Licence to kill? Should the House of Lords veto the Tax Credits Statutory Instrument?

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Just 20 lines of legislation may threaten a constitutional stand-off if the House of Lords vetoes the Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015 this week.

According to Ministers and various Conservative backbenchers who have taken to the airwaves in recent days, the unelected House of Lords has no right to hold up a finance/tax measure and that to veto such a Statutory Instrument would be unprecedented. Ministers claim they have a mandate to make the changes to Tax Credits and if the House of Lords vetoes the Regulation it will blow a huge hole in the government’s financial plan and reform of the welfare system. The political facts are sorted from the constitutional myths in an excellent blog by Lords expert, Meg Russell, at the Constitution Unit. But an interesting by-product of this debate is the sudden focus on delegated legislation both in Parliament and the media.

In our book on the subject, published last year – The Devil is in the Detail: Parliament and Delegated Legislation – we urged the House of Lords to consider making greater, albeit judicious, use of its veto power in the future in order to tame government abuse of the system of delegated legislation. And we argued that given the inadequate nature of Commons scrutiny of SIs, the Lords should be empowered to scrutinise delegated legislation in the financial sphere.

Today, much of what we are seeing in the Tax Credit debate reflects some of our key concerns about the process as set out in that research.

Inconsequential?

Delegated legislation was once used only for matters that were technical or inconsequential. Given the financial implications of the proposed changes - running to billions of pounds – they certainly cannot be regarded as inconsequential. Whilst there has been a significant growth in the number of SIs in recent years, such that the scale of what is proposed is not unusual, it does highlight how successive governments have increasingly gone beyond the boundary of reasonableness and acceptability in their use of delegated legislation. Any line distinguishing between legislative principle and detail has long since been obscured and convenience all too often overrides good practice.


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The government had the option of including the measures in the Finance Bill which would have allowed for broader scrutiny in the Commons, consideration by the Treasury Select Committee, and excluded the Lords from the process. But it chose the SI route instead, using the powers delegated to Ministers in the Tax Credits Act 2002 which explicitly states that the matter should be approved by both Houses. Indeed when the original Tax Credit regulations were introduced in 2002, and in the 13 instances when they have since been uprated using the same powers, the SIs were approved by both Houses without hitch or controversy. The right of Peers to scrutinize and take a view on them was not contested.

Financial scrutiny

Government can and does introduce SIs on financial issues that are to be considered only by the House of Commons. The recent Asian Infrastructure Investment Bank (Initial Capital Contribution) Order 2015, authorizing over £3 billion of expenditure is a Commons only SI. But this is not the case with the Tax Credits regulation.

Ministers are therefore wrong to question the constitutional right of Peers to take a view on the SI. Peers will be acting within their procedural rights and responsibilities to consider it. What is in question is whether rejecting the SI would be a judicious use of that power in the circumstances.

In choosing the SI route rather than primary legislation Ministers would have expected little opposition for it is rare for MPs or Peers to oppose them. SI’s, with just a few exceptions, cannot be amended by MPs or Peers in keeping with the principle of delegation of powers to Ministers. And both Houses of Parliament, as a rule, do not reject SIs. At of the end of 2014, just 16 SIs out of a total of over 169,000 – or 0.01% - had been rejected in the previous 65 years (see p186 of our book The Devil is in the Detail).

The Lords burden

A heavy burden of scrutiny responsibility falls on the House of Lords where delegated legislation is concerned, in part because House of Commons procedures and the engagement of MPs is wholly inadequate. The House of Lords committees are more engaged in the process, more influential, and Peers generally have more appetite for the detail and technical scrutiny than most MPs. Some have suggested that there is a convention that Peers will not reject an SI but this is not the case and indeed it was a Conservative Leader of the House, Lord Strathclyde who explicitly made this clear in 1999 when, following the decision to abolish the hereditary peers he declared the convention dead.

But the procedures by which Peers consider SIs – to accept or reject with no power of amendment – means Members are faced with an unpalatable ‘take it or leave it’ proposition: accept an Instrument even if they believe it is fundamentally flawed, or reject it entirely even if some elements are acceptable.

An obligation to provide high quality Explanatory Memoranda

Given executive dominance of the system and the limited scrutiny that is applied to the majority of SIs it should be a minimal requirement that Ministers provide Parliament and its committees with the information Members require in order to properly scrutinize what is proposed. And yet, time and again the House of Lords Secondary Legislation Scrutiny Committee has complained to Ministers about the poor quality of Explanatory Memoranda (EM) to little avail.

The Explanatory Note accompanying the proposed Tax Credit change has been widely criticized by all outside government who have considered it. The government’s own advisory body, the Social Security Advisory Committee said that it ‘was struck in particular by the lack of available evidence to support the policy changes being presented to us’ and ‘..would be concerned if the changes being proposed had not been informed by evidence, at least in some rudimentary form’. Having been ‘hampered in its role’ of scrutinizing the proposed changes ‘where the supporting explanatory material and evidence in scant’, it noted that it ‘would expect Parliament to want more detailed information’ that ‘clearly explains the changes and potential impacts to ensure that they can be subject to effective scrutiny.’ It explicitly urged the Minister to ‘take steps to make that material available for that purpose’, but the government did not take up the suggestion.

