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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mrs. Janet Dean
Armstrong, Hilary (North-West Durham) (Lab)
Barlow, Ms Celia (Hove) (Lab)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Browne, Mr. Jeremy (Taunton) (LD)
Cable, Dr. Vincent (Twickenham) (LD)
Duddridge, James (Rochford and Southend, East) (Con)
Fallon, Mr. Michael (Sevenoaks) (Con)
Hill, Keith (Streatham) (Lab)
Hoban, Mr. Mark (Fareham) (Con)
Hogg, Mr. Douglas (Sleaford and North Hykeham) (Con)
Iddon, Dr. Brian (Bolton, South-East) (Lab)
Keeble, Ms Sally (Northampton, North) (Lab)
Moffatt, Laura (Crawley) (Lab)
Pearson, Ian (Economic Secretary to the Treasury)
Rifkind, Sir Malcolm (Kensington and Chelsea) (Con)
Wyatt, Derek (Sittingbourne and Sheppey) (Lab)
Rhiannon Hollis, Anne-Marie Griffiths, Committee Clerks
† attended the Committee

Third Delegated Legislation Committee

Monday 23 March 2009

[Mrs. Janet Dean in the Chair]

Draft Northern Rock plc Compensation Scheme (Amendment) Order 2009
4.30 pm
The Economic Secretary to the Treasury (Ian Pearson): I beg to move,
That the Committee has considered the draft Northern Rock plc Compensation Scheme (Amendment) Order 2009.
The Chairman: With this it will be convenient to consider the draft Bradford & Bingley plc Compensation Scheme (Amendment) Order 2009.
Ian Pearson: It is a pleasure to serve under your chairmanship this afternoon, Mrs. Dean. It may be helpful to the Committee if I briefly describe some of the background that has led us to introduce the statutory instruments.
In February 2008, when it became apparent that it would be impossible to achieve a private sector sale of Northern Rock that would adequately protect the interests of taxpayers and consumers, the Government transferred into temporary public ownership all the shares in Northern Rock. This transfer was effected using the powers conferred on the Treasury under section 3 of the Banking (Special Provisions) Act 2008.
Section 5 of that Act specifies that where an order is made under section 3, the Treasury must make an order providing for a scheme for determining the amount of any compensation payable to former shareholders of Northern Rock and other specified persons. In accordance with that requirement, the Treasury made the Northern Rock plc compensation scheme order on 12 March 2008. The order makes provision for the appointment of an independent valuer to determine the compensation, if any, payable to the former shareholders of Northern Rock and other persons specified in part 2 of the schedule to that order.
Following a competitive process, the Treasury announced in September 2008 that an independent valuer had been appointed to undertake the valuation exercise. In order to ensure that the valuer can do his or her work efficiently, it is essential that they have the powers necessary to conduct the valuation work. The Treasury made it clear in its brief to applicants that it would consider any requests by the valuer for powers additional to those set out in the compensation scheme order which he or she considers are necessary for the effective conduct of the valuation exercise.
The independent valuer has requested from the Treasury powers to obtain from third parties information reasonably required for the purposes of assessing the amount of any compensation payable. Having considered the request from the valuer, the Treasury laid in Parliament the Northern Rock plc Compensation Scheme (Amendment) Order 2009, which confers power on the valuer to apply to the court for an order compelling the production of information by third parties. The court process will enable any persons from whom the information is sought or to whom the information relates to make representations to the court as to why the information is not reasonably necessary for the purposes of the valuation exercise.
The order makes provision specifying the circumstances in which a person may not be required to provide information—for example, information in respect of which a claim to legal professional privilege could be maintained in legal proceedings. The order also makes it clear that the independent valuer may share information with his staff and advisers, and disclose information if necessary for the purposes of exercising the functions of the office. Information must not be shared more widely without the consent of the persons from whom the valuer obtained the information and to whom the information relates. The valuer must have regard to the need to exclude from disclosure, so far as practicable, certain classes of information—for example, commercially sensitive information.
The order also specifies that a person who provides information to the valuer for the purposes of the assessment of the amount of any compensation payable is not by that reason liable in any proceedings relating to a breach of confidence. As this Committee will be aware, the Treasury has recently commenced the process for the appointment of a valuer to undertake the valuation exercise in accordance with the Bradford & Bingley Compensation Scheme Order 2008, which was made last December. Under that scheme, the valuer must assess any compensation payable to the former shareholders of Bradford & Bingley plc and other specified persons who suffered interferences in their property rights arising as a result of the provisions of the Bradford & Bingley Transfer of Securities and Property etc. Order 2008.
The Treasury considers it appropriate that the person appointed as the valuer should have the same powers as the Northern Rock valuer. Therefore, the same powers for information gathering and sharing are conferred on that valuer and are set out in the Bradford & Bingley plc Compensation (Amendment) Order 2009.
Mr. Michael Fallon (Sevenoaks) (Con): Will the Minister give the Committee an example of the type of information for which it is now proposed to give the valuer power that was not included in the original order?
Ian Pearson: Yes, in a moment.
