors have those procedures which are perfectly transparent—so it seems to us that the board should make its procedure perfectly clear. The amendment proposes that the board should report in its annual report, and this seems to be a convenient mechanism. In its first annual report it would set out the procedure that the board has adopted, and in subsequent annual reports it would simply say that it had changed its procedure in this, that or the other direction. This is, as I say, something which would line up the board with the sort of arrangements in companies with which we are familiar. It would line up the board—since the Securities and Investments Board is a company—and would give the public full assurance that the board is conducting, as I am sure it will, its proceedings in a proper and sensible manner. I beg to move.
The Deputy Chairman of Committees (Lord Strabolgi): Amendment proposed, with a manuscript amendment,
Page 79, line 36, at end insert—
("(3) The Board shall report on its procedure in its annual report prepared under section 2(6) of this Act.").
Lord Young of Graffham: I feel a little lost on this particular amendment because I can well see that there are some reasons why the board could report on its proceedings—although that is not the intention of this amendment—but to report on its procedure seems to me no more than the board saying that it met X times a year, and that all the members turned up, or stating who did not. In those circumstances, I really cannot see how it should report in this way, unless reporting on that procedure actually had the intention that the board would report on its proceedings, which is something entirely different. In that respect, a blow by blow account of the board's proceedings would be unacceptable. I cannot see the merit of this amendment.
Lord Williams of Elvel: I must beg the pardon of the Secretary of State. I tried to point out that there was an

1259
error in the amendment and that it should not read "proceedings" but "procedure". I fully agree with the Secretary of State that it would be rather ridiculous for the board to report on its proceedings publicly. That was not the intention of the amendment but the intention of the amendment as mistakenly printed on the Marshalled List. Its intention is to make sure that the procedure of the board is properly known and understood.
What do I mean by procedure? I mean, as follows: whether there are formal votes on the board; how it conducts its business and is there, or is there not, a formal agenda? Is there any form of resolution? What happens—to get back to a previous debate—when it is clear that the ex-officio members are not accepting the advice of the independent members, which gives them rights under Clause 2 of the Bill? How is that determined? It seems to me that this is quite an important point where we need to know more. I hope that I have explained my amendment to the satisfaction of the noble Lord, the Secretary of State. Perhaps he would be kind enough to reply.
Lord Tordoff: I wonder if I might help the noble Lord. It may be that there is some problem with the wording. Presumably, the noble Lord, Lord Williams, would be satisfied if the amendment were to say "shall report on variations in its procedure in its annual report", so that the board would start with a description of its procedure and then subsequently mention any variations from that basic procedure.
Lord Williams of Elvel: I should be perfectly happy with whatever amendment the noble Lord, Lord Tordoff, feels is more acceptable. I said that I did not see that there had to be a report on procedure in every annual report. I envisage that it would start with procedure in the first annual report, saying, "This is how we operate". Then, subsequent annual reports would give any deviation from that procedure. But the report would be the vehicle.
However, I stick to the principle. It is not for the Opposition to be accurate and totally "bomb-proof" in its drafting. It is for the Government to get the drafting right and for us to explain what we mean. I hope I have now explained what we mean.
Lord Young of Graffham: If only the Government always got its drafting right! But that is another matter entirely. I am in some difficulty over this. I fail to see how you actually describe the procedure of individual meetings without getting to the point where you begin to describe the agenda. However, if the noble Lord will write to me, perhaps we can develop this point a little further and come back to it at a later stage.
Lord Williams of Elvel: Yes, I am very happy to write to the noble Lord explaining what I mean and what I think the noble Lord, Lord Tordoff, interprets us to be saying. Perhaps we may come back to it. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.26:
Page 79. line 38, after ("make") insert ("after consultation with the Treasury").
The noble Lord said: The question of facilities, remuneration and allowances of the board is one which I think needs a little probing. This amendment is designed to probe, and I hope that the noble Lord the Secretary of State will take it in that spirit. The schedule as drafted says:
"The Bank shall make such provision as it thinks necessary for providing the Board with facilities … and for providing remuneration, allowances or other benefits for or in respect of the independent members".
There are no problems of principle here, but I think we all want to be reasonably clear that nothing which the independent members may recieve by way of facilities, remuneration and allowances is wildly out of line with what other members in other similar boards receive. In saying "similar," I use again the example of the Building Societies Commission and the Securities and Investments Board and what members of those boards receive. Therefore, I believe there should be some consultation.
Perhaps I may also speak to Amendment No.27, for the convenience of the Committee. It seems to me that there should be an arrangement for the board's annual report or indeed the Bank's annual report—properly, I think, it should be the Bank which reports on this—to make those facilities, remuneration and allowances public. For that reason, I beg to move this amendment.
Lord O'Brien of Lothbury: From my knowledge of the ways of the Treasury, if it had thought that it had a useful and necessary part to play here, then the words which the noble Lord, Lord Williams of Elvel, wanted to have inserted in the draft would be there already. Clearly, it did not: nor do I think that it has a part to play. I would therefore be opposed to the amendment.
Lord Young of Graffham: Dealing first with Amendment No.26, the cost of the board and the facilities necessary for its proper functioning will be provided in any event by the Bank of England in accordance with paragraph 5 of the schedule. These costs will be met from the Bank's own resources and voted funds are not in themselves involved. It seems therefore unnecessary for the Treasury to be consulted in this matter, as indeed the Treasury is not consulted about details of the Bank's other expenditures on banking supervision.
Lord Williams of Elvel: Would the noble Lord the Secretary of State tell me whether the Treasury is consulted on facilities, remuneration and allowances for members of the Building Societies Commission?
Lord Young of Graffham: I shall certainly inquire, but at the moment I could not say because it is not one of those facts which I have ever with me.
Lord Williams of Elvel: I ask this question because I am making a point. All along, on all sides of the Committee, we have accepted the Government's view that this is the third leg of legislation to do with the financial markets. Therefore the more that the third leg, if I may use the expression about this rather extraordinary animal, is similar to the other various legs, the better off we are.

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There are certain deviations in the Bill before us which, it seems to me, could reasonably be cleared up, and I would have thought that this was one of them. I accept that it is not the Treasury which will pay the independent members. It is after all not the Department of Trade and Industry that will pay the board members of the Securities and Investments Board. It is the SIB itself, if I may use that acronym without offence to the Committee, which will pay the members of its board. Nevertheless, there is still a principle here of parallelism, if I may put it like that, which would seem to be appropriate.
I should be grateful if the noble Lord would look at the matter in that light rather than in the light of trying to have some Treasury intrusion on what is after all a Bank responsibility. It matters not a whit who will pay the people. What we want to know is what they are going to be paid.
Lord Young of Graffham: Without going on, principles should always be had but not taken too far. What we have here are not three corners. The third leg, if you like, is a very substantial edifice indeed. It is the Bank of England; it is there; it has resources of its own; it has always carried on meeting from its own resources and sees as a proper expenditure, I might add, the full cost of banking supervision. It will see this no doubt as another of those costs, and indeed does so.
However, I shall look at what the noble Lord said. At the moment, I must say that I have, alas, little sympathy for his view.
Lord Williams of Elvel: I am grateful to the noble Lord. I see that we cannot get very much further with this today and I therefore beg leave to withdraw the amendment.
Amendment, by leave withdrawn.
[Amendment No.27 not moved.]
Schedule 1 agreed to.
Clause 3 agreed to.
Clause 4[Exempted persons and exempted transactions]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.28:
Page 3, line 30, at end insert ("or classes of transactions").
The noble Lord said: This amendment is very minor but it will serve to clarify some of the problems of exemption which we see. The exemptions at the moment in the Bill as drafted under Clause 4(5) refer to transactions. I understand that there may be certain individual transactions exempt from the restrictions imposed on acceptance of deposits. I wonder whether it is sensible to go slightly wider than that and refer to certain classes of transactions as well as certain transactions, so as to give the Treasury slightly wider power. I have particularly in mind the issuance of commercial paper by companies which, as I understand it—and again I may be completely at fault in my understanding—under subsection (5) of the Bill, would be caught as deposits. It would seem to me that it is not the intention of the Bill to regulate the issuance of commercial paper. The issuance of commercial paper is a class of transaction which could legitimately
1262
be taken outside the Bill by the Treasury. I could probably think of other classes of transactions that may come into the same category but it seems that the Bill is here unnecessarily restrictive and for that reason we have put down this amendment. I beg to move.
Lord Beaverbrook: I am advised that the noble Lord's amendment is unnecessary in that the powers available to the Treasury to prescribe transactions by reference to any factors appearing to it to be appropriate is sufficient to allow the regulations to prescribe classes of transactions. The current regulations under the Banking Act 1979—the Banking Act 1979 (Exempt Transactions) Regulations 1986, which are made under the similar wording of Section 2 of the 1979 Act—already prescribe certain classes of transactions; for example, those involving sterling commercial paper. I believe that this amendment is not necessary, and if the noble Lord has in mind any other class of transaction perhaps he will make it clear.
Lord Williams of Elvel: I am most grateful to the noble Lord. Am I to understand that my amendment is unnecessary in all respects and that the expression "classes of transaction" is superfluous because there are already arrangements under this clause which make it so?
Lord Beaverbrook: Yes; I am advised that that is the case.
Lord Williams of Elvel: I am happy to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 4 agreed to.
Schedule 2[Exempted persons]:
6.30 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.29:
Page 80, line 7, leave out ("incorporated (or deemed to be incorporated)") and insert ("authorised").
The noble Lord said: Again, this is a very small amendment, and not one of great significance. However, when talking about Schedule 2—exempted persons—it seems to me that it is not a question of whether a building society is incorporated or deemed to be incorporated under the Act but whether it is actually authorised by the Act. Again, the noble Lord may say that my amendment is unnecessary and that these two expressions come to the same thing. I should be grateful for his comments. I beg to move.
Lord Beaverbrook: I was indeed curious as to the purpose of the noble Lord's amendment and I am grateful to him for his explanation. I think that his amendment fails to take into account the fact that the Building Societies Act permits unauthorised societies which are in the process of starting business to accept deposits in the form of subscriptions for deferred shares and certain other payments. If this amendment were to become part of the Bill, new societies would be prevented from having qualifying capital—in the form of deferred shares—from the founders and therefore could not become authorised. If there is another aspect of the noble Lord's

1263
amendment to which I have not responded perhaps he will put it to me and I shall consider it.
Lord Williams of Elvel: I am grateful to the noble Lord. I understand the argument that he puts forward against this amendment and I am inclined to accept it. It was something that I had overlooked. However, is he saying that a deferred share in a building society that is incorporated and has yet to be authorised is in fact a deposit for the purposes of this Bill?
Lord Beaverbrook: Yes, I am. That is exactly what I am saying.
Lord Williams of Elvel: In that case I understand, and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Whether Schedule 2 shall be agreed to?
Lord Elton: There is one small point that presumably will be picked up by the printers; namely, that in the rubrics Schedule 2 is referred to as Schedule 1 and Schedule 3 is referred to as Schedule 2. I hope that will be put right in the next printing.
On Question, Schedule 2 agreed to.
Clause 5[Meaning of "deposit"]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.30:
Page 4, line 9, after ("premium") insert ("or at a discount").
The noble Lord said: I beg to move Amendment' No.30 standing in the names of my noble friends Lord Bruce of Donington and Lord Morton of Shuna and myself. This is another amendment which is of a probing nature and enables us to have something of a discussion about the meaning of the words "deposit" and subsequently "deposit-taking business". I fully understand that Clause 5 generally follows the definitions given in Section 1 of the 1979 Act. That is understood, but the definitions are quite complicated.
It seems to us that Clause 5 defines "deposit" in very wide terms. As we see it, "deposit" covers any loan or other repayable funds unless it is on terms referrable to the,
"provision of property or services or the giving of security"
or it is received from an authorised institution, an exempted person or a money-lending business or is a group payment or received from an associate.
Most businesses probably take deposits within the meaning of Clause 5 so the definition is not one that will stand by itself. It will only stand in relation to Clause 6, which concerns the meaning of "deposit-taking business". Commercial companies may take deposits as covered by the definition of "deposit" in Clause 5, but clearly they are not deposit-taking businesses within the meaning of Clause 6. It is therefore important to establish that Clause 5, which defines the meaning of the word "deposit", is not necessarily one to which we should pay so much attention. I do not say that we should pay no more than passing attention, because we have to pay attention to it; but it is not the fundamental clause that
1264
deals with the deposit and the deposit-taking business that we are now discussing.
I should like to raise three points with the noble Lord. First, I assume that banknotes are not deposits within the meaning of this Bill. After all, they are promissory notes from the Bank of England promising to pay the bearer a certain amount of money on demand. I assume that those are excluded under Clause 5. I assume too that deposits such as bills of exchange—commercial paper—come within Clause 5 and hence there is the need for them to be taken out when it comes to defining a deposit-taking business in Clause 6. I am uncertain, about the nature of deposits accepted by an institution, a partnership or a body corporate, as agent on behalf of somebody else; for instance, deposits accepted by solicitors as agent though they themselves do not operate as deposit-taking businesses.
Finally, there is the very narrow point of the amendment—I admit that this situation is difficult to conceive but I suppose it is a theoretical possibility—that a deposit may be repaid at a discount if by then it is convertible or if there is an assurance that it will be convertible or there is some arrangement that it may be convertible into an instrument that will more than remunerate the depositor for what he has lost on the face value of his deposit. In practice I find some difficulty in pointing noble Lords toward occasions on which that has happened, but it is not beyond the wit of man in the future to devise circumstances in which it could happen.
I apologise to the Committee and to the noble Lord opposite for having raised a number of rather general points about this clause, which raises certain problems of comprehension. I hope he will not think that I am trying to push him against the wall. I am merely trying to obtain an understanding of what this clause means. I beg to move.
Lord Beaverbrook: I am grateful to the noble Lord for explaining his reasons for putting down the amendment. It is a complicated matter. To answer the points that he made, the Bank of England issues bank notes and is exempted under this provision.
Lord Williams of Elvel: What about Scottish banks? Are they also exempted?
Lord Beaverbrook: I do not have the answer to that, but I imagine that I am probably safe in saying that they will be treated in the same way. Sterling commercial paper is a deposit and hence it is also exempted. Solicitors also have an exemption in respect of deposits taken in the course of business, except under the regulations. I too have had difficulty in identifying, in practice, where deposits would be repaid at a discount because I think that the definition of a "deposit'. would probably contain an element of capital security.
As I understand the effect of the amendment, it is to cover the case of where a depositor pays his deposit, not in the expectation of getting it back with interest but of getting back a lesser sum. I should not regard that as a deposit; nevertheless such transactions could occur. For instance, with a bond, the subscription could be above par, and the initial premium is in effect

