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Clause 5

Functions etc of a reclaim fund

Mr. Hoban: I beg to move amendment No. 10, page 4, line 42, leave out subsection (4).

Madam Deputy Speaker (Sylvia Heal): With this it will be convenient to discuss the following amendments: No. 12, page 5, line 1, at end insert—

‘(4A) Where the Treasury gives a direction under subsection (4), that direction shall be published within 28 days of it being given.’.

No. 11, in schedule 1, page 16, line 32, at end insert—

‘(ca) the name of each bank and building society listed in the FSA Register in respect of which no monies were transferred to the fund.’.

Mr. Hoban: Two of the amendments in this group relate principally to the operation of the reclaim fund. In relation to the debate on how the fund will work, the Treasury has made it clear from the outset that this is a voluntary arrangement, and that the fund would be a private company set up by the British Bankers Association and the Building Societies Association to manage the transfer of money into the reclaim fund. It will also manage the reclaim process and determine how much money will be passed across from it to the Big Lottery Fund.

My concern is that, under clause 5(4), the Treasury will have the power to give a direction to the reclaim fund requiring it


In Committee, the Minister said that it would be the sole responsibility of the Financial Services Authority to regulate the reclaim fund for prudential purposes, and that the fund would be authorised by the FSA. That is fine, and we can understand the reasons for the limits on that involvement. However, there is still a requirement for the Treasury to give directions.

In Committee, we tabled an amendment proposing that, when such directions were given, they should be subject to parliamentary approval. The Government opposed that amendment, but we were reassured that these powers would be deployed only as a last resort. It is difficult, therefore, to work out why the Government were so reluctant to allow parliamentary scrutiny in this area. Indeed, when we pressed the Minister on the circumstances in which the power would be deployed, he said that the Government did not have any particular area specifically in mind, because they did not anticipate any problems.

So, we have a power that the Government do not believe will be used, and they do not believe that its use should be subject to parliamentary scrutiny. I could accept the power to give directions, if it were to be subject to parliamentary scrutiny, but I do not accept it without such scrutiny. This is an unsatisfactory situation. I have therefore tabled amendment No. 10, which proposes to omit subsection (4) of clause 5, which would make the measure more in keeping with the spirit of the
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legislation, namely that the reclaim fund is to be a private company established by the BBA and the BSA, and that it should operate as such, without Ministers having the power to give directions to the company to force it to act in a particular way.

Amendment No. 12 deals with this issue in a different way. It proposes that, when the Treasury gives a direction under clause 5(4), that direction should be published within 28 days of its being given. If there is to be no parliamentary scrutiny, and if these powers are to remain part of the Bill, there should at least be some publicity given to the direction. Accepting this amendment would not be a big step for the Government to take, if they believe that the powers are absolutely essential for them to have. They should not be afraid of publicising such directions. Indeed, elsewhere in the Bill, there are provisions for directions to be given to the Big Lottery Fund, and such directions will be publicised through the Big Lottery Fund’s accounts. So there is a clear role for the publicising of directions.

Amendment No. 12 would provide a vehicle—although not as good a vehicle as a statutory instrument—for Parliament to scrutinise the Treasury’s use of the power of direction. Members of Parliament would be able to ask questions, and the Treasury Select Committee would be able to investigate the Treasury’s use of the power. A softer scrutiny element is therefore involved. The amendment is a perfectly reasonable proposal to achieve some level of parliamentary scrutiny, if the Government are so wedded to keeping on the statute book a power that, at the moment, they do not expect to use.

Amendment No. 11, which goes back to an issue that we discussed in Committee, concerns the level of publicity that should surround this part of the scheme. Schedule 1(3) contains a provision for the reclaim fund to publish certain information in its accounts. At the moment, that information is limited in four ways. The fund must publish its accounts and reports in accordance with the Companies Act 2006. It must publish

It must publish

It must also publish

However, that does not include a requirement to name and shame, by saying which institutions have not contributed to the reclaim fund. As part of the series of measures that we need to take to ensure maximum scrutiny, and to ensure that we know that institutions are taking seriously their commitment to be part of this voluntary scheme, the reclaim fund should make it clear in its accounts which institutions have not contributed to it.

When we debated this in Committee, the Minister argued that it was not the job of the reclaim fund’s horizon scan to find a list of banks and building societies, and to determine whether or not they had contributed. He said that the FSA had a register of such entities. I have learned a lesson from my previous drafting experience, which is why amendment No. 11 refers specifically to
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the list of banks and building societies that the FSA will hold in its register. The reclaim fund would therefore not have to do any horizon scanning; it would simply have to compare the list in the register with the banks and building societies listed under paragraph 3(1)(b). Those that were not so listed would be listed under proposed new paragraph 3(1)(ca), which would tell us exactly which had not contributed to the scheme. That measure would maintain keep the spotlight on those institutions that had not co-operated with the scheme.

