Charlotte
Atkins: And the hon. Gentleman gave a huge vote of
confidence in the Dunfermline building society on that
day.
Willie
Rennie: I agree that the burden on the mutual sector is
great. We need a better balance between value and risk than we
currently have. The burden on building
societies and mutuals is far too great. It is out of kilter and needs to
be reviewed. I hope that the Minister, perhaps in his winding-up
comments, will reflect on that and update us on what his thinking is
and whether a further change can be made, so that building societies
are not penalised in such a
way. The
orders are the inevitable consequence of the decisions that were made
at the end of March by the Government. I was opposed to the break-up. I
would rather that it had not been done in such a manner but I accept
that it is a done deal.
I have a few
questions that I hope the Minister will answer in his concluding
remarks. The first is about the social housing book. When the society
was broken up, DBS Bridge Bank Ltd, the bridge bank owned by the Bank
of England, took on responsibility for the loan book for social
housing, which is worth about £680 million,
£500 million of which is already being utilised. More than
£180 million has been allocated but has not yet been drawn down.
Final contracts and so on have got to be drawn up. During the transfer
period between the bridge bank and the eventual sale of the loan book
to another institution, the concern is that the burden on staff will
mean that the service available to housing associations will not be
sufficient to provide a quality service, especially at a time when we
are looking for a considerable expansion in social housing during the
recession, and looking for the construction industries’
under-utilised capacity to be utilised. I want the Minister to ensure
that sufficient capacity is available in the bridge bank to service the
housing associations or other institutions and facilitate the sale of
the loan
book. The
second issue on the social housing book is about time scales and
criteria. Can the Minister give us an indication of whether a shortlist
has been drawn up for the sale of the loan book? How well is that
progressing and when does he expect the loan book to be sold? The
sooner we get certainty, the better. I would like to see it retained
within the Dunfermline stable and, in a wider sense, the Nationwide
stable. It needs to be a fair and competitive process. Can the Minister
update us on that
issue? The
next issue is about pensions. About 150 employees at the old society
are in the final salary pension scheme. That scheme has been taken into
administration. I understand that the Pension Protection Fund
facilities should provide some cover for people, but that has not yet
been confirmed. The employers believe that positive soundings are
coming out, but nothing has been confirmed. The longer the uncertainty
continues, the greater the concern for the employee. Will the Minister
update us on any progress on that front this afternoon?
The
commercial loan book has also been put into administration and is being
administered by KPMG. There is some concern that it will be kept in
administration for some time—for some years. There is always a
concern, when businesses go into administration, that the
administrators are keen to eke out the process to extract as many fees
as possible. Will the Minister give assurances that things are moving
as fast as they possibly can, so that we get the best deal for the
taxpayer? Obviously, it would be a strange decision to sell
immediately, especially with the conditions in the market. We want to
get a good return for this investment, but we also want to
make sure that the fees paid to KPMG, in particular, are not excessive.
Will the Minister outline what plans he has for the commercial loan
book and its eventual sale? I would like assurances on
that. On
the break-up itself, the people in Dunfermline and the employees at
Dunfermline building society have not really had answers yet as to why
the whole event occurred—why the decisions were made; why the
regulation was not appropriate. Perhaps that is an issue for another
day. Perhaps the Scottish Affairs Committee will be looking into those
issues in great detail. I will conclude on that
point. 5.6
pm
Ian
Pearson: I appreciate the points raised by hon. Members in
the debate on the statutory instruments. Let me try and cover as many
of them as I can.
The hon.
Member for Fareham asked me about publishing responses to the
consultation exercises. I am happy to confirm that we will do that. He
and I served on the Committee of the Banking Bill and understand the
situation well. For the convenience of Members who were not on that
Committee, I think it is helpful to point out that we had gone a long
way in preparing parts 2 and 3 of what is now the Banking Act 2009,
with regard to building societies. We used this draft legislation
because of the situation we found ourselves in with regard to
Dunfermline building society, but the intention was always to consult.
I am happy to reconfirm that we will consult. We hope to do so by the
summer, which is broadly the original timetable that we envisaged, and
we will publish the outcomes of the consultation.
Several hon.
Members, particularly the hon. Member for Dunfermline and West Fife,
raised the issue of pensions. I understand the importance of that to a
number of his constituents. As he will be aware, Dunfermline’s
position has been addressed using the procedures under the new Banking
Act. The pension scheme has been put into the new special
administration scheme and is no longer a going concern. We are
committed to ensuring that the pension scheme, as well as other
ordinary creditors, will receive no less than it would have in an
insolvency of the whole business. The pension scheme will rank
alongside senior creditors and we expect to see significant recoveries
out of the administration.
The hon.
Member for Dunfermline and West Fife also mentioned the Pension
Protection Fund situation. As I understand it, it will apply in this
case, but I do not have any further details. If there is more
information, I am more than happy to write to the him.
The hon.
