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There are some specific differences in the Naomi House case that suggest that the Governments general approach may not provide the support that is intended. Will the Exchequer Secretary therefore undertake to look into the problems that it faces as a special case?
The Government may want to consider, perhaps not now but in the medium term, whether the FSA rules on eligibility for compensation, which use the Companies Act 1985 to define what constitutes a small charity, are as robust as they need to be. Leaving Naomi House out in the cold cannot be anything other than an unintended consequence of how the current regulations are drafted.
Will the Exchequer Secretary undertake to join her colleague, the Parliamentary Secretary, Cabinet Office, who has offered to meet representatives from Naomi House to secure a cross-departmental solution to the problem?
In conclusion, Naomi House works throughout seven counties, and in constituencies that are represented by Members of Parliament on both sides of the House. It provides a service that the NHS does not. It supports families of terminally ill children in a way that no other service does. A petition on the 10 Downing street website, calling for Government assistance, was set up by local campaigner Steve Brine and now has more than 4,000 signatures, which shows the strength of feeling in Hampshire and beyond about the plight of Naomi House.
Mr. Oliver Letwin (West Dorset) (Con): I hope that my hon. Friend is aware that many of my constituents in West Dorset feel exactly the same way, and have benefited from the services provided. They are very anxious for those services to go on being provided.
Mrs. Miller: I thank my right hon. Friend for his intervention, and for showing his support for the work that we are doing. His intervention serves to reiterate that the services supplied by Naomi House are not just confined to the boundaries of one county, but spread far and wide. That is a testament to the work that it does, and to its professionalism.
Naomi House is a lifeline for many familiesfamilies who are in a position that many of us hope never to find ourselves in. I hope that the Exchequer Secretary will use the opportunity of the debate to show her clear support for the work of Naomi House, and to outline exactly what the Government propose to do, in tangible, specific terms, to ensure that this charity can thrive in the future.
Mr. Mark Oaten (Winchester) (LD): Given that we have slightly longer for the Adjournment debate, I would like to make a few remarks to support the speech made by the hon. Member for Basingstoke (Mrs. Miller), but I do not want to detain the House long.
Naomi House is in my constituency, and during the 12 years that I have been a Member of Parliament, it has been a jewel in the crown of the Winchester area. It does not serve just the Winchester constituency, but as the hon. Lady mentioned, a large area with a large number of children who have benefited from the facilities that it provides. The point that I wish to emphasise to the Exchequer Secretary is the different nature of this organisation. It is not like some of the other charities
that have lost money in Icelandic banks, such as local authorities or many of the businesses affected. It is unique in that it provides a service that many people would argue is one that the Government should provide. Many of us were surprised to find, when we came to Parliament, that hospices were not funded by the NHS. If they did not exist, somebodythe Government, we assumewould have to provide such care for children in such awful circumstances.
Mr. Letwin: Does the hon. Gentleman agree that that is particularly the case with childrens hospices? Adult hospices in our constituencies receive significantly more support from the NHS than childrens hospices.
Mr. Oaten: The right hon. Gentleman is right. It has always been very peculiar that childrens hospices have been treated in that way, but that is what has happened, and charities such as Naomi House have had to take on a responsibility that should be taken on by the Government. It is a responsibility that does not relate just to the work that takes place in the buildings of Naomi House, but to the outreach work that it carries out in peoples homes. It has worked alongside the NHS on that, hand in hand with hard-working professionals at the Basingstoke and Winchester hospitals. We are now seeing the acute impact that the loss of funding is having. Those professionals working in the NHS now have to find more time in order to fill the gap that has been left by the disappearance of the service provided by Naomi House for outreach work.
Chris Huhne (Eastleigh) (LD): I would like to support my hon. Friends comments to the Exchequer Secretary because in my constituency, in south Hampshire, Naomi House is one of the most popular charities. It is repeatedly subject to mayoral and other appeals precisely because of its outreach work, which is the work most threatened by the freezing of the £5.7 million.
