Mr.
Hoban: I am grateful to the Minister for his reply, which
reinforced the intervention about the hierarchy of objectives made by
my hon. Friend the Member for Wellingborough during my earlier remarks.
It appears that the principal objective is the protection of
depositors. Whenever we debate what the Bill seeks to achieve it
appears that the interests of investors and creditors rank pretty low
down the list of priorities. That is reinforced by this clause, which
enables the Bank to disrupt traditional property rights because it
gives the Bank the power eventually to have partial transfers. The
message that comes through clearly is the relatively low
priority given to the rights of creditors. That goes back to the concern
people have about this Bill—that the power given by the Bill to
the tripartite authorities is not well constrained when it comes to the
interests of people other than depositors. The Government need to think
carefully about how that protection of creditors is expressed or
given—we will come on to that again in clauses 42 and 43. I do
not get the impression at the moment that creditors are given a
particularly high priority. That is why I would expect to see the
Government take the interests of creditors more seriously. The Bank
could have had regard in clause 8 to objective 5 in the same way as it
has regard to the other objectives. There is a gap that the Government
need to
address. Question
put and agreed to.
Clause
8 ordered to stand part of the
Bill.
Clause
9Specific
conditions: temporary public
ownership Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban: I shall not go over the ground that I covered under
clause 8, but the same sorts of concerns arise. There are two examples
of temporary public ownership that we can refer to. One is the way that
the Government dealt with Northern Rock, which is still in temporary
public ownership and will be for some time. The other is the rescue of
Bradford & Bingley, which, as I understand it, involved that
institution going into temporary public ownership to enable deposits to
be transferred and some of its residual activities to be acquired by
Abbey
Santander. What
guidance does the Minister have for the Committee on how long an
institution will be allowed to be in temporary public ownership? The
example of Bradford & Bingley would suggest a relatively short
time—it was a very temporary measure—whereas Northern
Rock could be with us as the people’s bank for some time.
Temporary is an elastic term, but it would be helpful to know where
temporary public ownership fits in the stabilisation options hierarchy,
alongside private sector purchasers and bridge
banks.
Ian
Pearson: As we debated under the previous clause, the
stabilisation powers can alter or remove property rights, and they
involve public authorities taking control of commercial institutions.
Therefore they should be used only when they are justified in the
public interest. I wish to take issue with the hon. Gentleman. He said
that we are not taking the interests of creditors sufficiently into
account; clause 8 provides a higher-level test with regard
to the public interest, which is why we included
it. Whereas
clause 8 deals with the specific conditions for transferring a failing
bank to a private sector purchaser or a bridge bank, this clause
provides specific conditions that must be met before the Treasury can
take a bank into temporary public ownership. Those conditions are that
the exercise of the power is necessary to resolve or reduce a serious
threat to the stability of the UK’s financial systems, or that
it is necessary to protect the public interest where the Treasury has
provided financial
assistance in respect of the bank for the purpose of resolving or
reducing a serious threat to the stability of the UK's financial
systems. The
specific conditions in clause 9 are in addition to the general ones in
clause 7, and are the same as those in the Banking (Special Provisions)
Act 2008. Hon. Members will note that they therefore provide a higher
test than those in clause 8. They signal that the power for the
Treasury to take a bank into temporary public ownership is a
last-resort SRR tool, and reflect the situations in which doing so may
be the most appropriate option. Examples of those situations are: where
the Treasury has provided a failing bank with a significant amount of
public money to stabilise it; where wholesale and long-term
restructuring is required to return the bank to the private sector; and
where the bank is subject to an extremely fast-burn or complex failure
such that there is insufficient time or means to effect a property or
share transfer to a private sector purchaser without significant risk.
The clause provides a strict test, and makes it clear that temporary
public ownership is a last
resort. The
hon. Gentleman asked how temporary “temporary” is. It
would not be sensible to put a time limit in the Bill. The Government
would not intend the option to be a long-term one, reflecting how the
word is normally interpreted. We try to make it clear in clause 9 that
we consider temporary public ownership only if it is appropriate. It is
certainly a last-resort option. We would always want in the first
instance to prevent a bank from entering the SRR. If it was necessary
to do so we would look at the private sector purchase route. We would
look to use the bridge bank tool. The temporary public ownership tool
should be seen very much as one of last
resort. 10.15
am
Mr.
Hoban: I am grateful for that clarification. It is very
much one of last resort, but I am not sure how clause 9 demonstrates
that. It does not say that if we are unable to achieve the options set
out in clause 8 we can move into temporary public ownership. Clause 12
talks about the “third stabilisation option”. I am not
sure whether that means that it is the third preference, so I am not
sure where this proof that it is a last resort appears in
legislation.
