The members of the Select Committee are:
L. Alexander of Weedon (Chairman)
L. Hogg of Cumbernauld
L. Mayhew of Twysden
GOVERNMENT RESOURCES AND ACCOUNTS BILL
Memorandum by H M Treasury
1. This memorandum describes those clauses of
the Government Resources and Accounts Bill which provide for a
power to make delegated legislation.
Overall Purpose of the Bill
2. The main purposes of the Bill are:
(a) To replace and/or amend the existing legislation
on Government accounts (principally the 1866 and 1921 Exchequer
and Audit Departments Acts but also the NHS Act 1977 in respect
of introducing RAB into the NHS) to enable the introduction of
Resource Accounting and Budgeting and to modernise the operation
of other aspects of the Exchequer and Audit Departments Acts.
(b) To put in place enabling legislation to enable
the preparation and audit of consolidated accounts for the whole
public sector (Whole of Government Accounts or WGA).
(c) To enable the Treasury to incur expenditure
in respect of the establishment of a new body for the purpose
of carrying on public-private partnership business and investment
in and other financial provision for that body.
Proposed Delegated Powers
3. The following proposals to take powers to
make delegated legislation are included in the Bill:
(a) Clause 10 would enable the Treasury to designate
which public bodies are to be included within WGA.
(b) Subsections (6) to (8) of Clause 11 would
enable the Treasury to lay down the timetable for the preparation,
auditing and laying before Parliament of the WGA.
(c) Clause 14 makes provision for the Treasury
to disapply for specified bodies for a specified year the requirement
under section 98(4) of the National Health Service Act 1977 to
prepare summarised accounts.
(d) Subsections (3) and (4) of Clause 18 would
enable the Treasury to change the maximum level of investment
in and other financial provision that can be made available to
(e) Clause 21 would enable the Treasury to amend
the timetables contained in the Bill for preparing, auditing and
laying the departmental accounts prepared under clauses 5, 6 or
7 of the Bill.
(f) Subsections (6) and (7) of Clause 23 would
enable the Treasury to appoint the Comptroller and Auditor General
(C&AG) as the auditor of a public body (other than those constituted
as limited companies) where the current legislation governing
that body does not currently permit his appointment.
(g) Subsections (3) to (5) of Clause 28 is a
transitional provision which would enable the Treasury to apply
the requirements for preparing WGA to public bodies as if they
had been formally designated. This would enable bodies to prepare
"dry-run" accounts for WGA prior to their inclusion
in the published WGA.
Each of these proposals is discussed below.
4. Preparing WGA will fulfil the commitment given
in The Code for Fiscal Stability to produce accounts for the whole
public sector, on a consolidated basis if possible. The intention
is that audited WGA will improve the information available to
support the conduct and monitoring of fiscal policy. The accounts
will also improve accountability to Parliament and provide greater
transparency for taxpayers.
5. However, to produce full audited WGA greater
conformity of accounting policies, systems and procedures will
be needed, and these are major challenges. A project team within
the Treasury is currently examining these issues in consultation
with interested parties. Accordingly the Government has decided
to adopt a staged approach, concentrating first on delivering
audited accounts covering central government (departments, agencies
and non-departmental public bodies (NDPBs)). A final decision
to extend coverage to the whole public sector will be taken in
due course when the outcomes of various possible developments
in financial reporting and further development work is clearer.
6. The designation process in subsection 10(1)
has been adopted in order to provide the flexibility required
to identify the bodies affected and to implement the staged approach
set out above. The approach will also allow for the fact that
the bodies comprising a particular part of the public sector change
over a period of time. Under clause 9(1) only public sector bodies
may be designated.
7. The negative resolution procedure has been
adopted because the principle of preparing WGA has already been
debated in Parliament and the designation process is essentially
administrative. However this approach will allow Parliament to
oversee the process.
