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Let us examine how much secrecy there needs to be for short-term assistance for an individual bank, and how that relates to the rules of company law. These are all difficult cases, but there could be a situation—there certainly was in August and September 2007, which the authorities did not respond to in a timely way—where an institution such as Northern Rock is in immediate need of cash to replace borrowings that it can no longer access from the private market. In such a case, we would hope for the central bank to be responsive, and that it would make loans against good security. If they are made as short-term loans against security within the normal borrowing powers of the bank and within what it has already reported to its shareholders, that could be done in secret, and it is best done in secret. It always used to be done in secret, and if there was any danger of the market finding out that a bank needed such assistance, the Bank of England used to say to several banks, “We want you all to take a bit of money from us this week, so that we can let the market know that quite a few
banks need us, because the market is a bit stressed.” The finger of doubt would therefore not be pointed at one particular institution. Other techniques could also be used. My concern about the amendments is that they imply that we are talking about longer-term finance that should be properly reported and completely transparent.
One would hope that under the six-month provision suggested in the Government’s amendment, any temporary assistance would be lent and repaid in that period. The idea of temporary assistance is that it should meet a short-term shortage in the market, or that a bank could replace it in other ways, in the normal course of business and reasonably promptly. The reporting requirements would not then need to apply. My concern is that the Government’s amendment sets out an effective override so that we would never know which individual bank or arrangement was involved. We have a right to know about many arrangements, particularly in relation to nationalised banks.
The hon. Member for South-East Cornwall (Mr. Breed) made the extremely good point that if we look back on the sorry story of the past few months, we see that the various attempts to prop up or support banks have been conducted through the media. One of the most unpleasant things about the injection of shotgun money into the banks—£37 billion of share capital over that fateful weekend—was that we had a running commentary on it. We should not have been told about it. The banks should have gone into the Treasury by the back door or done things by a video conference link. We should not have been told that there were crisis talks, that the banks were in trouble and that there had to be a deal by the opening of business on Monday. All that added to the crisis atmosphere.
We have never known who was responsible for that. I do not blame the journalist who got wonderful stories out of it and provided us all with a running commentary, as any journalist who got such information would obviously see it as public information and want to use it. However, that was not the way to mount a rescue if the banks in question really needed it. Personally, I do not believe that they were in desperate need of such a rescue at that point, and there would have many easier and cheaper ways of helping them. Of course, I would not have wanted any of them to go under, but the high drama was not required, and there certainly did not need to be such public exposure over that weekend.
If it was necessary for public capital to be injected into those banks—I remain to be persuaded—it should have been done after proper reflection, evaluation and valuation. Of course it had to be made public, but only when the participants knew the details and had something reassuring and confidence-building to present to the market. The commentary during the run-up to the deal undermined confidence by suggesting that the banks were in crisis, and indeed by naming one bank that turned out not to need any public money, which was not terribly helpful to that bank.
I therefore do not believe that the Lords amendment goes far enough, and I do not believe that the Government’s proposed revision goes nearly far enough. It is a cover-up amendment rather than a transparency amendment. Fortunately, we will get more transparency in the private sector through other rules, regulations and laws, but I am concerned about the complete absence of transparency
that will yet again exist in the public sector. I hope that the Economic Secretary will think again, and that he agrees that every penny going into a state-owned bank should be reported to Parliament promptly, with its full terms, so that we know what is going on.
Stewart Hosie (Dundee, East) (SNP): I wish to speak mainly to Lords amendment 83 and the Government’s alternative to it.
I was struck by the Economic Secretary’s saying that the Government had acted quickly during the banking crisis. This is 10 February 2009, and I believe that it was 30 January 2008 when the consultation on financial stability and depositor protection was published—five months after the run on Northern Rock began. This is effectively a carry-over Bill. We have secured Northern Rock after an interminable delay and recapitalised the banks, and there has been a facilitated takeover of Bradford & Bingley, with the taxpayer now holding the liability on its mortgage book. Whatever else the Government or the Economic Secretary have done, it has not been decisive or quick. However, now that we are reaching the endgame in the Bill, which we are committed to supporting, transparency is important, not least because of the giant sums involved.
The Economic Secretary knows that transparency has caused concern since the publication of the consultation last January, and at various stages of the Bill’s passage. I am therefore especially struck by proposed new subsection (2) in the new clause that the Lords amendment proposes. It states:
“The Treasury shall ensure that the report contains sufficient detail to enable Parliament to understand the actual and potential commitment of public money to financial assistance”.
That is sensible given the hundreds of billions—possibly a trillion or more—of pounds that are actually and, more important, potentially committed. Taxpayers have a right to know what they are in for and what the loss and liability may be.
Transparency is also important because of what the Economic Secretary said: the Bill uses public money. Again, transparency is important because clause 235 removes the need for the Bank of England weekly return—people have commented on that for some time—and clause 236 allows the Bank of England to determine what it reports, when and to whom.
