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17 Dec 2008 : Column 1117

Business without Debate

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Social Security

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Tribunals and Inquiries

Question agreed to.

Consolidated Fund Bill

Motion made, and Question put forthwith (Standing Order No. 56), That the Bill be now read a Second time.

Question agreed to.

Bill accordingly read a Second time.

Question put forthwith (Standing Order No. 56), That the Bill be now read the Third time.

Question agreed to.

Bill accordingly read the Third time and passed.

Banking Bill (Programme) (No. 3)


17 Dec 2008 : Column 1118

Banking Bill

Third Reading

1.35 pm

The Economic Secretary to the Treasury (Ian Pearson): I beg to move, That the Bill be now read the Third time.

We had an interesting debate on Report last month, and I am grateful to everyone who took part in it and to the Members of all parties who have contributed to the debate as the Bill has passed through this House. We very much appreciate the continuing cross-party support for this crucial legislation, and I am grateful for the help and co-operation from all parts of the House in achieving the challenging timetable imposed on this Bill by the sunsetting of the Banking (Special Provisions) Act 2008 in February of next year. In particular, I thank those Members who served on the Public Bill Committee, and I am grateful for the good spirit and constructive approach that all sides took to those sittings. The Government have listened to a number of the arguments made, and I believe the Bill has been improved as a result.

These are challenging times for financial markets and economies across the world, and I believe that the Bill is a timely package of reforms to improve the UK’s framework for ensuring financial stability and protecting depositors. The Government have taken decisive action to protect the UK’s financial stability during this turbulent period, including measures to recapitalise and strengthen the UK’s banking sector and provide support to institutions facing difficulties, but the need for a permanent strengthening of the legislative framework in this area has been clear.

As we have debated at length during the past few months, this legislation will provide the authorities with the tools they need to resolve effectively failing banks while protecting financial stability, depositors and taxpayers, and minimising the disruption to the wider economy. Other measures in the Bill will enable the Financial Services Compensation Scheme to make faster and more efficient compensation payments and will strengthen the Bank of England’s role in financial stability, with a new objective for financial stability and enhanced tools for pursuing it.

Mr. Mark Harper (Forest of Dean) (Con): The Minister refers to the bank rescue package. When the Chancellor came before the House, he said that the implications on the public finances of that package were mostly temporary. Could the Minister set out for us which of those arrangements will have a non-temporary—a more permanent—impact on the public finances, so that the House is clear on that?

Ian Pearson: I agree entirely with what the Chancellor said to the House. The hon. Gentleman will be aware of the statement that the Chancellor made and the information that is available in government, which, if he looks at it, he will find provides him with the answers he seeks to the question he raises.

At this point, I should briefly mention the two additions to the Bill that my right hon. Friend the Chancellor signalled in his recent pre-Budget report. They will increase the legislation’s effectiveness in allowing the authorities to deal with risks to financial stability and to safeguard London’s competitiveness as a global financial
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centre. First, they will extend the Treasury’s powers under the special resolution regime to allow it to take bank holding companies into temporary public ownership in cases where the resolution of only the deposit taker or deposit takers within a banking group would not, by itself, be sufficient to prevent a serious risk to financial stability, public funds, or both.

The second addition is a response to the experience of the administration of the UK subsidiary of the failed US investment bank, Lehman Brothers—Lehman Brothers International (Europe). The Government propose to take a power in the Banking Bill to introduce, by secondary legislation and after a formal review, a new special insolvency procedure for investment firms that hold client assets or client money. The expert liaison group, which I set up earlier this year, will help the Government in this area. Lord Myners, the Financial Services Secretary, intends to table these amendments for discussion in Committee in the other place.

On 26 November, the Government Chief Whip in the other place set out how we intended to proceed with the Banking Bill in the current Session, with the support and agreement of the usual channels. The No. 2 Bill that was introduced in the other place yesterday is identical in every respect to the Banking Bill that we are considering today, and the procedure allows the other place an additional fortnight to consider the Bill, which I am sure hon. Members will agree is entirely to the benefit of all concerned.

As the House will be aware, the Banking Bill was carried over to the current Session and, if hon. Members consent today, it will complete its passage in this House and go to the other place tomorrow. At that point, the No. 2 Bill will be dropped and all further consideration in the other place will be on the Bill sent from this House today.

