Angela
Eagle: The hon. Gentleman has alighted on one of the
points that we were keen to modernise in the legislation around
commercial issuance of the banknotes, to ensure that there was no
ambiguity about which existing notes could be regarded as issued for
the purpose of backing assets. He has discovered immediately one of the
areas of ambiguity that we seek to put right, and he is right to point
out to the Committee why it is important to do so. If a note has been
issued accidentally or because of theft, it is still a promise to the
individuals using it, and it needs to be backed by the appropriate
assets.
The
hon. Gentleman is quite right. He has alighted on an ambiguity, and he
has pointed out why it needs to be made unambiguous. That is what the
clause will
do. Question
put and agreed to.
Clause 195
ordered to stand part of the
Bill.
Clause
196“Authorised
bank” Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: I thank the Minister for listing the various banks
that supply us. It is one of those circumstances in which Wikipedia
proved correct before the Committee. I thank her for providing
clarification on what happens in mergers, which is topical and
important. I have another question to ask, partly to provoke the hon.
Member for Dundee, East. Were a bank falling within the definition of
an authorised bank to relocate from Scotland or Northern Ireland to
elsewhere in the United Kingdom, would it still be able to benefit from
the provisions, or would it be disqualified from issuing
banknotes? 6.15
pm
Angela
Eagle: The hon. Gentleman is right. Clause 196 defines
“authorised bank” as it is used throughout part 6. Since
the current legislation was enacted, as I hinted earlier, there have
been restrictions in place governing note issuance by these banks. As I
said earlier, the Bill modernises and strengthens the framework for
note issuance, with a view to enhancing noteholder
protection. The
hon. Gentleman asked specifically whether a bank relocating elsewhere
in the United Kingdom would still be able to issue notes. If it moved
elsewhere and relocated in the UK, it would still be able to benefit.
It would not lose its authorisation on the grounds of relocation
elsewhere in the UK. I hope that that answers the hon.
Gentleman’s question about the definition of “authorised
bank”.
Question
put and agreed
to. Clause
196 ordered to stand part of the
Bill. Clauses
197 and 198 ordered to stand part of
the Bill.
Clause
199Saving
for existing
issuers Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: Essentially, the position created by these
provisions is that those banks that can currently issue banknotes may
continue to do so, but new ones cannot. Why
not?
Sir
Peter Viggers: What is the Government’s assessment
of the value to each of the issuing banks of their having the authority
to issue banknotes? Assessments have been made and have been disputed
by the Government, but what is their assessment of the global value of
all those banks that have the right to issue banknotes, broken down
into the separate constituent parts of the individual
bank?
Angela
Eagle: The hon. Member for South-West Hertfordshire asked,
“Why no new issuers?” As I said in my prefacing remarks
about part 6, banknote issuance is usually a function reserved for
central banks. The UK is almost, but not quite, unique—if we
count Hong Kong—in allowing a number of commercial banks to
issue their own banknotes. Under the existing legislation, only the
banks that had issuing rights at the time of the enactment of the
legislation in 1845 that sought the necessary certifications to
continue issuing in accordance with those enactments may issue
banknotes—and only in Scotland and Northern Ireland. As I said
earlier, only seven of the original 21 entities remain after 160 years
of commercial operation. That is the attrition
rate. The
Government support the continuation of this tradition of commercial
issuance, simply because it is
a—
Angela
Eagle: A tradition that does no particular harm and is
particularly welcome in Scotland. A different debate goes on in
Northern Ireland about the practice. The Government do not wish to see
that tradition draw to a close by enacting legislation that would ban
it; it is appreciated particularly in Scotland. We are not seeking to
discourage note-issuing commercial banks from continuing to issue their
own banknotes, but it is a privilege and is not a right that should be
open to all. It is not a commodity that should be bought and sold. It
is an historical quirk that we can support, but for obvious reasons, we
would not seek to revive or expand it. The hon. Member for Dundee, East
is getting to his feet.
Stewart
Hosie: It is certainly historical, but I think that it is
more than a quirk. Perhaps I can help the hon. Member for Gosport with
his question. Although the value may be modest in cash terms, the
promotional value is enormous, not only for Scotland, but particularly
for the banking sector in Scotland. It is probably an incalculable
amount of money. This is rather more than an historical
quirk.
