Select Committee on Delegated Powers and Deregulation Tenth Report


Appendix


The members of the Select Committee are:

    L. Alexander of Weedon (Chairman)
    L. Ampthill
    L. Dahrendorf
    L. Goodhart
    L. Hogg of Cumbernauld
    L. Mayhew of Twysden
    L. Merlyn-Rees
    L. Prys-Davies
    L. Waddington

ANNEX 1

GOVERNMENT RESOURCES AND ACCOUNTS BILL

Memorandum by H M Treasury

Introduction

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 Partnerships UK.

(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.

Clause 10

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 legislation.

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.

Clause 14

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 summarised accounts.

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.

Clause 21

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 resolution procedure.

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.

March 2000

Annex 2

FINANCIAL SERVICES AND MARKETS BILL

Memorandum by HM Treasury

INTRODUCTION

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 PROVISIONS

Schedule 1

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.

FINANCIAL PROMOTION

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 2000.

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 resolution.

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.

OFFICIAL LISTING

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 and procedures.

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 authority.

RULE-MAKING POWERS

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 time.

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 exercised.

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).

THRESHOLD CONDITIONS

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 office here.

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

HM Treasury




 
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