1265
amortised over the life of the bond as a reduction in the interest actually received by the bond holder. I should still regard that subscription as involving a deposit of the par sum which would be repaid when the bond (or deposit) matured. It may be contended that the inclusion of the words "or at a discount" would put beyond doubt the fact that a subscription to the bond, as I have outlined, would involve the making of a deposit. But the words would also have an undesirable consequence. They do not specify that the rate or amount of discount must he known in advance. They thus introduce the idea of capital uncertainty and might, for example, result in subscriptions to equity-style investments being regarded as deposits.
I hope that I have said enough to indicate that the amendment unnaturally and unhelpfully alters the nature of the definition of "deposit". I can reassure the noble Lord that the problem addressed by the amendment has not so far been a practical one for the Bank of England. But, if it were, the power to alter the definition given in Clause 7 would enable the Government to take action. For those reasons, I find that the amendment adds nothing to the Bill.
Lord Williams of Elvel: I am most grateful to the noble Lord. I fully accept, as I said in my introduction, that at the moment I cannot see anything other than rather esoteric transactions involving deposits made and repaid at a discount, but I can see the possibility of that happening. I accept what the noble Lord says—that the Treasury has the power to make an order to cope with any such eventuality.
I was a little confused by what the noble Lord said about sterling commercial paper. As I understand the clause, money market operations by companies in receipt of deposits from anyone are covered. They are deposits because companies are not—I use the word almost by definition—institutions authorised under the Bill. It seems to me, from reading through the clause—with great difficulty, I accept, as the noble Lord accepts—that money market operatings by companies give rise to deposits which are not covered by Clause 5, as at present drafted.
I also accept that we hope that Scottish banks would be authorised institutions under the Bill, if enacted. Any Scottish bank that is not an authorised institution presumably would not be in a position to issue its own bank notes, so that would cover that point.
I shall leave out the question of deposits with the Bank of China, which is a wholly unrelated and separate question that I could raise, but I shall not. My only outstanding question is whether money market activities of companies which involve receiving deposits in the open market qualify for "deposits" under Clause 5. If the noble Lord can satisfy me on that point I shall be happy.
Lord Beaverbrook: It is a deposit. It therefore needs an exemption. It already has one under the 1979 Act which is equivalent to Clause 4. I hope that that is helpful.
6.45 p.m.
Lord Williams of Elvel: I am grateful to the noble Lord. If the 1979 Act is to be repealed, will sterling
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commercial paper also have an exemption under this Bill?
Lord Beaverbrook: Yes, it will. These are complex matters. If I have missed any point that the noble Lord would like answered, I shall be pleased to look at Hansard and I shall write to the noble Lord to clarify the matter further.
Lord Williams of Elvel: I am most grateful. I was going to press the noble Lord on money market operations which do not involve the issue of paper, but I shall not worry him with it. Perhaps he will be kind enough to look at the matter and write to me. In the meantime. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 agreed to.
Clause 6[Meaning of "deposit-taking business"]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.31:
Page 5, line 6, leave out ("received by way of deposit").
The noble Lord said: I beg to move Amendment No.31. We are again dealing with a clause which is substantially the same as Section 1 of the 1979 Act. There is no reason to dwell too long on this matter; nevertheless, it gives us an opportunity to review the provisions of that Act to see whether there is any improvement that can be made.
My concern is with Clause 6(1)(a), which specifies that the business is a deposit-taking business for the purposes of the Act if:
"in the course of the business money received by way of deposit is lent to others; or"—
and it then goes on with Clause 6(1)(b). In Clause 5 we have already established that deposits—if I may use that expression in a non-technical way—made by authorised institutions—in other words, inter-bank deposits—do not qualify as deposits because the authorised institution which makes the deposit is exempt. Many organisations lend money and finance themselves partly by way of—I shall use the expression "retail deposits"—deposits under Clause 5, and partly through wholesale deposits coming from other authorised institutions. Some institutions would say that the majority of their lending was financed through the wholesale market (through money market deposits).
Clause 6(1)(a) says that a business is a deposit-taking business if:
"in the course of the business money received by way of deposit"—
that is, a deposit as defined by Clause 5—
"is lent to others".
If the majority of the money that is lent by the institution that I have in mind is financed from the money market—that is, by deposits made by exempt institutions which do not therefore under the Bill count as deposits—what is the position of that institution as a deposit-taking business? From my argument, it would seem that it would be excluded from being a deposit-taking business. Clearly, that would be wrong. The purpose of the amendment is to clarify the position to ensure that I am wrong and the Government have it right. I beg to move.
Lord Beaverbrook: This is another complicated matter. I followed with interest the remarks made by the noble Lord in moving his amendment. The Government's view of this amendment is that it would capture a very much wider range of business than is presently caught—that is, those businesses which accept deposits but which do not do so as a profit-making activity. For example, the deposits may be ancillary to other activities. If such deposit proceeds are segregated and placed on deposit with the businesses' bankers, then it cannot be readily said that the deposits have been lent to others.
If the definition were amended as proposed, then the Bill would catch any business which undertook lending—no matter how small—if that business then accepted deposits with any frequency, regardless of whether it segregated those deposits from its business. This would be an undesirable and unnecessary extension of the Bill's ambit. Where deposits are segregated—for example, by being placed in a client's account—and the interest accounted for to the depositors, and not used in the business, then there is no need to bring the Bill's requirements into play.
I hope that I have covered the points made by the noble Lord. If I have not, perhaps he will come back to me.
Lord Williams of Elvel: I am grateful to the noble Lord. He has certainly covered a totally different point from the one I made. I agree that if my amendment were accepted it would widen the ambit in the way that he has suggested. He may think that that is undesirable. I was not directing my attention to that. I was concerned that there are businesses which, by any commonsense definition, would be deposit-taking businesses, yet which finance their loan book in such a manner that they would be excluded because they were financing themselves by more than half, three-quarters, or 80 per cent. (whatever it might be) from transactions which were not under this Bill "deposits" because they were wholesale money market transactions; that is, inter-bank deposits. That was the point I was making.
Lord Beaverbrook: The businesses which finance themselves wholly from the money markets do not require to be authorised. The lenders do not require the protection of this Bill. If they regularly take some retail deposits then they would need authorisation.
Lord Williams of Elvel: That is an interesting and slightly novel point of view. The banks which finance themselves and their lending activity from the money markets do not require authorisation under this Bill? Do I hear the noble Lord correctly? But those who take some form of retail deposit require such authorisation?
Lord Beaverbrook: Correct.
Lord Williams of Elvel: I shall certainly have to think about that and read very carefully what the noble Lord has said in Hansard because I am sure that there are institutions that would like to call themselves banks which finance themselves almost entirely out of the money market.
Lord Beaverbrook: Before the noble Lord sits down, perhaps I may say that these are very complex matters. They will need to be looked at carefully and some time taken to study them. If the noble Lord would like to consider what I have said, perhaps he would like to withdraw the amendment in the meantime.
Lord Williams of Elvel: I shall certainly consider what the noble Lord has said. Perhaps he will be kind enough to think about the problem and drop me a line clearly confirming the position of the Government. At the moment I am in some doubt about the exact position. If he can do that, I shall be most grateful.
Lord Beaverbrook: I shall write to the noble Lord on this point. I give that assurance.
Lord Elton: Will a copy of the correspondence be placed in the Library of your Lordships' House? This point is of some interest generally.
Lord Beaverbrook: Certainly. I am willing to give that undertaking.
Lord Williams of Elvel: I am most grateful to the noble Lord and to the noble Lord, Lord Elton. It is a very important point. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 agreed to.
Clause 7[Power to amend definitions]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.32:
Page 5, line 31, after ("Bank") insert ("or the Securities and investments Board or both")
The noble Lord said: I beg leave to move Amendment No.32 standing in the names of my noble friends Lord Bruce of Donington and Lord Morton of Shuna and myself. For the convenience of the Committee, I speak also to Amendments Nos. 33 and 34.
We are dealing here with a power to amend definitions. The definitions about which I am worried, as I think I have made clear to the noble Lord, are definitions of deposit-taking businesses. We cannot foresee the circumstances that will prevail in the future but it is perfectly clear even now that there will be a mix in what are broadly known as financial conglomerates between deposit-taking businesses which are authorised under this Bill and investment businesses which are authorised in one way or another by the Financial Services Act.
During the passage of the Financial Services Bill, when it was before this Chamber, we were seeking to determine the relationship between the banks within a conglomerate (if I may use that ugly expression) and the stockbroker or the investment manager or whatever it might be. These relationships are clearly known and very clearly understood. It would seem to me therefore that deposit taking which may arise in other parts of a conglomerate (if I may again use that expression), and which may have to be amended by definition, should at least have the benefit of some input from the Securities and Investments Board when that definition is made or changed.
It has been a constant theme—and I am not ashamed to bring it up again—that the SIB and the Bank have to work very closely together. There are a lot of activities which will be controlled by one under one piece of legislation and by another under another piece of legislation but which in fact march very closely together. I am concerned that the Securities and Investments Board or the designated agency—or whatever the Government like to call it—should not be involved when the definition of deposit taking is made or changed. It is for that reason that I am moving the amendment.
Since we are getting near seven o'clock perhaps I may anticipate a "stand part" debate that I was going to have with the noble Lord on Clause 7(2). I do not understand why Clause 7(2) singles out,
"the activities of any person who is connected with it in such manner as is specified in the order".
The Treasury have a clear power under the clause to amend definitions. Nevertheless, one category of possible deposit-taking business is singled out under subsection (2). I am not quite clear why the draftsman thought it necessary to single that out. I beg to move.
Lord Beaverbrook: With regard to the Amendment No.32 of the noble Lord, and speaking, with the leave of the Committee, to Amendments Nos. 33 and 34, the effect of these amendments would not be to require the Treasury to consult the Securities and Investments Board as well as the Bank, but would require the Treasury to consult one or other or both of them. As such, they are not necessary. It is open to the Treasury, as well as consulting the Bank (as they must do under the subsection) to consult other interested bodies—including the SIB. If the amendment were to be made, it would, with respect to the noble Lord, result in a somewhat confusing situation, in that some orders could be made after consultation with the Bank, some after consultation with the SIB, and some after consultation with both—a confused state of affairs that I am sure Members of the Committee would not wish to bring about.
I am assured, that in appropriate circumstances, the Treasury will certainly consider whether the SIB (or any other interested bodies) should be consulted as well as the Bank. Having heard that assurance, I hope that the noble Lord will feel able to withdraw his amendment.
With regard to Clause 7(2), the subsection provides that in amending the definition of deposit-taking business the Treasury may include within the definition, or otherwise take into account, activities of persons other than the institution but connected with it. For example, account can be taken of the activities of a subsidiary in determining whether a holding company carried on a deposit taking business. I hope that satisfies the noble Lord on that point.
Lord Williams of Elvel: I am grateful to the noble Lord. I hoped that I had explained the purpose of my amendment. I accept that the wording may be defective. The Treasury should have some duty, when redefining or defining deposit taking businesses, to consult the Securities and Investments Board, or whatever designated agency there may be or indeed
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the Building Societies Commission, if that is necessary. This should also apply where there are activities which impinge on the deposit taking business that the Treasury is seeking to define. That seems to be a matter of common sense. The noble Lord said that the Treasury may do this: indeed, the Treasury may consult the man in the moon but here the Treasury is under an obligation to consult the Bank. I should like to place the Treasury under an equal obligation to consult other institutions such as the Securities and Investments Board or the Building Societies Commission, which have an interest in the matter. That is the point of the amendment. Nevertheless, I hope that I have made my point and indeed, maybe we shall return to this matter at a later stage so I hope that the noble Lord will reflect on what has been said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 7 agreed to.
The Earl of Dundee: This may be a convenient moment to take a break in the proceedings. In moving that the House be resumed, perhaps I may suggest that we reconvene at eight o'clock. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Deer Bill
Brought from the Commons; read a first time, and to be printed.

