Sir
Alan Beith: The Minister must realise the Kafkaesque
situation in which his description leaves both Houses of Parliament.
When the legislation was considered, people pressed for more time to
discuss important powers such as these, but they were told, “No,
no, these are terrorist measures and we have to get the legislation
through quickly.” That was not true at the time, and the
Minister is now paying the
price.
Ian
Pearson: I give way to the right hon. and learned Member
for Rushcliffe.
Mr.
Clarke: Is it fair to say from the Minister’s reply
that he thinks that this is normal, that it is going to be normal in
future and that it is satisfactory to rush an anti-terrorist Bill
through the House of Commons with a title sufficiently long to tidy up
all kinds of other laws to protect British creditors from a bank
collapse and other similar situations? That is the firmest rejection
yet of my noble Friend Lord Newton’s recommendation, of which we
were reminded. An amendment was moved on the subject in the
Lords—somebody in another place spotted that the powers were
rather wide—but it was defeated simply by citing the long title
of the Bill. Does the Minister not accept that all the debates in the
House of Commons, such as they were, were about terrorism and the need
to freeze terrorist assets? Even in the House of Lords, it was said
that times of war would justify using the
powers. There
was no intimation when the 2001 Act was rushed through that it might be
used in the case of the insolvency of a foreign bank and British
creditors being at risk, important though that situation is. I was
hoping that instead of saying that such use of the powers is normal and
therefore might happen again, there might
be some indication that it would not happen again and that the situation
would be looked at separately and be properly considered in the proper
context. Ian
Pearson: I understand the point that the right hon. and
learned Gentleman makes about the context to the legislation, but I
repeat that it was necessary to use the powers in these circumstances.
I do not think that this is the time or the place to make general
statements of policy relating to the content of future
Bills.
Mr.
Hoban: The Banking Bill is an opportunity to put the
powers on a proper footing and allow proper scrutiny by both Houses of
Parliament. Does the Minister consider that that is the appropriate way
to respond not only to concerns about the way in which the 2001 Act has
been used but to the recommendations made by Lord
Newton?
Ian
Pearson: I rest on what I said previously, in that I think
it right that we used the powers. It is clear from the long title of
the Act that it covers areas other than terrorism. Of course, we will
want to reflect in future on these matters, but I do not want to go any
further now than I have
already. Hon.
Members mentioned the Chancellor’s comments about not honouring
obligations and acting illegally. Iceland is a signatory to the treaty
of the European economic area and, as such, its financial institutions
are able to passport into the UK in the same way that a European
Community firm can. Iceland has obligations not to discriminate in
favour of its own citizens and against the citizens of other states.
The actions that the Icelandic Government, the Icelandic authorities
and Landsbanki were proposing to take would have favoured Icelandic
depositors to the detriment of UK depositors and, as a result, the UK
economy. That is why we believe that we had to act as we did, and it is
why, in response to the right hon. and learned Member for Rushcliffe, I
would recommend to the Chancellor that he use similar emergency
legislation if there were a similar emergency situation. We must ensure
that we protect the position of UK
creditors. In
reply to the first intervention by the hon. Member for
Leominster—I shall respond to him more substantively
later—about the possibility of people conducting criminal
offences on the date of the order, I want to make it clear that anyone
who acted before the order was made public has a complete defence under
the
order.
Mr.
Clarke: I did not realise when I arrived that I would be
in a jack-in-the-box mood, but the order raises some big issues. The
Minister has explained how he justifies the statement that the
Icelandic Government were acting illegally, and I accept that his
explanation has some force. They probably were proposing in the
legislation that they put before their Parliament to discriminate in
favour of their nationals. Does he accept that the reaction to that
must be proportionate? Normally, a member of the EEA that is accused of
being in breach of its European obligations is taken to the European
Court. That can be a long and tortuous process, and it can take some
years.
This situation
may have required a little more urgency, but can the Minister explain
why it was thought to be proportionate to freeze all assets in this
country? Having seen the transcripts, does he think that the comment
that the Icelandic Government were refusing to honour their obligations
was remotely justified? From the transcripts that we have seen, it is
obvious that the Icelandic Ministers were embarrassed and were giving
assurances that they would try to honour the obligations that the
British Government were reminding them
of.