Ian
Pearson: The higher tests for temporary public ownership
than for a bridge bank or transfer to a private sector purchaser
clearly demonstrate the Government’s intention. We believe that
taking ownership of the whole of a bank must be justified only on the
basis of a higher public interest test that reflects the specific
reasons why such action will be taken. We think it important that this
is an option to address financial stability risks, including when
financial assistance has already been provided, as I have explained. It
is important to have the ability to protect taxpayers’ interests
by taking full control of a failing bank. I am happy to repeat that the
higher test levels and the fact that the authorities would always want
to look for another solution first, very much reflect the way in which
we have designed the Bill overall.
Mr.
Bone: I understand that the Minister is stating the
Government’s position, which is that if circumstances
necessitate it, partial public ownership will be the last resort. That
is their intention. But it does not bind any future Government to that.
The next Government may be very keen on nationalising things. That is
very unlikely, but the Bill does not rank it. The Minister is stating
the current Government’s position if such an event
occurred.
Ian
Pearson: It is certainly this Government’s
position. But I refer the hon. Gentleman to some of the detail of the
clause. It makes it clear that a high level of test needs to be
satisfied before action can be taken in this area. There would have to
be a systemic threat to financial stability. There would have to be
some significant Government investment in the failing bank already. A
medium-sized bank that got into financial difficulty and which the
Government had not supported previously could not suddenly be
nationalised. That is not the Government’s intention. Clause 9,
as I understand its construction, would not allow that to happen. We
are trying to make the Government’s position in this area as
clear as possible. That is why I have indicated very strongly that this
is seen as an option of last resort which might be needed in certain
circumstances. Dr.
John Pugh (Southport) (LD): Just to be absolutely clear,
and I think I understand the logic of the position, the Minister is
saying that the Government wish to keep open the possibility of
temporary public ownership, even if the option of private sector
purchaser and bridge bank is also open at the same time. In other
words, it could be a tool of preference. That is clearly what the
legislation says at the moment. Even though the preference would
normally be to use it as a last resort, it would not inevitably be used
as one, and it could be used in circumstances where there was still a
private sector purchaser in the wings or the possibility of a bridge
bank.
Ian
Pearson: As I was trying to explain, the higher public
interest test means that it could be used only when financial
assistance had been provided or there was a systemic threat. It could
not just be generally used. If either of those conditions were met, it
would be a matter for the Treasury, in discussions with the Bank of
England, which will take the lead responsibility in exercising
stabilisation tools, to come to some agreement about the best way
forward. I used the term “last resort” because it
announces the Government’s intention clearly, but it would not
be appropriate to put that in the Bill. It could certainly be an
appropriate course of action depending on the circumstances, but as I
have outlined, the higher-level tests provide a significant assurance
about how the power might be used in
future.
Mr.
Hoban: I am still not entirely clear that the clause
includes a higher public interest test. It provides a public interest
test where financial assistance has been provided, but financial
assistance is also one of the precursors to condition B in clause 8. It
is not clear where the crossover point is between condition B and the
higher tests in clause 9. The Minister may say that the language in
subsection (2) about “a serious threat” beefs up the
provisions beyond clause 8. That might be his justification that the
test in clause 9 is a higher test,
but I am not sure that that is what he is saying. We have not heard
clearly on the record what specifically about the wording of clause 9
makes it a higher test than clause 8 and a power to be used only in the
last
resort.
Mr.
Bone: On the principle behind the clause, I understand
entirely the Government’s position that Government ownership of
a bank is the last resort, but that is not what the Bill says. Under
the Bill, even though a private market opportunity might be available,
the Government could decide that nationalisation, even temporary
nationalisation, was more in the public interest.
If that is
what the Government mean—if they want to leave it open for a
Government to decide that nationalisation is an option although there
is a market solution—that is fine. However, that is moving a
long, long way from the position at the start of the crisis, when the
Chancellor was almost apologetic about nationalising Northern Rock,
saying that it was the last thing and that we could not find any other
market solution. We may have to come back to this on Report,
but I ask the Minister: what are the Government really saying? Are they
saying that in all cases, they want a market solution if
possible? Mr.
Mark Todd (South Derbyshire) (Lab): There is one
conceivable circumstance in which pursuing an available market solution
might not be regarded as appropriate or in the public interest. We have
seen an illustration of that in the dilemma involved in the permissive
approach to the merger of Lloyds TSB and HBOS. A judgment might be made
that that was such an uncompetitive move in the marketplace that it was
not in the public interest to pursue it, even though it could be
conceived as a solution to that particular banking crisis. That is an
illustration of why the tools might be used slightly
differently. It
being twenty-five minutes past Ten o’clock, The
Chairman adjourned the Committee without
Question put, pursuant to the Standing
Order. Adjourned
till this day at One
o’clock.
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