Mr.
Gauke: I am grateful to the hon. Member for Southport for
tabling, speaking to and, to some extent, demolishing new clause
20.
Dr.
Pugh: I pre-empted
criticism.
Mr.
Gauke: I have some slightly different criticisms that the
hon. Gentleman has not pre-empted. I appreciate that he tabled the new
clause in a probing manner. Were he to press it to a vote we would not
support it for one rather important reason. If it is necessary to raise
issues of public policy, remuneration, lending or dividend policy in a
bank that has been recapitalised, the place to do so is in the original
agreement, be that the placing offer, the subscription agreement or
whatever. It is appropriate to reach agreement at that point, rather
than to claim subsequently, notwithstanding agreements that have been
reached, that there is a provision that banks must have regard to
Government policy, whatever it might be. That would create an enormous
degree of uncertainty, make recapitalisation through the process the
Government used last month very unattractive for banks and do nothing
for the long-term situation. Those things should be addressed at the
time recapitalisation is agreed, when there is agreement between the
parties. None the
less, it is helpful that the new clause has been tabled and that we
have an opportunity to debate it, because it highlights some of the
Government’s difficulties in the area. When the announcement was
made on 8 October and confirmed on 13 October, much was said about
lending policies, for example, and about returning to 2007 levels. The
Government appeared to be in a complete muddle about what that actually
meant, so we and others pursued the matter and eventually reached the
position that availability of loans would be at 2007 levels, but not
the volume of loans. That certainly was not clear initially and the
announcement was spun by the Prime Minister and the Chancellor to
suggest that we would be forcing banks to lend at 2007 levels. We
should at least have some clarity on that point.
This morning
the Government published a written ministerial statement on the bank
recapitalisation scheme, and three points are salient to new clause 20.
Paragraph 3 states:
“If
the Government is to provide capital, the issue will carry terms and
conditions that appropriately reflect the financial commitment made by
the taxpayer, including in relation to dividend policy, remuneration,
lending policy and wider public policy
issues.” As
I understand it, the statement relates to future recapitalisations and
not to those that have already occurred. Reference was made in the
statement to RBS, Lloyds and HBOS, which have already
participated.
I do not know
whether paragraph 3 is an admission that, in essence, with regard to
previous recapitalisations, the Government have not properly addressed
the wider public policy issues, and that the terms and conditions
reached previously have not fully addressed that point—the issue
the hon. Member for Southport sought to address. Do the Government feel
that they sufficiently achieved their objectives in reaching terms and
conditions with RBS, Lloyds and HBOS to enable them to achieve their
wider public policy concerns? I detect an admission of failure in
paragraph
3. Paragraph
4 appears to indicate a change in policy on the price the Treasury is
prepared to pay. Paragraph 5 is interesting because it appears to
indicate a change of
approach for the coupon for preference shares. That has attracted a good
deal of controversy, and concern that the level of 12 per cent. for the
original recapitalisation was proving burdensome. The reference to
“prevailing market conditions” suggests that the coupon
may be at a somewhat lower level. It might be
helpful for the Committee if the Minister clarified precisely what the
written ministerial statement is about in the context of debate about
what has already occurred with regard to banks rescued under a
recapitalisation scheme and whether the Government have sufficiently
achieved their public policy objectives, particularly in the context of
the confusion over lending. I am sure that the Committee would be
grateful for further clarification from the
Minister.