Miss Julie Kirkbride (Bromsgrove) (Con): Although the aims of the Bill are laudable, I wonder whether the Minister is sure that it will do enough. He may not have had the chance to listen to Sir Victor Blank on the radio this lunchtime talking about the Government bail-out. He said that the recapitalisation scheme was highly necessary—and we all support it—but he also pointed out the problem that the banks now have with regard to lending because of the Government’s new capital requirements. Does the Minister agree that those requirements are preventing the banks from lending the money that businesses need?

Ian Pearson: I was in meetings so I was not able to hear what Victor Blank said. He is obviously a serious figure in the business community and we will want to take due account of his views. We meet him on a regular basis, and Ministers and officials are well aware of his and his company’s position on these issues. From what the hon. Lady says, his comments would not appear to refer directly to legislation appropriate under the long title of the Bill, but she raises an important point.

The whole House has appreciated the action taken by the Government to recapitalise the banks to avoid the potential systemic risk to the financial services in this country. We need to continue to do all that we sensibly can in these difficult times, and that is one of the reasons why we have been considering whether further action is needed. I indicated the two areas in the pre-Budget report that suggested how the Bill could be strengthened
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in the other place, and I think that we have broad support from both sides of the House for those sensible measures. However, they will of course need to be thoroughly scrutinised in this House and in the other place.

I am aware that there are some areas where Opposition Members may still have some concerns, but we went some way towards resolving those in Committee and in amendments on Report. I would like to take this opportunity to provide an update on progress in some of those areas.

As hon. Members will be aware, clause 75—the power to change law—attracted significant interest in Committee and on Report. It will provide the Treasury with a power to amend legislation to enable the powers of the special resolution regime to be used more effectively. As we discussed in Committee, this is not a general power to amend legislation; it is targeted and limited. It may only be used in order to facilitate a resolution and, in using it, the Treasury must have regard to the special resolution objectives set out in clause 4.

In Committee, I agreed that I would ask the expert liaison group to consider whether the amendments brought forward on Report—particularly the explicit exclusion from the scope of the power of the provisions of the Bill and underlying secondary legislation—would help to reduce the possible impact of the existence of this power on legal certainty in relation to financial contracts. The hon. Members for Fareham (Mr. Hoban) and for South-East Cornwall (Mr. Breed) and I are at one in recognising the importance of legal certainty in relation to contracts. I am pleased to report that when the expert liaison group met earlier this week, it agreed that this amendment would indeed do this. We are continuing to engage with the group on this issue, and of course the power will also be scrutinised carefully in the other place, not least by the Committee on Delegated Powers and Regulatory Reform.

Mr. Andrew Pelling (Croydon, Central) (Ind): I appreciate the need for flexibility in these difficult financial times. Will that clause or any other give the Government the power to set up a bank in an emergency that can take over bad debts from other banks to provide a possible solution to a financial crisis?

Ian Pearson: I know that the hon. Gentleman has raised that issue before on several occasions. Clause 75 would not do what he suggests. As I say, the clause provides a targeted and limited use of power to change law to make the special resolution regime work as effectively as possible. He will be aware, from the special resolution regime detailed in part 1 of the Bill, of the exact procedures necessary—who pulls the trigger, who operates the special resolution regime, and how the parties work together. We believe strongly that the range of measures that we have in place are a substantial improvement on the Banking (Special Provisions) Act 2008, and that is one of the reasons why we want to ensure that they reach the statute book in a timely manner, given the fact that the Act is sunsetted in February.

David Taylor (North-West Leicestershire) (Lab/Co-op): The Minister may remember new clause 2, which I tabled on Report, with the support of my hon. Friends the Members for Stroud (Mr. Drew) and for West Bromwich, West (Mr. Bailey). It addressed the remutualisation of failed former building societies. Every
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building society that was privatised in the 1980s and 1990s has failed in the past few months of this crisis. When I was asked by the Minister not to press the new clause to a Division, he said that the existing legislation would provide sufficient powers for financial institutions that emerge from the present crisis to become mutually oriented if that was desired at the time. Will he meet us to discuss that point, because mutualism provides a robustness and responsiveness that other financial structures do not, as we have seen in the past nine months?

Ian Pearson: It certainly remains my understanding that the legislation is sufficient to take into account those issues, but I would be more than happy to meet my hon. Friends to discuss that in more detail.

