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General Committee Debates

Banking Bill

The Committee consisted of the following Members:

Chairmen: Mr. Roger Gale, † Mr. Jim Hood, Mr. Eric Illsley
Barlow, Ms Celia (Hove) (Lab)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Bone, Mr. Peter (Wellingborough) (Con)
Breed, Mr. Colin (South-East Cornwall) (LD)
Eagle, Angela (Exchequer Secretary to the Treasury)
Flello, Mr. Robert (Stoke-on-Trent, South) (Lab)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Hoban, Mr. Mark (Fareham) (Con)
Hosie, Stewart (Dundee, East) (SNP)
Keeble, Ms Sally (Northampton, North) (Lab)
Newmark, Mr. Brooks (Braintree) (Con)
Pearson, Ian (Economic Secretary to the Treasury)
Pugh, Dr. John (Southport) (LD)
Robertson, John (Glasgow, North-West) (Lab)
Smith, Geraldine (Morecambe and Lunesdale) (Lab)
Todd, Mr. Mark (South Derbyshire) (Lab)
Viggers, Sir Peter (Gosport) (Con)
Wilson, Phil (Sedgefield) (Lab)
Alan Sandall, Mick Hillyard, Committee Clerks
† attended the Committee

Public Bill Committee

Thursday 30 October 2008


[Mr. Jim Hood in the Chair]