Industrial Relations (Northern Ireland) Order 1987
7.2 p.m.
The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Lyell): My Lords, I beg to move that the draft Industrial Relations (Northern Ireland) Order 1987, which was laid before your Lordships earlier this year under the Northern Ireland Act 1974, be approved.
The draft order which we have before us this evening, with a few exceptions, contains provisions which are analogous to those contained in the Employment Act 1982. Like that particular Act, the order before us has two main purposes. First, it extends and strengthens the protection which the law provides for people who work in closed shops, most importantly by making all closed shops subject to the test of a ballot and by providing increased compensation for closed shop dismissals. Secondly, the order restores the right of employers to seek legal redress against those who organise indiscriminate and irresponsible industrial action, including trade unions themselves. The anomaly whereby trade unions enjoyed a far wider immunity than their individual officials will be brought to an end.
I want to make it quite clear that this is not an attack on trade unionists in Northern Ireland. Indeed, I should like to take this opportunity to pay tribute to the excellent Northern Ireland workforce and the

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many responsible trade union officials who have sought to be, and often have been, a very stabilising influence in the Northern Ireland situation.
The order will not put at hazard responsible management or responsible trade union leadership. However, Parliament has an obligation to safeguard the liberty of the individual and it is for this reason that we are making changes to the law on the closed shop. Your Lordships will be well aware of the Government's view on the closed shop. The Government do not believe that people should be required to join a union as a condition of getting or holding a job as this runs counter to the great traditions of personal liberty in this country. This view was made clear in the Green paper called Trade Union Immunities published in 1981, and more recently in the Green Paper, Trade Unions and Their Members, which was published last month, February 1987.
In Great Britain the Government have taken a step-by-step approach to tackling the practice of the closed shop. Likewise in Northern Ireland the Government introduced measures in the Industrial Relations (Northern Ireland) Order 1982 (which parallels the Employment Act 1980) to limit the worst of the abuses of the closed shop. The present order now follows the Great Britian Employment Act 1982 in introducing further controls on the closed shop; indeed almost half the order is concerned with providing redress for individuals in the closed shop situation.
Similarly it is right for Parliament to intervene to underline the rule of law. As the famed gentleman Thomas Fuller said:
"Be you never so high the law is above you".
I am sure that your Lordships will always associate the forceful reiteration of that with the noble and learned Lord, Lord Denning, who is normally on the Cross-Benches. Nevertheless, I understand that this immortal statement was attributed to one Thomas Fuller.
At present trade unions are above the law in that they have a virtual total immunity from actions in tort. The second half of the order is concerned with reducing these immunities. The order refers to and amends existing legislation. I think noble Lords will agree that references to previous legislation always make the going a bit heavy. If your Lordships glance through the order you will see exactly what I am aiming at. However, I assure your Lordships that the principles underlying the order are simple and straightforward. Therefore I do not propose to deal with each article separately but instead I intend to refer only to the main provisions in describing the effect of the order.
Perhaps I may direct your Lordships' attention to Article 4, in page 4 of the order. This enables the Department of Economic Development to pay compensation to persons who were dismissed for not being union members in a closed shop between 1976 and 1982. The persons concerned are employees whose dismissal would have been unfair had the additional closed shop protection provisions of the Industrial Relations (Northern Ireland) Order 1982 been in force at the time they were dismissed. This is a strict parity provision and it brings Northern Ireland
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into line with an earlier ruling of the European Court of Human Rights.
Your Lordships will see Article 5 in pages 4 to 11. This article extends the circumstances in which dismissal for non-membership of a trade union in a closed shop is to be regarded as unfair. In particular, it reinforces the balloting requirements for new closed shops provided by the 1982 order, with a balloting requirement for all existing closed shops if non-union membership is to be relied on as fair grounds for dismissal.
The existing rates of compensation for closed shop dismissals are too low and the cost does not necessarily fall on the right party. The order therefore contains an entirely new framework of compensation for closed shop dismissals. Your Lordships will find that Article 6, in page 11, provides that for unfair dismissal due to non-membership of a trade union, or indeed membership of a union, as envisaged by Article 5, the minimum basic award is to be £2,200.
Perhaps I may direct your Lordships' attention to Article 7, in page 12 of the order. This creates a new special award available where the employee asks for reinstatement but this does not take place. Where the industrial tribunal does not make an order for this to take place, the special award will be two years' pay subject to a minimum of £11,000 and a maximum of £22,000. In the case where reinstatement is ordered but the employer does not comply the special award will be increased to three years' pay subject to a minimum of £16,500 but no maximum. Article 9, in page 14, enables someone who is claiming unfair dismissal as a result of trade union pressure also to claim compensation directly from the union as well as from his employer. Any award of compensation may be either wholly against the union or the employer or it may be apportioned between the union and the employer.
It is important to ensure that employers are not subject to outside pressure to form closed shops through "union labour only" requirements in contracts. Article 13, in page 18, therefore declares void any term in a commercial contract which requires the use of union labour only. It also makes it unlawful to exclude non-union firms from tendering lists, or to terminate a contract on the grounds that non-union labour will be used in performing that contract. These provisions would be ineffective if trade unions were free to accomplish the same results by industrial action or the threat of it. Article 15, in page 20, therefore removes immunity from anyone who puts pressure on an employer to contravene Article 13 and from those who organise industrial action designed for the same purpose.
The later articles in this order deal specifically with trade union immunities. The changes that they make are limited but significant. I stress that they do not affect the ability of trade unions to organise, to seek recognition from employers, to bargain collectively or to organise industrial action by their members in pursuit of improvements in their pay and conditions.
Since 1906, trade unions in Northern Ireland have enjoyed total immunity from civil action even if they have acted unlawfully. It is anomalous that trade unions should have a wider immunity than individual

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trade union officials. Article 16 will repeal the only remaining substantive part of the Trade Disputes Act 1906 and thereby bring the immunity for trade unions in line with the immunity for persons. Article 17 defines the circumstances in which trade unions are to be liable for the unlawful acts of their officials. Article 18 sets limits on the amount of damages which may be awarded in proceedings in tort against a trade union. Article 19 makes it clear that union provident funds, and also political funds which are not used to finance industrial action, are not at risk.
The other main change in relation to trade union immunities is made by Article 20, which tightens up the definition of a trade dispute. It specifies that there is a trade dispute only when workers are in dispute with their own employer and the dispute is wholly or mainly about matters such as pay, conditions or jobs. The effect of these changes is to exclude from the definition of a trade dispute, first, disputes between a trade union and an employer where none of that employer's employees is in dispute; secondly, disputes between trade unions or groups of workers where no employer is involved in the dispute (inter-union disputes); and, thirdly, disputes which are not predominantly about terms and conditions of employment.
Finally, I should like to draw your Lordships' attention to Article 24, which makes statutory provision for schemes designed to assist unemployed persons improve their employment prospects, either through temporary employment, self employment or voluntary work. These include schemes such as Action for Community Employment, Enterprise Allowance and Community Volunteering which are already in operation in the Province but are presently funded on an extra-statutory basis. This provision is not connected to the question of trade union organisation or immunities, but the order before your Lordships is a convenient vehicle to provide firm parliamentary authority for schemes which are acknowledged to be highly successful and parallel some of the special employment measures in Great Britain.
Legitimate union activity, responsibly carried out with moderation and due regard to the rights of others, contributes to our national good. However, if it is based on monopoly power and pursued with disregard for the rights and interests of others, hardship to individuals and the community can result. This order poses no threat to responsible trade unionism. Rather it will enhance industrial rights and will constrain ill-considered and unlawful disruption in the workplace, with consequent damage to the economy and above all jobs. That is why I commend this order to the House.
Moved, That the draft order laid before the House on 22nd January be approved.—(Lord Lyell.)
7.15 p.m.
Lord Prys-Davies: My Lords, I should like to thank the noble Lord, Lord Lyell, for his clear exposition of the detailed provisions of the order. The provisions make major changes in the law on industrial relations in Northern Ireland. I should also like to thank the Department of Economic Development for the helpful background material which it was good enough to
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send to me at my request. However, I make it clear that we do not welcome this order.
As the Minister has explained, the main purpose of the order is to apply the provisions of the Employment Act 1982 in Northern Ireland. With the greatest respect to the Minister, we have not been given a convincing reason, and we have not been referred to convincing evidence, to show why that is thought to be necessary. The Minister has referred to the rule of law and he has referred to the liberty of the individual. However, the trade unions in Northern Ireland do not pose a threat to law and order; they do not pose a threat to the rights and interests of individuals.
The noble Lord said that the law will be applied because it is applied in England, Wales and Scotland. However, my point is that uniformity is not always a major aim of government policy in Northern Ireland. Those of your Lordships who were present last Tuesday will recall that the Minister, the noble Lord, Lord Lyell, was at pains to demonstrate why the law on public order in Northern Ireland should be different in some material respects from that applying in England and Wales. He said that it must be different because the circumstances in Northern Ireland were different.
Northern Ireland is also somewhat different in the field of industrial relations. The subject was devolved to Stormont by the Government of Ireland Act 1920. The comprehensive Industrial Relations Act 1971, the Employment Protection (Consolidation) Act 1978, the Employment Act 1980, the Employment Act 1982 and the Trade Union Act 1984 have not been applied in Northern Ireland. Indeed, industrial relations in that part of the United Kingdom, fashioned by industry and the trade unions and assisted by the Labour Relations Agency since 1976, have worked smoothly. I believe that that will be the evidence of my noble friend Lord Fitt and others. Therefore, there is no evidence that there is a need for new legislation, and to the best of my knowledge there is no demand for legislation.
For the past three years, following publication of the equivalent to a White Paper in Northern Ireland, Ministers at the Northern Ireland Office have spoken consistently in glowing terms about the role of the trade unions and of industrial relations in Northern Ireland. Two years after the passing of the Employment Act 1982, which is now being applied in Northern Ireland, Mr. Christopher Patten, who was then Parliamentary Under-Secretary, paid tribute to trade unionism in Northern Ireland in these words:
"I would not like this opportunity to pass without paying my own personal tribute to the work of many brave and dedicated men and women in the trade union movement in maintaining a civilising influence in this community throughout the last 15 years. What you have contributed here in Northern Ireland presents one of the most valuable of the many contributions which your movement has made to our social and industrial history".
That is an unqualified testimonial.
A month later Mr. Adam Butler, then Minister of State at the Northern Ireland Office, uttered an equally unconditional testimony about industrial relations. He said:
"The Province offers industry an industrial relations record equal to that of West Germany and Japan, and the most productive and efficient workforce in Europe with the highest academic standards".

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The Minister, even tonight, referred glowingly, and I thought with gratitude, to the stability which the unions had introduced to the life of Northern Ireland.
Why, therefore, should the Government seek to introduce the order in this divided community in 1987? I am not aware of any evidence at all that the trade unions have abused their power in the past. I believe that the noble Lord referred to abuses of power in general terms in his introduction. There is no evidence of the abuse of power.
On the contrary there is acknowledgment in the explanatory document, which the department published last May when this proposed order was published, that the unions had not abused their position. The evidence is within the explanatory document. It is to be found in paragraph 35 of the explanatory document which explains Article 4 and Schedule 1 of the order. This is the article which authorises the department to pay retrospective compensation to persons who were dismissed for not being union members in a closed shop during the years between 1976 and 1982.
In paragraph 35 the department acknowledges that,
"few, if any, claims are expected under the compensation provisions"
in Article 4 and Schedule 1. The Minister referred to the employees concerned who could make a claim under Article 4, but according to the explanatory document few, if any, claims are expected to be made under this order. I understand from leading trade unionists in Northern Ireland that they are not aware of a single claimant who has a claim for compensation outstanding under Article 4. Can the Minister give the name and address of a single person in Northern Ireland who, to their knowledge, has such a claim?
I suggest that the article and the schedule—it is a long schedule of about 1,200 words—have been devoted to a non-existent problem. I come back to the question: why then is this order being introduced? Is it the case that the Government have grounds for believing, or fearing, that some unions, or union branches, in Northern Ireland whose members are employed in the supply and provision of essential services are likely in the future to embark upon political strikes not against any employer but against the Government in protest over the Anglo-Irish Agreement, and that the Government require the power of suing the unions and, if need be, of sequestrating their funds in order to meet that threat or potential threat? Perhaps the Minister can answer that question? It is an important question, and we should like to know the answer to it.
Articles 16 and 17 abolish the indemnity of trade unions from an action in tort on the grounds specified in the order, and a dispute with the Government would come within the scope of those articles. The articles mean that the unions can be compelled to pay damages and be fined for contempt of court. We know that heavy damages and fines are an effective way of weakening, if not crippling, the trade unions.
There are three groups of trade unions in Northern Ireland: the GB-based, the Northern Ireland-based, and the Dublin-based. But the order draws no distinction between them. Yet it seems to me that
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there is at least one vital difference between the Dublin-based unions and the others. That difference becomes apparent if and when commissioners for sequestration are appointed on the failure of a union to comply with an order of the court to pay damages or to pay a fine for contempt.
Since 1982, lawyers have learnt a great deal about this ancient writ of sequestration, which was well understood in the 17th century but which had been dormant for almost a century and a half prior to 1982. We know that the commissioners for sequestration can demand of union solicitors, union accountants, union bankers, and union stockbrokers, information about the assets of the union, their location and the name and address of the trustees, and so lay their hands on the union's assets. Union solicitors, accountants, bankers and stockbrokers who are within the court's jurisdiction have no choice but to be in breach of their duty to their clients and to disclose to the sequestrators the information they require; otherwise, they themselves will be in contempt of court.
However, can the commissioners for sequestration demand such obedience from Dublin solicitors and Dublin accountants who are at no peril for non-compliance with their request? This is a proper question to ask the Government, bearing in mind that the Irish Transport and General Workers Union and the Irish National Teachers Organisation, to name only two of the Dublin-based unions, have thousands of members in Northern Ireland.
Are we correct in assuming that a Dublin-based union with its assets in the Republic will escape sequestration which could befall other unions in the Province? Will this distinction be fair as between unions? Indeed, will it lead to union branches in the North becoming affiliated to, or members of, a parent body in the Republic in order to escape the threat of sequestration? Then, conversely, is it right that the sequestrators should be allowed to sequestrate Dublin funds which have been subscribed by members who are citizens of and resident in the Republic and who are outside the jurisdiction of the courts of Great Britain? Is that right?
Therefore is the order fair, and indeed is it workable? I should be grateful if the Minister will confirm to the House whether it is the Government's understanding of the legal position that the funds of the Dublin-based unions which are deposited in the Republic can be reached by the sequestrators? Can the Minister also confirm to the House whether this order has been the subject of a discussion at the inter-governmental conference?
I have concentrated on the most damaging articles contained in the order. However it contains 19 other substantive articles of which 16 are seen by the trade unions in Northern Ireland as being provocative, offensive or unfair to the trade unions or their members. I shall be very brief with the remainder of my comments because I have taken up my time. I must refer to the group of nine articles (Article 4 to Article 12) which cover unfair dismissal or action short of dismissal. A number of questions arise on these nine articles. Will the holding of this periodic ballot in support of a closed shop be disruptive in the workplace? Is the percentage of support at 80 per cent.