I now turn to the issue of partial transfers and the safeguards that the Government will put in place to protect creditors, and particularly to reduce disruption to set-off and netting agreements and security interests. I know this issue was of great interest to members of the Committee, and rightly so. Again, I can report that, when the expert liaison group met earlier this week with officials from the Treasury, the Bank and the Financial Services Authority, they continued to make good progress towards providing for safeguards that will maintain the right balance between ensuring that the authorities have the necessary flexibility to ensure an effective resolution, while protecting creditors’ and counterparties’ interests.

We are continuing to work closely with the group on refining the safeguards and, of course, we are conducting a wider public consultation. We aim to be in a position to report back, including on the results of the consultation, early in the new year. I repeat the commitment that I have made on previous occasions—I see the process of producing the secondary legislation as being one of co-production. We want to work in detail with the industry to ensure that we get the secondary legislation absolutely right and that there are sufficient safeguards to protect creditors’ and counterparties’ interests. We understand the importance of that for the industry.

The Bill represents the Government’s considered response to some of the key lessons learned during this period of financial instability. It provides a permanent addition to the country’s system for financial stability and depositor protection, and these arrangements will provide the UK authorities with a refined and proportionate set of tools to deal with difficulties in the banking sector that can affect depositors and the wider economy. It is vital to get the proposals right and to ensure that the UK’s framework is sufficiently robust to deal with future as well as current challenges. So I am grateful for the thoughtful and constructive scrutiny that the House has given to the Bill, especially in the Public Bill Committee but also on Second Reading and on Report. I am sure that that constructive spirit will continue during this debate.

The Bill is a vital piece of legislation that will enhance the ability of the authorities to secure the financial stability of the UK both now and in the future, and I commend it to the House.

1.51 pm

Mr. Mark Hoban (Fareham) (Con): I am grateful to the Minister for his explanation of the Banking (No.2) Bill procedure, as it seemed rather odd to be giving this
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Bill a Third Reading when a Bill that was identical to it except for the title was given a Second Reading in the other place yesterday. That was a sign of the way in which we have sought to co-operate with the Government to ensure that the Bill reaches the statute book before the Banking (Special Provisions) Act 2008 expires in February next year. As the Minister said, we have sought to engage constructively as the Bill has passed through the House. We have not always agreed on some of its provisions, but we have sought to ensure a full discussion and full scrutiny.

I am grateful to my hon. Friends the Members for South-West Hertfordshire (Mr. Gauke), for Braintree (Mr. Newmark), for Gosport (Sir Peter Viggers) and for Wellingborough (Mr. Bone) for their contributions in Committee. My hon. Friend the Member for Gosport was one of four members of the Select Committee on Treasury who served on the Public Bill Committee, along with the hon. Member for South-East Cornwall (Mr. Breed). The deliberations of the Treasury Committee in the aftermath of Northern Rock and financial instability contributed a great deal to our consideration of the Bill in the Public Bill Committee.

We supported the Bill on Second Reading and we do not intend to oppose it on Third Reading. That does not mean that it is perfect, and, as the Minister said, there are and have been some significant concerns about it. Those concerns were particularly evident when it was first published. We welcome the fact that the Government listened not just to the concerns that we expressed in Committee but to the wider concerns of the financial services sector. We teased out some of the sector’s concerns in Committee, particularly when its representatives gave evidence to the Committee. The Minister has sought to respond to those concerns. We welcome the amendments to the Henry VIII powers in clause 75, as well as the establishment on a statutory footing of the banking liaison panel in clause 10. The Minister referred to the work of the panel.

We also welcome the fact that the Minister sought to consult widely on the secondary legislation and the code of practice. The Bill gives the tripartite authorities—the Treasury, the Bank of England and the FSA—quite extensive powers. Safeguards over the use of the powers are included in the secondary legislation that flows from the Bill and in the code of practice. Only when the legislation is seen as that package will outside bodies take comfort from the shape it is in.

It is worth remembering that the Bill has a very narrow focus. In the context of the current financial crisis, it deals principally with measures to tackle the problems associated with a failing bank. Its provisions do not address the re-opening of credit facilities to bank customers. Although it gives the Bank of England new statutory responsibilities for financial stability and gives it oversight of the payments system, it does not address issues such as the macro-prudential regulation of the banking system, a topic that has provoked considerable debate both in Parliament and outside.

Even on the issue of which banks are included, the Bill is narrowly focused. Clause 2 describes a bank as

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