Bill
Wiggin: My hon. Friend has made an important point, and I
congratulate him on his speech. One issue that is terribly important
here is that anyone who did that unwittingly committed a criminal
offence and can be prosecuted, thus opening up a whole can of worms
about the quality of the settlement of the deal—whether the deal
was profitable. Does my hon. Friend think that the Government have
handled the issue in the most appropriate way, considering how
complicated some of the instruments
are?
Mr.
Hoban: My hon. Friend has made an important point. I do
not think that the Government have handled the issue correctly. The
terminology and the breadth of the order took it far beyond the
Government’s original intention. That was either deliberate or a
fault of ignorance—not knowing that Landsbanki did more than
offer Icesave accounts to retail customers. The Government need to
explain why the order was drafted so
broadly. As
a result of the representations that people in the financial services
industry made to the Government, a licence was issued on 9 October to
try to limit the
damage. A new licence was issued on 13 October, which revoked the
initial licence. The new licence recognised some of the issues that my
hon. Friend has raised, but market participants were unclear as to what
it meant. Evidence of the scale of that problem is that the Government
had to publish a clarification on 17 October to try to give markets a
better understanding. The second statutory instrument is before us
today because the first one would have meant that UK citizens, working
outside the UK for non-UK institutions, could have been prosecuted.
Again, the drafting of the first order was incorrect. That indicates to
me that the Government rushed into this without properly thinking
through the consequences for the wider financial
markets. There
are three points that emerge from how the statutory instrument affects
wholesale markets. First, because the Government rushed out a badly
drafted order, which was not well communicated to the markets as a
whole, financial institutions were not able to protect themselves
against Landsbanki’s default. Secondly, English law is relied
upon in financial transactions because it creates legal certainty on
close-out and termination of agreements. The confusion in the meaning
of the order and the licences undermines that certainty. Thirdly, the
cack-handed way in which the order and the licences were drafted
undermines confidence in the Treasury, because it betrays a lack of
understanding of how wholesale financial markets work. Certainly,
people looking at the Banking Bill will be concerned about how the
order was drafted and how the Government have had to row back from its
contents. The
drafting also betrays a lack of preparation on the part of the
Treasury. The transcript that was published last week suggests that the
Icelandic authorities had been flagging up for some time the problem
with their banking system. It is also apparent from the transcript that
the problem was discussed by the Icelandic Trade Minister and the UK
Chancellor earlier this year. It is not clear what action the
Government took in response, or how well prepared they were for the
crisis. The former Economic Secretary, the hon. Member for Burnley
(Kitty Ussher), was pressed on the issue in July by my hon. Friend the
Member for Altrincham and Sale, West (Mr. Brady), when she
appeared before the Treasury
Committee: “So
if the domestic guarantee failed then that first €20,000...might
not be paid in full, and it would just be the top-up that would be
honoured by the UK
guarantee?” The
Minister
said: “I
do not want to be pressed too far on this so as not to unduly alarm
anybody...I simply do not know how it would work in
practice”. That
is indicative of the lack of preparation by the Treasury at that time
for the potential collapse of the Icelandic banks. It does not seem
from that exchange that any such work had been done up to that point.
Between the Chancellor’s discussions with the Icelandic Trade
Minister in September and 8 October, what work had the Treasury done to
prepare the ground? The order before us suggests that not much work had
been done, and that was to the detriment of the financial services
markets as a
whole. I
now turn to the people whose interests the freezing order was meant to
protect, retail depositors. I understand that all their deposits are
now guaranteed, and that the financial services compensation scheme has
announced
the start of the process to enable deposits to be returned to retail
customers. How long is that process likely to take? The scheme operates
by the Icelandic authorities being responsible for the first
£16,000 on the account and the financial services compensation
scheme being responsible for any shortfall between £16,000 and
£50,000, while the Government pick up the balance. Is the
Minister convinced that the Government have sufficient control over the
assets of Landsbanki to ensure that no cost will fall on the
taxpayer? The
Minister’s remarks did not touch upon the risk to taxpayers. If
the Government had not frozen the assets of Landsbanki, they would have
faced a shortfall between the guarantees that they had issued to
Icesave customers and the distribution that they would have received
from a liquidator winding up Landsbanki. Now that the assets have been
frozen, will the Minister explain what will happen next? The retail
depositors will receive the amount of money that they put on deposit
with Icesave, but, presumably, the Landsbanki money that the Government
have frozen is legally the money of old Landsbanki, which is in
administration. When the Government unfreeze the cash that Landsbanki
has in the UK, will that money be demanded by the liquidator and set
off against the liabilities of Landsbanki as a whole? If those
liabilities exceed the assets of Landsbanki, there will be a shortfall.