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too high, as the trade unionists claim it to be? It is noted that the compensation paid in cases of unfair dismissal is far too high, being two and a half times higher than that paid for unfair dismissal on other grounds. Is this excessive compensation but a provision to be exploited by individuals who are anxious to pick up easy money?
Then there are three other articles, Articles 13, 14 and 15, which cover union membership or union recognition in contracts. I can only say to the Government with as much conviction as I can command that it is feared by the trade unions in Northern Ireland that the consequence of these three articles sooner or later will be to depress the level of wages in Northern Ireland's low wage economy. It would be interesting to know whether the Minister can tell the House if the labour relations agency has been consulted on these three articles, and indeed on the 24 articles of the order. What was its response? We know that the Government have been consulting for a matter of six weeks, but we do not know the result of the consultation. We do not know what response they have received from parties who responded to the order.
I am advised by leading trade unionists in Northern Ireland that this order will do nothing to improve industrial relations. On the contrary, it will almost certainly lead to instability in industrial relations. The Minister may plead and may repeat the statements that this order is not aimed at the trade unions in Northern Ireland; but the trade unions believe it to be an anti-union order. It will alienate the trade union movement which has, over the past 18 years on the evidence of Ministers, been a steadying influence and a civilising influence in that torn Province. I am just wondering whether this order is also evidence that we are dealing with a Government who have no vision of a Northern Ireland within which very high priority is given to bringing together all the affirmatives in the Province. For the reasons that I have given, we on these Benches cannot support this controversial order.
Lord Hampton: My Lords, I too should like to thank the noble Lord the Minister for introducing this order. As I understand it, it is to bring the law as regards industrial relations in Northern Ireland into line with that in force in the rest of the United Kingdom. Should there remain any real differences perhaps the noble Lord the Minister will write to me explaining the reasons, should he not wish to take up the time of the House during the dinner hour. I noted with interest what the noble Lord, Lord Prys-Davies, said that he did not feel there was any need for uniformity of law throughout the United Kingdom; but I think we disagree with him about this. We believe that where the law can be the same it is better.
I shall be brief. The explanatory note states that the order:
"requires companies to include a statement about employee involvement in their annual reports".
It is this one point on which I shall concentrate. We are very concerned that employees, so far as is reasonably possible, should be informed about and involved in the running of their company. The order deals with companies of 250 employees or more and therefore
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tackles the problems of remoteness in larger companies.
We on these Benches take pride that it was through the efforts of my noble friend Lord Rochester at the time of the passage of the Employment Act in 1982 that the Government introduced an amendment at Third Reading (referred to in the Official Report of 13th October 1982 at cols. 824 and 825) that is the word for word basis of Article 11 of the present order on page 4. 1 had thought of reading out the relevant paragraph (3), but I think it is sufficient to draw your Lordships' attention to paragraph (3)(b). This reads:
"The directors' report shall in that case contain a statement describing the action that has been taken during the financial year to introduce, maintain or develop arrangements aimed at…
(b) consulting employees or their representatives on a regular basis so that the views of employees can be taken into account in making decisions"—
I emphasise the words "in making decisions"—
"which are likely to affect their interests".
We accept that in problems of considerable commercial sensitivity it may not be practicable to consult employees before a decision is taken.
In our view the changes here proposed are only a small but valuable step towards improving the country's industrial performance by increasing the extent to which employees are involved in the activities of the company in which they work. With those few comments, I confirm that we support this order.
Lord Fitt: My Lords, I rise for only a few minutes to reinforce the objections which have been put forward by my noble friend Lord Prys-Davies. I am very unhappy about the way this order has been introduced into this House, the fact that it has been brought here before it has been debated in Parliament—
Lord Lyell: This is Parliament, my Lords.
Lord Fitt: —where elected representatives could have expressed an opinion on this most controversial order. I reinforce what has been said by my noble friend to the Minister. He drew attention to the fact that time after time, both in this House and in another place, Ministers come to the Dispatch Box and tell us that we cannot have the same type of legislation for Northern Ireland because Northern Ireland is totally and completely different as a region of the United Kingdom.
I have lived in Northern Ireland throughout my political life. It is sad that I have to add my voice here this evening with a Belfast accent to the objections put forward so vividly by my noble friend Lord PrysDavies.
The one organisation in Northern Ireland to have occupied a key position throughout the troubles which began in 1968, almost 20 years ago, is the trade union movement. That movement has a most difficult role when compared with any other trade union branch in the United Kingdom. It has had to deal every day with the very real sectarian differences that exist not only in Northern Ireland but among its own members. There have been times of crisis in the past when the trade union movement in Northern Ireland has had to

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undertake a very demanding role in appealing, day after day and almost hour after hour on some occasions, to their own members not to get involved in the fratricidal strife taking place.
My noble friend has drawn attention to the fact that a succession of Ministers from both Conservative and Labour governments have clearly pointed to the responsibility that has at all times been shown by the trade union movement. Even at the height of the very serious political disturbances we have had, notably in 1974, when the Ulster workers' strike brought the power-sharing Executive to an end, all the trade union activity in the streets in opposition to the Executive took place without the sanction of the trade union movement itself. They were individuals, as such. The trade union movement as a whole did not sanction a political strike either at that time or on the few other occasions when such strikes have occurred in Northern Ireland.
I cannot see any reason for the introduction of this legislation. Certainly, I have never supported any anti-trade union legislation in the United Kingdom. It may be that we have all seen and lived through industrial disputes and strikes here in the United Kingdom. Perhaps, in the minds of some people, the Government are justified in introducing legislation to contend with industrial disputes such as those which brought a great deal of violence to the streets of the United Kingdom. I can understand that, even though I must make it very clear that I did not agree with that legislation.
However, in Northern Ireland there is absolutely no need for this legislation. There are no cases where workers have been victimised or prevented from taking employment because of the closed shop issue. There have been no cases which could be verified where workers were refused employment because of religious or other barrier. Certainly, given the whole history of Northern Ireland and the sectarian divisions which exist within the community, one can have suspicions that a religious bar does operate in certain industries. But that is not the fault of the trade union movement. The movement has at all times voiced its opposition to any discriminatory practice that might take place on grounds of race or religion. Indeed, we have legislation on the statute book in Northern Ireland to take account of such divisions.
The Anglo-Irish Agreement has led to a situation where the elected representatives have not taken their seats in the House of Commons to represent their constituents. I believe that is a very sad commentary. I have no doubt that those representatives, even though they may be Unionists and on the face of it inclined to be anti-trade union, if they had taken their seats, would be voicing their objections against this legislation. It is sad that mine will be the only Belfast voice raised in opposition to this legislation.
My noble friend Lord Prys-Davies asked some very pertinent questions this evening and I hope that the Minister will avail himself of the opportunity—because it will not take a great deal of time to inquire—to answer these questions. I am quite certain, however, that his answers will fail to convince any Member on this side of the House to accept the legislation. I believe the legislation is totally
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objectionable and totally unnecessary within the context of Northern Ireland.
7.45 p.m.
Lord Dean of Beswick: My Lords, I wish to voice as forcibly as I can my objections to this type of business being dealt with in this way. Here we have an order containing 25 articles and four schedules. In another place and in your Lordships' House there have been a number of Bills of less complexity than this order. Yet we are asked to let it go through almost on the nod. That is the first complaint I wish to make. The Minister will know that I normally support almost totally what the Government have to do in Northern Ireland. They have a rotten job in that respect and I believe they are entitled to the fullest support where necessary. However, I have this objection to make.
Your Lordships may ask why I make the objection. It is because we have to dispose of this within an hour. There is so much involved in connection with the legislation that my noble friend on the Front Bench spoke for 19 minutes and actually flipped through it. He did not deal with it in the depth that he would have wished. That is a serious criticism. The order is "parcelled away" in the dinner-hour and is legislation, as has been said by other speakers, which is not really relevant to the situation in Northern Ireland.
First of all, trade unions, being what they are, are at their strongest when employment is at its highest. We are talking about the area of the United Kingdom that far outstrips any other in its rates of unemployment. Article after article of this order is punitive. It is anti-trade union legislation; nothing else. I was a little surprised to hear the noble Lord, Lord Hampton, on behalf of the Liberal Party, accepting the order with open arms—the Liberal Party, the great freedom thinkers. This is going to put people in a straitjacket completely unnecessarily.
It is of course a fact that throughout the history of Northern Ireland, and certainly during these troubled years there has been no more stabilising influence than the trade union movement, as was said by my noble friend Lord Fitt. Your Lordships may care to cast your minds back to an occasion a few years ago when the noble Lord, Lord Murray—Mr. Len Murray as he then was—as general secretary of the TUC, actually led a back-to-work walk in Northern Ireland. In doing so, he suffered the vilification of being spat upon and abused by certain members of the more outrageous sections of the political spectrum. That was a contribution that he was prepared to make.
It is a little sad that this measure is being introduced, as regards Northern Ireland, in this way. As my noble friend Lord Fitt has said, despite the differences that there are in Northern Ireland between Republican trade unionists and Unionist trade unionists, they have one thing in common. It is to try to keep their industrial base reasonably intact. It is an excellent base and will stand comparison with many. They want to keep it intact for the sake of the community and in preparation for a time when perhaps the present situation no longer obtains, although that will not be in the near future.
When I was in another place, I met numerous delegations from the Northern Ireland TUC, from the