Member for Fareham also raised the question
about— Mr.
Brian Binley (Northampton, South) (Con): I appreciate that
the Minister is trying very hard to find us some answers to this
pensions conundrum, but I am sure that the pensioners who were members
of the Dunfermline scheme would not be overly happy with the response
we have heard to date. I recognise that he has said that he will
provide further information a little later, but I am sure he
understands that little people should suffer as little as possible in
such affairs. I am not sure what they will get. Will their pension
rights be suspended, with no additional availability? Will there be
any protection at all? Will the compensation, under the special
administration procedure, be enough to satisfy them? I doubt that very
much. More information is required. Will the Minister give us that
information now, or at least promise to send it to
us?
Ian
Pearson: I have already said that the pension scheme is
part of the administration, and I have undertaken to write to the hon.
Member for Dunfermline and West Fife and members of the Committee if
further information can be made available at this point. It will
obviously be up to the Pension Protection Fund to make statements, and
I have no doubt that it will want to be in contact with members of the
Dunfermline pension
scheme.
Mr.
Hoban: Given that the employees of Dunfermline have been
transferred to Nationwide, why have their accrued rights not been
transferred also? Why have we gone down the route of putting the scheme
into administration? Was that a condition of Nationwid’s taking
on the
business?
Ian
Pearson: I understand that many of Dunfermline’s
employees are offered membership of group personal pension
arrangements, and that those arrangements should not be affected by the
transfers. However, around 160 of the employees are members of a
defined-benefit pension scheme, which has not been transferred to
Nationwide along with the staff. Instead, the eligible Dunfermline
employees transferring to Nationwide will be offered membership of a
Nationwide scheme, and will not accrue further benefits in the
Dunfermline defined-benefit pension scheme. Responsibility for that
scheme stays with Dunfermline and, as I think I have already indicated
to the hon. Member for Dunfermline and West Fife, in the administration
of Dunfermline’s remaining assets the pension scheme will rank
alongside other ordinary creditors and is expected to make a
significant recovery. I have undertaken that if there is more
information on the role of the Pension Protection Fund I will happily
provide it. As I
explained in my opening remarks, the order and regulations
are subject to the 28-day affirmative procedure so that they can be
made immediately. However, that procedure is only available when the
relevant powers are used for the first time. If another institution
were in difficulty we would not be able to use those powers again
without first debating the order. In response to the hon. Member for
Fareham, that is why the order and regulations are not time-limited or
Dunfermline-specific. Not proceeding as we propose today could tie our
hands and our ability to act speedily in another emergency, although we
hope that there will not be
one. The
hon. Member for Fareham also raised questions about the cost to the
taxpayer. The Treasury has provided about £1.6 billion to fund
the transfer of the retail deposit book to Nationwide, and is therefore
now a creditor of the Dunfermline administration. We expect to make a
significant recovery from the winding up of the estate and from the
FSCS. So, in direct response to the hon. Member’s
question, amount A was about £1.6 billion—the figure that
was quoted by the Chancellor at the time. The FSCS has not yet informed
the Treasury of amount B, and is responsible for evaluating its
size.
Mr.
Browne: Two points are still unclear. One is what this
will end up costing the taxpayer. I appreciate that the Minister might
not be able to give a specific figure, but an indicative one might
help. Perhaps he has given one, but so obliquely that I did not
understand it. The second point is that he did not provide a timetable,
which again may be indicative. The Minister said he hoped that the
substantial proportion of this money would be recovered. We all must
share that hope, but he gave no indication of when that would happen,
and that information would be useful to the
Committee.
Ian
Pearson: I was coming to the points that the hon.
Gentleman raised. He tried to press me on time scale and what we
expected to see recovered. I am always reticent about making statements
when matters such as this are subject to administration. The
Government, when talking about expecting a significant amount, would
certainly hope to see full recovery of the £1.6
billion that we believe is owed to the taxpayer. It is not possible at
this stage to put a timeline on when that might be. It is a matter for
the administration and the hon. Gentleman will be aware that in such
situations it is difficult to set down a definite time scale. These
matters are not solely in the hands of the
Government.
Mr.
Hoban: May I go back to the £1.6 billion that the
Minister referred to? He said that this is a loan or an obligation that
the Treasury has. In the previous rescue of Bradford & Bingley,
while the Treasury made the initial loan, it was then transferred to
the FSCS and its members bore the interest cost for funding the loan
and any risk of default. Why has the Treasury decided to bear that in
this
case?
Ian
Pearson: The hon. Gentleman is right. I explained in my
opening remarks that we have taken a different approach in this case,
so that the costs will be recovered at the end on a net basis rather
than up front on a gross basis. We made the judgment at the time,
because we had the new Banking Act 2009 rather than the Banking
(Special Provisions) Act 2008, that it would be appropriate in this
case. That is why we structured the transaction in the way that we did,
with the Treasury paying the money in gilts to cover the gap between
the assets and liabilities in the transaction. Again, in response to
the hon. Member for Taunton, we expect all costs to the taxpayer to be
recovered through the administration procedure and the
FSCS.