Ian
Pearson: I understand that the purpose of the new clause
is primarily to stimulate debate and probe the Government. Technically
it would apply to the Banking (Special Provisions) Act 2008, the recent
recapitalisation scheme and any stabilisation powers under the Bill,
and would require them to have regard to any policy statement by the
Treasury. Although banks will have regard to policy statements by the
Treasury and other Departments, commercial institutions must be able to
make decisions on a commercial
basis. If
a bank gets into difficulties, the authorities will want to take action
under the special resolution regime to preserve or enhance financial
stability, or to protect public funds. We have recently taken such
action, but it is not designed to replace normal commercial decision
making. It would not be in the long-term interests of the sector or its
consumers if the authorities were allowed to override all commercial
decisions. I believe that we have the right mechanisms to ensure that
the Government have sufficient influence as may be necessary in
specific
circumstances. If
we take a bank into temporary public ownership under the special
provisions Act, we have the powers of a sole shareholder to exercise
control over the company. An example of that is the competitive
framework agreed between the Government and Northern Rock. Similar
mechanisms will apply to banks taken into temporary public ownership or
transferred to a bridge bank under the stabilisation powers in the
Bill, and the Bill provides for further provisions regarding the
management of banks under public control to be put into the code of
practice. We have the
power to set the terms on which banks that have been recapitalised can
obtain recapitalisation funding. As part of the recapitalisation, the
Government have agreed a range of commitments with the banks supported
by the recapitalisation scheme. The hon. Member for South-West
Hertfordshire seemed to suggest that it had been a muddle. I entirely
refute that. He will be aware of the conditions that have been imposed
on banks accessing the recapitalisation scheme—those conditions
have been published. It is important that over the next three years
banks maintain the availability of competitively priced lending to home
owners and small businesses at 2007 levels, and actively market it. The
hon. Gentleman will also be aware of the conditionality on the
remuneration of senior executives, the support for schemes to help
those struggling with mortgage payments to stay in their homes, and the
right for the
Government to agree with boards both the appointment of new independent
non-executive directors and the dividend policy, which was also part of
the
conditionality. Mr.
Gauke: There are conflicting reports about the
dividend policy. The written ministerial statement says that the
completed documents are available in the Library. Will it not be
possible to redeem preference shares until after five years, and will
dividends not be payable on ordinary shares until the preference shares
have been
addressed? 12.30
pm
Ian
Pearson: I do not have an immediate answer. I understand
that dividends cannot be paid until the preference shares have been
paid off. I think that for tier 1 capital purposes, preference shares
have to be held for five years. Presumably, it would be up to the banks
to come back with a refinancing arrangement that would be acceptable to
the Government. However, I imagine that we would have no objection if
preference shares were paid off earlier, as long as adequate tier 1
capital was available in the banks concerned. I shall consider the
point that the hon. Gentleman has raised, however, and if I can provide
further clarification, I shall.
Mr.
Gauke: I intervened partly to enable the Minister to
provide that further clarification. I asked the question because there
have been conflicting reports, and the uncertainty is not helpful. If
the Minister can provide clarity this morning, it will be
welcome.
Ian
Pearson: I am not sure that I can provide further
clarification this morning, but I shall bear in mind the hon.
Gentleman’s comments and see whether I can provide it very soon.
As I said, my understanding is that normally preference shares should
be held for five years, and that has been agreed. Future transactions
might take place whereby somebody could take over the preference shares
and ensure sufficient tier 1 capital. However, I shall get back to the
hon. Gentleman about
that. The
recapitalisations that have been taking place and have already been
announced are consistent with paragraph 3 of the written ministerial
statement to which the hon. Gentleman referred. I have just received
some helpful clarification from officials who confirm what I was
saying: the Treasury will permit and, indeed, encourage early repayment
of the preference shares it holds at a price equal to 101 per cent. of
par during the first six months following closing and funding of the
equity offer, and thereafter at a price to be negotiated based on
prevailing market conditions. Such repayment would be subject to FSA
approval. I hope that provides the hon. Gentleman with
clarification. As
Members will be aware, the Chancellor recently announced the creation
of United Kingdom Financial Investments Ltd—UKFI—to
manage the Government’s interests in the recapitalised banks
and, in due course, Northern Rock and Bradford & Bingley. He
reconfirmed our commitment to managing the Government’s
investments on a commercial, arm’s length basis and not to
interfere with day-to-day management decisions.
The mechanisms that we have put in place ensure that the relationship
between the banks and the Treasury is appropriate for the conditions in
which we find
ourselves. I
hope that the hon. Member for Southport will find my answers sufficient
for him not to press new clause 20 to a Division, but if he does, I
invite my hon. Friends to vote against
it.
Dr.
Pugh: I hope I did not give the impression that I moved
the new clause simply as a debating point. We are in a serious
situation. How often do we hear, during Treasury questions and on other
such occasions, that the banks are not passing on the money to those
who ought to get it, including businesses that require credit lines to
remain open? We all know that we need to do something about the
situation. Clearly, a simple telling-off from the Chancellor will not
be sufficient. The toolkit that Ministers have outlined is not working,
otherwise the telling-off would not have been necessary, so we need to
find other measures.