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TGWU and from my own union, the AUEW. I never heard one word from them which could lead one to a conclusion other than that their sole objective was the good of the people of Northern Ireland and they did not indicate any desire to become involved in nonsensical behaviour which would in any sense, be detrimental.
I did not note his words exactly, but I think the Minister referred to the question of rather dubious tendering and so on. I say to the Government that there was a very valuable tender in Northern Ireland 18 months or two years ago that was the absolute height of dubiety and I raised the matter in your Lordships' House. Though I was pleased to see that Northern Ireland had work which would benefit some members of my own union—I am talking about the Tucarno contract—it was impossible to elicit what went on.
The complaint was never answered by the Secretary of State in another place or by the noble Lord, Lord Trefgarne, here, when I asked whether the normal commercial practices had taken place for the letting of that contract to Tucarno. British Aerospace were literally frozen out of it in a most disreputable way. That was the charge that was made and it was never answered.
These measures are worthy of more than an hour of your Lordships' time. I had not intended to speak, but I could not believe that I was listening to somebody trying to push something like this through the back door, because it is worthy of a far more extensive debate than we have been given the chance to have tonight. I am only speaking off the top of my head, but I have no doubt that my noble friend Lord Prys-Davies and I, given a longer debate, could have spoken at greater length with more information at our elbow, which would have exposed these measures that the Government are pushing through tonight for the shabby and totally unnecessary measures that they are.
Lord Kilbracken: My Lords, I wish to intervene for a very few moments, first to express my complete support for what has been said by my noble friends on these Benches, and, secondly, to regret what has been expressed from the Alliance Front Bench by the noble Lord, Lord Hampton, in support of the order. I also want to point out and put on the record that through-out this debate on a matter of extreme importance there has been for most of the time no other occupant of the Benches opposite than the Minister who will reply. There have been no Back-Bench listeners or speakers, let alone anyone from the two unionist parties in Northern Ireland, and only half-a-dozen on this side of the House. I believe that that adds to the evidence that there is a high degree of indifference towards extremely important Northern Ireland matters that is typical of this House and of another place.
Lord Lyell: My Lords, perhaps I may begin by saying that I am very grateful for the close attention that has been paid to the order by everybody who has spoken? I would not have expected all the discussion this evening to be filled with sweetness and light, but all the views have been expressed in concise terms and in the most businesslike way in which your Lordships
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traditionally do business. I accept that there are strong feelings, as have been set forth by your Lordships, about the order.
I want to start by trying to answer some, if not all, of the points raised by the noble Lord, Lord Prys-Davies. He first asked me about the need for legislation and why we needed to debate this order. I think your Lordships will agree that, as I sought to stress at least twice in the course of my opening remarks, this order concerns individual freedoms, and there is nothing that divides us in your Lordships' House on that.
I have already indicated—as was indicated when we discussed this matter in 1982 in regard to England, Scotland and Wales—that we do not believe that people should be required to join a union as a condition of getting or keeping a job. This is the position in Great Britain, and we see no good reason why workers in Northern Ireland should be deprived of freedom of choice regarding trade union membership. I believe that your Lordships will agree with me there. I think that is common ground between us. I stress again that there is nothing in this order which is any threat to responsible trade unionism.
I fully support what was said by the noble Lord, Lord Fitt, and the noble Lord, Lord Prys-Davies, about the community being united in jobs. But I think that the community is also united in believing that the same freedom and liberty as there is in Great Britain should be available to everybody who works in Northern Ireland.
The noble Lord, Lord Prys-Davies, asked about other statutes dealing with labour relations which apply to Northern Ireland as well as to Great Britain. There are as follows: the Trade Union Act 1906, the Contracts of Employment and Redundancy Payments (Northern Ireland) Act 1965. There were two industrial relations orders in 1976 and an industrial relations order for Northern Ireland in 1982. All of those mirrored—I think that the proper word is replicated—the Employment Protection (Consolidation) Act 1978. The last order of this nature which dealt with Northern Ireland replicated conditions in the Employment Act 1980, and the order before us this evening is replicating in almost all conditions, apart from Article 24, the Employment Act 1982.
I take note of what your Lordships have said about this order; but I do not think that I can go through word for word all the debates that took place in 1982 on the Employment Act, as each issue applies to Northern Ireland.
The noble Lord, Lord Prys-Davies, also asked me about Article 4. This article replicates Section 2 of the 1982 Employment Act. As he will be aware, that follows the ruling of the European Court of Human Rights in the case of, I think, three employees of British Rail in 1982.
The noble Lord asked whether the trade unions had been opposed to political strikes. I stress that a trade union can dissociate itself from industrial action and avoid any financial penalty. He raised the somewhat difficult and knotty problem of trade unions which have their headquarters in the Republic of Ireland. I am sure the noble Lord agrees that trade unions which operate in Northern Ireland but have headquarters in the Republic will want to act within the law, especially

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in Northern Ireland. I do not believe that any union would deliberately seek to frustrate or break the law. If a union does so, it must take the consequences of that action wherever there is a breach. If unions have members in Northern Ireland, then I think your Lordships would agree that they must observe Northern Ireland law.
Lord Dean of Beswick: No.
Lord Lyell: The noble Lord, Lord Dean of Beswick, does not believe that. We can probably argue that on Wednesday afternoon.
Lord Prys-Davies: May I intervene?
8 p.m.
Lord Lyell: Perhaps I may just finish this matter. The noble Lord, Lord Dean, who raised the matter, shook his head. He can question that on Wednesday afternoon, if he does not believe it.
Thirdly, the noble Lord, Lord Prys-Davies, raised the question of sequestration. That, of course, is a matter for the courts in Northern Ireland. If I may take the matter of jurisdiction in Northern Ireland and in the Republic a bit further, certainly legislation which would be enforced against a union having its headquarters in the Republic is covered by Section 8 of the Trade Disputes and Trade Unions Act (Northern Ireland) 1927. That section provides that where proceedings are brought against a trade union not having its headquarters in Northern Ireland, then legal processes—for example, a writ that might cover documents concerning sequestration—will be served on any person whose name is furnished by the union to the Registrar of Friendly Societies in accordance with the provisions of the 1927 Act. Further, if the trade union fails to provide such a name then the writ or other form of process may be left or sent by post to any place of business of the union.
Lord Prys-Davies: My Lords, will the Minister clarify one point? It is not really a question of how the trade union that is based in the Republic can be sued in Northern Ireland. The question is whether the commissioners for sequestration sequestrate the funds of a Dublin-based union if the funds are in the Republic. That is the question.
Lord Lyell: My Lords, if the noble Lord wants a full reply to that I shall have to write to him. I sought to give a preliminary reply by saying that sequestration is a matter for the courts. I do not think that we should have the full sequestration Acts as they apply right through in Northern Ireland added to the debate tonight. Perhaps I may write to the noble Lord on that particular point. If I have missed anything, I shall write further concerning sequestration being a matter for courts.
Section 8(4) of the Trade Disputes and Trade Unions Act (Northern Ireland) 1927 provides for enforcement. It provides that Section 15 of the Trade Union Act Amendment Act 1876 shall apply in the case of any failure to transmit any information, such as the name and address of a person who will be
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authorised to accept service of a writ for sequestration, to the Registrar of Friendly Societies with a fine at level 1 on the standard scale for any breach of that particular information.
The noble Lord, Lord Prys-Davies, also asked at least two other questions. He asked about Articles 13 to 15. I am advised that the Labour Relations Agency was consulted. However, it did not specifically comment about Articles 13, 14 and 15.
The noble Lords, Lord Hampton and Lord Prys-Davies, mentioned the need for uniformity within the United Kingdom. I stress that the Government think that there should be parity within the United Kingdom unless there are good reasons against such a course. We know of the difficulties associated with public order in Northern Ireland. That was raised six days ago and everyone spoke about those matters, which require special arrangements. I believe that trade union relations in Northern Ireland should be on the same basis as those in the rest of the United Kingdom.
As regards the matter of supporting trade unions, I believe we recognise the valuable contributions made by trade unions in the difficult situation in Northern Ireland. I endorse everything that has been said and the stand being taken by the trade union movement against any form of intimidation from any source which would affect the right to work. However, as was borne out by the helpful comments made by the noble Lord, Lord Hampton, the whole tenor of the order before us this evening supports responsible, lawful behaviour. If the trade unions in Northern Ireland continue to act responsibly they will not suffer any detriment as a result of the order before us this evening.
The noble Lord, Lord Hampton, asked a question concerning the major differences between the 1982 Act and the order before us this evening, quite apart from Article 24. Perhaps I may write to him. I think he seemed agreeable to that course.
The noble Lord, Lord Fitt, made the robust comment that he thought we should not be taking the order at this hour. Perhaps he can voice his opinions through the usual channels; I am sure they will be noted. I stress to the noble Lord and to all your Lordships that the order before us this evening has nothing to do with the special religious difficulties that abound in Northern Ireland. I hope that I have not said anything—I would not say anything—to exacerbate those conditions. This particular aspect of labour relations in Northern Ireland, and any aspects of discrimination at the workplace or other places of business, are dealt with by the Fair Employment Agency. Perhaps that can be discussed on another night.
I wish to thank the noble Lord, Lord Dean of Beswick, for his support for all the Government have to try to do in Northern Ireland. He pointed out that his noble friend had spoken for a respectable time. I accept that. I do not think that his noble friend was over the odds in any way.
Lord Dean of Beswick: Everyone else has been held up.
Lord Lyell: Yes, my Lords, I appreciate that. I know that others have business which they wish to press. We

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shall not be very long. This is a fairly massive order. It is replicating the fairly massive 1982 Employment Act. I think that the noble Lord, Lord Prys-Davies, made a number of points, and I hope that I have been able to answer some, if not all, of them.
As regards the behaviour of sundry persons in Northern Ireland, the noble Lord, Lord Murray, certainly has my sympathy. As your Lordships know, this is a risk everyone takes in taking part in the political life of Northern Ireland.
The noble Lord, Lord Kilbracken, voiced strong support for the comments made on his side of the House. I did not glance around but certainly there were one or two supporters on the Government side of the House at some stage. Whether they have now gone out for revictualling or refreshment, I am not sure.
The noble Lord referred to the Unionist side. There is no member of your Lordships' House who subscribes to the Democratic Unionist Party.
Lord Dean of Beswick: And we do not want any!
Lord Lyell: They may be lords of the heavens above, but not on earth. I do not know why the Unionist Members of your Lordships' House did not come. Perhaps they have good reasons. As for the behaviour of Unionist Members of another place, that is for them to argue.
I have sought to justify what we are putting forward this evening. I reiterate that the order before us this evening will have no ill effect upon responsible and competent trade unionism in Northern Ireland. I stressed at the outset that we see no good reason why workers in Northern Ireland should not have exactly the same rights as individuals as do other workers doing identical jobs and often affiliated with the same unions in Great Britain. I beg to move.
On Question, Motion agreed to.

Banking Bill
8.10 p.m.
House again in Committee.
Clause 8[Applications for authorisation.]
[Amendment Nos. 33 and 34 not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.35:
Page 6, line 24, after ("accountant") insert ("qualified under section 389 of the Companies Act 1985").
The noble Lord said: I beg to move Amendment No.35 standing in the name of my noble friends Lord Bruce of Donington and Lord Morton of Shuna and myself. If the Committee will allow me, I should like to speak also to Amendment No.36.
In Clause 8 we are dealing with applications for authorisation. There is a provision in Clause 8(5) referring to "an accountant". Furthermore, there is a provision in that clause referring to "other qualified person approved by the Bank". These amendments are in the nature of probing amendments. We should like to have some definition from the Government. In our own amendment we give our own definition of
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what "an accountant" is. Speaking to Amendment No.36, we wonder what other "qualified person approved by the Bank" can be charged with providing information or a statement. What information would the Bank require which could not be provided by an accountant? We are assuming that an accountant is one who is qualified under Section 389 of the Companies Act.
There may be precedents for simply referring to "an accountant" in previous legislation but we should like to make sure that such an accountant is not one who holds himself to be an accountant or pretends to be an accountant, but that he is a properly qualified accountant recognised as such. We should like to ask the Government what other type of qualified person approved by the Bank might be relevant under the circumstances.
Once the Government have given their response on those points, we shall decide what to do with this amendment. I beg to move.
Lord Winstanley: Before the noble Lord replies, perhaps I may ask the noble Lord, Lord Williams, whether, if an accountant is to be defined in the way specified in this amendment, we still need the words "approved by the Bank" in the clause.
Lord Williams of Elvel: I am grateful to the noble Lord, Lord Winstanley. Probably we do not need those words if the accountant is as specified, because it is already approved under the Companies Act.
Lord Beaverbrook: The noble Lord has asked me a few questions which I shall come to from a slightly different direction after having set out our position. The effect of the noble Lord's first amendment would he to restrict the choice of account-ant able to provide reports on information submitted in connection with applications for authorisation under this clause. The only eligible accountants would be those qualified under Section 389 of the Companies Act 1985—that is to say, accountants who are members of a United Kingdom body of accountants which is recognised by the Secretary of State, or accountants recognised by the Secretary of State as having similar qualifications obtained overseas.
The noble Lord's second amendment would have the effect of removing the ability of the Bank to require a report from a person who is "qualified", to use the language of the Bill, but who is not an accountant.
These amendments would have the effect of restricting the Bank's ability to approve persons who may be eminently suitable for the task. For example, a report may be required on matters outside the normal competence of accountants, if I may say that without causing offence to the noble Lord, Lord Bruce of Donington. An example would be where a valuation of property was required, when it might be appropriate for a surveyor and/or valuer to be involved. I think that answers one of the questions which the noble Lord asked me, concerning which other persons could be suitable to give advice under this clause.
With respect to United Kingdom accountants, it is unlikely that the Bank would approve an accountant who was not a chartered or certified accountant, but

