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These Lords amendments are detailed. For what we believe are good reasons, the Government disagree with one of them, although we accept its general principle and thrust. We think that the balance between transparency and confidentiality that their lordships proposed needs
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to be changed slightly, and I have explained our thinking. I hope that the House will agree to our amendment in due course.

Mr. Mark Hoban (Fareham) (Con): I will deal with the amendments in a different order from the Minister and start off with Lords amendment 79, which is important. It triggered much of the debate that we had on the money resolution, in the sense that it would broaden the way in which the Government can use public money to support the banking sector or other financial institutions. When we debated clause 225 in Committee, it was more narrowly focused, but the amendment would widen its scope. I want to test with the Minister my understanding of how broad the amendment is in practice.

My understanding is that the Bank of England’s asset purchase facility would fall within the ambit of the clause, because the scheme permits the Bank to purchase commercial paper, and that indirectly benefits banks by reducing the potential demand for funding, so any financial commitment that arises from the asset purchase scheme would be covered by Lords amendment 79. The Minister mentioned Lords amendment 81; I am trying to understand where the Government have broadened the nature of the assistance that can be given. I am thinking of how new subsection (1A)(a) and (b)—particularly (b)—which is inserted into clause 225 by Lords amendment 79, will relate to a range of schemes. I assume that the funding package for the motor industry that the Minister announced in the House last month would come within the ambit of new subsection (1A)(b).

I wonder if I might push the Minister a bit further to see how elastic the provision is. Last week, at the CBI’s manufacturing dinner, Lord Mandelson floated the idea of a scrappage allowance. The intention was that it would restart car purchases in the UK by encouraging people to trade in an old car for a new car. A number of people in the industry proposed the idea. I would have thought that it was within the realms of the Government’s creativity to claim that any expenditure on such a scheme would be covered by the subsection, because new subsection (1A)(b)(iii) refers to

Clearly, a scrappage allowance would stimulate the demand for consumer credit, kick-start the motoring sector and potentially reduce the demand for working capital finance from the banks. That may seem a far-fetched example of a scheme that could fall within the scope of the amendment, but it is not clear how Lords amendment 79 would be applied, or what schemes would fall within its remit. I would be grateful if the Minister clarified that.

When the clause was originally discussed in Committee, it referred just to banks. An amendment was made in Committee to extend coverage to other financial institutions, so arguably under the clause financial support could be provided to insurers, fund managers and independent financial advisers—a whole gamut of financial institutions. It would be down to the Government to determine which financial institutions could benefit.

I again ask the Minister about the scope of the provision. If the Government decided to fund free contents insurance for tenants in the social rented sector, it would clearly help the insurance sector. Would that be covered by Lords amendment 79? It would be helpful
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for the Minister to give us an idea of the areas that he believes fall within the scope of the amendment before the House decides to accept it. Clearly, as was demonstrated earlier, there is widespread concern across the House about the potential level of financial assistance and the commitments to be undertaken by taxpayers that could flow from the amendments.

5.15 pm

Lords Amendments 81 and 82 deal with the process of granting financial assistance through the Consolidated Fund or the national loans fund. As the Minister said, an increase in transparency emerges from the two amendments, which state that a report should be laid before Parliament specifying the amount paid or loaned under the schemes, but will he be more specific about how he anticipates the House approving amounts lent under the scheme? In his exchanges earlier with my hon. Friend the Member for Wellingborough (Mr. Bone), he referred to the normal process for approving estimates. Will the Minister set out more clearly how he anticipates the House approving commitments made under the financial assistance provisions of the Bill?

Mr. Redwood: Does my hon. Friend share my reading of the amendments? Under Lords amendment 82, if the Treasury decided that it did not want to report to the House or anyone else, it need never tell us anything about the amount paid. The amendments state that it may dispense with the requirement, which is extremely worrying.

Mr. Hoban: My right hon. Friend makes an important point. My interpretation is that although at the time the Government might decide for reasons of confidentiality not to lay a report before Parliament, that would be swept up in what was Lords amendment 83, which we pressed in the Lords. I hope that would be covered in the new amendment tabled by the Government in lieu, so there would be a report. It may not be as timely as we would like, but there would be reporting at six-monthly intervals.

The Minister made an important point about the balance to be struck between confidentiality and public scrutiny. Clearly, the transparency of information provided was a barrier to giving covert assistance to Northern Rock. We need to have that debate in mind, but I hope that the six-monthly reporting will act as a sweeper, so to speak, to pick up all those instances where financial assistance has been given but no report has been laid before Parliament.