Subsections (6) to (8) of Clause 11
8. HM Treasury and the National Audit Office
(NAO) agreed that it would be necessary for there to be statutory
deadlines for the Treasury to prepare WGA, for the C&AG to
audit these, and for the Treasury to lay the accounts before Parliament,
in the same way as there are for resource accounts. However, there
is currently a variety of statutory and administrative deadlines
in place for different areas of the public sector which it is
intended will eventually come within the scope of WGA, and the
extent to which greater conformity can be introduced to these
will influence the WGA timetable. As the WGA project is at a relatively
early stage, it is not yet possible to determine what all the
operational factors will be which will influence the dates for
the above procedures and so it is not yet possible to set a statutory
timetable for the preparation of WGA. Therefore, it is proposed
that the setting of this timetable should be done by delegated
9. It is intended that the proposed deadlines
for WGA will be arrived at after consultation with the C&AG
(provided for in subsection (7)). Parliament will be concerned
to ensure that appropriate deadlines are set for WGA, but since
the timetable is largely an administrative matter, and will need
to have been agreed with the C&AG before it is submitted to
Parliament, the negative resolution procedure has been adopted.
10. This clause provides for the Treasury, after
consultation with the C&AG, to exempt specified NHS bodies
from preparing summarised accounts under section 98(4) of the
National Health Service Act 1977 for a specified year. The Treasury
may only propose such an exemption where it is satisfied that
the preparation of the summarised account is unnecessary having
regard to information to be contained in the Department of Health's
resource account or in WGA. This will be done by statutory instrument
subject to the negative resolution procedure.
11. The Department of Health will be required,
like other departments, to produce a resource account under clauses
5 and 6 of the Bill. NHS bodies listed in section 98(1) of the
National Health Services Act 1977 are required under section 98(4)
to produce summarised accounts, in a form approved by the Treasury
(these are additional to the individual accounts of the bodies
which are unaffected by these proposals). It is now clear that
there is an overlap between the departmental resource accounts
provided for in clauses 5 and 6 and the summarised accounts. The
resource accounts prepared by the Department of Health will contain,
in effect, the summarised accounts of those NHS bodies who are
within the Department of Health's resource accounts boundary (currently
this will include health authorities, primary care trusts and
some special health authorities).
12. Clause 9 of the Bill provides for the introduction
of WGA. Many of the NHS bodies listed in section 98(1) of the
National Health Services Act 1977 but outside the "RAB boundary"
are likely to fall within WGA (NHS Trusts are the main example).
Therefore, as with resource accounts there will be an overlap
between the Department's whole of government accounts and the
13. For those bodies within the resource accounts
boundary or included within WGA to prepare NHS summarised accounts
as well will be a duplication of effort and slow down the production
of the resource accounts and WGA.
14. The powers in clause 14 to enable the Treasury
by order not to require the Secretary of State for Health to prepare
summarised accounts under section 98(4) of the National Health
Services Act 1977 are intended to allow the discontinuance of
summarised accounts where the information they contain overlaps
with that included in the resource account and in WGA. There is
no intention to reduce the information currently provided to Parliament.
Subsections (3) and (4) of Clause 18
15. This clause was introduced to limit the amount
of money that the Treasury may invest in PUK under the powers
of the Bill. This investment is limited to £400 million.
16. The arrangements for changing the limit have
been left to delegated rather than primary legislation because
the level of investment in and other financial provision for Partnerships
UK which will be needed will depend on its business development
over time and are therefore difficult to predict. If changes to
the limit could only be made by primary legislation, in the event
that a change was considered necessary a suitable slot in the
legislative programme would need to be found, possibly at short
notice. This might not be practical.
17. In any event, the affirmative resolution
procedure has been adopted for the order because it is recognised
that an order increasing an expenditure limit of this kind should
be consciously considered and debated by each House of Parliament
and should only be made if approved by each House.
18. This clause provides for the Treasury, after
consultation with the C&AG, to vary the timetable for the
preparation, audit or laying before the House of Commons of the
departmental accounts covered by clauses 5, 6 or 7 of the Bill.
