The Strathclyde Review: The House of Lords and Financial Privilege

On 17 December 2015, the Strathclyde Review, which was tasked with reviewing the relationship between both Houses of Parliament in the wake of the Government’s defeat on tax credits in the Lords on 26 October 2015, published its findings. This post will critically analyse the report’s recommendation for reform and make the argument that, whilst legislative reform is a positive step, the proposals fail to adequately address the constitutional issue which gave rise to the review in the first place.

Does financial privilege extend to secondary legislation?

In a post I contributed to the UK Constitutional Law Association Blog, I considered the question of whether the House of Lords, by rejecting the Government’s planned reform, were in breach of a constitutional convention on financial privilege extending to secondary legislation. Applying Jennings’ tripartite test for identifying a convention, I reached the conclusion that such a convention did not exist. The Lords have consistently denied the existence of any convention prohibiting them from rejecting statutory instruments approved by the Commons, including ones, therefore, dealing with financial matters. As a result, the Lords clearly do not feel obliged to follow the claimed convention, thus failing the second element of Jennings’ test.

However, building upon my work in my recently published article in the journal Public Law (R.B. Taylor, ‘Foundational and Regulatory Conventions: Exploring the Constitutional Significance of Britain’s dependency upon Conventions (2015) Public Law (Oct) 614-632), I nevertheless argued in my post that such a restriction on the Lords should exist, albeit as primary legislation rather than as a convention. My reasoning for this was as follows.

Firstly, that the Commons should have exclusive competence over financial matters because they concern public funds and it is the Commons, not the Lords, who represent and are accountable to the public for their decisions.

Secondly, that a convention is ineffective in securing the primacy of the Commons on financial matters because the Lords, being unelected and unaccountable to the electorate, face no political backlash for breaching convention, and thus have no incentive to abide by them. Because of this, it is ultimately self-defeating for the existence of any restriction upon the Lords to be dependent upon the Lords accepting it.

Despite initial claims that the Lords had breached financial privilege, the Strathclyde Review gives little consideration to this issue, restricting much of its discussion on financial privilege to primary legislation, not secondary (pp.10-11). On the issue, the Review merely states that ‘[t]here is nothing in the history or practice of the claims by the House of Commons to a special privilege in relation to taxation and spending connected financial matters that would justify any argument that it should be regarded as irrelevant to statutory instruments’ (p.21). Although the remarks demonstrate a clear belief that there is no good reason for financial privilege to not apply to statutory instruments, it nevertheless falls short of claiming the existence of a convention to that effect. As I note above, there is currently no convention on financial privilege which extends to secondary legislation. Although successive governments have claimed the existence of this convention, the Lords, as noted above, have consistently denied its existence.

Is there a convention prohibiting the Lords from rejecting statutory instruments?

If a convention relating to statutory instruments exists, it is simply that the Lords will not routinely vote against statutory instruments, not that it will refrain from doing so altogether. The Strathclyde Review, however, only begrudgingly acknowledges this fact – stating that the convention either prohibits the Lords from rejecting statutory instruments ‘or should do so only rarely’ (p.5) – and in either case nevertheless insists that the Lords were de facto guilty of breaching convention on 26 October 2015. As the report notes, ‘[t]he rejection of the Tax Credits Regulations broke new ground. It suggests that the convention is now so flexible that it is barely a convention at all’ (p.5). It is argued, however, that the Review is mistaken in reaching this conclusion. Five previous defeats on statutory instruments stretching back almost fifty years could scarcely be considered ‘regular’, irrespective of the fact that four of those defeats occurred in the last fifteen years. Opposition by the Lords to claims that they are somehow bound by a convention to not reject statutory instruments, whether absolutely or rarely, suggests simply that such a convention does not and has never existed.