Banking Bill

Clause 214

Consolidated fund
9 am
The Exchequer Secretary to the Treasury (Angela Eagle): I beg to move amendment No. 28, in clause 214, page 102, line 9, leave out ‘UK authorised institution’ and insert ‘bank or other financial institution’.
The Chairman: With this it will be convenient to discuss Government amendments Nos. 29 to 31 and Government new clause 3—“Financial institution”.
Angela Eagle: The purpose of the clause is to put the use of public money in the proposed bank resolution or insolvency arrangements, or in the provision of financial assistance to banks, on a more regular footing. The Treasury has the power, as a matter of common law, to make loans to any person or to give them financial assistance in any form, but it has the money to make those loans or to make good on any commitment it has given only if Parliament, rightly, provides the money in estimates. The annual Appropriation Acts can give full statutory cover for expenditure on estimates, but in line with the Public Accounts Committee concordat of 1932, specific enabling legislation is normally required to enable the finance for a new service to be provided from public funds. That is what the clause provides.
Clause 215, which fits with this clause, enables the Treasury to draw money from the national loans fund to make loans to financial institutions where it needs to do so urgently to protect financial stability. Financial crises can arise at any time and it might not be possible to get an estimate approved quickly enough for the Treasury to make a loan from voted money, most obviously during a recess when Parliament is not sitting.
As originally drafted, clauses 214 and 215 provided for loans or financial assistance to be given only to UK authorised institutions that have permission to accept deposits, in other words UK deposit takers. It was realised in the light of recent events, including those surrounding the Icelandic banks, that such a limitation could make it more difficult to protect the interests of UK consumers or safeguard the interests of UK taxpayers where there is a failure of an overseas institution. The amendments address that limitation which, as we all know, has been shown to be actual rather than potential in the last few days.
Angela Eagle: It would be an individual policy decision in a certain circumstance. Each situation might be different. The proposal is a much simpler thing. It gives cover for lending the money and puts it on a proper footing. In other words, because of the 1932 PAC concordat, where it looks as though money might need to be provided on more than one occasion, specific legislative approval is needed for that kind of process, rather than just using contingency funds. That is all the clause does. It does not talk about what the cost of capital would be. It would be wrong to think about putting any cost of capital in primary legislation, for obvious reasons.
The clause simply regularises, in accordance with the 1932 PAC concordat, as Parliament expects that if such expenditure could occur in the future, there should be specific legislative mention of it. This kind of clause appears in all sorts of bits of legislation. It is not unusual. It merely enables the potential use of money in that way to be regularised by statute. It does not go into any kind of detail about circumstances or what the cost of capital would be if such an issue were to occur.
Mr. Mark Hoban (Fareham) (Con): May I ask the Minister about subsection (3)? She referred to the limitations that have been identified through events at Icelandic banks. Would the Government’s action be outside the scope of the existing law if subsection (3) were not included?
Angela Eagle: My understanding is that that is not the case, and that there is existing cover using estimates, but contemplating such expenditure to rescue banks in trouble has not previously occurred in this way. So far, it has been covered by using the contingency funds voted by parliamentary estimates.
The combination of clauses 214 and 215 shifts the way in which we propose to cover the situation in future. First, clause 214 regularises the situation in terms of the PAC concordat by providing a particular statutory undertaking rather than relying on contingency funding. Secondly, clause 215 says that the best place from which to provide the money is the national loans fund rather than the Contingencies Fund, for reasons that we can go into when we discuss that clause. The amendments widen the capacity for using that process to non-UK deposit-taking banks, following the issue with the Icelandic banks. That is all the clauses do. They do not go into great detail about other circumstances.
There is a common law power, which means that everything that has been done to date is lawful, but because of the 1932 PAC concordat, the idea is not to rely on common law powers for ever into the future if an issue comes up that may result in such expenditure reoccurring. The PAC concordat is that if something that had not existed or been appreciated, but might require forward expenditure—the present situation is an example—the Government will take a specific power for those circumstances, rather than simply relying on common law powers. That is a bit of a techie point, but that is all it is.
Mr. Newmark: I have another question, but if I am off base, perhaps the Minister will let me know.
I know that there are EU financial assistance rules, and I wonder how the new legislation ties in with them, or whether it is even relevant to them. Were they taken into account when drafting the Bill?
Angela Eagle: Obviously, a range of structures, national, EU and international, come into play when unexpected global events occur that affect entities with a global presence or with branches or part of the entity elsewhere—for example, Landsbanki in the UK—although they are regulated elsewhere. If the hon. Gentleman is referring to state aid, he is right: the clause is compatible with state aid. If he is referring to other EU rules, he will have to be more specific.
We do not believe that the clauses do anything to put us into conflict with EU rules. The point is technical and narrow, and ensures that our expenditure is properly and specifically accounted for, rather than being subject to common law, which is what the then Government arranged with the PAC in 1932.
Clause 214 is not unique. Its provisions appear in other legislation where a possible circumstance has been identified in which expenditure might have to be made. In such a case, the usual rule is to make proper legislative provision for it, which is what the clause does. It is nothing more or less than that.
I have introduced the amendment and we have talked a bit about the clause as well, but I am happy to answer any further questions that hon. Members may have.
Mr. Hoban: May I make a plea to the Minister? As hon. Members will recollect from our proceedings on the Finance Bill, when Government amendments were tabled, they were occasionally accompanied by explanatory notes, which assisted Members from all parties who were perhaps not privy to the thinking of Treasury officials. The Minister has acknowledged the technical and, indeed, techie nature of the measure, so is it possible to provide such notes for some of the Government amendments?
I turn now to the amendments and new clause 3. The original drafting made explicit the group of institutions to which financial assistance could be provided: UK authorised institutions and institutions that were deposit takers. I understand the point the Minister made about non-UK institutions, but I do not know the precise legal status of ING, to which the retail deposits of, I think, Kaupthing and Heritable were transferred. I had assumed that if ING Direct was an incorporated limited company in the UK, it would have already have been picked up under subsection (2)(b). However, if it was a branch of the Dutch parent would it, on that basis, fall outside subsection (2)(b)? I would be grateful for clarification about the contrast in status between branches and UK subsidiaries of overseas entities.
I could understand the position if the amendments were limited to deleting “UK”; the Minister’s explanation would stack up quite well and I would be happy to move on. However, I am concerned that the way in which the amendments have been drafted means that they go beyond banks. Amendment No. 28 refers to
“bank or other financial institution’.
On that basis, it could be an investment bank, which may not be a deposit taker in the strict definition of subsection (2)(b) or it could be an insurance company, an investment manager, an insurance broker or even an independent financial adviser. I am not sure how widely drawn
“bank or other financial institution”
is or why the Government believe it is necessary to have such a broad definition in the Bill. The breadth of clause 214 is extended by new clause 3, which gives the Treasury the power by order to
“provide that a specified institution, or an institution of a specified class, is or is not to be treated as a financial institution for the purposes of section 214 or 215.”
I understand that would work on a case by case basis, so I am not sure why the Government might want to decide, or have the power to decide, to exclude a specific category of institutions from the definition of
“bank or other financial institution”.
It would be helpful if the Minister could clarify that point because I am not entirely sure whether the measure gives the Government much wider powers to give assistance to financial institutions that are beyond the scope of the Bill—for example, to an insurance company.
Reports in the papers during recent weeks have suggested that there is some concern about the solvency of insurance companies. I do know whether the powers are sufficiently broad to enable Government financial assistance to be given to insurance companies, not withstanding the narrow scope of the Bill. Will the Minister explain why the terms have been drafted so widely and what the relevance of the power in new clause 3 is? Will she confirm that the financial assistance will not be used for any purpose beyond the limits set out in the Bill?
9.15 am
Angela Eagle: On the hon. Gentleman’s point about explanatory notes for amendments, we are happy to try to provide them if the Committee feels that they are of assistance. We will get on with that for future aspects of the Bill, so I hope that is helpful.
The hon. Gentleman asked why there was such a broad definition in the Bill, and why the original drafting had been expanded by the amendments. It is partially because events have demonstrated that our original drafting was too narrow for us to achieve the aim, for systemic reasons, of stabilisation of particular institutions, which is what the Bill is about. Simply, the Landsbanki events demonstrated that the provisions as originally drafted were too narrow.
The hon. Gentleman asked where the bank ING was incorporated. He was right—it is incorporated in the Netherlands, so, but for the amendments, it would fall outside the provisions of subsection (2). The original drafting of the Bill would have made it harder for us to handle the situation that occurred. To be clear, however, we do not have any plans to provide financial assistance to ING—just in case anyone gets the wrong idea about that.
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