Can the Minister confirm that in that case the taxpayer will have to
bear the balance, over and above the money that the FSCS will bear?
What assessment have the Government made of that? The exposure for the
taxpayer is in the distribution from Landsbanki’s
administrators, once the money has been unfrozen in the UK, being less
than the amount paid to depositors. Therefore, the taxpayer would pick
up the
Bill. As
I said earlier, the decision to protect savers was right, but there are
questions about whether the Government were properly prepared. Had they
properly thought through the impact of the freezing order on business
and the other solvent Icelandic banks? Finally, what cost to the
taxpayer will arise from the
measure? 4.53
pm Mr.
Colin Breed (South-East Cornwall) (LD): It is a pleasure
to serve under your chairmanship, Mr. Weir, on an important
measure. It has already been demonstrated that there is considerable
concern about how the Government are using the legislation. When we
looked at it in 2001, probably none of us ever imagined it would be
used for such purposes. It is important for the Government to recognise
that they have to make a real case. I shall ask a few basic questions,
alongside those of the hon. Member for
Fareham. The
events leading up to this are important. I would like to know precisely
when—the date—the Government first became aware of the
potential problems at Landsbanki. The principle concerns the detriment
to the UK economy. Will the Minister tell the Committee what the exact
nature and extent of that detriment is, so that we can determine if
there is the significance indicated? Where does he believe the frozen
funds are being held? What are the estimated total of those funds at
present? What is the liability of the Government in guaranteeing all
the deposits? The hon. Member for Fareham has discussed Iceland and the
compensation scheme each covering so much. Have the Government
estimated the amount of liability falling to them under the
scheme?
Can the
Minister tell us whether any operations were allowed to continue at
Landsbanki after 8 October through exemptions provided by the
Government? If they provided exemptions, could he tell us what they
were? Finally, could he tell us whether Landsbanki has been allowed to
transfer any assets whatsoever out of the UK jurisdiction through an
exemption since 8
October? 4.55
pm
Mr.
Clarke: I begin by making it clear that I welcome what the
Government are doing to protect the British investors in Icesave, and,
on behalf of my worried constituents, I thank the Minister for putting
the measures into effect. I hope that he will give details of when my
constituents are likely to recover their savings.
I hope that
that support will not be cited in the Minister’s final reply as
an excuse for not answering any of my questions, because I actually
think that the Government’s handling of the Icelandic bank
crisis has been deplorable and extremely clumsy. May I also
say—I hope that this will not be thrown back at me—that
an all-party approach is being adopted to all these matters? I spoke on
Second Reading of the Banking Bill, which the Minister is taking
through the House, and certainly did not vote against it. It is getting
all-party support. There is a full measure of all-party support for
what is necessary to protect the British financial system and
individual savers, but that does not mean that the Government can cite
it as an answer to every criticism hurled at them.