I was
suggesting a light-touch but flexible measure. Perhaps it is too light,
but it certainly allows for flexibility in legislation. That was what I
was thinking of when I framed it in that way, rather than the
suggestion from Conservative Members that the agreement gets hammered
out at the start, so that the banks know exactly what the legal
conditions on their future lending policy are. I am attracted to that
alternative, but there is a weakness in
it. We
are talking about emergency situations in which bankers who have moved
serious sums of money need a reasonable view of where the future of
their bank lies. If there is protracted negotiation not only about the
sum being lent to them, but about what they are to do with every pound
that they are given, that might lead to the bank failing because the
process is not concluded in
time. There
might be a cross between the Conservative suggestion and my proposal
that enables us to amend the legislation earlier, so that we can
incorporate economic objectives more rigidly and more formally into the
legislation. However, there is a vacuum and, therefore, a clear need to
do something. Having heard a critique of my new clause and the
suggestion that it may need toughening up, I shall go away and think
about how it could be toughened up.
Mr.
Gauke: Is the hon. Gentleman not worried that his new
clause, even without toughening up, would create such uncertainty that
banks would try even harder not to accept Government funds and, as
Barclays Bank has done, seek finance from alternative sources? That is
the route that the hon. Member for Twickenham (Dr. Cable)
was so cross about.
Dr.
Pugh: That would be a concern if every bit of Treasury
advice on every subject that crossed the Chancellor’s mind had
been incorporated and taken into account by the banks. The new clause
says “for
the purposes of this
section”. That
means strictly for the purpose of recapitalisation. There would not be
uncertainty because decrees could be issued on interest rates and so
on. As long as we narrow the scope of the Treasury advice that is
relevant to the legislation, we can produce an improved
new
clause which, I hope, Members will see on Report. For now, I beg to ask
leave to withdraw the motion. Motion and
clause, by leave, withdrawn.
Ordered, That
certain written evidence already reported to the House be
appended to the proceedings of the Committee.—[Ian
Pearson.] Question
proposed, That the Chairman do report the Bill, as amended, to the
House.
Ian
Pearson: On a point of order, Mr. Gale, I wish
to thank you, Mr. Hood and Mr. Illsley for the
excellent and expeditious way in which you have chaired the Committee.
I also thank the Clerks, Mr. Sandall and Mr.
Hillyard, for their contribution. I thank the hon. Members for
South-West Hertfordshire and for Fareham, from the official Opposition,
for the constructive way in which they dealt with proceedings. I also
thank the hon. Members for Southport and for South-East Cornwall, from
the Liberal Democrats, for the way in which they presented their
proposed amendments. I thank my colleagues and all members of the
Committee for the 17 sittings that we have undertaken to
scrutinise the Bill.
The Bill is
an important piece of legislation and it is right that it has undergone
such thorough scrutiny over recent weeks. As we progress to Report, I
believe we have improved the Bill where necessary. In the light of some
of the contributions made during these proceedings, I have endeavoured
to think again, and Government amendments will be tabled on Report to
reflect the debates in Committee. It simply remains for me to thank you
and your colleagues again, Mr. Gale. I wish the Bill well as
it moves forward.
Mr.
Mark Hoban (Fareham) (Con): Further to that point of
order, Mr. Gale. I join the Minister in thanking you, and
your co-Chairmen, Mr. Hood and Mr. Illsley, for
the way in which you have supervised our proceedings over the 17
meetings. I am sorry that we have not made the 18th this afternoon,
although that might be a relief to all those involved. I also thank the
Clerks, Mr. Sandall and Mr. Hillyard, for their
help, on which Opposition Members rely in order to get amendments into
a form capable of being debated.
This is the
first time that I have taken part in a Bill with evidence taken at the
start. One of the joys of being Treasury spokesman is that one misses
out on such things on the Finance Bill. The evidence session helped to
set the framework for debate in Committee and highlighted some of the
important issues, which we were then able to discuss.
As well as
thanking my hon. Friends for their work, I want to highlight the extent
to which the Committee
benefited from the expertise brought by the four members of the Treasury
Committee, who have wrestled with the issue for 18 months and continue
to do so. Their expertise, interest and experience contributed
enormously to the proceedings. The Minister and the Exchequer Secretary
engaged in extremely constructive debate. The Minister shed light on
the operation of the Bill and we have taken away thoughts that we will
seek to explore again on Report. It has been a constructive process. I
know from talking to outside parties that they appreciated the efforts
of the Committee and the Minister in particular to set out in detail
how the Bill will work in
practice. | 