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reports might be required from overseas accountants in respect of overseas companies or overseas-based controllers of those companies. I would not wish to restrict the Bank from approving such an accountant where, in its judgment, that person was suited to the task in question.
I hope that I have covered the questions which the noble Lord asked me, but if I have not perhaps he can come back to me.
8.15 p.m.
Lord Bruce of Donington: I can assure the noble Lord that as a qualified accountant I take no offence at any part of the Bill which might conceivably be thought to cast any reflection upon my profession. We are not sensitive in that respect.
In subsection (5) there is a requirement "to provide a report by an accountant". I fully appreciate that if the matter involves anything that is covered by the Companies Act the definition in Section 389 of the Companies Act would be appropriate. I suppose I should declare a personal interest here in case it is not known, although I do not think it is possible that any governor would seek to invoke my services in this connection, particularly after the exchanges today, but I am a little puzzled by the wording of the subsection, which speaks of, "an accountant'. I should have thought that the minimum that would be required would be "a qualified accountant". That applies not only in the United Kingdom but if the services of an overseas accountant were required, for example. I can quite see the circumstances where one might require the services of a certified public accountant in the United States, or one might find it necessary to have a comptable from France. I should have thought that the words "an accountant" ought to be qualified by the word "qualified" itself rather than leaving the wording merely as "an accountant".
As your Lordships know, there is no registration of accountants in the United Kingdom and anybody, including the noble Lord himself, if he is not already a chartered or incorporated accountant, can call himself an accountant. I should have thought that it would have been better to have inserted the word "qualified".
I accept the point that the noble Lord has made concerning "or other qualified person". The noble Lord mentioned estate agents or valuers. That point may present problems also because not every estate agent or valuer belongs to one of the recognised professional bodies for that purpose. I can envisage circumstances in which a lawyer would be required, but that is covered by "qualified". I should have thought that in such an important matter one might have been a little more specific. The amendment has been put down for clarification. There is nothing hostile about it and, I hope, nothing offensive. If the noble Lord could provide a little further information it would assist us in our consideration.
Lord Beaverbrook: I have listened to what the noble Lord had to say on this subject. I think it is inconceivable that the Bank would engage anyone other than a qualified accountant, but there is no legal definition which would apply worldwide and it would be better to leave the matter to the Bank's discretion.
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I should like to look at the matter further and perhaps write to the noble Lords once I have had a chance to look at the points they have made in Hansard.
Lord Williams of Elvel: I am grateful to the noble Lord for his undertaking to look at this matter again. I can do no more than reiterate the points that have been made both by myself in introducing this amendment and talking to Amendment No.56 and also by my noble friend Lord Bruce of Donington. If we are to have something on the face of the Bill it seems to me that it should be specific and quite clear in what it intends. If the noble Lord is prepared to look at it again in that light, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.36 not moved.]
Clause 8 agreed to.
Clause 9[Grant and refusal of authorisation]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.37:
6, line 47, after ("any") insert ("relevant").
The noble Lord said: For the convenience of the Committee I should like to speak also to Amendment No.38. If the noble Earl, Lord Limerick, will agree, I shall speak to Amendment No.39; or perhaps the noble Earl would like to take that separately.
The Earl of Limerick: I have no objection. I shall wish to make my own observations when we come to Amendment No.39.
Lord Williams of Elvel: I did not wish to prevent the noble Earl from making his observations but I thought it would be useful and time-saving for the Committee if I put forward our view in speaking to Amendment No.37.
There are three points. Our Amendment No.38 in some way marches alongside the amendment of the noble Earl though it is not exactly in the same terms. Amendment No.37 is a restrictive amendment. It requires the Bank to take into account "relevant matter" rather than "any matters". This may seem to be a small amendment and indeed it is not meant to be a point of great principle. We are all quite certain that the Bank will exercise its powers in a responsible manner. Nevertheless, I came back to what I said on the previous amendment. If legislation is to be passed by Parliament we should make it as comprehensible and watertight as we possibly can. I do not for a moment mean to suggest that the Bank will take into account any irrelevant matters, but there are irrelevant matters and there will be irrelevant matters. I believe that the Bill would be improved by inserting "relevant" at that point.
With Amendment No.38 I shall speak to Amendment No.39 in the name of the noble Earl. In contrast to Amendment No.37, Amendment No.38 is a widening amendment. In other words, the Bank should be able to take into account not only the matters relating to any person who is or will be employed by the applicant but matters relating to,
"any minority shareholder controller, majority shareholder controller, or principal shareholder controller as defined in section 103 below".

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In that respect the Bill is somewhat defective. As I understand it, the noble Earl says in his amendment that it is the affairs of the directors of the holding company of the organisation that are properly relevant to the consideration of grant and refusal of authorisation. I beg to move.
Lord Beaverbrook: For the convenience of the Committee I shall speak to Amendments Nos. 37 and 38. I should prefer to speak to the noble Earl's amendment separately if there is no objection.
Amendment No.37 would introduce an unnecessary word into the Bill. It would purport to restrict the Bank to taking into account only relevant matters relating to persons who will be connected with the applicant institution in the way specified in subsection (4). But of course as a matter of law the Bank may only properly consider relevant matters when reaching a decision. If it were to take irrelevant matters into account its decision would be liable to be reversed on an appeal under Clause 27 or even quashed on judicial review. I believe that the Bill already achieves what the noble Lord wishes in this respect.
The effect of Amendment No.38 would appear to result in the Bank being enabled to consider matters relating to a wider group of persons—namely, the controllers of the applicant institution where this is a body corporate—than is already provided by the subsection. However, the Bill already provides the Bank with this discretion. Under subsection (2) of the clause the Bank is not permitted to grant authorisation unless it is satisfied that the authorisation criteria in Schedule 3 to the Bill are fulfilled. Those criteria include the requirement that the shareholder controllers are fit and proper persons to hold their position. The qualities which are included in fitness and properness are widely drawn and it is thus unnecessary to provide the additional discretion offered by the amendment. For these reasons I hope that noble Lords opposite will feel able to withdraw the amendments.
Lord Williams of Elvel: I am grateful to the noble Lord for his response. If he assures me, as he appears to be doing, that Amendment No.37 is not necessary I am perfectly happy with that explanation. It needs a slightly complicated mind to work its way through the provisions of the Bill to decide that it is not necessary, but if the noble Lord tells me that I am prepared to accept it.
The position is somewhat different with Amendment No.38. I do not want to anticipate arguments that we shall have on the question of principal shareholder controllers, but if the Committee decides that the arrangements in the Bill relative to minority shareholder controllers and principal shareholder controllers are not adequate as at present drafted there will have to be a consequential amendment. It would be wrong for me to anticipate that discussion but I may well come back to it in the light of the decisions which are taken at that time. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.38 not moved.]
Clause 9 agreed to.
8.30 p.m.
Schedule 3[Minimum criteria for authorisation]:
The Earl of Limerick The Earl of Limerick moved Amendment No.39:
81, line 34, after first ("directors") insert ("of that institution or of its holding company")
The noble Earl said: In moving Amendment No.39, I declare the interest well known to the Committee that I am a practising banker. I was unable to be present on the Second Reading, but my noble friend Lord Boardman put down a flag to this point of which I have given notice to my noble friend on the Front Bench. I hope he may be able to give me some comfort.
There has been much discussion lately on the role of the non-executive director, sometimes referred to as the independent director. Indeed, the merit often lies in the independence shown by such a person, either from management or from any group of shareholders or indeed any major single shareholding interest.
Paragraph 3 of Schedule 3 was introduced into the Bill during proceedings in another place. It adds another criterion to the former criteria required under Clause 9(2) upon which the Bank may decide upon the grant of a banking licence. The new criterion is the inclusion of,
"such number (if any) of directors without executive responsibility for the management of its business as the Bank considers appropriate having regard to the circumstances of the institution and the nature and scale of its operations."
Certainly I have no quarrel with the principle of non-executive directors; and I have no quarrel with their involvement, for example, in audit committees about which the Bank of England is currently consulting the banking community. Several groups, including my own, are already moving in this direction.
The point of my amendment is this: the wording of the Bill would be appropriate if the institution seeking a banking licence is the principal company in its group. That is not always the case. In the case of my own group and a number of other major merchant banking groups, among others, it is not so. Our structures are such that the licensed banking company is a wholly owned subsidiary of a plc. That quoted holding company has non-executive directors on its board and these non-executives will be involved in independent roles such as those which paragraph 3 evidently envisages.
The board of the banking company, on the other hand, is wholly executive. It is a large board, a full-time working board, and it would not be a natural or even an appropriate place in such a group structure to include non-executive directors.
I have not overlooked the words in paragraph 3 "such number (if any)". I anticipate the reply that the Bank would not insist on non-executive appointments unless it deemed them to be appropriate. That, of course, I accept. However, as the Bill stands, it seems that if the Bank thinks that the appointment of the non-executives would be appropriate it can only require that they be appointed to the board of the banking institution itself, where they may be inappropriate; whereas it cannot require that they be appointed to a holding company board where their presence might be wholly appropriate.
Therefore, those are the anomalies which my amendment seeks to remove: first, that a banking group should not be required to put non-executive directors where their contribution cannot best be made; and secondly, that the Bank of England is alternatively empowered to require the appointment of non-executives to a holding company board when that is the more appropriate place for them. The Bill, as I read it, does not permit that. This is a humble but I believe wholly meritorious amendment drafted by a Back-Bencher with no professional advice and I hope that my noble friend will make my day be accepting it.
Lord Beaverbrook: I think that I may be able to make part of my noble friend's day, although I am not sure about the whole day.
This amendment reflects a question raised by the noble Lord, Lord Boardman, on Second Reading. He asked how the provisions inserted in paragraphs 3 and 4 in Schedule 3 in another place, which refer to non-executive directors and—without naming them—to audit committees, would affect a group which included an authorised subsidiary. There is widespread interest in this question; most major UK authorised institutions, including for example every member of the Accepting Houses Committee, are subsidiaries of holding companies.
The concern which the noble Earl, Lord Limerick, has expressed is similar. To summarise, his question is this: will the effect of the Bill be to require each authorised institution to have its own non-executive directors, where, in many instances, the relevant directors are presently directors of the holding company? This would be an unnecessary distortion of structure, since such directors regard themselves—as no doubt does the group audit committee—as having a direct responsibility for the authorised subsidiary.
We fully recognise this concern and I can give the noble Earl the reassurance that it is more than likely that the Bank, in applying the Bill, will accept such arrangements as satisfying the purposes of the Bill provided that those purposes are indeed satisfied. Certainly neither the Government nor, I am sure, the Bank of England have any intention of seeking rigid solutions to the perceived and generally agreed desirability of bank operations being overseen by directors, or by persons of equivalent rank and status, independent of management and, as far as possible, independent of other dominant interests. The Bank of England has issued a consultative paper on this subject, and has asked for comments by 30th April. I am sure that we can leave it to the Bank in the light of those consultations to work out practical arrangements on our institution by institution basis.
Turning to the amendment itself, it would appear to offer the Bank greater flexibility in agreeing appropriate structures in individual cases. However, the schedule, as it stands, does no more than lay an onus on each institution to have such number "if any-of non-executive directors as are considered appropriate by the Bank having regard, inter alia, to the circumstances of the institution. I stress the "if any". the Bill clearly, and deliberately, contemplates that in some instances an institution will need to have no
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non-executive directors. Those instances will be where the Bank considers that the particular circumstances of the institution make it unnecessary. The most obvious example would be the cases which concern the noble Earl and I can assure him that the provision was drafted with these in mind. On that basis I hope he will be happy to withdraw his amendment.
The Earl of Limerick: I am grateful to my noble friend for his comments. This is a probing amendment, and of course I have no intention of pressing it. I am somewhat reassured by his words, but only somewhat, because they do not really address the question. My question was this. If the Bank of England does not insist, which of course it will not, on such appointments where they are not appropriate; and if it has no power, which it might wish to have, to insist upon it in cases where they would be appropriate on a holding company board, would it not be better to spell out that power as provided in my amendment? I should like to leave that question with my noble friend for further consideration because I do not think that his reply, informative though it was, gave the answer to that point. Nevertheless, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No.40:
Page 82, line 26, after ("maintain") insert ("proper and").
The noble Lord said: I beg to move the amendment standing in my name on the Order Paper. The Committee will be aware that, in Schedule 3, paragraph 4(7) provides that:
"An institution shall not be regarded as conducting its business in a prudent manner unless it maintains or, as the case may be, will maintain adequate accounting and other records of its business and adequate systems of control of its business and records".
The amendment seeks to insert in each case before the word "adequate", "proper and" so that the appropriate description becomes "proper and adequate". An institution may or may not be a company, plc or otherwise, which comes under the ambit of the Companies Act 1985. If the institution is a company coming within the ambit of the Companies Act 1985, then quite clearly Section 221 applies. Perhaps I may remind the Committee of the accounting requirements of Section 221 of the Companies Act, which reads as follows:

(1) Every company shall cause accounting records to be kept in accordance with this section.

(2) The accounting records shall be sufficient to show and explain the company's transactions, and shall be such as to

(a) disclose with reasonable accuracy, at any time, the financial position of the company at that time, and

(b) enable the directors to ensure that any balance sheet and profit and loss account prepared under this Part comply with the requirements of this Act as to the form and content of company accounts and otherwise.

(3) The accounting records shall in particular contain—

(a) entries from day to day of all sums of money received and expended by the company, and the matters in respect of which the receipt and expenditure takes place, and

(b) a record of the assets and liabiities of the company".