It is also worth pointing out that the childrens hospital movement throughout the country is important because it provides parents with respite care in what is an extremely gruelling time. I entirely support my hon. Friends comments about the outreach work combined with the respite care. It is difficult to know how we could survive without it. The public sector would need to provide it if it were not provided in the way in which we have discussed.
Mr. Oaten: My hon. Friend makes a good point. If the service disappears, Government money will have to be found to meet the demand because, sadly, children with diseases and illnesses will not disappear.
I hope that the Exchequer Secretary sets out Government thinking for dealing with such a unique situation. It will be disappointing if she responds in general terms and talks about the Governments plans for businesses or charities. As the hon. Member for Basingstoke said, the FSA schemes for charities will not help Naomi House.
The matter requires not only a Treasury response but a response from the Secretary of State for Health. I am disappointed that the Secretary of State has been silent about the issue because there is a moral, if not necessarily a legal, departmental responsibility to engage with it. I
hope that the Exchequer Secretary takes away my hope, which I suspect others share, that the Secretary of State for Health will be prepared to meet the trustees and chairman of Naomi House to discuss the impact of the loss of money and how that will affect the NHS in the Hampshire region and beyond. I would also like to consider whether, in the next couple of months, we can find a way of putting money into Naomi House so that we can restore the outreach programme and provide assurances that it will continue its current work.
Naomi House has a fine reputation for providing facilities for younger children who are sick, and it has recently begun a programme of building Jacksplace, which will be a superb facility for teenagers who are in need of such care. It has always been awkward for Naomi House to have young children and teenagers together in a hospice. Several hon. Members and I were able to attend the laying of the foundation stone for Jacksplace. I fear that it will also be in jeopardy unless we can find funds urgently for Naomi House.
I hope that the Exchequer Secretary will view the matter as unique. I do not want to do down other charities that look after cats or rare birds, but surely the charity that we are considering does, in many ways, the Governments work for them. It has lost money through no fault of its own and must cut back essential services for children. The charity is a case for special pleadingthe Government should step in and act with urgency.
The Exchequer Secretary to the Treasury (Angela Eagle): I congratulate the hon. Member for Basingstoke (Mrs. Miller) on securing this important debate and I thank other hon. Members with a constituency interest who have contributed and rightly reflected their concern and that of their constituents about the circumstances in which Naomi House finds itself.
As the hon. Lady said, the hospice does extraordinary work to provide respite care, terminal care and bereavement support for children and families from across the south of England. I know from my inquiries that hundreds of families are grateful for the dedication of the Naomi House staff and the support that they have received from the charity, often at the most traumatic times of their lives.
The Governments current support for Naomi House is worth £330,000. As the hon. Lady pointed out, that is a small portion of the overall funding that the charity generates, and pays for only a small portion of the work that it undertakes. I have a similar institution, Clare House, in my area, albeit not in my constituency. Many right hon. and hon. Members in all parts of the House have had direct experience of the extremely valuable work that such organisations do. I hope that no one will be in any doubt about the widespread recognition of the value of the work that such institutions do. In recognition of the work that childrens hospices do, the Government announced in February that the current grant for Englands 40 childrens hospices would be extended, with a further £20 million available between 2009 and 2011.
As the hon. Lady pointed out, Naomi House is among those British charities that hold deposits in the Icelandic banks or their UK subsidiaries. This is an extremely uncertain time for those charities and for a
wide range of other bodies that are in a similar position, be they companies, educational establishments, local authorities or other not-for-profit organisations. The majority of the charities affected hold deposits in Kaupthing Singer & Friedlanderor KSFwhich is a UK-based subsidiary of Icelands Kaupthing bank. As with much else in the current financial turbulence, the situation regarding the Icelandic banks in the UK is complicated, so it is worth reminding ourselves how we got into these circumstances.
