Banking Bill

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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.
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.
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.
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Prepared 19 November 2008