Angela
Eagle: Well, it is an historical quirk in that it has
survived through the ages and not been centralised as has happened in
every other country except Hong Kong. There are costs for banks that
issue their own
notes—not least the costs of printing, safeguarding, designing
and ensuring that backing assets are kept to back up the cost of note
issuance. I assure the Committee that the Government do not seek to
extend the right to issue to any new institutions. The original issuing
legislation was careful to close down that eventuality—it
applied only to the commercial banks that existed at the time and since
then, their number has gradually declined.
Mr.
Bone: In her earlier remarks, the Minister said that the
decline was partly due to mergers and that is why those involved
dropped out. There is a massive merger at the moment regarding one of
those banks. We must follow the consequences of what the Minister was
saying, namely that we do not want to expand the right to issue notes
to different banks. However, lawyers will get involved with the bank
that does issue them. If we follow the logic of the argument, would
that not be a reason for stopping it at that
stage?
Angela
Eagle: It depends on how the merger is done. As I said
earlier, issuing rights are vested in the underlying corporate entity.
If that corporate entity were to disappear in a merger with another
institution, its issuing rights would go. In the case of Lloyds
TSB-HBOS, the Bank of Scotland—a subsidiary of HBOS—is
the issuing bank. A change of ownership at Bank of Scotland, as long as
it remains an entity, will not affect its issuing rights. If Lloyds TSB
was going to take over and extinguish the Bank of Scotland, I am sure
that the hon. Member for Dundee, East would have a few words to say. If
the Bank of Scotland ceased to exist, that would extinguish its issuing
rights. However, the fact that it remains a subsidiary means that that
is not an issue in this case.
The hon.
Member for Gosport asked what the value of the authorisation to issue
was. This is a commercial matter. During three rounds of consultation
about the changes that are now in part 6, no bank responded that the
right to issue caused distortion or unfair competitive advantage. That
issue was not raised. I do not have the figures that the hon. Gentleman
requested to hand—as I said, this is a commercial matter.
However, I think that £3.5 billion of Scottish banknotes and
£1.6 billion of Northern Irish banknotes are in circulation. To
the value of £40 billion of Bank of England notes are in
circulation. That will at least give the hon. Gentleman a view about
the larger part of the circulating currency that we are talking
about.
I hope that
with those answers, the Committee will support clause 199.
Question
put and agreed
to. Clause
199 ordered to stand part of the
Bill. Clause
200 ordered to stand part of the
Bill.
Clause
201Banknote
regulations Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: May I make a point that could be made in relation
to either clause 201 or clause 202? Clause 201 states that the banknote
regulations must be made
through the affirmative procedure, which we welcome, but clause 202
states that the Bank of England may make banknote rules. In those
circumstances, there will be no direct parliamentary scrutiny, and I
query whether the affirmative resolution procedure will prove to be as
useful as it at first appears. The Minister has provided us with an
early draft of the banknote regulations, but am I right to think that
Parliament might not have an opportunity to scrutinise those
rules?
Stewart
Hosie: I am confident that the regulations and the rules
will cover matters such as standard size, security features and the
weight of notes. I know that the banks have been lobbying hard
regarding concerns that they had in the early stages of consultation.
Will the Minister confirm—we will cheer if she does—that
the Government do not intend to have a single note of each
denomination? Will they continue to allow limited edition notes, which
are valuable for many reasons, to be issued, as long as they meet all
the rules and regulations that will cover all
notes?
Angela
Eagle: The framework governing the issue of Scottish and
Northern Irish banknotes is set out in the primary legislation. The
detail of the provisions in part 6 are, as the hon. Member for
South-West Hertfordshire said, to be captured in regulations that will
be subject to the affirmative resolution procedure. A draft set of the
regulations has been provided to the Committee to assist our debates.
Further, there is provision for making banknote regulations that
contain details about the treatment, holding and issuing of banknotes
by authorised banks. As hon. Members will see when we debate clause
203, the regulations will require authorised banks to have backing
assets. They will also contain detailed provisions on important issues
such as how backing assets may be held, how they may be treated in an
insolvency, and how reports about them should be made by authorised
banks.