This will be done by statutory instrument subject to the negative
19. The Treasury has no current plans to vary
any of the dates set out in the Bill. However, it is proposed
to adopt a much tighter administrative timetable for the production
of resource and other departmental accounts (The Resource Accounting
Manual states that accounts should be completed by the end of
October following the year end whereas the statutory timetable
would give departments until the following 31 January).
20. At some time in the future it may be considered
necessary to bring the statutory timetable into line with the
administrative timetable in order to ensure timely production
of these accounts. This is most likely to happen when WGA is introduced
as it may be desirable to encourage quick completion of resource
accounts to enable their incorporation into WGA in a timely manner.
Subsections (6) and (7) of Clause 23
21. Subsections (6) and (7) of clause 23 would
allow the Treasury to provide by order that a public body should
be audited by the Comptroller and Auditor General (C&AG),
even if the C&AG is currently prevented by statute from auditing
the body concerned. The intention behind this proposal is to enable
the C&AG to be appointed the auditor of executive NDPBs which
he is currently unable to audit.
22. Such an order would remove the restrictions
in the statute which prevents the C&AG from being appointed
auditor (normally these would be provisions requiring the relevant
Secretary of State to appoint an auditor qualified under the Companies
Act 1989). Any such order would be subject to affirmative resolution
of both Houses of Parliament. The Treasury would be required to
consult the C&AG before making such an order.
23. The power would not extend to NDPBs set up
as companies, which the C&AG is barred from auditing by virtue
of the Companies Act 1989. The subject matter of this Act are
deemed to be outside the scope of the current Bill.
24. The power is intended to complement the Government's
decision, announced on February 28 2000, to undertake a wide-ranging
study of all aspects of central government audit, including the
role of audit in the modernising government agenda, the audit
of joined-up activities, the impact of audit on risk-taking, the
wider European context, the relationship with other audit and
regulatory bodies, and the costs and burdens of regulation. The
Government has invited the Chairman of the Public Accounts Committee
to participate in the review; he is "minded to accept".
25. If the study suggested that the C&AG
should audit particular NDPBs, and if the Government agreed with
this recommendation, the Treasury would lay an appropriate order.
26. The Government's proposed power responds
to the argument put forward in discussion with the Chief Secretary
to the Treasury by the PAC Chairman shortly before the Commons
Report Stage of the Bill that, even if the Government decided
not to legislate now to make the C&AG the auditor of those
NDPBs which he cannot at present audit, powers should be taken
to allow him to be appointed at some stage in the future if the
study of central government audit suggested that this would be
prudent. The Chief Secretary was persuaded by this argument. This
provision is intended to enable this proposal to be implemented.
Subsections (3) to (5) of Clause 28
27. Apart from the clauses in the Bill relating
to Partnerships UK the provisions in the Bill are to be commenced
by order. This mechanism for commencement has been adopted to
ensure that both resource accounts and WGA are introduced at a
time all the bodies affected have the capacity to prepare accounts
on the new basis.
28. In the case of WGA special provisions are
required because it is intended that these accounts will include
public bodies which are not part of central government departments.
As was described in the context of Clause 10, it is planned to
adopt a phased approach to WGA coverage, starting with accounts
for central government and then extending the coverage to encompass
the whole of the public sector.
29. During the intervening period between publishing
audited central government accounts and publication of audited
accounts covering the whole of the public sector, it will be necessary
to pilot the information collection and consolidation procedures
which will allow this extension of coverage to take place. Subsections
(3) to (5) are therefore transitional provisions to enable the
Treasury to require public corporations and local authority bodies
to prepare "dry run" consolidation returns and for departments
to consolidate these, without having to include the information
in the published accounts.
30. As with Clause 10, the negative resolution
procedure has been adopted because the principle of preparing
WGA has already been debated in Parliament, and the designation
process is essentially administrative. However this approach will
allow Parliament to oversee the process.