It is also important to note that article 3 of the order amends paragraph 5 of the Bradford & Bingley plc compensation scheme order to make it clear that the independent valuer must assess any compensation payable to any subordinated debt holders who suffer compensatable interferences in their property rights arising from the amendments to article 6 of the Bradford & Bingley plc transfer order which are specified in the Bradford & Bingley plc Transfer of Securities and Property etc. (Amendment) Order 2009.
On the questions raised by the hon. Member for Sevenoaks, the valuer of Northern Rock has indicated to us that a number of parties have raised concerns about the practical and legal difficulties of supplying information to him without legislative safeguards—for example, in relation to confidentiality restrictions. The issue is not really the information itself. As the hon. Gentleman will be aware, the valuer may request from any person any information that he considers relevant to the assessment of the compensation payable. That information may include due diligence reports, auditors’ reports and that sort of information.
As I have said, the real issue is that a number of parties have suggested that they require legal safeguards because confidential restrictions have been entered into previously. As Lord Myners said in a debate in the other place, we are not in a position to be able to identify a list of parties who have indicated their reluctance to supply information, not least because the Treasury has not been supplied with a list of names. It would not be right for us to inquire about that. There is an independent valuation process, but I think that the hon. Gentleman will see the sense in which some parties will want that additional assurance. From the detail of the orders, he will be aware that that can be obtained on application to a court and that arguments can be made to the court about why that information should not reasonably be disclosed.
I hope that the Committee will agree that it is necessary to confer these information-gathering powers on the independent valuers for Northern Rock and Bradford & Bingley to ensure that they can conduct the valuation process effectively and reach their determinations without unnecessary delay. I commend both instruments to the Committee.
4.38 pm
Mr. Mark Hoban (Fareham) (Con): It is a pleasure to serve under your chairmanship this afternoon, Mrs. Dean. I want to raise several points with the Minister, and I shall start where he concluded. It sounds as if the valuer appointed to Northern Rock has approached him to say that some unspecified people are not providing information and that the valuer therefore needs further powers to enable him to request that information. It is not clear whether those concerned have said, “I can’t co-operate because of legal barriers” or “I won’t co-operate.”
It would help if the Minister clarified where the valuer is coming from in relation to this. It is perhaps concerning that the valuer has not been more forthcoming in providing information to the Government about why the information is needed, or from which groups or classes of people he is seeking the information. That would clarify the purpose of the measure more clearly and explain the rationale for why we should give the valuer the opportunity to approach the court for an order.
Will the Minister clarify what the process is? Will the valuer notify the third party that they are approaching the court for an order—or making an application to the court for an order—to release such information? What right of appeal does the third party have if the court grants the order? Looking at sub-paragraph 8A(2) of the Bradford & Bingley statutory instrument, it seems that the third party has quite limited opportunities to resist the application.
I talked about Virgin Money as a bidder for Northern Rock. Banco Santander successfully acquired part of Bradford & Bingley. Is the measure an opportunity for the valuer to ask Banco Santander for information about the part of Bradford & Bingley that it acquired, if it has any bearing on the valuation of the compensation to be given to Bradford & Bingley shareholders? Does the instrument encompass the off-balance sheet vehicles that are not legally controlled by Northern Rock or Bradford & Bingley but where the economic interest accrues to them? There are the Granite-type vehicles that we saw in Northern Rock. Is the instrument is meant to encompass such organisations? I want more clarity from the Minister as to whom the order is targeted at. I cannot believe that he has given such powers to the valuer without knowing the purpose to which they be put. I should be grateful for some further clarification from him.
4.43 pm
Mr. Jeremy Browne (Taunton) (LD): What a tangled mess this matter has become. The Government have presided over one difficulty after another. The helpful and enlightening contribution of the hon. Member for Fareham reminded the Committee of the £4 million that the Government gave Goldman Sachs for the same advice that the Liberal Democrats had offered in the House of Commons completely free of charge. We seem to be spending more and more money and legislating at greater and greater length to see how we can provide value for money in the public sector.
I was intrigued by what the Minister said about a competition process—a competitive tender to decide which valuer provided the best value. I would be interested if he could explain the basis on which the valuer was judged to be best value. Was it on price or efficiency in completing the process? Was time scale thought to be important? What evidence did the different valuers who entered the competition put before Ministers that enabled them to make a judgment on the best value for money? Was it indeed Ministers who made that judgment? Who is evaluating which valuer offers the best value for money?
We seem to be in a position where a huge amount of public expense and endeavour is going into trying to provide an assessment of what an entity is worth because the market is no longer able to make that measurement itself. I was also interested in the point that the hon. Member for Fareham made about who is not providing the information. The Minister should be much clearer. After all, these are nationalised institutions, and there are now other parts of the banking sector where the taxpayer has an enormous stake, yet there seems to be a feeling that the Government cannot exercise the degree of authority that matches the investment that the taxpayer has put into each institution. Ultimately, my concern is whether the valuation is principally a political exercise. The value of an organisation is determined—