When the Government decided, in the first phase of the bank bail-out, to take stakes in RBS, what was then Lloyds TSB and HBOS, we had a debate on the Floor of the House in which the Financial Secretary to the Treasury and my hon. Friends the Members for South-West Hertfordshire (Mr. Gauke) and for Wellingborough participated. Specific approval was given for an estimate to pay for that investment. Will we have the same opportunity to vote on the elements set out in the second bail-out package? It was not clear from the Minister’s remarks whether we would have a specific vote on those elements, or whether they would go through the normal estimates procedure, where individual items are not voted on.


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Not only have we seen the second phase of the bank bail-out, but money has been lent to the financial services compensation scheme in respect of the rescue of the Icelandic banks in the UK, and we should ensure proper scrutiny of that in the House. I would welcome greater clarity from this Minister as to how items would be voted on and whether there would be stand-alone debates on the various aspects of financial assistance envisaged in Lords amendment 79.

The Minister also drew the House’s attention to the words “too urgent” in Lords amendment 81, which relate to when there was a pressing need to provide money from the Consolidated Fund, the issue being whether money could be granted before there was a vote on it. He gave the specific example of there being a crisis during a recess and Ministers having to act urgently without the approval of the House. Will he confirm that when the House is sitting, the Government’s first preference will be to go through the estimates procedure, rather than rely on the powers set out in Lords amendment 81?

Lords amendment 83 was tabled by my noble Friend Baroness Noakes and Lord Turnbull in the other place. One of the important themes in the debate is transparency and understanding the scale of the taxpayers’ liability. We touched on that in different contexts during our debates on the Bill in this place. I felt at times that there was a bias towards secrecy as a way of enhancing financial stability, so I welcome the increased level of scrutiny that comes from the amendments made in the other place. It is important that the tripartite authorities are accountable to Parliament and others for the use of their powers under the Bill. The report envisaged in Lords amendment 83 went a long way towards increasing that transparency. It set out the requirement for a quarterly report to be made to Parliament on sums actually and potentially committed under the financial assistance powers in clauses 228 and 229.

During our earlier debate on the money resolution, I set out a number of the schemes that the Government have announced in the past three or four months, and I have no intention of repeating them. Clearly, however, there is a range of schemes that involve significant financial commitments. I have talked about the asset protection scheme; one estimate this weekend suggested an amount of up to £400 billion. The Minister referred to the working capital scheme, and there is the scheme proposed by Sir James Crosby in relation to asset-backed securities. There is also the asset purchase facility, under which the Bank of England has been authorised to acquire commercial paper. So there is a range of schemes with significant price tags. It is important that taxpayers should understand the extent to which they are exposed to the financial assistance given under the schemes, and that Parliament and the taxpayer should hold the Government to account for the money involved in them.

One of the points made in the other place was that the schemes are put forward by a range of Departments: the Treasury is responsible for some, the Department for Business, Enterprise and Regulatory Reform for others and the Department for Communities and Local Government for the homeowners’ scheme. It is important that the Treasury acts as the focal point for drawing the schemes together and ensuring that a proper report is made to Parliament.


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When Lords amendment 83 was debated in the Lords, there was significant support from the Liberal Democrats, the Conservatives and a number of Cross Benchers. The majority of 35 in the vote on it demonstrated the strength of feeling about the welcome move to increase transparency. During the debate, Lord Davies of Oldham, speaking for the Government, opposed the amendment as he felt that it was unnecessary and that there were sufficient existing powers within the legislative programme to ensure that there was proper scrutiny. He prayed in aid the Exchequer and Audit Departments Act 1866 and the various Consolidation Acts and Appropriation Acts. Frankly, his arguments did not wash with the House of Lords; it did not feel that they would ensure sufficient transparency. Lords amendment 83 was backed so that there could be proper reporting of the amounts involved.

In their amendment, my noble Friend Baroness Noakes and Lord Turnbull reflected some of the concerns that the Minister mentioned. They referred to summarising data so that individual obligations were not necessarily seen and pointed out that there may be situations where information could be withheld as a matter of public interest.

What I take from the Minister’s remarks is that the Government have listened to the well-argued points that were made in the other place. Lord Davies said that the current mechanisms of accountability are sufficient. Conservative Members would like the Government’s conversion to the recognition that given the sums involved there must be greater transparency and accountability in the financial assistance that is given. We welcome the Treasury’s willingness to be as open as possible in disclosing information on exposure, subject to the caveat in new subsection (4) in the Government’s amendment. That represents a significant move by the Treasury and a recognition of the strength of the arguments made in the other place, and it is an important advance for transparency in how these matters are dealt with. Taxpayers have a right to know how much a bank bail-out is costing them. We therefore welcome the fact that the Government have tabled their amendment in lieu and we will not divide the House on it.