The Strathclyde Review, therefore, should have spent more time making the case for the adoption of such a rule before considering reform options. Instead, this debate is bypassed and the Review builds its case for reform upon a mistaken belief that a ‘longstanding’ (p.15) convention prohibiting the Lords from rejecting statutory instruments, because it has been ‘interpreted in different ways’ and has ‘not been understood by all’ (p.15), has been breached. As the Review notes, ‘[t]he time has come to put in place new procedures to clarify the relationship between the two Houses on delegated legislation’ (p.15). The Review therefore outlines three options for reform: (1) removing the House of Lords from the statutory instrument procedure (pp.16-17); (2) passing a binding resolution of the House of Lords codifying the claimed convention (pp.17-18); and (3) giving the House of Lords a statutory power to only delay statutory instruments by asking the House of Commons to ‘think again’ (pp.18-21). The Strathclyde Review recommended the third option, which would require new primary legislation. The reasoning for this, irrespective of the content of the proposed change, is worthy of note.

The case for primary legislation

The passing of a resolution would require the House of Lords themselves to decide what restrictions exist on their powers. Given the disagreement over what the House of Lords can and cannot do vis-à-vis secondary legislation, the Review correctly notes that ‘as things stand, it is difficult to envisage any agreement being reached or accepted widely enough to be an effective inhibition in future, however desirable that outcome might be’ (p.17).

This is an important argument in favour of legislative reform, but one which nevertheless falls short of the argument I advanced in my UK Constitutional Law Blog post noted above. If one wishes to impose limitations upon the power of the Lords, one cannot rely upon the Lords themselves to develop and abide by these restrictions, not solely because they may be unable to agree upon what restrictions do or do not exist, but because they are unelected and thus unaccountable for their actions. Should the Lords’ breach a convention they previously agree binds them, they will face no consequences for doing so, save for legislative reform. It is for this reason that legislative reform is a welcome result of the Strathclyde Review in principle. The scope and content of the recommended legislation, however, raises some concerns.

The substance of the Review’s recommendation

As already noted above, the Strathclyde Review focuses on a claimed convention preventing the Lords from rejecting all secondary legislation. Aware of the controversy which would ensue by removing the Lords entirely from the statutory instrument procedure (the first option for reform), the Review seeks to preserve the Lords’ role in scrutinising legislation but without compromising the primacy of the Commons. By allowing the Lords to ask the Commons to ‘think again’, whilst simultaneously granting the Commons the right to override it, the Review claims that the Lords’ role vis-à-vis secondary legislation will ‘better fit the recognised role of the House of Lords in relation to legislation as a revising chamber’ (p.18). This in turn ‘would bring the procedures for statutory instruments more into line with the existing rule for statutes under the Parliament Acts 1911 & 1949’ (p.18).

With regards to financial privilege and secondary legislation, the Review dismisses calls for specific reform on the issue, and instead argues that financial privilege will be one of many factors which may persuade the Commons to overrule any objections raised by the Lords (p.21). It recommends that the Government launch a review into the desirability of restricting statutory instruments dealing with financial matters to a Commons-only procedure where Lords approval would not be required (p.22).

Putting the recommendation into perspective

By not focusing on financial privilege, it is submitted that the reform proposal recommended by the Strathclyde Review fails to address the constitutional issues raised by the Government’s defeat on 26 October 2015. Although the Review’s recommendation for a review to be launched into the viability of adopting Commons-only procedures for financial matters is a welcome one, the significance of any such measure is severely undermined by the Review’s recommendation for the adoption of a new procedure for all statutory instruments, including those dealing with financial ones, for the following reasons.

Firstly, the extension of the new procedure to all statutory instruments is arguably a disproportionate response to the issues raised over financial privilege on 26th October 2015. It is a solution to a problem which, as noted above, does not exist: the routine rejection of statutory instruments approved by the Commons. In rejecting the changes to tax credits, the Lords interfered with financial matters which should rightly be the exclusive competence of the elected Commons. A new rule contained in primary legislation preventing the Lords from rejecting a statutory instrument deemed to be dealing with a financial matter, therefore, would be enough to redress the democratic issues raised by the Lords’ incursion.