The House of Lords Secondary Legislation Scrutiny Committee was also critical stating that the EM laid by HMRC in September alongside the SI ‘contained minimal information, given our general expectation that an EM should provide members of Parliament and the public with an adequate explanation of the effect of the instrument which it accompanies, and why it is necessary.’ The Committee requested additional information and received a response from the Chancellor on 12 October – information that was not, of course, available to MPs when they debated the Instrument in September.

Nonetheless, the Committee was still not content with the ministers response noting that ‘the assessment could have done more to set out the short-term impact on household incomes’ and that ‘the presentation of some of the material, notably on distribution, was difficult to understand, even for those used to economic analyses’. Having drawn the SI to the attention of the House, it noted that Peers would wish to consider whether the explanatory information provided was sufficient in the circumstances.

So Peers would not be acting without cause if they were to reject the SI this week. The government’s own advisory committee has expressed concern and been ignored; the House of Lords committee has expressed concern and is not satisfied with the response. All simply want more information beyond the ‘scant’ explanations provided thus far to enable Peers to reach an informed judgement on the changes. Thus three of the motions laid against the Regulations all involve a call for further information or some form of consultation.

A fatal delay?

The government has suggested that a delay, for whatever reason, is irrelevant and these motions, if accepted, would amount to a fatal veto of the SI and thereby bring about a constitutional crisis. Erskine May and the Lords Companion make clear that Peers can amend an approval motion or table a separate motion calling on the government to take a specific action in relation to the instrument, but this does not prevent approval of it. In July this year, the House of Lords voted to ‘delay the enactment of the Universal Credit (Waiting Days) (Amendment) Regulations 2015 until Universal Credit is fully rolled out’. Here, again, Peers concerns reflected those in the report by the government’s own advisory body, the Social Security Advisory Committee. This form of delay motion didn’t prompt a constitutional crisis.

Two of the proposed amendments to the Tax Credits approval motion also suggest a delaying tactic by inviting the House to decline to consider the regulations until a report, or a consultation and report, are produced by ministers. Another amendment proposes further consultation by government about the impact of the regulations but in line with the procedural position set out by Erskine May would not prevent approval of the regulations.

The reality is if the government loses the vote on the Tax Credits issue its policy need not come to a juddering halt. Ministers can – and frequently do – amend and relay SIs. We currently produce a weekly monitor of all SIs to help people outside Parliament understand what is going on in this vital area of legislation. Our data shows that so far in this session (2015-16) alone, since Parliament returned after the election, 21 Instruments have been corrected by the government after they were laid before Parliament, and 13 have been withdrawn primarily because of defects or because it became clear the government couldn’t win the vote.

Changing course?

The Tax Credits SI doesn’t come into effect until 15 April 2016. The government therefore has time to change course. It can either delay consideration of the SI in the Lords and provide more information to assuage Peers’ legitimate scrutiny concerns. Or it can press ahead, risk losing, and then amend and re-lay the same SI – only a cosmetic change (e.g. revise one word!) would be required and convention would dictate that the House of Lords would certainly pass it a second time. The risk here, of course, is that it would also have to submit the revised SI for approval to the Commons. But as was demonstrated in the Opposition Day Debate last week, MPs are now more attuned to the proposals and the lack of detail about their impact than they were when they actually voted on the Regulations during the main debate in September.

There are, in effect, two competing accountability principles at stake in this debate. On the one hand, the right of the government to have its way on a key plank of its financial reform programme and for the primacy of the Commons vote in favour of the proposals to be respected by the Upper House. On the other, the right of parliamentarians (and the wider public) to constrain ministerial diktat in areas where extensive power has been delegated by requiring the government to adequately explain and evidence their actions.

Who will blink first? Neither side will emerge well from the mess that will ensue if Peers do vote against the proposals. There are real grounds for concern about the cavalier way in which government treats Parliament in relation to delegated legislation. The question facing Peers is whether this is the issue on which they should draw the line in the sand. Would it constitute a ‘judicious’ use of their power to vote against these particular proposals?

Peers can consider voting against the government on an SI only very rarely – they have to balance whether, given the risks, this is the one, or whether they would be better to keep their powder dry for another day and another issue.

They may not have to wait long. On Tuesday they are due to consider the
Electoral Registration and Administration Act 2013 (Transitional Provisions) Order 2015 which will bring forward the roll out of individual electoral registration a year earlier than is currently set out in law, potentially risking the loss of 1.9 million people from the electoral register. The Electoral Commission has recommended that Parliament should not approve the Order. The House of Lords must now decide what it will do.


To find our more about our weekly Statutory Instrument Tracker subscription service, contact joel.blackwell@hansardsociety.org.uk

You can buy our book, The Devil is in the Detail: Parliament and Delegated Legislation.

Want to know more about delegated legislation? This 5 minute video with our Director, Dr Ruth Fox, explains what it is and why it needs reforming.

Our research into delegated legislation was funded by the Nuffield Foundation.