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“commitment to support lending to small businesses and home buyers”
happens in practice? The Prime Minister and the Chancellor ducked that question yesterday—I hope that the Financial Secretary is in a position today to give us an answer because the link is important if the package is to work.
I shall ask detailed questions about the three aspects of the scheme. The special liquidity scheme has been extended to the end of January and increased to £200 billion. If there is continued demand for it, can it be extended in duration and increased in value? People in the banks will be interested in the answer to that.
On the equity package, one of the eligible institutions is the Nationwide building society, and other building societies could also be eligible. What are the consequences for the mutuality of building societies if they seek Government support to recapitalise their balance sheets?
Will the Financial Secretary clarify the purpose of the second tranche of £25 billion? We understand that it can be used to invest in only preference shares or permanent interest-bearing shares, yet the Treasury press release yesterday stated that the Government are
“willing to assist in the raising of ordinary equity if requested to do so”.
Does that mean that the Treasury will invest in the ordinary shares of banks and eligible institutions? If not, will the Financial Secretary explain that statement in yesterday’s press release?
Mr. Peter Bone (Wellingborough) (Con): My hon. Friend makes an important point. A small part of yesterday’s statement suggested that the Government would underwrite issuing new ordinary shares. If that is the case, the package is different from what we have been led to believe.
Mr. Hoban: My hon. Friend highlights the ambiguity in the statement. It is important that the Financial Secretary uses the opportunity today to clarify the point, because investing in or helping underwrite ordinary shares is different from investing in a form of preference shares.
Barry Gardiner (Brent, North) (Lab) rose—
Mr. Hoban: I am happy to give way to the former envoy for forestry.
Barry Gardiner: The contemporaneous note that I made during yesterday’s statement said that the underwriting of new debt would be temporary, and not simply the underwriting of new shares per se.
Mr. Hoban: I am grateful for that clarification, but the problem is that the statement, as published yesterday on the Treasury website, is not sufficiently explicit about the meaning of assisting in raising ordinary equity. Some clarification would be helpful rather than relying on Hansard or contemporaneous notes.
Will the Financial Secretary explain the link between the recapitalisation fund and the £250 billion facility to guarantee the repayment of short and medium-term debt issuance? If a bank does not take Government money for recapitalisation—I understand that at least three institutions so far have declined to do that—can it take advantage of the Government guarantee? If a bank has not sought any of the £50 billion available for recapitalisation, but wants to use the guarantee, is it bound by the commitment to
“support lending to small businesses and households”?
If so, how will that be policed?
Currently, the scheme is limited to eight eligible institutions, although the Treasury press release makes it clear that other UK incorporated banks, including those that are subsidiaries of foreign banks, can also join the scheme. Clearly, Abbey, as a financial institution, is an example of that form of organisation. However, other UK incorporated banks are subsidiaries of foreign banks, for example, J.P. Morgan and Citibank. Will they have access to the £250 billion guarantee fund? Will institutions that operate primarily in the wholesale market also have access to it? They are unlikely to lend to households or small businesses, and some clarity would therefore be helpful.
Are the Government confident that the £250 billion is enough to help institutions refinance their wholesale funding obligations? What work have they done to assess the adequacy of the fund? I do not know where the figure has come from or the suggestion that it is enough. Might it be topped up later? Again, some clarity would be welcome, not only in the House but outside. When can eligible institutions use the guarantee fund? The statement on the Treasury website was silent on that matter. Institutions that wish to refinance their short and medium-term debt issuance will want to know when the fund is open for business.
I have made some detailed points, but I think that the Financial Secretary appreciates that more clarity about the way in which the money is to be used, who has access to it and how the conditions are policed will not only help financial institutions that may benefit from it understand what is happening, but help our constituents, who are paying for the package, understand how the Government will secure the link between the money that has been advanced to the banks and their commitment to support lending to small businesses and families.
Next Tuesday, we will return to the debate on banking reform. The Banking Bill sets out several mechanisms, which have partly been used during the past year to rescue institutions with problems. However, we need some long-term changes to entrench financial stability. The Bill that we discuss next week deals largely with the consequences of failure, not prevention of the recurrence of such problems.
Conservative Members believe that, in setting up the FSA, the Prime Minister broke the link between the understanding of market-wide risk and the supervision of individual institutions. To avoid the repeat of a debt
bubble, we believe that we need to reinstate that link, with the Bank of England being given a much greater role in determining the overall amount of capital needed in the market. That will strengthen the system and entrench financial stability in markets. The Government have embraced our proposals to increase the deposit protection limit from £35,000 to £50,000, and a bank-led reconstruction of a failing institution. Perhaps they will endorse the idea that I have just outlined.