I have a
strong suspicion that in the case of the Icelandic banks the Government
were feeling sensitive about the justifiable complaints that they had
been dithering and finding decisions difficult. The Prime Minister and
the Chancellor therefore decided that they would demonstrate the smack
of firm government by taking some precipitate actions and saying some
rather inflammatory things at the expense of a nation of 300,000
inhabitants that was in serious financial trouble. I am not impressed
by that, and, as this is the only chance for parliamentary scrutiny of
these measures, we are entitled to some clear
replies. Finally,
by way of preamble, I conceded to the Minister on Second Reading of the
Banking Bill that I understand the difficulties of a Minister newly
appointed after a reshuffle who is plunged into new responsibilities
and finds that he has to handle some extremely complex and
controversial legislation. On the other hand, he is a capable Minister,
an intelligent man and, no doubt, a quick learner. This order should
have been an occasion for specific briefing to him on the questions
that will, inevitably, arise in the context of the Landsbanki affair,
so I hope that we will get definite replies. I will try to make my
questions as clear as possible so that further briefing can be given to
him and he can give definite
answers. My
first question is on the use of the Anti-terrorism, Crime and Security
Act 2001, which was rushed through the House of Commons in an
atmosphere of great concern after the terrorist incidents of that year.
There has been more legislation since, and I have occasionally thought
that, as long as this Government are in power, we will have a Bill
every time we have a bomb, because legislation must be produced to show
that the Government are taking determined action to protect the
public.
We now
discover that powers were taken in the 2001 Act on a far
wider scale than was contemplated by most people debating it in the
House or by most people observing it from outside. We should have some
answers—probably an apology—from the Government. They
found some overriding national interest that made it necessary to use
anti-terrorism legislation of that kind, but that should be followed up
by an undertaking that such measures will, on all future occasions, be
put in specific relevant legislation—in this case, for the
financial services industry. We cannot have anti-terrorism legislation
being used seven years later in such a tremendous hurry that the terms
of an order were not even available to the public until some hours
after it had come into
force. Obviously,
in the circumstances, no terrorist threat of any kind was posed by the
commercial organisation or the friendly Government of the country in
which it is based. Therefore, I would like some statement of policy as
to whether that will be done again in the
future. Barry
Gardiner (Brent, North) (Lab): Will the right hon. and
learned Gentleman elaborate? He commenced his remarks by saying that he
broadly supports the Government’s action and then said that the
purpose for which the legislation was eventually applied had not been
anticipated when it was passed. That is a fair point. However, does the
right hon. and learned Gentleman not consider that those UK creditors
who would potentially have been disadvantaged by the repatriation of
funds to Iceland might have been extremely critical of the Government
had they not used any and every means—whatever legislation was
available—to secure financial security in this country? And
would Opposition Members not have criticised the Government for leaving
their constituents exposed in that
way?
Mr.
Clarke: When the 2001 Act was drafted, somebody obviously
thought that there appeared to be a gap in the law for providing the
Government with powers that they could use quickly enough to seize
financial assets. Obviously, that could be very important if some
organisation in this country were channelling money abroad for
terrorist purposes. However, once the policy problem was identified in
2001, the question should have been put before the House in the next
available legislative vehicle—a finance Bill or some other
suitable Bill—where it could be debated properly in context. It
was wrong to take the opportunity in legislation that was being rushed
through the House to draw up a wide-ranging provision. I suspect that
somebody thought, “You never know, this might be useful
generally on future
occasions.” This
is not a minor point—it keeps coming up in this House in respect
of terrorism legislation—and it is not the first time that I
have expressed such doubts. Many Members on both sides have expressed
doubts about extraordinary legal powers being taken in the name of
protecting us from terrorism which then turn out to be useful for other
purposes. We will have lots of criminal law, lots of powers to stop and
search and lots of powers to survey people put into terrorism
legislation if Governments are allowed to use the opportunity of a
terrorist outrage to draw up wide-ranging, over-excited
legislation.
Sir
Alan Beith: The right hon. and learned Gentleman is right
in saying that the legislation was rushed through the House. That led
to the inclusion in the 2001 Act of a review process led by Lord Newton
of Braintree which recommended precisely that powers which might not be
used against terrorism should be mainstreamed in other legislation.
That proposal was rejected by the then Home Secretary, the right hon.