FINANCIAL SERVICES AND MARKETS BILL
Memorandum by HM Treasury
1. The Financial Services and Markets Bill was brought
from the House of Commons on 10 February 2000. The Treasury submitted
its memorandum on the delegated legislative powers under the Bill
to the Committee on 11 February 2000. On 6 March 2000, the Treasury
submitted a further memorandum in response to the Committee's
Seventh Report of 16 February 2000 which made a number of recommendations
to the House of Lords concerning the Bill.
2. This memorandum explains modifications to the
powers described in the Treasury's Memorandum of 10 February 2000
and certain additional powers proposed by the Government in its
amendments to the Bill tabled up to 14 March 2000 for consideration
at Committee Stage in the House of Lords.
THE FINANCIAL SERVICES AUTHORITY - LEGISLATIVE
3. A number of minor amendments to have been made
to paragraph 1(2) of Schedule 1 which sets out the FSA's legislative
functions for the purposes of Schedule 1. These do not have any
substantive effect on the provisions reported in the Treasury's
previous memoranda, but are described for completeness.
4. The amendments to Schedule 1, page 216, lines
15, 16 and 17 rationalise the treatment of clause 63 (statements
and codes of practice on conduct of approved persons) in this
paragraph. The code element of clause 63 is put alongside clause
110 (code on market abuse) in paragraph 1(2)(c) which specifies
codes as one of the FSA's legislative functions. The statement
element of clause 63 is put alongside other statement clauses:
69,114 and 204. A consequence of this is the need to broaden the
description of statements to capture both clauses 69, 114 and
204 which refer to statements of policy, and clause 63 which refers
to statements of principle. This is achieved by the second amendment
to Schedule 1, page 216, line 17. The amendment to Schedule
1, page 216, line 18 adds directions under clause 319, which
relates to members of the profession, to 1(2)(e) which asserts
directions as one of the legislative functions. Schedule 1,
page 216, line 19 deletes the reference to clause 69 from
the reference to general guidance since that clause refers throughout
to statements of policy and hence is captured in 1(2)(d) which
refers to statements.
Clause 19: Restrictions on financial promotions
5. Clause 19 introduces the financial promotion
regime, under which a person must not, in the course of business,
communicate an invitation or inducement to engage in an investment
activity unless he is an authorised person or the content of the
communication has been approved by an authorised person. Subsection
(5) allows the Treasury by order to specify the circumstances
in which this restriction does not apply. A more detailed description
of the powers under clause 19 can be found in paragraphs 25
to 30 of the Treasury's Memorandum to the Committee dated 11 February
6. The amendment to clause 19, page 8, line 38
introduces two new subsections. New subsection (5A) makes it clear
that an order under subsection (5) may include provisions
of a specified description or may exclude from the basic prohibition
set out in subsection (1) certain promotions originating outside
the United Kingdom which are capable of having an effect in the
United Kingdom. The reason for the amendment is, in particular,
to remove any doubt there may be that the power in subsection
(5) can be used in relation to the matters for which subsection (3)
expressly makes provision.
7. Paragraph (a) of the new subsection (5A), introduced
by this amendment, makes it clear that an order under subsection
(5) can specify certain types of communication (such as generic
promotions or promotions about listing particulars). Paragraphs
(b) to (d) of the new subsection provide for the possibility of
exemptions for communications originating in specific countries,
or in specific groups of countries, such as other EU member States.
It could provide for the exemption of all communications originating
overseas if that were thought to be appropriate.
8. Clause 19(5A) supplements the existing power
in subsection (5). Under clause 404, the first order under subsection
(5) will be subject to an affirmative resolution procedure. Subsequent
orders which have the effect of removing or restricting exemptions
from the financial promotion regime will also be subject to affirmative
9. Subsection (5B) would enable the Treasury, by
order subject to the negative resolution procedure, to repeal
subsection (3). It was considered appropriate for the Treasury
to take this power since if an order was made exempting all promotions
originating from overseas, subsection (3) would become redundant.
The negative resolution procedure is appropriate since its effect
would be to widen the scope for exemption, on grounds of territoriality,
from the financial promotion regime.