As we have made clear, for the package to work, we need not only inter-bank lending to reopen, but lending to businesses and families to recommence. Taxpayers want an end of the age of irresponsibility, but they also want responsible lending. That is the true test for this package, and we hope that it meets that test.
Madam Deputy Speaker: Order. Mr. Speaker has imposed an eight-minute limit on Back Benchers’ contributions, but several hon. Members have expressed a wish to participate in the debate since then. Given that we have rather less than an hour, may I ask hon. Members to restrict their comments further?
12.58 pm
Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): There is undoubtedly much concern among the public about the fact that the bail-out for the banks is necessary. I am sure that I am not the only Member of Parliament who has had e-mails and phone calls overnight from constituents who are angry that people who have made massive amounts of money and enjoyed massive bonuses are expecting the taxpayer to pick up the tab for their mistakes. That public anger is not misplaced, but there is no doubt that yesterday’s action was right and necessary.
I speak as a Member who represents a constituency in Edinburgh, where the problems in the banking and financial industry have a direct and immediate local dimension. Sixteen thousand people in Edinburgh are directly employed by HBOS or the Royal Bank of Scotland. Thousands more are employed in Lloyds TSB or its subsidiaries, such as Scottish Widows, and thousands are employed in other businesses, such as Standard Life. On top of that, many thousands of my constituents are employed in sectors dependent on the banks and financial services. That is why I and other parliamentary colleagues from Edinburgh have been in regular contact with senior management in those businesses, with our colleagues in the Scottish Parliament and in local government, and of course with the Chancellor, to discuss those issues at this worrying time.
The package that was announced yesterday should certainly reassure those who are employed by the banks and the financial sector in Edinburgh, Halifax and elsewhere. It should make it more possible to achieve an ordered recovery from the current crisis and for decisions to be taken in the longer-term interests of the banking sector and the economy as a whole. I hope that, along with the effect on small businesses, one of the factors that the Government take into account when they agree the details of any support for particular banks will be the effects on the thousands of ordinary people employed
by those businesses, in places such as my constituency. The ordinary workers in those businesses should not be the victims of greed and excessive ambitions higher up in those institutions.
However, everyone in Edinburgh would of course be affected in the same way as those in the rest of the UK by a meltdown in the banking sector. The local authorities that now face the loss of millions of pounds as a result of the failure of an Icelandic bank emphasise how the effects of a bank failure rapidly spread into the wider world. If, heaven forbid, one or more big British banks were ever to fail, it would not be just a few local authorities that would face the situation that some face now. Every local authority in the country would have severe difficulties in meeting its pension commitments and continuing to provide vital services for their communities.
The same would be true of pension funds and there would be consequences for those seeking to remortgage. There would also be consequences for millions of businesses, which would have difficulties with cash flow. Problems would arise in international trade and there would be consequences for the stock market and threats to the billions of pounds of private savings if any banks were in that situation.
That is why it was right for the action to be taken and why it had to be dramatic and bold action. We have to remember that the collapse in the 1920s was one of the contributors to the eventual growth of dictatorships and fascism and, ultimately, the second world war. That might sound dramatic, but it is a reminder of a reality that we could face if action were not taken internationally to try to tackle the current crisis and if the banking system seized up. That is why the action taken this week is welcome, but it can only be the start of much more dramatic and radical action at the national and international levels combined.
First, we need to return to sound banking practices here in the UK. Hon. Members asking questions yesterday expressed their fears that once the immediate crisis was, hopefully, over, some in the financial sector would return to their bad old ways. That is a real concern. The problem is not just with a few people at the top, earning big bonuses. There is a cultural problem in much of the industry that needs to be addressed and on which we need action in a number of ways, from the Government, the regulators and the industry itself. The public will expect us to do that and they will be very angry indeed if the problem is not addressed in a thoroughgoing and long-lasting way.
A return to sound banking will also be more likely if the Government and regulators seek to strengthen those parts of the financial services sector that have now fallen prey to the greed and irresponsibility of some, but not all, in other parts. I refer to the strength displayed by the mutual sector—the building societies. Although there have been problems, which have been dealt with so far, the building societies certainly have not overextended themselves with massive international expansion, funded by expensive borrowing, in the way that some of the banks have. I would therefore like to hear an answer to the question that the hon. Member for Fareham (Mr. Hoban) asked about how the mutuals would be affected if they wished to take advantage of the financial arrangements announced yesterday.
Secondly, it is clear that we need stronger international rules and agreements to ensure that collective action can be taken successfully. The action taken by the UK so far can lead the way in setting an example for the rest of the world.