Secondly, the introduction of a new procedure covering all statutory instruments, although more democratic in principle, may nevertheless be at the expense of effective scrutiny. Although any involvement by the Lords in the legislative process is undemocratic, this is most evident with financial matters, hence the need for it to protected from interference by the Lords. On other matters, the expertise of the Lords, although unelected, may still be seen to be of some value. Where not coupled with further reforms to both the Lords and the Commons, therefore, restricting the powers of the Lords may diminish the quality of scrutiny currently enjoyed overall.

Thirdly, extending the procedure to all statutory instruments fails to treat financial matters as a special category in need of extra protection. Consequently, irrespective of their power to veto being replaced with a power of delay, the Lords would continue to play a role in financial matters, thus undermining the democratic significance of the reform. Although this may one day not be the case should Commons-only procedures be adopted for financial matters, it seems unlikely that the issue will be addressed anytime soon.

Concluding comments

Paradoxically, therefore, the Review’s proposal can be seen to go too far and yet fall too short at the same time. In order to resolve the constitutional issue raised by the Government’s defeat on tax credits, a simpler, more modest, and relatively less controversial reform would have sufficed: a new statutory rule prohibiting the Lords from rejecting a statutory instrument dealing with a financial matter. Until the democratic illegitimacy of the Lords is finally resolved, any new procedure for statutory instruments must be considered carefully and as part of a wider reform package. Whether this will happen will depend in part upon any future Bill’s passage through Parliament and the likely opposition it will face.

Post by Dr Robert Brett Taylor

Resolving a dispute – Do you have the skills?

How should a dispute be resolved? This is a complex question, which used to have a simple answer – by negotiation and, if this fails, straight to court. Nowadays, it is not so simple.

Firstly, how may an effective negotiation be conducted? Strangely, lawyers and business graduates are not routinely taught negotiation skills. Yet, there are good and bad negotiation techniques. It is well understood that the use of certain techniques can lead to a fruitful negotiation where in the absence of those techniques, the outcome is likely to be less favourable. There is a vast volume of literature in this area, especially in the US, where the Harvard Programme on Negotiation is based. It is not only in commerce that good negotiation skills are needed; they are useful in the workplace too, whether dealing with colleagues, suppliers or even management. Workplace disputes that can be resolved early can solve a lot of time, effort and distress. Indeed, the same can be said (to a greater or lesser extent) of all disputes.

Where negotiation does not work, the ‘straight to court’ model is no longer viable. Lawyers have a duty to inform clients of all alternatives, as provided for in recent Law Society of Scotland guidance and these include mediation and (especially in commercial contracts) arbitration. These methods have their place, and, when chosen well, can bring critical benefits to any dispute process, such as: speed, less cost, privacy and can (especially with mediation) even allow parties to repair an ongoing relationship (family, employment, or even commercial). This latter dynamic is simply absent from most court processes. Further, recent research on resolving family law disputes suggests that a hybrid model (whereby lawyers can act both as lawyer and mediator) can work. Indeed, the perception of mediation as only for disputes involving relationships is now in the past, with regular increases in the use of mediation of commercial disputes: The Centre for Effective Dispute Resolution (CEDR) estimates that it was involved in 9,500 commercial mediations in 2014, 9% growth on the previous year.

Disputes can happen in any environment, and they are a fact of life. They are, in one sense, a waste of time. They are not productive or enjoyable. No-one has disputes recreationally. It is not a hobby. Making the process as streamlined, quick, painless and cheap as possible should therefore be a key priority of any dispute adviser, transactions adviser or line manager.

Learning about the different forms of resolution and the techniques involved, whether with a view to advising on disputes or to resolve them more effectively, is important. The Law School here is very active in this area; it already offers courses and programmes on dispute resolution, at undergraduate and Masters levels, including a Masters programme which is professionally accredited by the Chartered Institute of Arbitrators.

The plan is to specialise further in this area by launching a new Masters online part-time programme: LLM Dispute Resolution. If you are interested in being kept informed of developments on this new, exciting addition, please register your interest here. At the moment, we are collecting evidence of demand, so the higher the level of interest, the more likely this programme will launch.

The more education offered in this area, the more harmonious our relations with others will be. How can you argue with that?

Blog by Derek Auchie