Seventh Standing Committee on Delegated Legislation
Wednesday 21 April 1999
[Mr. Edward O'Hara in the Chair]
Draft Local Authority (Stocks and Bonds) (Amendment) Regulations 1999
4.30 pm
The Economic Secretary to the Treasury (Ms Patricia Hewitt): I beg to move,
That the Committee has considered the draft Local Authority (Stocks and Bonds) (Amendment) Regulations 1999.
The regulations are part of a series of six that accompany the transfer of responsibility for the central gilts office from the Bank of England to CRESTCo. Their purpose is to ensure that investors in certain local authority stocks can continue to use the CGO system to transfer their holdings after the merger has taken place. They amend the Local Authority (Stocks and Bonds) Regulations 1974, and are necessary because the 1974 regulations contain a definition of the gilts office that assumes that it is the responsibility of the Bank of England.
I would not normally expect to have to trouble the Committee with such a routine matter. Unfortunately, the power to amend the 1974 regulations was repealed in 1989 when the law relating to the raising of capital by local authorities was amended. The repeal was understandable at the time, but leaves the Government in the anomalous situation of needing to amend the 1974 regulations, but not being able to use the power under which they were originally made. The only option now is to use the wide-ranging powers to amend the law relating to securities settlement which the Treasury has under section 207 of the Companies Act 1989. Because those powers are so wide-ranging, however, they are subject to the affirmative resolution procedure.
The Regulations are mercifully short, and seek to do only two things. First, they omit a definition of the gilts office that will be redundant after the merger. Secondly, they amend the definition of those who are entitled to use the CGO service to one that is consistent with its being the responsibility of CRESTCo.
I commend the regulations to the Committee.
4.32 pm
Mr. Nick Gibb (Bognor Regis and Littlehampton): I am grateful to the Minister for that succinct explanation, clearly setting out the purpose of the regulations. As she said, the measure is highly technical. Simply put, it amends the definition section of the Local Authority (Stocks and Bonds) Regulations 1974, as amended in 1985. It deletes the definition of the CGO as the central gilts office of the Bank of England and redefines a CGO service member as someone who is entitled, under a contract with CRESTCo, rather than with the Bank of England, to use the CGO service.
The need for the change arises from the Government's proposals to merge the central gilts office with the corporate securities settlement service operated by CRESTCo. Unless the regulations are approved, when the merger takes place any transfer of a pre-April 1990 local authority bond would have to involve an instrument in writing and the issuing of a new certificate, because such a transfer would no longer be regarded as being from a CGO service member, and would not be an exempt transfer for the purposes of regulation 7(b) of the 1974 regulations. Regulation 7(a) would then apply, requiring the stocks or bonds to be transferred by written instrument, which would be extremely cumbersome. Certificates would also need to be issued under regulation 6.
The regulations enable the original regulations to continue to operate as they were meant to do. We will not oppose them, but I have some questions for the Minister. I understand that there is about £40 million of stock outstanding that falls within the scope of the regulations. Will she list the local authorities involved?
The Treasury memorandum refers to the fact that the transfer of responsibilities to CRESTCo is intended to occur on 24 May 1999, but the memorandum says:
``that target date may slip''.
Why is that target date slipping and can the Minister give a new target date?
The Minister said that the regulations were part of a series of six that are due under the proposals for CRESTCo to take over responsibility for the settlement of gilts and money market instruments. In addition to the Government Stock (Amendment) Regulations 1999, which have already been laid, and the regulations that we are now debating, will she list the remaining four orders that are due and say when they will be laid?
This very technical regulation is being put through the affirmative resolution procedure for technical reasons, as the Minister explained, but many far more controversial regulations that will have a far wider impact on the general public will be subject to only the negative resolution procedure. I understand the reason in this instance, which arises from the fact that the powers to amend the 1974 regulations were repealed in 1989 so the Government had to resort to the Companies Act provisions, which involve the affirmative procedure. Why is the Minister satisfied that the regulations as drafted will be compatible with the requirement in section 207(4) of the Companies Act 1989 and why does she believe that the duty in section 207(3) that the regulations should contain
``such safeguards as appear to the Secretary of State appropriate for the protection of investors''
has been fulfilled?