The section goes on to particularise even further. So it will be observed that the requirements of the Companies Act in relation to an institution which is a

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plc or is a limited company are already covered. One can understand the Government's difficulty, in that certain institutions may not be companies—they may be partnerships. Therefore one has to put into this particular clause some coverage of the nature and extent of accounting records. The way the Government have chosen to cover this is by the insertion of the words,
"adequate accounting and other records, of its business and adequate systems of control of its business and records".
It is for consideration whether the word "adequate" is sufficient. In some respects the Government have already pre-empted the position because in the course of the Local Government Finance Bill, which also dealt with accounting matters, they ventured, in describing the allocation of revenue for accounting purposes, to refer in Clause 2(2)(b), (c) and (d) and subsection (3) to "proper practices applicable to accounts", by whatever name known.
The word "proper" is, in my respectful submission, a little more incisive and descriptive than the word "adequate". I should have thought that, in default of laying down more detailed prescriptions as required under Section 221 of the Companies Act and covering the position of institutions which are not limited companies and therefore not subject to it, it would have been far better to have put "proper".
Baroness Seear: If the noble Lord will allow me to intervene how can it be "adequate" if it is not "proper'"?
8.45 p.m.
Lord Bruce of Donington: I believe "adequate" implies a sufficiency, but it can involve a bare sufficiency, whereas the definition of "proper" is a little more precise. If one refers to the Oxford Dictionary, one finds the meaning, "Strictly belonging or applicable; that is in conformity with rule, strict, accurate, exact, correct". That may be, I think, a little more than a bare adequacy or sufficiency. The point is one of semantics. I should have thought that the Government would have sought greater precision and I am offering them a way of making this more precise and perhaps a little more refined that it is at the moment. To some minds "adequacy" means bare adequacy without the more strict requirements which I should have thought, in the light of Section 221 of the Companies Act, were strictly required in this case.
Lord Beaverbrook: We had thought paragraph 4(7) to be wholly satisfactory in requiring accounting records to be "adequate", whose meaning is spelt out in paragraph 4(8). The addition of the word "proper" would imply something different from the word "adequate", but I am not sure that it would be clear what. It might imply that the accounting records should be such as to comply with other legal requirements, for example, under the Companies Act. It would, however, be unnecessary and inappropriate for the Bill to duplicate requirements under other legislation. This is not the purpose of the Bill. Further,
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if the institution were to fail to comply with other legal requirements, whether on accounting records or otherwise, that would cast doubt on whether it was carrying on its business with prudence, integrity and professional skills, and perhaps on whether the directors or managers were fit and proper persons.
However, in the light of the eloquent explanation by the noble Lord, Lord Bruce, of the difference between these two words, if he would be willing to withdraw this amendment, I should, without commitment, like to look at these definitions again and perhaps write to him with a considered opinion.
Lord Bruce of Donington: I am most grateful to the noble Lord. The amendment was intended to he helpful rather than otherwise. One likes to have precision in an Act of Parliament, if possible. Perhaps the noble Lord will write or perhaps he may be prepared to consider something further on Report. It depends on the nature of the correspondence. I ask leave of the Committee to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.41 not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.42:
Page 82, line 45, leave out ("£ l million") and insert ("£10 million").
The noble Lord said: I beg to move Amendment No.42, standing in the name of my noble friend Lord Bruce and myself as well as of my noble friend Lord Morton. For the convenience of the Committee, I should like to speak also to Amendment No. 92.
The matter which this amendment addresses was raised on Second Reading and it is very simple: at what point do the Government draw the line as to what are the proper resources of an institution to be authorised under the Bill? It seems to us and others that £1 million is rather a limited figure and we have put £10 million as a probing figure, to discover what is the Government's reasoning in this. I beg to move.
Lord Beaverbrook: The £1 million threshold in paragraph 6 of Schedule 3 to the Bill is included primarily to ensure that institutions that are moving into deposit-taking have an adequate cushion of their own resources against start-up costs and a reasonable financial commitment from their backers. It is a minimum requirement and only applies on initial authorisation. By virtue of paragraph 1(c) of Article 8 of the EC First Credit Institutions Directive, it is not permissible for the supervisors subsequently to withdraw authorisation solely on the ground that the initial minimum net asset criterion is no longer met.
The Bill's provision relating to the capital adequacy of authorised institutions is set out in paragraphs 4(2) and (3) of Schedule 3 to the Bill, which in turn reflect paragraph 1(d) of Article 8 of the directive. They provide that an institution at all times must have net assets and other appropriate financial resources commensurate with the nature and scale of its operations. Thus the Bank of England may require substantially more than £1 million, depending on the size of the business concerned and the risk inherent in

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the proposed operations. It may require more than £10 million, but there is no reason why an institution with very modest plans for deposit-taking cannot be run prudently with net assets of £ 1 million or even less. Size is only one, and not the most important, of the factors which will determine the safety of depositors.
There remains the question of the level appropriate as a cushion against start-up costs and as an indication that the new entrant to the market has sufficient backing. The figure of £ 1 million in the Bill is already a fourfold increase on the figure in the 1979 Act and is more than twice that figure adjusted for inflation. We believe that it is pitched about right. The danger of a higher limit such as the £10 million proposed by the noble Lords' amendment is that it will bar significant numbers of new British entrants to the deposit-taking market. If such a figure had been in force over the past two years, 12 out of 19 of the new British entrants to this market would have been prevented from entering.
For the convenience of the Committee I shall speak also to Amendment No. 92. Under the 1979 Act only recognised banks, together with the Bank of England and other European Community central banks, are permitted to use banking names and descriptions freely. As a general rule a licensed deposit-taker is not allowed to use a banking name and an overseas licensed deposit-taker can only use its banking name qualified by the words "licensed deposit-taker" in immediate conjunction with its name.
Under this Bill, with the abolition of the two-tier system all authorised institutions will be able to use banking descriptions. However, it has been decided to restrict the use of banking names broadly to institutions which have over £5 million paid-up equity. This is a reasonable test to help ensure that the public are not misled.
It has been argued that in banking terms £5 million is not very much and that a figure of £10 million would be appropriate. The Government do not share that view. Whenever a distinct line has to be drawn in this way it is inevitable that there will be debate about its precise path and there will always be two sides to the argument. There will always be those who fall just on one side or other of the line and always those who stand to benefit from finding themselves on the right side while others, possibly commercial competitors, are on the wrong side.
The £5 million test which is appropriate to the effect of the existing requirement has been extensively debated in the other place. As a measure of the difficulty of the line-drawing exercise to which I have referred, much of that debate was concerned with the effect of the test on smaller institutions and whether it might not be unfair to reputable authorised institutions to prevent them having banking names. The Government clearly need to strike a balance. Some have argued that the test figure should be lower or removed altogether; others have argued that it should be doubled. I take heart from the fact that pressure has been exerted in both directions, and I conclude that the balance is probably about right. I hope that that explanation clarifies the direction of our thinking for the noble Lord.
Lord Bruce of Donington: I am grateful to the noble Lord for his detailed explanation of the Government's intentions in this matter. One point requires a little clarification and perhaps the noble Lord can provide it. In paragraph 6(2) of Schedule 3 it is stated that:
"In this paragraph 'net assets', in relation to a body corporate, means paid-up capital and reserves".
The more conventional concept of net assets and certainly one that is widely used in the accounting profession and in commerce is contained in Section 264(2) of the Companies Act:
" 'net assets' means the aggregate of the company's assets less the aggregate of its liabilities (liabilities' to include any provision for liabilities or charges within paragraph 89 of Schedule 4)".
The noble Lord will appreciate that the definition contained in Section 264(2) of the Companies Act differs from the concept of net assets as comprising merely the equivalent of the paid-up capital and reserves.
Lord Beaverbrook: I am not able immediately to give the noble Lord a full explanation of that matter and I shall write to him on the subject. I understand that the definition of "net assets" for banking regulation purposes varies from that used for defining shareholders' assets within a corporation. I believe that it has to do with withdrawability of those net assets-. A different definition may be appropriate for the purposes of regulating minimum capital requirements. The definition of "net assets" used in this Bill is that used in the 1979 Act and has given no difficulty. However, I shall write to the noble Lord to confirm what I have said to him.
The Earl of Limerick: Before the noble Lord withdraws his amendment, if that is his intention, concerning net assets may I ask whether it would not be the case that to use that definition of net assets would mean including loan capital together with capital and reserves among the amounts to be determined? That would have the opposite effect from the one that I thought he was examining, namely, whether the amount written into the Bill was an adequate amount.
Lord Williams of Elvel: That technical discussion was very interesting. It brings into play the whole question of permanent floating rate notes, which are regarded as the capital of banks by the Bank of England, and raises all sorts of technical questions which I do not want to go into at this stage. I am grateful to the noble Lord for his response, which was worth putting on the record. This matter was discussed quite extensively in another place, as he said, and I do not intend to pursue this amendment. I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Schedule 3 agreed to.
Clause 10 agreed to.
9 p.m.
Clause 11[Revocation of authorisation]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.43:
Page 7, line 48, leave out from first ("fulfilled,") to end of the line.
The noble Lord said: This is, again, a probing amendment. I do not understand what Clause 11(1)(a) as drafted means. I do not understand how it can be applied. The third schedule outlines the minimum criteria for authorisation. Clause 11 provides:
"The Bank may revoke the authorisation of an institution"—
I shall leave out some words to make the point simple—
"if it appears to the Bank that any of the criteria"—
in that schedule—
"may not he or may not have been fulfilled".
I do not understand how that can be applied in practice.
I understand that the Bank is the final arbiter as to whether the criteria may not be or may not have been fulfilled, but the criteria are complicated. I do not understand how, at any given point in time, the Bank can arrive at that judgment. If it does not arrive at that judgment, it is in danger of not revoking an authorisation which it might otherwise revoke. It may also arrive at the conclusion that the criteria may not be or may not have been fulfilled, and yet it turns out on subsequent investigation that they have been fulfilled. I am not clear as to what that means. I should be grateful if the noble Lord could tell me. I beg to move.
Lord Beaverbrook: The 1979 Act enables the Bank to revoke an authorisation if it appears to it that any of the authorisation criteria are not or have not been fulfilled. Those words were included to deal with the situation where the Bank may have been unable to obtain all the information that it needs to establish beyond doubt that the institution does not fulfil the criteria. One could envisage, for example, a shadowy overseas controlling shareholder resident in the Netherlands Antilles being reluctant to answer all of the Bank's questions. In another case, it may be that a third party refuses to supply information relevant to confirming that a principal controller was not fit and proper. In such instances, the Bank would be on safe ground in proceeding to take action if it considered that depositors' interests were or might be threatened.
It is important to note that the ground contained in Clause 11 provides the basis for the Bank not only to revoke an authorisation but for it to use the lesser power to restrict under Clause 12; for example, to place formal limits on the balance sheet, or to require the removal of a manager. The trigger for the Bank to take action to revoke or to restrict an authorisation has a double pressure. First, the facts (or the lack of facts) which lead the Bank to conclude that its powers are exercisable must be present. Secondly, there must exist adequate reasons, involving a tangible threat to depositors, which make the Bank's prudential actions an appropriate response in the circumstances. The Bank's actions under Clauses 11 and 12 are appealable
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to the tribunal under Clause 27. I hope that that explanation has been helpful to noble Lords opposite and enables them to see the point of the clause.
Lord Williams of Elvel: I am most grateful to the noble Lord. I hear all that he says. I understand every word that he says, but it does not seem to answer the point, which is that the Bank has powers under the Bill as drafted to revoke an authorisation under circumstances where it is, as he says, uncertain as to whether the criteria may or may not have been fulfilled. Although that may be open to appeal to a tribunal, to have the threat of revocation, even on an appealable basis, hanging over an institution seems to be a powerful weapon. I am not sure that the words in the Bill as drafted, although they repeat previous legislation, are entirely satisfactory; nevertheless, I shall read carefully what the noble Lord says. If there is anything that he wishes to say to me before I decide what to do with the amendment, perhaps he would like to intervene.
Lord Beaverbrook: May I come back on one point? The key point here is that the present wording would cope with a case where there was uncertainty and where the Bank is concerned for the protection of depositors, but cannot ascertain with any certainty whether the criteria are met. That point was unclear under the 1979 Act.
Lord Williams of Elvel: I accept that the Bank should intervene where there is a problem related to the protection of depositors. That was not clear in the 1979 Act. I accept the noble Lord's explanation. Revocation of authorisation is a big gun. Unless the Bank is satisfied that it has the appropriate backing for that rather dramatic step, it should not take it. I am sure that the Bank will operate in a wise manner, but if we are to write legislation, it should be properly expressed. That is the point that I was making.
Lord Bruce of Donington: May I just ask the noble Lord one further question? If he turns to Clause 13(4)(a) he will see that there are grounds which use the same words:
"the ground or a ground for a proposed revocation or for a proposal to impose or vary a restriction is that it appears to the Bank that the criterion in paragraph I of Schedule 3 to this Act is not or has not been fulfilled, or may not be or may not have been fulfilled".
One would have thought that if notice were given to the person concerned under Clause 13, it would have been unnecessary to pre-empt the action that it is proposed to take in Clause 11. Surely it would only be if there were an unsatisfactory response to the information required under Clause 13 that action under Clause 11 should be contemplated. Is not the critical point at Clause 13 where a notice is given? If that notice is not complied with, there will be every reason for action to be taken under Clause 11. Clause 11 seems to pre-empt an unsatisfactory response to the requirements of Clause 13. Perhaps the noble Lord will give his observations on that. We are trying to be helpful. We are not making any other particular point.
Lord Beaverbrook: I am grateful to the noble Lord for putting this point. I should like to look at that matter. I do not have an immediate response except to say that the principle of the protection of depositors is very high in our priorities here and we feel that the Bank should have powers to do this. The point is the same under Clause 13 but Clause 13 covers only notice of revocation once the decision has been taken. It is therefore a slightly different point. However, I shall look at it again and if there is further explanation that I can give the noble Lord I shall write to him on the point.
Lord Williams of Elvel: I am most grateful to the noble Lord for his assurance. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 11 agreed to.
Clause 12[Restriction of authorisation]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No 44:
Page 10, line 38, at end insert—
("( ) The Bank shall make public in an appropriate form any restriction that it imposes on an institution's authorisation.").
The noble Lord said: It may be for the convenience of the Committee if I speak to Amendments Nos. 44 and 45 together. I beg to move Amendment No.44 in the names of my noble friend Lord Bruce, myself, and my noble friend Lord Morton. Amendments Nos. 44 and 45 return to a fairly familiar theme that we have put forward in the Building Societies Bill and the Financial Services Bill which went through this Chamber. The measure is even more important in this case where we are dealing with the protection of depositors, as the noble Lord opposite has quite rightly reminded us. I do not believe that depositors can be properly reassured about their interests if they do not know what restrictions may or may not have been imposed on the authorisation and if they do not know that a notice of revocation or restriction has been served by the Bank. It therefore seems to us to be logical and sensible in the interests of depositors that these events should be made public. I beg to move.
Lord Beaverbrook: I can understand the reason behind these amendments. Depositors should so far as is practicable be in full knowledge of the facts. There are, however, good reasons why these facts should not be mandatorily disclosed.
For the convenience of the Committee perhaps I may take Amendment No.44 first. This would require the details of the restrictions on an authorisation to be published. Restrictions are imposed on an authorisation in depositors' interests. An example would be where an institution is judged not to be fitted to take deposits but—because it is capital solvent—an orderly run-down is possible in which assets are steadily realised to repay deposits as they fall due. Restrictions would be imposed to bring this plan about. A premature, forced announcement of the fact that the institution's authorisation had been restricted would be likely to cause depositors to seek
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early withdrawal of funds. This could precipitate a liquidity crisis and closing of the doors, with consequent probable loss to the remaining depositors, the very event that the Bank was seeking to avoid. As the noble Lord opposite knows well, a forced realisation of assets is likely to be less beneficial than a freely negotiated one.
Turning to Amendment No.45, I believe the amendment to be wholly inappropriate. The Bank of England's notice which the noble Lord wishes published is one concerning a proposal of the Bank to act, not a notice confirming the action. Moreover, that notice—as subsection (3) of Clause 13 makes clear—must contain the grounds on which the Bank proposes to act: it will thus contain details of the evidence, no doubt much of it confidential and concerning third parties, which explains why the Bank is concerned about the institution. Moreover, the institution would not yet have challenged the Bank's evidence and its proposal, which it might subsequently withdraw. I hope therefore that with these explanations the noble Lord may feel able to withdraw these amendments.
The Earl of Limerick: Perhaps I may make this comment. Having once witnessed a run on a bank in the Middle East which was precipitated by the merest rumour totally without foundation, and knowing as we do that market places can become very nervous—although not, we hope, as nervous as that in this country—I find the explanation of my noble friend in relation to Amendment No.44 quite convincing.
Lord O'Brien of Lothbury: I should like to say also that I believe that such questions should be handled with the greatest discretion because indeed the first whiff of any kind of trouble applying to any one institution is just the way to start a run. Once a run starts on one institution, it can very well spread. Any noble Lords who are old enough to remember the Credit Anstalt failure in 1931 will know how terrible these things can be.
9.15 p.m.
Lord Williams of Elvel: I am grateful to the noble Lord and the noble Earl, Lord Limerick, and the noble Lord, Lord O'Brien. I agree with the noble Earl when he said—as I said on Second Reading—that with the spread of modern technology it is rumours rather than actual action that cause modern runs on a bank. On Second Reading, I said that the Continental Illinois went bust in twenty seconds simply because there was a rumour that the Chicago Board of Trade had withdrawn a deposit of 40 million dollars. That rumour set off a whole series of market operations which nearly broke a very major bank.
To a certain extent I would take issue with the noble Lord, Lord O'Brien. These rumours are going to happen everywhere, and I think there is a case for saying that if there is a formal situation then it may well be better in the long run to bring the matter right out into the open because rumour feeds on rumour. If there is an official action it may well be better to make the whole matter public.