Ian
Pearson: The right hon. and learned Gentleman has asked me
about proportionality. I believe that the measures we took were
proportionate given the circumstances that we faced. More than most
people, he will be aware of just how quickly cash and assets can be
moved from one country to another. Simply to have said, “We need
more time to think about it. We’ve seen the legislation going
through the Icelandic Parliament and had conversations at a level that
has given us serious doubts about the Icelandic Government’s
intentions. We think that they want to favour their creditors above
other foreign creditors,” and not to have acted immediately
would have been irresponsible and not in the best interests of UK
taxpayers. I appreciate the point about proportionality, but the
financial flows that move around our world today take place at such a
pace that I believe it entirely proportionate that we took the freezing
action that we
did. John
Mason (Glasgow, East) (SNP): On proportionality, I wonder
whether we could have taken such action in relation to a larger country
and a larger bank. This happened with Iceland—a relatively small
country and a relatively small bank—but if we were to freeze the
assets of a much larger bank from a much larger country, would that not
have had negative repercussions world
wide?
Ian
Pearson: I will not be tempted into engaging in
speculation on that. I think that we all agree that this situation is
highly unusual. I have talked about the uncertainty and the situation
in which it seemed that UK taxpayers would not be treated fairly and
that our creditors would be disadvantaged. When faced with a situation
such as that, any Government have a responsibility to
act. I
also want to make some points about the preparedness of the Government
to take action. The Financial Services Authority intensified its
supervision of all retail deposit taking by Icelandic banks, including
through increased contact with firms, more frequent visits and enhanced
reporting requirements from the beginning of 2008, which was before
Moodys downgraded Icelandic banks by two notches on 28 February,
including Kaupthing and Landsbanki. As the economic situation
deteriorated during the year, and particularly after September, the FSA
worked increasingly intensively with the banks concerned. As hon.
Members will be aware, the FSA monitors firms and that information is
shared formally through meetings of the Tripartite Standing Committee.
I can report that several conversations were held between the
Chancellor and the Icelandic Prime Minister and the Chancellor and the
Icelandic Foreign Minister to discuss the situation and to clarify the
position for UK
creditors. A UK delegation has visited Reykjavik twice to continue
negotiations, and in parallel there have been discussions between the
financial services compensation scheme and the Icelandic deposit
guarantee scheme to agree payout arrangements for depositors in
Icesave. A
number of right hon. and hon. Members have referred to the transcripts,
so let me come on to that. It was asserted there were several
conversations. In response to that, let me state that the Chancellor,
having had several conversations, was not clear that the Icelandic
authorities intended to honour their obligations. Ultimately, that is
why we took the decisions that we did.
I strongly
reject the suggestion that the Government rushed into action and
botched the statutory instrument because we had to issue a number of
licences. The 2001 Act anticipates a scheme where there will
be a freezing order followed by licences. In fact, the licences provide
a general scheme to allow business to continue, so long as the London
branch does not repatriate funds back to its head office or elsewhere
in its group.
The first
licence dealt with the most immediate concerns about enabling the
bank’s commercial finance activities to continue, and the second
broadened the effect of the first to ensure that the needs and concerns
of wider market participants were addressed. In both cases, that is
subject to the overriding principle that the banks do not repatriate
funds, which is a procedure envisaged in the 2001
Act.
Mr.
Hoban: The procedure might have been envisaged in the 2001
Act, but the point is that the Government were not prepared for it. Had
they been, they would have had the second licence in place on the day
when the statutory instrument was published. That is the point about
the lack of preparation. Had the Government thought properly about
that, they would have been prepared for it by having both the order and
the licence. The Minister talked about the FSA’s increased
supervision and the fact that the Prime Minister and the Chancellor had
conversations with their opposite numbers in the Icelandic Government,
but he did not say what the Treasury did between the
Chancellor’s first conversation with the Icelandic Trade
Minister and 8 October. The Treasury, rather than the FSA, appears to
have been caught napping on the
job.