In July, the International Monetary Funds mission to Iceland concluded that the Icelandic banking sector faced significant risks. On 29 September, the Icelandic Government acquired a 75 per cent. stake in Glitnir, nationalising Icelands third largest bank. Amid the turbulence in global financial markets, two other Icelandic banksLandsbanki and Kaupthingfound themselves in increasing financial difficulties. On 7 and 8 October, the Financial Services Authority, the UKs financial regulator, determined that the funds held by the UK operations of those two banksHeritable and KSFno longer met the levels of funding required by law. The banks had put themselves in an unsustainable position. Their holdings had sunk to such a level that it would have been dangerous for them to continue accepting money from depositors. To protect retail depositors, the Treasury, using powers under the Banking (Special Provisions) Act 2008, transferred retail deposits from KSFs Edge deposit business and from Heritable to ING Direct. The remainder of the business entered into administration, with the remaining eligible retail depositors also being guaranteed.
The Government have announced that we will guarantee all UK-based retail depositors in Icelandic banks. That guarantee ensures that individual UK savers will receive protection in full. Of course, those charities that are eligible claimants will receive protection under the Financial Services Compensation Scheme, but there are no special rules under the scheme for charities, whose eligibility is determined in the same way as for all other depositors. The FSA is responsible for making the rules governing eligibility for compensation under the Financial Services Compensation Scheme. The rules are based on organisational form rather than organisational purpose. Charity is a status that can apply to a number of forms, because charities and other third sector bodies can beand areorganised in different ways.
The guiding principle behind much of the financial regulation is that the system is intended to offer protection to ordinary investors, savers and users of financial servicesin other words, people who have limited resources, who are less likely to have access to the expertise to protect themselves and who might not be in a position to reduce the risks that they face by, say, diversification. In practice, that translates into making private individuals and small organisations of all kindsthat is, retail depositorseligible as claimants under the Financial Services Compensation Scheme, as well as treating all larger organisations as wholesale depositors and therefore ineligible for the compensation scheme.
Many small charities will be guaranteed under the scheme, but Naomi House and other larger charities will not qualify. Like a number of other charities,
companies, educational establishments, local authorities and other bodies, Naomi House is classified as a wholesale depositor and, as such, will have to await the outcome of the administration procedures.
The Governments decision to intervene to ensure that retail depositors receive their money in full was based on the need to ensure financial stability and to protect the taxpayer. Compared with small retail depositors, wholesale depositors have a greater ability to assess and mitigate financial risk, including through diversification of their savings or investment portfolios. Charities that are not eligible for compensation from the Financial Services Compensation Scheme will be treated in accordance with the usual administration procedures.
Details of the timetable and the process for the administration of KSF are a matter for the administrators, Ernst and Young, and I would suggest that those charities seeking further information contact the administrators directly. I was pleased to learnthe hon. Lady mentioned this in her speechthat Naomi House has played a central role in the creation of a new charity action group, formed to represent charities that have deposits at risk with KSF. More than 25 charities are members of the group, which is campaigning to secure the return of the funds invested with the bank. I am also pleased to report to the Houseagain, the hon. Lady mentioned thisthat a representative from the group speaking for Naomi House and other charities has secured a place on the creditors committee of KSF, which met the administrators for the first time on Monday. That representation on the creditors committee will give charities a stronger voice during the administration process. The third sector is independent and, as such, it is not the Governments role to provide charities and other not-for-profit organisations with financial advice.
Mr. Oaten: There was indeed a meeting on Monday, and I do not know whether the Minister has heard the feedback, but it was pretty grim news for the charities attending because the creditors made it clear that the charities were very much at the back end of the queue, so it is very unlikely that Naomi House will have its money returned under that process.
Angela Eagle: Processes of administration have to be gone through and the creditors have a particular queue to go through in law. There is no option but to go through the process. I recognise that it leads to some uncertainty, and it is too early in the process to tell whether all the money will be forthcoming in the end. That is the nature of administration procedures of this kind, as the hon. Gentleman knows.
Chris Huhne: The other problem, of course, is that the administration process can be very lengthy. We have seen under past administrations that the process has taken an incredible amount of timewe saw it with the Bank of Credit and Commerce International, for example. Moreover, the professional advisers fees have eaten up large amounts of the money that was ultimately available to creditors. In those circumstances, given the importance of the work of some of these charities and the likelihood that the public sector will have to pick up the bill for some of that work if it is not done, does the Minister think that a little more flexibility would be in order?