Finally, we also need to strengthen the ability of the European Union to act together. The fact that that did not originally happen in the way that it should have happened should not lead us to the conclusion that the EU’s role should be weakened. Rather, the conclusion that we should draw is that it is time to strengthen the EU’s ability to ensure that its members work together in such crises and put into effect a common response and action plan when it is agreed. That might not be popular with Eurosceptics in the Chamber, but now is the time for more European co-operation, not less.
1.5 pm
Mr. Jeremy Browne (Taunton) (LD): The context of today’s debate is the understanding that every economy needs a functioning banking system. Businesses and individuals have to be able to borrow money to invest. Without that confidence, the economy as a whole and, indeed, our whole society, is adversely affected.
We on the Liberal Democrat Benches therefore welcome the financial rescue package that the Prime Minister and the Chancellor announced yesterday. It was in the national interest; it was the right thing to do. That does not make it any less galling that the greed and excesses of the banks have put us in this position. However, when a house is on fire, recriminations about how it started are secondary to putting out the fire. That is the task that we have now embarked upon.
Changes in the rules of engagement between the taxpayer and the banks are nevertheless inevitable as a result of the Government’s intervention, as well as being desirable. It is essential that the taxpayer’s investment is as advantageous in its terms as possible. If, or perhaps when, normal order resumes and banks return to profitability, I want to see the return on that investment at the highest possible level for the British taxpayer.
Senior bankers also have to wake up and realise that their old ways are in the past. Unlike the Conservatives, I do not want the Government to micro-manage every boardroom decision. I say this with kindness to the Conservative party: running a bank is not like deciding the location of chocolate oranges in WHSmith. We are talking about the banking sector being free to make innovative decisions, but within the changed context of the different times in which we find ourselves. The City and the wider banking sector must realise that the context is now different.
Ms Abbott: The hon. Gentleman talks about micro-management of boardrooms, but I do not think that anybody, in any part of the House, has talked about micro-management. What we are talking about is effective and substantive regulation, which has not necessarily been in place in the past 10 years.
Mr. Browne:
I take the hon. Lady’s point about effective regulation, but, as I understand it, the leader of the Conservative party is keen for the Government to intervene and decide the remuneration policy of people working in the banking sector. That is an extraordinary
transformation. The Conservative party, which wholly embodies the culture of excess and “loadsamoney” banking spivvery, is now going to a 1970s incomes policy. I know that many on the Conservative Benches look back to the era of Margaret Thatcher with fondness, but this is the first time that I have seen Conservative Members look back with such enthusiasm to the era of James Callaghan.
Adam Price (Carmarthen, East and Dinefwr) (PC): I know that the Liberal Democrats’ new political strategy is to put themselves to the right of the Conservative party, but surely when the banks are coming cap in hand to the taxpayer, it is reasonable for the taxpayer to except a degree of accountability—that is, no fat cat bonuses. What is unreasonable about that?
Mr. Browne: It is entirely reasonable that the taxpayer, having taken a stake in the banks, should have an interest in how those banks operate. However, that is not the same as setting an incomes policy for banks and deciding on the remuneration of individual bankers. I know that the issue is a mere footnote to the great events that have taken place in recent weeks, but it highlights the dangers of a party using shallow marketing devices to reinvent itself without any reference to core beliefs and values.
Mr. Hoban: The hon. Gentleman is making an extraordinary series of allegations, but let me ask him this: is he going to go back to his constituency this weekend and tell his constituents that the bankers who are being bailed out by taxpayers’ money deserve bonuses?
Mr. Browne: I noted that, when the hon. Gentleman had the Floor earlier, the hon. Member for City of York (Hugh Bayley) asked him how the leader of the Conservative party envisaged the Government enforcing an incomes policy in the banking sector. There was no answer from the Conservatives, because they do not have any practical way of delivering their policy. They think that the best way of deflecting attention from the fact that they have no credible policies whatever in this area is to give this nod to populism.
My answer to the hon. Member for Fareham (Mr. Hoban) is that of course the circumstances have changed when the taxpayer is investing so heavily in the banking sector, but the Government cannot decide in every minute detail how the banks should be successful and go forward. There may be circumstances in which a particularly innovative, entrepreneurial banker is so successful at turning round the fortunes of his bank—to the advantage of my constituents and the hon. Gentleman’s—that that needs to be recognised. I am sorry if the Conservatives find that frighteningly right wing, but I do not believe that it is possible to run the entire banking sector and the boardroom of every bank from the Chamber of the House of Commons.
Ms Abbott: Will the hon. Gentleman give way?
Mr. Browne: I am getting a bit distracted, but I will give way one more time.
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