Member for Sheffield, Brightside (Mr.
Blunkett).
Mr.
Clarke: I am grateful to the right hon. Gentleman for
reminding me of that. We should press the Minister today and on every
other occasion to reverse the then Home Secretary’s rejection of
the proposal. This is a clear illustration of a misuse of power, and I
hope that the Minister will give a clear statement of Government policy
in answer to my
question.
Barry
Gardiner: The right hon. and learned Gentleman properly
sought to ensure that the Minister did not evade his questions, and I
simply ask him to focus on and respond to the ones that I posed to him.
UK creditors who would otherwise have suffered disadvantage were
protected, and they would have justly criticised the Government had the
Government not exercised the full powers available to them to provide
such protection. He has made a valid point about the nature of the
Second Reading debate on the 2001 Act, but those elements were for
discussion then. With respect, we are talking about the application of
these orders now, and he must address the points that I have
made.
Mr.
Clarke: The hon. Gentleman is right. My constituents would
have criticised the Government if they had discovered that the
Government had legal powers that they had not used, if—we do not
know this yet—it turns out that the freezing orders were an
essential part of securing resources to pay them out. I accept
that. Therefore,
a satisfactory answer to my question to the Minister would be,
“On this occasion, to protect the investors, we had to use these
powers, because they are the only ones we have. But in future, we will
accept Lord Newton’s recommendation and not have this general
legislation.” One might even hope that they would apologise for
the fact that we still have the 2001 powers to use on this
occasion.
That brings
me to my second point. The use of emergency legislation was based on
the Chancellor of the Exchequer’s explanation of the position of
the Icelandic Government, which my hon. Friends have already raised.
The Minister, whom I have already praised, must have been briefed on
this obvious question before he came here, but his answers in public
have, so far, been extremely vague. I trust, therefore, that he will
give us a blow-by-blow explanation of how the Chancellor of the
Exchequer has the nerve to keep saying that he was correct when he said
that he had had a refusal from the Icelandic Government to compensate
British investors. The Prime Minister joined in. We were told that the
Icelandic Government, a responsible NATO ally who are friendly towards
this country, were refusing to honour their obligations to British
citizens. They were behaving illegally by discriminating between their
own and British nationals and the clunking fist of the Prime Minister
was therefore going to be applied by seizing all Icelandic assets in
this country.
It now seems
that there is considerable doubt about whether that was an accurate
description of the position of the Icelandic Government, who are
vehemently protesting that that was not an accurate description of
their position. They are not refusing to include British depositors
inside their guarantee scheme. Not surprisingly, they have problems
honouring guarantees. The Government of Ireland would probably find it
impossible to honour the guarantee that they have given investors if
all their banks went down; the Germans would find it impossible to
guarantee the debts of Deutsche bank if it went down; and we would find
it impossible to honour a full guarantee to the entire banking system
of this country if it all went down. The International Monetary Fund
would be faced with some very large problems. However, the Icelandic
Government have gone to the IMF, and they have gone to other Nordic
countries. They have been trying to honour their obligations in an
attempt to rescue their financial system.
Can we have a
clear explanation of what the Chancellor of the Exchequer was basing
his remarks on? How does he justify his allegation that the Icelandic
Government were refusing to honour their obligations to British
investors? What did the Prime Minister mean, and what was he referring
to, when he said that the Icelandic Government were behaving illegally?
These are perfectly clear questions, and I look forward to the
Minister’s
reply. My
final point, which echoes that put by my hon. Friend the Member for
Fareham, is that the happy outcome, on this occasion, appears to be
that British depositors will indeed get their savings back in the
not-too-distant future. Will the Minister take the opportunity to spell
out clearly whether they can all expect their money by Christmas, and
how the process will work? I have been telling my constituents that I
think they will get an e-mail with happy news in the near future, and I
hope the Minister will confirm that. If he can, and if he can answer my
other questions too, I shall be
grateful. 5.8
pm
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