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I am afraid I was not in this world at the time of the Credit Anstalt failure. I have read with interest the history of Credit Anstalt, and indeed about Baring Brothers in 1890—which is also very interesting in view of the fact that the noble Lord, Lord Young, says he was there! In the modern world it is rumour that breaks things rather than actual declaration of fact. The money market is so quick now that it does not like uncertainty. Declaration of fact removes uncertainty. However, I am not going to press Amendment No.44.
I should like to make one further remark concerning Amendment No.45. I understand what the noble Lord has said in response to Amendment No.45, and I do have a lot of sympathy with it. Nevertheless, if I may jog back for a moment first of all to Clause 9(3), which deals specifically with foreign organisations and establishes the principle of home country control, that is perfectly clearly set out and was referred to on Second Reading. On Second Reading the noble Lord, Lord Young, was quite categoric on the subject that there was home country control, as was set out in the Bill.
One then looks at Clause 11. Clause 11(1)(e) indicates that revocation of authorisation can be "for any other reason" by the Bank. So the principle there of home country control is damaged. There may be other reasons why the Bank wishes to revoke authorisation in the protection of depositors. I wonder whether it is not right in some way for account to be taken of this, particularly in the case of foreign banks. If the Bank of England comes to the conclusion that "for any other reason" depositors should be protected, and that a supervisory authority in the home country (which has home country control) is not adequate, then somebody should know about it. Having said that by way of explanation—I may come back on Report on this question of "for any other reason" in Clause 11—I do not wish to pursue this argument and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 agreed to.
Clause 13[Notice of revocation or restriction]:
[Amendment No.45 not moved.]
Clause 13 agreed to.
Clause 14 agreed to.
Clause 15[Surrender of authorisation]:
On Question, whether Clause 15 shall stand part of the Bill?
Lord Williams of Elvel: Before we agree Clause 15, I should like to seek an assurance from the Government that Clauses 48 and 49, in fact, apply even though an authorised institution may surrender its authorisation under Clause 15.
Lord Beaverbrook: I was tempted to say "not without notice". I am not able to answer the question
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at this moment and perhaps I may give the noble Lord an exact answer to his question in due course.
Clause 15 agreed to.
Clause 16[Statement of principles]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No.46:
Page 13, line 22, after ("as") insert (", after consultation with the Treasury,").
The noble Lord said: I beg to move Amendment No.46, standing in the names of my noble friends Lord Bruce of Donington and Lord Morton of Shuna and myself. The publication by the Bank of a statement of principles is an important part of the Bill and of the whole procedure of banking supervision. I do not wish to anticipate the debates that may take place at a later stage when dealing with the new clauses that we are suggesting. However, there may well be moments when the Government have a particular policy with respect to the criteria and the principles involved in banking supervision. Leaving aside the foreign lending clause, which we shall discuss later, there may well be a case for saying that the Government should have some input into the Bank's statement of principles.
It is for that reason that I move the amendment. I beg to move.
Lord Beaverbrook: The content of such publications is properly a matter for the Bank, as the authority given responsibility for supervision under the Bill. The situation was the same under the 1979 Act, and the amendment would not change that. I believe that the Bank of England has a first class record in respect of its obligations under the existing Act to publish these statements of principles. It will continue to have a statutory obligation to do so under the Bill and there is no reason to suppose that it will not discharge that obligation in a proper manner.
If the amendment is intended to require the Treasury to give advice to the Bank on the interpretation of the minimum authorisation criteria, the various grounds on which the Bank's powers to revoke and impose restrictions become exercisable, and the circumstances in which the Bank should exercise its discretions to grant authorisation, revoke and impose restrictions, then it would be wholly inappropriate. The Bank of England and not the Treasury is the statutory body charged with responsibility for supervision under the Bill, as under the existing Act.
The amendments would involve the Treasury having an influence on the Bank in areas in which it had no direct experience or detailed expertise. It would give the Treasury a responsibility which it is not intended to discharge. The Bank has a unique authority in banking supervision, built on its day-to-day contacts with banks and its experience in dealing with their problems. It also has a detailed knowledge of complex technical issues, including capital adequacy and liquidity, which together make it the appropriate body to carry out supervision and therefore to be responsible for the statements of principles in question.
Lord Williams of Elvel: I am grateful to the noble Lord for stating what is perilously near the obvious. I do not want to anticipate the discussions that will take place at a later stage as regards where Government policy might impact on principles of lending. Therefore, at this moment I shall not seek to pursue the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 agreed too
Clauses 17 and 18 agreed to.
Clause 19[Directions to institutions]:
On Question, Whether Clause 19 shall stand part of the Bill.
Lord Williams of Elvel: I should like to draw the attention of the Committee to Clause 19(2)(e). Under this clause the Bank may give an institution directions and those directions are spelt out. Clause 19(2)(e) states that the Bank, for the purposes of safeguarding its assets and so forth:
"may in particular … require the removal of any director, controller or manager".
I can easily understand how the Bank can require the removal of a manager: that seems to me to be perfectly proper in any authorised institution. However, I find it less easy to understand how the Bank can require the removal of a director, because, as I understand it, a director is elected by shareholders and it is for shareholders to remove or re-elect a director as they feel fit.
I find it extremely difficult to see how the Bank can require the removal of a controller, because here we are talking about somebody who has a major shareholding in the authorised institution, and to say that the institution itself must remove its controller—in other words, must say to its controlling shareholder, a large shareholder, "You have to go"—makes the mind boggle as to what happens at this point. Suppose the controller says, "I am not going to go". I do not quite understand this clause, and perhaps the noble Lord will be kind enough to enlighten me.
Lord Beaverbrook: I think it would be helpful if I clarified the definition of "controller" in Clause 103. For instance, it also covers managing directors and chief executives who could be removed.
Lord Williams of Elvel: I am grateful to the noble Lord for clarifying the definition under Clause 103. The clause says:
" 'Controller', in relation to an institution, means—
(c) a person who, either alone or with any associate or associates, is entitled to exercise, or control the exercise of, 15 per cent. or more of the voting power at any general meeting of the institution or of another institution".
I do not want to read through the whole subsection. The noble Lord understands what I am saying. I do not understand how the Bank can say that you must remove a 15 per cent. shareholder just like that.
Clause 19 agreed to.
Clause 20 agreed to.
Clause 21[Notification of new or increased control]:
Lord Young of Graffham Lord Young of Graffham moved Amendment No.47:
Page 16, line 6, leave out ("which is a body corporate").
The noble Lord said: In dealing with Amendment No.47 I hope, with the leave of the Committee, that I may deal also with Nos. 48, 49, 53, 54 and 55 since these are a number of technical amendments to the clauses dealing with the section of the Bill on objections to controllers and are grouped together for the purpose of debate. I shall briefly describe their effect.
Amendment No.47 to Clause 21 simply removes some unnecessary words to make for consistency with similar references elsewhere in the Bill. Amendments Nos. 48 and 49 to Clause 22 correct the procedural provisions for the giving of notices of objection by the Bank of England. As currently drafted, the clause does not take into account the period allowed for representations to be made by a person who has acquired a controlling shareholding without clearance and is subsequently served with a preliminary notice of objection by the Bank of England. The Bank might therefore run short of time to consider the case, given that a final notice must be served within an overall time limit of three months. The amendments take account of this, and also clarify the Bank's authority to require information and documents in such cases. This is ambiguous in the present draft.
The amendments to Clause 26 are also technical corrections. Amendment No.54 is consequential on the introduction in another place of Clause 23— objections on reciprocity grounds. The decision to object on such grounds is a matter for the Government and is not subject to appeal to the tribunal constituted under the Bill. The existing reference to allowing time for appeal in subsection (4) of Clause 26 does not therefore apply to action under Clause 23.
Amendments Nos. 53 and 55 simply ensure that copies of notices of restriction made under Clause 26 are sent to all those affected by the notice, which may include a number of people acting as associates. The Bill as drafted failed to deal adequately with such cases. I beg to move.
Lord Bruce of Donington: I am happy to concur with the noble Lord in the amendments that he has put down, particularly that relating to Clause 21, where he seeks to eliminate "which is a body corporate". The elimination of that is not merely a question of redundancy: if it remained, it would in fact be in conflict with the provisions of Clause 103(3)(c). It would also be in conflict with the word "institution" as defined in Clause 104, which refers to partnerships. Thus we are pleased to accept the noble Lord's amendments, which improve the Bill.
On Question, amendment agreed to.
Clause 21, as amended, agreed to.
Clause 22[Objection to new or increased control]:
Lord Young of Graffham Lord Young of Graffham moved Amendments Nos. 48 and 49:
Page 17, line 25, leave out subsection (4).
Page 17, line 42, at end insert ("and may, for the purpose of deciding whether to serve him with such a notice, require him by notice in writing to provide such information or documents as the Bank may reasonably require.
( ) The period mentioned in section 21(1)(b) above (with any extension under subsection (4) of that section) and the period mentioned in subsection (7) above shall not expire, if it would otherwise do so, until fourteen days after the end of the period within which representations can be made under subsection (3) above.").
On Question, amendments agreed to.
Lord Beaverbrook: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

National Provident Institution Bill [H.L.]
The examiner's Certificates that the further Standing Orders had been complied with ordered to lie on the Table, and Bills committed to Unopposed Bill Committees.

Animals (Scotland) Bill [H.L.]
Returned from the Commons agreed to with amendments; the amendments ordered to be printed.
House adjourned at twenty-nine minutes before ten o'clock.