Select Committee on Delegated Powers and Regulatory Reform Twenty-First Report


Memorandum by HM Treasury

INTRODUCTION

58.  This Memorandum relates to the Delegated Powers Committee report on the Co-operatives and Community Benefit Societies Bill, published on 8 May 2003. It sets out the Treasury's response to the three concerns raised in the report on clause 1 of the Bill: on the paragraphs covering criminal liability, rulemaking powers and the 'Henry VIII' power.

59.  Clause 1 comprises a power for the Treasury to make regulations enabling community benefit societies to adopt a 'lock-in' over their assets, such that their assets cannot be used or dealt with other than for the benefit of the community, except in certain cases. The reason for providing an enabling power rather than setting out a substantive asset 'lock-in' regime in the Bill itself is to allow time for full consultation and consideration about precisely how such a regime should be structured, taking into account in particular DTI's proposals for community interest companies which will also include an asset 'lock-in.

CLAUSE 1(5)(A): CRIMINAL LIABILITY

60.  Clause 1(5)(a) of the Bill makes clear that regulations under clause 1(1) can include provisions imposing criminal liability on persons in circumstances to be defined by the regulations. The Bill currently places no limit on the maximum penalty which can be prescribed in the regulations for any such criminal offences. In its report the Committee considered that the delegation of powers in this clause would only be appropriate if it included a limit on the maximum criminal penalty.

61.  Our legal advice is that this is not necessary, and there are many precedents for a power to create criminal offences in secondary legislation which do not specify a limit on the maximum penalty which can be prescribed for offenders. Among these are section 2(3)(b) of the Industrial and Provident Societies Act 2002, passed last Session without adverse comment from the Committee, corresponding provisions in building society and friendly society legislation and the first three provisions mentioned as precedents on p. 3 below.

62.  Nevertheless, in order to indicate to the Committee that their concerns are taken seriously, we have advised Lord Carter (who is sponsoring the Bill in the House of Lords) to table an amendment limiting the maximum criminal penalty which can be prescribed in the regulations to seven years imprisonment.

63.  Prior to full consultation it is not certain exactly what criminal offences may be created under clause 1(1). It is therefore important that the maximum should be sufficiently high in the light of the seriousness of some of the potential offences which may be created, and the current maximum sentences for similarly serious offences.

64.  The law relating to companies includes various serious penalties. Every person knowingly a party to the carrying on of any business of a company for any fraudulent purpose is guilty of an offence: section 458 of the Companies Act 1985. It is an offence for a past or present officer of a company to conceal or remove company property of a value of £500 or more in the 12 months proceedings a winding up: section 206(1) of the Insolvency Act 1986. The maximum penalty for each of these offences is seven years imprisonment.

65.  Perhaps one of the most serious offences which could be created would be an officer of a society fraudulently using the assets of a society for purposes not permitted by its asset lock (whether for personal gain or otherwise). Such an offence could potentially be as serious as theft of a charity's assets, or of money which has been collected for a charity and is to be regarded as belonging to the beneficiaries of the charity (R v Wain [1995] 2 Cr App R 660). The maximum sentence upon conviction for theft on indictment is seven years imprisonment: Theft Act 1968, s. 7 as amended by the Criminal Justice Act 1991, s. 26(1).

CLAUSE 1(5)(D): RULE MAKING POWERS

66.  Clause 1(5)(d) of the Bill indicates that regulations made under clause 1(1) can authorise a prescribed person to make binding rules which are not subject to any Parliamentary procedure. In its report, the Committee considers that this delegation would only be appropriate if it were to be expressly limited to a specific purpose.

67.  To address the Committee's concerns on this point, we have advised Lord Carter to table an amendment narrowing the scope of clause 1(5)(d), so that the regulations can only authorise a prescribed person to make binding rules for the purpose of enabling or assisting him to perform his functions under the regulations.

68.  Prior to full consultation it is not certain exactly what functions may be conferred on a prescribed person. However any regulations conferring functions on a prescribed person made under clause 1 can only make provision for the specific and limited purpose expressly set out in subsection (1): i.e. they can only set up an asset 'lock-in' regime for community benefit societies. And since the regulations are subject to the draft affirmative resolution procedure, they will require approval by a resolution in each House before they can be made. That will give both Houses the opportunity to prevent any regulations that confer functions on a prescribed person, or which authorise a prescribed person to make binding rules for the purpose of enabling or assisting him to perform those functions, which are considered inappropriate.