These are three very reasonable amendments. Amendment No. 11 is about scrutinising who has not contributed to the scheme. Amendments Nos. 10 and 12 give the Minister some choice: either to take out the powers in the Bill or to require the Treasury to publish the direction within 28 days of publication. The Minister will have his own views, and I suspect that he is minded to reject both, but given that the Government rejected parliamentary scrutiny of the direction—in the Minister’s words, it is the “ultimate sanction”—there needs to be some check on the Government. If they are not prepared to accept such a check, amendment No. 10 is the right road to go down.

6 pm

Rob Marris: Let me reverse the position of amendment No. 10 for a moment. If clause 5(4) were not in the Bill—precisely what the amendment is designed to achieve—and I moved an amendment to put the wording of subsection (4) back into the Bill, I suspect that the Government would respond by arguing that it was unnecessary and there was no need for it —[Interruption.] The hon. Member for Fareham (Mr. Hoban) is looking puzzled; I am saying that if I attempted to insert that wording into the Bill, the Government would probably say, “We don’t need it; it is redundant”, as they often do in respect of amendments coming from both sides of the House. We are told that we do not understand and that there is no need for the amending provision.

If I ask what clause 5(4) does—if, as one anticipates, the Government resist amendment No. 10, which would remove that provision—the answer is that it gives the Treasury a power that I suspect it needs, because I cannot see anywhere else in the Bill where it defines who the members of the reclaim fund are. It will be a company, which has to have members—the shareholders—although I know that the Bill provides that they are not going to get dividends. It seems to me that clause 5(4) is needed on account of this lacuna, whereby the members of “the” or “a” reclaim fund are not specified.

I appreciate from paragraph 51 of the explanatory notes that the

However, when the Minister responds to the blandishments of the official Opposition on amendment No. 10, I hope that he can elucidate that and clarify whether I am right that clause 5(4) is necessary because the Bill does not specify who the members of a reclaim fund should be. It would be for the members of that fund to carry out enforcement if the directors failed to give effect to specified objects or to comply with the provisions in the memorandum of association and articles of the fund. Usually, one would expect the members of the company— with a limited guarantee or otherwise—to be responsible
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for enforcement. It is for them to say, “You are not complying with the rules of our organisation or company. As directors, you should be, so if necessary, we will take you to court to get you to comply”. If one does not know who the members are, however, one cannot say that the watchdog power exists, which is why subsection (4) is necessary.

Mr. Hoban: If it were that simple, the Minister would have said that in Committee, but let me quote what he did say, as the hon. Gentleman did not have the pleasure of serving on it. The Minister said:

The Minister clearly had confidence that the members would be correctly chosen by the British Bankers Association and the Building Societies Association, but even that obvious statement does not quite explain why this power is in the Bill.

Rob Marris: I am grateful to the hon. Gentleman for that helpful intervention, but taken as a whole—I name no individuals—the track record of British bankers over the past two years in running a tight ship within their organisations has not exactly been a stellar one. According to the Hansard excerpt which the hon. Gentleman helpfully read out, the British Bankers Association and the Building Societies Association will set up one or more reclaim funds that could—I stress the word “could”—become a cosy little club that does not regulate itself properly, does not comply with its memorandum or articles of association and does not comply with the objects of the reclaim company. In that case, clause 5(4) is therefore necessary and amendment No. 10 should be rejected.

If my analysis is correct, it raises the question why the legislation does not offer a little more clarity on who the members of a reclaim fund company should be. It also suggests that the Treasury should, in some guise, be a member—not the dominant member, but a member—of a reclaim fund so that in its role as a member, it could enforce compliance with the memorandum and articles of association were the directors to fail to comply.

I hope that the Minister will set my heart at rest as to why clause 5(4) is in the Bill and explain that, although it should not be part of the Bill, its inclusion is necessary because of the lacuna in respect of lack of enforcement that follows from our not knowing who the members are.

Mr. Walker: This is an interesting set of amendments. When the Bill becomes an Act, it will result in the establishment of a reclaim fund, which will be a limited company. If it is to carry the support of the public, the operation of the scheme must be transparent and its decisions, as well those participating in the scheme, must be subject to scrutiny. We will look into that in three years’ time, but what we will really want to know is which banks and building societies are foot dragging and are choosing not to participate. If we know who they are and we can benchmark them against those who are participating, we could bring them before the Treasury
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Select Committee, for example, which could then ask them directly why they are not participating in the voluntary scheme.