Mr. Colin Breed (South-East Cornwall) (LD): I, too, am happy to support the amendments. The balance between transparency and accountability is very difficult to achieve in these areas. Trying to ensure that we get as much information as we can without undermining the whole purpose of what we are trying to do is a delicate balance. The original amendment was a useful contribution, and I welcome the Government’s slight amendment to it while nevertheless agreeing the principle.

I welcome the inclusion of other financial institutions. I have always felt that a significant number of financial institutions are doing a good job in that they do not receive deposits but take wholesale money, they have lent responsibly, and they have been a genuine provider of consumer credit to an important market that we would not want to be diminished in any way.

However, there is a problem with confidentiality. We seem to have got ourselves into a situation where the leaking of information is becoming more prevalent. Given the ingenuity of financial journalists, in particular, in phoning around various institutions and individuals, I suspect that, whatever we do to try to ensure otherwise,
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it will not be too long before these bits of information will regrettably be coming out in the press, possibly undermining our actions.

Mr. Bone: The hon. Gentleman makes a good point. Is not one of the problems that if such leaking, which may be inaccurate, occurs, the lack of transparency will give more weight to the leaks that are inaccurate?

Mr. Breed: That is absolutely right. It is a bit of a conundrum, and it will be difficult. I am assuming that institutions that receive Government support will have to make the appropriate note in their audited accounts, so if they take it late on in their financial year it may not be long before they have to report it anyway.

Mr. Redwood: It is even more immediate than that. If material sums of capital or loan stock are injected into a bank, it has a duty to tell the markets to avoid a false market in its shares, so I cannot really see what all this is about.

Mr. Breed: When I mentioned the banks’ audited accounts, it occurred to me that they might have to make a market announcement if they took large amounts, so I suspect that the information will come into the public realm anyway. I hope that the public, through an educational process, will be able to assimilate this knowledge in a much more balanced way, following what they were subjected to at the front end of Northern Rock, and will begin to understand how organisations are availing themselves of facilities.

Overall, the amendments are worthy of support, but they may not quite achieve all that the Minister expects them to.

Mr. Redwood: It is typical of the whole debate about banks that we are in this miasma of nonsense. I do not know whether Ministers and those who drafted the legislation have ever operated under company law, or know any company law, but the simple truth is that if the Government are to inject equity capital into a bank, they not only need to make a prompt announcement to the stock market, but they need to table the details and get the approval of its shareholders before the transaction can be completed. If a large amount of longer-term loan capital or other priority capital is to be injected into a bank, that bank would be duty bound under company law to make an announcement as soon as it had an agreed deal with the Government.

5.30 pm

If we are trying to shield nationalised banks, the purpose of the amendments is wholly damaging. Where we have nationalised banks, we know that the Government stand behind them. Presumably, the point of nationalising them was to transfer all the credit risk and difficult risks in the bank to the Government’s account so that the bank’s credit is as good as the Government’s. Once we are in that position—short of the Government themselves getting into an uncreditworthy position, which we pray they will not—it is the duty of the Government to come to the House immediately when they wish to inject subsidy, loan capital, share capital or whatever it may be into a bank in public ownership. There can be no harm in telling us that immediately because the bank is
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nationalised and the public can take reassurance from the fact that the bank effectively has a claim on the Consolidated Fund of the United Kingdom, or on good will and votes in Parliament on the initiative of Ministers.

I find both the original amendment, well-intentioned though it was, and the Government’s amendment in lieu, far too weak and feeble with respect to nationalised banks, where we have a right to know soon or immediately what they are putting in and why. When it comes to private sector banks, where we are dealing with longer-term share capital and loan capital, we find out details promptly, and so we should, because there are good rules to ensure that there are not dishonest or false markets. Those are relevant considerations for the trading position of the banks.

Why has this situation arisen? Because the authorities got into difficulty when it was rumoured that they were trying to find a shotgun marriage for Northern Rock after it first hit difficulties. We were then told that they were not able to do that under time pressure because a combination of British rules and European legislation meant that they would have to disclose details before they had done a deal, which was very embarrassing for them. If that is the case, they ought to fix those rules and that legislation, because the bank or the other authorities need the power, in extremis, to act as an honest broker to a deal if one of the commercial banks or other financial institutions is in such trouble and there are buyers out there. That always used to happen without any problem. The problem seems to be based on a British lawyer’s interpretation of a European law—an interpretation that does not seem to be shared by other Community lawyers or other Community Governments, where they have been able to do such deals without the same difficulties. I hope that we can address the underlying issue because these proposals do not address it.

The other possibility is that the proposals are designed to deal with short-term assistance, given in the normal way, with a central bank acting when there are extraordinary stresses and strains on the market as a whole or on individual banks. The Economic Secretary is nodding his head, showing that that is what the proposals relate to. If he reads the clause in question, he will find that it relates to all the things that I have already spoken about, which is why I think it is clumsily drafted.


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