CLAUSE 1(5)(F): "HENRY VIII" POWER

69.  Clause 1(5)(f) of the Bill makes clear that regulations under clause 1(1) may modify, exclude or apply any existing legislation (including primary legislation) to create the asset lock-in regime. Since in this case this power is not restricted to making incidental, consequential, supplemental or similar provision (there is a separate reference to that in clause 1(5)(g)), the Committee considers this delegation of powers to be inappropriate.

70.  We have not advised Lord Carter to seek to amend the Bill on this point, for the reasons set out below:

  • The power in clause 1 is a fairly unusual one. Unlike many enabling powers, it does not merely enable details to be filled out for a regime already defined by the Bill. Rather, it enables the whole regime to be created, once we have established by full consultation what exactly it should look like. It is highly likely that any such regime will require adjustments in other legislation to set up the regime, and it is therefore necessary for the regulations creating the asset 'lock-in' to be able to modify or exclude other legislation for this purpose. The power to make changes to primary legislation is therefore required not just in order to make changes consequential upon, or incidental to, the asset 'lock-in' regime, but in order actually to set up the regime. Accordingly, I am advised that it is not possible to amend this clause to restrict the power it contains to modify, exclude or apply primary legislation without jeopardising our ability to create a workable asset 'lock-in' regime .

71.  Moreover, a number of precedents exist for this approach.

(1)  Section 262 of the Financial Services and Markets Act 2000 enables the Treasury (in relation to regulation of open-ended investment companies) to make regulations which "modify, exclude or apply (with or without modifications) any primary or subordinate legislation" (subsection (3)(f)) and "modify or exclude any rule of law" (subsection (3)(h)) as well as making consequential amendments, repeals and revocations of any such legislation (subsection (3)(g)).

In that case the Delegated Powers committee considered this to be an appropriate delegation of powers. The power in the present Bill is materially identical to this, and like section 262 of FSMA it is confined to a very narrow and specialised area - indeed, a more restricted one than the OEICs power in section 262.

(2)  Section 207(7)(a) & (b) of the Companies Act 1989, which is the enabling power for the Uncertificated Securities Regulations 2001 governing the electronic registration and transfer of securities in dematerialised form, allows regulations in that narrow specialised field to "modify or exclude any provision of any enactment or instrument, or any rule of law" and "apply, with such modifications as may be appropriate, the provisions of any enactment …" (while section 207(5) deals separately with supplementary etc provisions);

(3)  section 100(1)(a) of the Transport Act 1968, on power to give effect to international agreements about driving vehicles on international journeys, provides for orders made by the Minister to "modify or exclude any of the provisions …contained in or having effect under any … enactment passed before or after this Act" (then section 100(1)(d) specifically covers supplementary etc provisions separately); and

(4)  section 5(3) of the Transport and Works Act 1992, on orders for railways, tramways and inland waterways etc, enables orders to be made which "apply, modify or exclude" any provision of an Act of Parliament or of an instrument made under an Act so long as the provision "relates to any matter as to which an order could be made under" other sections of that Act and "provisions of local application" (again, section 5(4)(b) covers supplemental etc provisions separately).

(The first three of these provisions also, incidentally, include power to create criminal offences without specifying a limit on the maximum penalty which can be prescribed: see section 262(3)(a) of the 200 Act, section 207(7)(b) of the 1989 Act and section 100(1)(c) of the 1968 Act).

72.  Furthermore, we consider that sufficient safeguards are in place to ensure that this power is not misused:

  • Any regulations brought forward under clause 1 can only make provision for the specific and limited purpose expressly set out in subsection (1): ie they can only set up an asset 'lock-in' regime for community benefit societies.
  • The Government has already stated in Parliament that it will consult carefully and widely on the secondary legislation that it would bring forward to create the asset 'lock-in', so there will be ample opportunity for any concerns about the effect on other legislation to be expressed.
  • And since the regulations are subject to the draft affirmative resolution procedure, they will require approval by a resolution in each House before they can be made; that will give both Houses the opportunity to prevent any adjustments of primary legislation which are considered inappropriate.

4 June 2003


 
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