It may be that banks and building societies have very good reasons not to participate, but equally it may be that they frankly cannot be bothered. Only through public scrutiny and public opprobrium can we bring them to the table. I say “only”, but there is, of course, another mechanism: statutory regulation. In that case, after three years, the House says, “You organisations are not pulling your weight. We have tried the voluntary route, but we are now going to go down the compulsory route—and you will participate in this scheme.” That would be a great shame, but it could happen.

As for the Treasury’s direction of this limited company—the Treasury’s right to direct it—it would be helpful if the Minister put some scenarios before the House to explain why or when the Treasury might wish to exercise such power. After all, having served in Committee, I believe I am right to believe that the Bill allows for the establishment of a limited company that would be regulated by the Financial Services Authority. Only extreme circumstances would allow the Treasury to start to interfere in day-to-day operations, but we know that such circumstances arise, as we have seen recently in the banking sector—I sincerely hope that this rather small organisation does not experience the same type of crisis in two or three years’ time.

I listened to the hon. Member for Wolverhampton, South-West (Rob Marris) and I heard his concerns, so I think it would be helpful if the Minister brought us in on some of the conversations he has had with his civil servants on what circumstances might trigger a direct intervention from the Treasury. If nothing else, that would put our minds at rest.

Mr. Jeremy Browne: I rise to say briefly that I agree with the hon. Members for Broxbourne (Mr. Walker) and for Fareham (Mr. Hoban) that amendments Nos. 10 and 12 propose a bit of an either/or provision. Speaking as one who wants the greatest degree of independence and transparency, however, I believe that going down one of the proposed paths would further those objectives. The public need to enjoy confidence in an organisation. They need to believe that it will not be unduly manipulated or directed by the Treasury, but will be able to operate with a bit more freedom of spirit.

As was said earlier, it would be helpful to know something about the composition of the group. I do not think that it should be seen as merely a wing of the Treasury. It would be helpful if the Treasury provided a direction, or even instructions, to the effect that the group should be open to scrutiny by Parliament and by the wider public, and we should be able to know the basis on which such orders were given. I consider that amendments Nos. 10 and 12 would further those objectives, and are laudable for that reason.

Amendment No. 11 is slightly different. It would name and shame those who chose not to participate. I instinctively take the view that schemes of this sort should be voluntary rather than compulsory, because I tend to regard compulsion as undesirable unless it is wholly necessary. However, as the hon. Member for Broxbourne pointed out, if a stage is reached when
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most banks and building societies are demonstrating good will—making it clear that they want the scheme to work and want to support, indirectly, the projects for young people on which it is envisaged that a large amount of the money will be spent—while others are not participating, not for good reasons but because they regard the scheme as burdensome, unnecessary and not part of their core business, it seems reasonable for us parliamentarians, and the public as a whole, to know which banks are entering into the spirit of the enterprise and which are not.

Mr. Walker: It is quite simple: a list of participants should be published, and if the name of a building society or bank does not appear on it, shareholders, Ministers and Back-Bench Members of Parliament should be able to ask questions about its absence.

Mr. Browne: Unless I have misunderstood it, the amendment proposes the publication of a list of banks and building societies that have not participated, rather than a list of those that have done so—although for those with a good knowledge of the sector, the end result would be the same.

Mr. Hoban: Let me clarify the proposal for the benefit of the hon. Gentleman and my hon. Friend the Member for Broxbourne (Mr. Walker). The amendment would ensure that the accounts of the reclaim fund listed those who had participated in terms of the amounts that they had transferred, but also listed those who had not participated.

Mr. Browne: That is a helpful clarification. It would obviously be much easier for a member of the public to identify the offending banks—those that had not entered into the spirit of the legislation—if there were a list of banks that had not participated rather than a list of those that had, which would mean trying to work out which names were not on the list. This is difficult territory. It could be argued that if a scheme is made voluntary and huge moral pressure is then put on bodies to comply, it is voluntary in name only.

Mr. Walker: In essence, what my hon. Friend the Member for Fareham (Mr. Hoban) is rightly demanding is a factual demonstration of, and factual information on, the state of play.

Mr. Browne: Absolutely. We are not making a moral judgment about the names on the list, although others may seek to do so; we simply want factual information on whether the institution in question has chosen to participate in the scheme. The hon. Gentleman made a good point when he said that the Treasury Committee, for example, could invite non-participating institutions to appear before it and discuss why they did not wish to comply. They might, of course, have good reasons. The scheme might not be working as we expected it to when we passed the legislation. The group with most cause to reflect on why the institutions were not participating might be not the institutions themselves, but the Members of Parliament who had established rules that did not work as they had wished. That would, I hope, emerge in the review in three years’ time, and might make the scheme more attractive to those who had not participated but did not object, in principle, to doing so.

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