The Chairman: Order. Can the hon. Gentleman keep to the business before us?
Mr. Browne: Sorry. I certainly will, Mrs. Dean. I was just bringing my remarks to a close.
The point that I was trying to make—I hope that this is directly relevant—is that the value of a financial institution is judged by how much private investors are willing to pay for it. As soon as we abandon the market and try to come up with an assessment of the notional value of an organisation, my fear is that political judgments hold as great a sway as any commercial or economic judgments. The suspicion must be that if this were South-West Rock rather than Northern Rock, the valuer would have come up with a lower price than the one that I suspect he will eventually arrive at.
4.46 pm
Mr. Fallon: I want to pursue very briefly the point on which I intervened and to which the Minister was kind enough to respond. I am still not quite clear why we are doing this. I fully understand that people may not wish to provide information because they have legal reservations about the use to which that information might be put, and might be put carelessly—it might get into other hands and so on—but does it follow from that that the people who can provide the information, who may have been advisers to the company, agents of the company or, indeed, former directors of the company, have been given immunity from doing so? Is it the case that those in charge of Northern Rock, now through UK Financial Investments, are, by the nature of the order, excluding the possibility of legal action in future should they discover possible negligence in the way that the company was run?
4.47 pm
Ian Pearson: The hon. Member for Taunton asked questions about the appointment of the independent valuer which are not the subject of these orders, but I am happy to confirm that, as I am sure he is aware, a standard, robust public procurement process was gone through to appoint the independent valuer of Northern Rock. As I said, there is a public advertisement at the moment with a deadline for applications of 7 April to appoint an independent valuer for Bradford & Bingley.
The hon. Member for Fareham raised a couple of key questions. He tried to probe whether it was a case of people who cannot or will not provide information. As I tried to explain, some people have concerns about the practical and legal difficulties of supplying information without legislative safeguards—for example, confidentiality restrictions. Where people have previously been working for Northern Rock on the basis of confidentiality agreements, there is clearly an issue.
The hon. Gentleman asked who is required to supply information and about the process. On the first of those questions, the valuer may ask any person to supply information that he considers relevant to assessing the compensation that may be payable. That could include the Treasury, Goldman Sachs, other professional advisers, bidders or auditors. The valuer would have to persuade the court that that information was reasonably required.
The hon. Gentleman’s second question was about the process. The valuer would apply to the court for an order compelling a person to supply information that he believed was reasonably required to enable him to carry out his work. The person from whom that information is requested and, if different, the person to whom it relates would certainly be notified of the application. The court itself could also invite any party to make representations. Clearly, third parties may want to make representations as to why the information is not relevant. Judging the facts of the case, the court will determine whether it is appropriate to grant an order.
Mr. Hoban: I am grateful to the Minister for his explanation, but may I ask him about a specific example? One of the exceptions in both orders relates to cases where the provision of information held by Departments would be contrary to the public interest. Will he confirm that the Treasury has given the valuer everything that he has asked for?
Ian Pearson: As far as I am aware, the Treasury has provided everything that the valuer has asked for—my officials advise me that that is certainly their view as well.
In response to the point raised by the hon. Member for Sevenoaks, let me repeat that the valuation process is independent, as he is well aware. It is for the valuer to decide whom he wishes to approach and for the court to weigh any representations made by the valuer and by the person or persons from whom the information is requested. If the information is not relevant to carrying out the valuation, third parties will be able to make a case to the court on those grounds, and the court will obviously want to weigh up the issues and make its own judgment.
We are not asking for anything exceptional. We are talking about often complex financial dealings, where advice has often been given on the basis of confidentiality. The advice that some of these third parties have been getting is that there will be some legal uncertainty about their position if they are not authorised to provide information. That is why the valuer has come to us and said that he needs these powers. Having weighed up that request, we felt that it was right to agree to it and not to put anything in the way of allowing the valuer of Northern Rock and, when he is appointed, the valuer of Bradford and Bingley to do the work that they are required to do in an expeditious way. I think that that is what we all want to see.
Question put and agreed to.
That the Committee has considered the draft Northern Rock plc Compensation Scheme (Amendment) Order 2009.

Draft bradford & Bingley plc Compensation scheme (amendment) order 2009

That the Committee has considered the draft Bradford & Bingley plc Compensation Scheme (Amendment) Order 2009.—(Ian Pearson.)
4.54 pm
Committee rose.

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