Schedule 7: Transfer of functions under Part VI
10. The provisions of Schedule 7 allow the Treasury
to transfer by order some or all of the functions of the competent
authority to another body if it is in the public interest to do
so. An order made under this Schedule would be subject to an affirmative
resolution procedure (as provided for in clause 404(1)).
11. Three specific grounds are currently set out
in paragraphs 3 to 6 of Schedule 7. These allow the Treasury to
transfer functions if another body could do a better job, or if
there are competition concerns arising either from the actions
of the competent authority or from the fact that the competent
authority is an exchange competing with other exchanges. In the
light of the decision to transfer the function from the London
Stock Exchange to the Authority, amendments were tabled on 13
March 2000 which remove the competition grounds for transferring
the function. These are no longer considered appropriate given
that the Authority is not a commercial organisation. If it was
the case that the competent authority acted in a way which harmed
competition then under competition scrutiny arrangements to be
introduced into the Bill, the Treasury would be able to direct
the competent authority to make changes.
12. Paragraph 7 of Schedule 7 allows the Treasury
to make consequential changes should it ever exercise the power
to transfer functions. Amendments tabled on 13 March 2000 make
some changes to the provisions of that paragraph which are consequential
on the way the Bill has been amended to take account of the transfer
of functions to the Authority. The effect of these amendments
is to allow consequential provisions to be made on any future
transfer in the area of value for money reviews, consultation,
the giving of guidance, delegation of functions, referral rights
Schedule 10: Offers of securities
13. Schedule 10 of the Bill sets out a number of
cases in which offers of securities are not to be regarded as
being made to the public. Offers of this type are defined as "exempt
offers", in the sense that the persons making the offer are
exempt from the requirement, in clause 82, to produce a prospectus
before shares are offered to the public for the first time. Paragraph
8 of this Schedule covers offers of securities made to a government
or public authority and paragraph 23 covers offers of securities
made by governments or other public authorities. The amendments
made to these paragraphs define public authorities and governments
to mean UK central government, foreign governments, UK or foreign
local authorities, and any international organisation of which
the UK, or another EEA Member State, is a member. The amendment
also gives the Treasury a power to specify other bodies. The Public
Offers Directive (89/298/EEC) does not apply, for example, to
transferable securities issued by "a State's regional or
local authorities". The power would enable the Treasury,
by regulations made subject to the negative resolution procedure,
to expand on the meaning of regional or local authorities.
Competent authority: after clause 85
14. Amendments have been laid to the Bill in the
light of the transfer of the competent authority function from
the London Stock Exchange to the Authority. A number of these
changes were referred to in the previous memorandum to the Delegated
Powers Committee (pages 103 and 104).
15. The proposed amendment, which would insert a
new clause after clause 85, will allow the competent authority
to make listing rules requiring issuers to employ the services
of a "sponsor". Currently the competent authority requires
the issuers of listed securities and applicants for the admission
of securities to the official list to employ the services of a
person, known as a "sponsor", to assist them with their
responsibilities under the listing rules and to certify to the
competent authority that certain requirements of the listing rules
have been met.
16. The new clause will allow the competent authority
to continue with the current arrangements, which have proved an
effective means of ensuring compliance with the listing rules.
The new clause will put the arrangements on a statutory footing.
(The Authority has sought views on the policy and practical aspects
of the sponsor regime (consultation paper 37)). If the competent
authority decides to maintain a list of sponsors, the new clause
applies the warning notice and decision notice procedure where
it proposes to refuse a person's application to become a sponsor
or proposes to remove him from the list of approved sponsors.
The clause also provides for a right to refer any such decision
to the Tribunal.
Competent Authority: after schedule 6
17. The amendment inserting a new Schedule after
Schedule 6 applies provisions of the Bill to the Authority when
it is acting as competent authority subject to some necessary
modifications. For example, the accountability and governance
arrangements set out in Schedule 1 to the Bill will largely apply
to the Authority when it is acting as competent authority. In
addition the new Schedule provides for the provisions on consultation
and cost benefit analysis on new rules made by the Authority to
apply to new listing rules made by it when acting as competent
Clause 129: General rule-making power
18. Clause 129 sets out the Authority's general rule
making power, which discussed in some detail in annex A to the
Treasury's memorandum of 11 February 2000.