Mr.
Hoban: What is the impact, therefore, on the cost of the
scheme—the FSCS—for scheme members up to the end of the
process? It sounds to me as if the members of the Financial Services
Compensation Scheme—the levy payers—are getting quite a
good deal because the Government are now paying that
cost.
Ian
Pearson: As the hon. Gentleman will be aware, there is an
issue at the moment with the Financial Services Compensation Scheme. A
number of banks and building societies have an issue with the amount of
interest that they have to pay with regard to other administrations.
That is why I know they welcome the approach that we are taking with
Dunfermline building society, where they are not expected to have to
pay up front. Whether it is a good deal is not a phrase I would
want to use. It is fair, given the situation that banks and building
societies find themselves in, that we are not asking them for a further
up-front contribution including interest. That is why we have taken the
action that we have.
The hon.
Member for Taunton also asked me about the independent valuer. The
independent valuer will look at what the Financial Services
Compensation Scheme would be expected to recover if there had been no
Government intervention and Dunfermline building society had gone into
normal insolvency. It will be left to the expertise of the independent
valuer to work out the proportion. The hon. Member for Taunton will be
aware that they can be very complex matters, but when we appoint
independent valuers, we appoint experts who are used to dealing with
such complex transactions. I do not think it is possible to prejudge
what the outcome might be with regard to that.
In addition
to questions on pensions, the hon. Member for Dunfermline and West Fife
also asked about social housing loans. We expect the arrangements
governing the operations of the bridge bank through the service
agreement with Nationwide to be sufficient. He will be aware that the
bridge bank is intended to operate for a limited period, and the Bank
of England operates under a code of practice as well. I cannot update
him at the moment on the social housing book sale, because progress on
that matter involves commercial confidentiality, where there are some
important issues. I will undertake to update hon. Members at the
earliest convenience, but I can assure the hon. Gentleman that it will
be a fair
process.
Willie
Rennie: I thank the Minister for that answer. I was hoping
for a wee bit more flesh on the bones, but perhaps he is restricted
with regard to that.
I am also
concerned about the burden that has been placed on housing associations
for proof. The regime that has been imposed by the Bank of the England
on those institutions to provide the proof that is necessary for
funding is burdensome. It uses the same regulations, I understand, as
those for a commercial holding. It is quite the case, though, that the
social housing loan book is less risky, and therefore the requirement
should be less. Will the Minister care to comment on
that?
Ian
Pearson: I note the hon. Gentleman’s comments, and
I will draw them to the attention of the relevant people who are making
decisions about
that. The
hon. Gentleman also asked me about the commercial loan book. One
objective of the administrators is to realise special resolution regime
objectives, including the use of public funds. Those objectives are in
keeping with those of the Government, which are to get the best
possible value for the taxpayer. I agree with him that in
administrations, we need to ensure that administrators act in a timely
way—I understand that. Clearly, we want the administration
process to be fair, transparent and
speedy. My
hon. Friend the Member for Staffordshire, Moorlands asked me a question
about what she believes is the disproportionate burden on building
societies in contributing to the Financial Services Compensation
Scheme. She will be aware of the debate in Westminster Hall on those
issues, and the fact that the FSA consulted—I think 18 months to
two years ago—on the basis whereby building societies and others
would
contribute. There
clearly is a live issue here. It is not necessarily the case that some
building societies’ models are inherently any less risky
than those of banks, but I appreciate that there is a strong feeling
among many building societies that they are paying more than they
should into the FSCS. Again, I am sure that the FSA is looking at that.
There is, however, an obvious point: if someone or some sector were to
pay less, someone or some sector would have to pay more—it is,
in essence, a zero-sum game. However, my hon. Friend is right to point
to the importance of the issue for many building societies.
The hon.
Member for Fareham asked why the bridge bank had been exempted from the
Freedom of Information Act 2000. He asked me in what future
circumstances that would not happen. Our approach is consistent with
the one that we took to Northern Rock and Bradford & Bingley. As I
tried to explain earlier, we expect the bridge bank process to be
essentially a short-term solution. We have debated that previously, but
it should last for a few months, until a transfer to an onward
purchaser is arranged and implemented.
In those
circumstances, I do not think that it is appropriate for a bridge bank
to be treated as a public authority for the purposes of the Freedom of
Information Act. Commercial confidentiality in the running of the
company would have to be respected, so if a bridge bank is set up as
part of the SRR, I would expect the Government’s normal stance
to be use of section 75 powers to do the same as we have done with the
Dunfermline building society. We would obviously look at those matters
on a case-by-case basis, but I think that that would be a reasonable
thing to do, given the circumstances and the fact that we expect a
bridge bank to be a short-term solution.
| 