Ian
Pearson: I do not accept that. We introduced the freezing
order the day after the first licence, and I think that the second
licence was issued four days later. It is right that those licences and
guidance were issued, because in a fast-moving situation there is much
uncertainty in the marketplace, and the Government have done all that
we can to try to reduce that uncertainty.
My hon.
Friend the Member for Brent, North raised a specific case, and I am
happy to take that up and talk to him about it. As a general point, I
want to stress to the Committee that the Government have spoken to all
the major banks, which have confirmed that payments are flowing
normally. The freezing order should not apply to normal commercial
transactions between the UK and
Ireland.
Ian
Pearson: Iceland. If hon. Members have cases in which they
think that there is a problem, I would be more than happy if they came
to us with specific details of the transaction so that we can pursue
them with the bank concerned.
It was also
suggested during the debate that the impact of the Government’s
actions affected Kaupthing bank. The FSA made the judgment on 8 October
that Kaupthing no longer met its threshold conditions for FSA
authorisation due to lack of funding. That move had no bearing on the
status of the parent company of Kaupthing bank, which is incorporated
under Icelandic law. Of course, we are working closely with the
Icelandic authorities and have made significant progress on many of the
issues.
The situation
with regard to the Isle of Man was also mentioned. Again, the problem
there originated not in the UK but in the Icelandic banking system.
Although we understand that many people have been affected by the
failure of the Icelandic banks, oversight of Kaupthing’s Isle of
Man subsidiary is the responsibility of the Isle of Man regulator. As
the right hon. Member for Berwick-upon-Tweed has acknowledged, the UK
represents the Crown dependencies in its negotiations with Iceland, in
line with usual constitutional arrangements, but when it comes to
depositor protection, the Isle of Man is a different tax jurisdiction
with different regulatory authorities, so that is really a matter for
them.
A number of
hon. Members have asked when compensation for Icesave customers will be
made. I can report to the Committee that on 24 October the financial
services compensation scheme published some information about that on
its website, and it might be helpful if I read into the record two
short paragraphs. The first states:
“FSCS
is putting in place a system that means retail depositors of the bank
should be able to receive their savings through an electronic payment
into their linked accounts. This will happen in stages. FSCS will write
to retail depositors of the bank to detail how the process will work.
FSCS will then contact customers again with instructions on how to
complete a short electronic process to finish the transfer. The process
will be phased to manage the flow of payments through the system and
for security
reasons.” The
second paragraph that I want to cite states:
“Icesave’s
customers do not need to do anything at this stage. Their savings are
safe. The correspondence they receive will tell them everything they
need to know about how to access their savings, ISAs or term
accounts.” My
understanding is that later this week, the financial services
compensation scheme will provide further information setting out how
retail depositors with Icesave will be compensated. The payout will be,
as I mentioned, via linked accounts. It is important to recognise that
there are about 200,000 depositors with about 300,000 accounts, so, for
safety and security reasons, payments will be processed over the course
of November. However, we expect all Icesave retail depositors to have
been paid by the end of November. The right hon. and learned Member for
Rushcliffe and others rightly raised that issue, and I hope that he
feels reassured that we have given him some direct answers.
On the cost
to the taxpayer, the situation is very much as the hon. Member for
Fareham outlined. The first €20,887, under the European deposit
protection scheme, should be paid by the Icelandic compensation scheme.
The current estimate is that that will cost about £2.2
billion to £2.3 billion. The second tranche, for amounts above
that limit up to £50,000, falls to the financial services
compensation scheme, and that element is estimated to cost about
£1.4 billion. The final portion, which accounts for amounts
above £50,000, will be paid by Her Majesty’s Treasury.
That share is estimated to cost £800 million, and HM Treasury
will obviously have a claim on the Landsbanki estate for that
amount. Mr.
Hoban: I presume that when the Government unfreeze the
assets of Landsbanki, the money will be transferred to the liquidator,
so the Government will get back only a proportion of their £800
million exposure.
Ian
Pearson: My understanding is that the Government will
stand as a creditor, pari passu, with the financial services
compensation scheme and other wholesale creditors, and will receive
some money back in accordance with what can be
achieved.
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