Angela Eagle: It is easy to call for a Minister to be flexible in these circumstances and I can tell the hon. Gentleman that there is nothing I would like more than to be able to be flexible in all kinds of ways in these circumstances, but there are many creditors and many larger charities with problems in this particular tale. Other public authorities and other organisations and businesses might well say that they have as much of a right to the flexibility that the hon. Gentleman is asking me to exercise on behalf of this charity alone. There are any number of other charities and I have to say that it is very difficult, much as I would like a sensible line to be drawn.
Mrs. Miller: I can understand the problem faced by the Minister, who clearly has to make decisions. I was simply picking up, however, on what her colleague the Leader of the House had said when she was in her place, exactly where the Minister is now. I quote her again:
We are taking steps to protect larger charities by freezing the assets of the Icelandic banks and by lending £100 million while the unfreezing of those assets is sorted out.[ Official Report, 15 October 2008; Vol. 480, c. 790.]
Angela Eagle: I am happy to deal with that issue. What my right hon. and learned Friend the Leader of the House said is absolutely accurate, but the hon. Lady might have misunderstood the use of the £100 million. This was a reference to a loan made to the London branch of Landsbanki by the Bank of England on 13 October, in order to assist it in its wind-up. The loan is secured over a significant amount of Landsbankis assets and at a commercial rate of interest. It is expected that the loan will be recovered in full from those assets as Landsbanki is wound up. That will help to ensure an orderly wind-down for Landsbanki, which maximises returns to its creditors, but it is a short-term loan for Landsbanki.
From information that we subsequently received via the Charity Commission and because of the work of the Parliamentary Secretary, Cabinet Office, my hon. Friend the Member for Cardiff, West (Kevin Brennan), it emerged that most of the charitable money caught up in the Icelandic banking situation, if I may refer to it in that way, appears to be held in KSF. I would not like the hon. Lady to go away with the impression that there is £100 million out there on deposit, waiting to be given in grant aid of some kind to charities that are affected as creditors of the Icelandic banks. That is not the use that the £100 million referred to by my right hon. and learned Friend was put to, and it is not and never was the intended use of the money, which is being focused on a bank that, as far as we can tell, does not have charitable deposits in the same way as KSF.
I thank the Minister for giving way again; she is being very generous. I am surprised by that statement, because the Leader of the House was responding to a direct question about what support was being given to charities. It is surprising to discover that the £100 million was not being made available to charities, but was being used to prop up a bank. Would it not have
been better to have perhaps directed some of that money to tide charities over in the way that charitable organisations have asked?
Angela Eagle: The hon. Lady has made her point, but this is not propping up a bank. The £100 million was given to Landsbanki to secure the orderly wind-down of a bank whose assets had been frozen. The assets were frozen to prevent them from being taken out of the country in a drastic and rapidly developing situation. The £100 million that was lent does not prop up the bank. As I said earlier, it helps to secure an orderly wind-down of a bank that is not relevant to Naomi Houses issue, because it is Landsbanki, not KSF.
First, this is a loan; it is not a grant. Secondly, it will be recovered in full at a commercial rate of interest as part of the wind-down of Landsbanki, so I would not like the hon. Lady to go away with the idea that, somehow, there is a pot of £100 million that could have been used, or is intended to be used, to give some protection to wholesale depositors. The Government decided to protect retail depositors. Wholesale depositors, whatever their form, go into the queue through the administration process to try to recover the money that they have on deposit. That includes all the authorities, public or otherwise, and companies and investors that do not qualify as retail investors. That is the situation as it is at the moment. Let me assure this House that the Government take very seriously the problems faced by charities with regard to their deposits in Icelandic banks and their UK subsidiaries.
Lord Myners and the Minister with responsibility for the third sector, my hon. Friend the Member for Cardiff, West, have met over the past two months with representatives of the charity sector to gain a clearer understanding of the challenges they face.
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