4.36 pm
Mr. Edward Davey (Kingston and Surbiton): The Liberal Democrats support these very important regulations, which tidy things up. We believe that making the settlement system for securities efficient is an aim to which we can all subscribe. We hope that the regulations and the ones that follow will enable that to happen and that when the membership of Committees such as this is being decided in future, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) will invite the hon. Member for Maidenhead (Mrs. May) to be a member. I know that she has a great deal to add to our debates on settlement systems.
4.37 pm
Ms Hewitt: I shall do my best with the fascinating questions that the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) asked. He asked which local authority stocks were affected. The answer is as follows: London County 3 per cent., London County 2.5 per cent., Liverpool Corporation 3.5 per cent., Nottingham Corporation 3 per cent., Swansea Corporation 3.5 per cent. and Hull Corporation 3.5 per cent. As he said, the value of the outstanding stocks is about £40 million. Just under half of that is held in the central gilts office at present.
I am happy to reassure the hon. Member for Bognor Regis and Littlehampton and the Committee that the transfer date has not slipped.
Draft amendments to the Government Stock Regulations 1965 are already before the House. I have approved the four remaining instruments and they will be laid before the House by the end of this week. The Financial Markets and Insolvency (CGO Service) Regulations amend the definitions of a central gilts office service member, former member and settlement bank in the Financial Markets and Insolvency Regulations 1991. The Stock Transfer (Gilt-Edged Securities) (CGO Service) (Amendment) Regulations amend the various definitions contained in the Stock Transfer (Gilt-Edged Securities) (CGO Service) Regulations 1985. The 1985 regulations set out the main rules that govern the day-to-day operations of the CGO service.
The Stock Transfer (Gilt-Edged Securities) (Exempt Transfer) (Amendment) Regulations amend the various definitions in the Stock Transfer (Gilt-Edged Securities) (Exempt Transfer) Regulations 1985. The Exchange of Securities (General) (Amendment) Rules amend the definition of the CGO service in the Exchange of Securities (General) Rules 1979. The last two of those are subject to the negative resolution procedure.
The hon. Member for Bognor Regis and Littlehampton asked what determines which statutory instruments fall under the negative or the affirmative resolution procedure. As he rightly said, we have to rely on the amendment powers provided by the Companies Act 1989. Because those powers are so wide-ranging, they are properly subject to the affirmative resolution procedure.
The central point about the protection of investors is that they will continue to be protected by allowing them to carry on using the services of the central gilts office, in its new guise following the merger with CRESTCo, rather than having to resort to instruments in writing. The change is part of a broader programme of modernising the settlements system and ensuring that all investors have the necesssary protection.
I hope that that has covered the necessary points and that I have been able to reassure the Committee.
Mr. Gibb: I did not detect an answer to the question whether the Minister is satisfied that the regulations, as drafted, will be compatible with the requirement under section 207(4). She answered the question about duty in section 207(3) and investors' protection, but section 207(4) says:
``the regulations shall be framed so as to secure that the rights and obligations in relation to securities under the new procedures correspond, so far as practicable, with those which would arise apart from any regulations under this section.''
Why is she satisfied that that requirement is fulfilled?
Ms Hewitt: I apologise for not having picked up on that specific point. I am satisfied that the regulations will be compatible with, and continue to provide the protection under, section 207(4) because we are not changing the system for protecting investors. It will remain as it is, but under the operation of a different legal entity: CRESTCo, following its merger with the CGO.
4.43 pm
Mr. David Tredinnick (Bosworth): Let me reassure the Minister that the Statutory Instruments Joint Committee, which I have the honour of chairing, considered the question of compatibility, and it would not have allowed the regulations to proceed if they were ultra vires.
Ms Hewitt: I am extremely grateful to the hon. Gentleman for that point.
Resolved,
That the Committee has considered the draft Local Authority (Stocks and Bonds) (Amendment) Regulations 1999.
Committee rose at seventeen minutes to Five o'clock.
The following Members attended the Committee:
O'Hara, Mr. Robert (Chairman)
Ainsworth, Mr. Robert
Blears, Ms
Blizzard, Mr.
Cummings, Mr.
Davey, Mr.
Drew, Mr.
Gibb, Mr.
Heald, Mr.
Hewitt, Ms
Kidney, Mr.
Levitt, Mr.
Smith, Miss Geraldine
Tredinnick, Mr.
Twigg, Mr. Stephen
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