I welcome
hon. Members’ comments on the draft regulations, but I ask them
to bear in mind that they are in draft form. I sent them to the
Committee merely to illuminate debate on the relevant clauses. They are
not totally baked and out of the oven, but are to some extent a work in
progress; some of them need further work before they can be consulted
on.
The draft
regulations contain detailed provisions relating to, among other
things, the conditions attached to approved or designated locations or
agents, the proportion of backing assets to be held in a particular
form or location and the scope of the banknote rules. Those rules are
intended—this brings us to a question that the hon. Member for
South-West Hertfordshire asked—to be even more detailed in
relation to how the regulations work. In essence, the banknote rules
are even more detailed and rely and hang on the statutory
instruments—the secondary legislation—that we will pass,
which is why I do not agree with the hon. Gentleman’s worry that
somehow the banknote rules will avoid parliamentary scrutiny. The
regulations will be passed by this House in affirmative form and voted
on. The banknote rules will then iterate even more detail about how the
Bank of England will fulfil its obligations in that
respect. The
regime needs flexibility to adapt to changes and developments in
banknote issuance that might occur in future. The authorities might
also have to act quickly by
making regulations or rules to ensure that the integrity of the currency
is maintained at all times. The idea of the balance between secondary
legislation and the banknote rules will again focus first and foremost
on protecting noteholders in order to ensure that confidence is not
lost in any of the currency. Banknote rules mainly make provision as
specified in the banknote regulations; they cannot do things that are
not connected to the regulations that will be debated and voted on in
this House. In
answer to the perfectly reasonable question about limited edition notes
asked by the hon. Member for Dundee, East, I can confirm that it will
still be possible to issue limited edition notes. With those
reassurances, I hope that hon. Members will agree that clause 201 stand
part of the
Bill. Question
put and agreed
to. Clause
201 ordered to stand part of the
Bill. Clause
202 ordered to stand part of the
Bill.
Clause
203Backing
assets 6.30
pm
Angela
Eagle: I beg to move amendment No. 21, in
clause 203, page 98, line 7, leave
out
‘processes’.
The
Chairman: With this it will be convenient to discuss
Government amendments Nos. 22 to
27.
Angela
Eagle: The amendments are a technical clarification of
references to insolvency in clauses 203 and 206 of part 6. The need for
the amendments was not appreciated until a comparatively late stage,
and I regret the inconvenience to the Committee in having to table
Government amendments. As I have said, the provisions of part 6 are
primarily concerned with ensuring that noteholders of commercial
issuing banks are protected in the event that the issuing bank gets
into difficulties. Clause 203(5) specifies:
“Banknote
regulations may make provision about the treatment of backing assets in
relation to insolvency
processes”. Clause
206(1)
states: “Banknote
regulations may make provision in connection with the application to an
authorised bank of ...the special resolution regime (under Parts 1
to 3), or...an insolvency
process”. The
insolvency process is defined in clause 203. It is the policy intention
for the Bill to enable banknote regulations to make a provision in
relation to the law of insolvency and the law of an insolvency
process—for example, in relation to the treatment of backing
assets. As hon. Members will be aware, that is necessary because not
all insolvency processes start on insolvency.
The state of
affairs where a bank can no longer afford to pay its debts is defined
in section 123 of the Insolvency Act 1986. As currently drafted, the
provisions only allow banknote regulations to make provisions in
relation to insolvency processes, so the amendments are necessary to
ensure that banknote regulations can make provision for insolvency or
an insolvency process. Amendments Nos. 23 and 24 mean that insolvency
can be taken to include a reference to insolvency process, which may
include liquidation, administration, receivership and so on. The
provisions are of integral importance to part 6
to ensure that provision can be made to ring-fence backing assets in
order to back those notes in the event of insolvency or an insolvency
process. Amendment
agreed
to. Amendments
made: No. 22, in clause 203, page 98, line 8,
leave out ‘an insolvency process’ and insert
‘insolvency’. No.
23, in clause 203, page 98, line 18, leave out
‘“insolvency process” means’ and
insert ‘a reference to
“insolvency” includes a reference
to’. No.
24, in clause 203, page 98, line 19, leave out paragraph (a) and
insert—‘(a) liquidation,’.—[Angela
Eagle.] Question
proposed, That the clause, as amended, stand part of the
Bill.
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