19. The amendments to clause 129, page 60, lines
8 and 35 have been tabled in response to undertakings given by
the Economic Secretary during the Bill's passage through the House
of Commons to review the use of the term "consumer"
in the Bill and to seek to introduce greater consistency. As amended,
clause 129 would contain the primary definition of the term, which
would then be referred in other places where the term is used
(for example, clauses 5, 9 and 12). This does not, of itself,
have any substantive impact on the delegated legislative powers
conferred on the Authority by clause 129.
20. These amendments do, however, make a substantive
change to the range of persons for whose protection the general
rule-making power may be used. One minor change would extend the
Authority's vires to make rules relating to the activities of
the appointed representative of an authorised person, under the
arrangements provided for in clause 36. This is to ensure that
where a customer buys a product, such as a life insurance policy
through an appointed representative of an insurance company, the
Authority's rules will be able to address matters relating to
the services provided by the appointed representative in his own
right, as well as those services that are offered on behalf of
the authorised person concerned. This was considered desirable
because it will not always be clear to a consumer which capacity
an authorised representative would be acting at any particular
21. A second change introduced by this amendment
relates to situations where an authorised person acts as a trustee.
In such cases, there might be doubt whether the beneficiaries
of the trust could properly be described as using the services
of the trustee.
22. These changes affect the Authority's vires at
the margins to address particular concerns that have been raised
in representations to the Treasury but do not materially affect
the underlying purpose for which the rule-making powers may be
COLLECTIVE INVESTMENT SCHEMES
Clause 231: Restrictions On Promotion
23. Clause 231 prohibits promotion by an authorised
person of a collective investment scheme unless the scheme is
itself authorised or recognised.
24. Under the new clause 231(5A), which is introduced
by the amendment to clause 231, page 119, line 25 the Treasury
may by order specify circumstances in which this general prohibition
does not apply. Subsection (5B) sets out certain communications
that may be subject to such an order. These are specified descriptions
of communications (for example categories of UKoriginated
promotions into certain countries) and communications originating
in specified countries, groups or types of countries (eg EEA states).
All communications originating outside the UK could also be specified.
25. The purpose of this power is to enable the Treasury
to adjust the scope of the promotion of collective investment
schemes by authorised persons to take full account of international
and technological developments.
26. A further power, in subsection (5C), allows the
Treasury, by order, to repeal Clause 231(3), which defines which
communications outside the UK are caught by the restriction. This
would be used in conjunction with an order made under the power
above, where the condition in subsection (3) was no longer required.
27. Both orders will be subject to the negative resolution
procedure. This is appropriate since in each case, the orders
will narrow the extent of the prohibition under clause 231(1).
Schedule 6: Threshold conditions
28. Part III of schedule 6 requires the Authority
to specify additional conditions for applicants or authorised
persons whose head office is outside the EEA and who are seeking
to carry on regulated activities in relation to insurance business.
29. The amendment to Schedule 6, page 238, line
15 does two things. First it clarifies that the power to specify
additional conditions for nonEEA insurance companies is
a power for the Treasury to make orders. In practice it is intended
that this will be used to reproduce existing requirements in relation
to persons who are not covered by the single market directives,
including a general requirement on applicants from outside the
UK (including EEA applicants) that they maintain a general representative
30. Second, it enables the Treasury to make orders
which vary, remove or add to any of the existing conditions. This
will enable the Treasury to ensure that the threshold conditions
remain uptodate, and that they reflect any changes
to Community law as many of the existing conditions reflect minimum
requirements applicable to authorised persons covered by the directives.
Including a power in the Bill, rather than relying on EC Act powers
ensures that the threshold conditions can continue to have general
application where this is appropriate.
14 March 2000