I make no apology for repeating points that have already been made. Transparency is important because support now extends beyond the banks, financial institutions and deposit-taking institutions. Already, around £200 billion has been put in the special liquidity scheme. We have had the £37 billion recapitalisation of the banks, some of which was lost through the removal of the preference share into ordinary capital. We have the £250 billion guarantee scheme for new inter-bank lending—I am not sure what the draw on that was or is.
There are also: the £10 billion working capital scheme; the enterprise finance guarantee scheme of potentially £1.3 billion; the £75 million capital for enterprise fund; the unlimited Government insurance for banks for expected excess bad debt, which is an extraordinary liability; and the £50 billion for the Bank of England to buy assets in all sectors. If I have understood the press reports, that process might continue, if the £50 billion runs out,
through quantitative easing, which means the bank printing money to buy assets. That has not been denied and it worries me greatly.
There is also the £50 billion of bank credit guarantees, the £1 billion of direct loans to the car industry, and the additional £1.3 billion of EU funding, which is to be unlocked. There is therefore a massive need for transparency. We are considering scary, big numbers, which have the potential to do huge damage to the public finances in the medium and long term if things begin to go badly wrong.
Mr. Michael Fallon (Sevenoaks) (Con): In the normal course of events, we would not see the Treasury balance sheet until the Treasury accounts were published, probably at the end of each July. Given the scale of the schemes, which the hon. Gentleman has described so well, should not we have a monthly or quarterly update from the Treasury about the exact state of the balance sheet?
Stewart Hosie: Yes, that would be helpful. However, I am conscious of the need to protect individuals or organisations that may receive assistance. There is a balance to be struck. I am worried that the Government’s alternative to the Lords amendment does not do what the Lords amendment provides for: allowing Parliament to understand the actual and potential commitment. I am less vexed about whether the report is made weekly, monthly, quarterly or six-monthly, as long as we can begin to understand the genuine extent of actual and potential liability.
Mr. Redwood: The hon. Gentleman is doing the Minister’s job for us, by spelling out the almost £700 billion of commitments that we would like to be reported properly. In addition, the hon. Gentleman might like to know that the Bank of England balance sheet was around £40 billion at the time of the run on Northern Rock. It hit £240 billion at the end of last year, which is a sixfold increase. However, the Bank of England increases, together with those other schemes, amount to about £1 trillion. That is why we want to know where the money is going.
5.45 pm
Stewart Hosie: That is absolutely right. I am sure that right hon. and hon. Members will know of other liabilities, real or contingent, that they could add, but I will not into that today.
The Government’s alternative to Lords amendment 83 says:
“The Treasury must aim to give as much information as possible in a report, subject to”
not specifying individuals or amounts to individuals, and I understand why. My question for the Minister is this: will he put it on record that the intention behind the words with which the Government intend to replace Lords amendment 83 is still to provide sufficient detail to enable Parliament and the public to understand the actual and potential commitments in the public finances?
Mr. Bone:
At the beginning of the debate the Minister seemed to say something about working capital that rather surprised me. He said that working capital would be provided only for British banks and that it would not
be allowed to cover foreign loans. Some might suggest that that would mean British credit for British business, but surely it would be illegal under EU law. The Minister needs to clarify that—I am sure that he did not mean it, but that is what he seemed to imply.
It was interesting that the money resolution went through on a very small vote. The Government could only muster fewer than 300 Members to vote for it, which is way less than half the Members of this House, so clearly there is considerable concern about that open-ended cheque. The Minister could not tell us how much money is involved, because he does not know how much money is involved. However, we are talking about a simply extraordinary amount—billions and billions of pounds.
I want to talk about Lords amendment 81 to clause 225, which deals with transparency—or, should I say, the lack of it. We have already heard from the Minister that if there was a major financial crisis in August when Parliament was not sitting, the Treasury could spend billions and billions of pounds off its own bat, and when we came back in October, we might get a report about that. However, proposed new subsection (5) to clause 225 says:
“Where money is paid in reliance on subsection (4)”—
perhaps by the Treasury in the recess—
“the Treasury shall as soon as is reasonably practicable lay a report before Parliament specifying the amount paid...but not the identity of the institution”.
We would get a report, although it is interesting that we would not know which institutions had received the money. Proposed subsection (6) to clause 225 says:
“If the Treasury”—
“think it necessary on public interest grounds, they may delay...a report”.
That is bad enough, but the words after “delay” are:
“or dispense with a report”
altogether. Therefore, a massive amount of money could be spent in the recess that would never be reported to this House, because somebody in the Treasury claimed that Parliament should not be told on public interest grounds.
That is what this Government are all about. They do not like debate, they do not like transparency and they want to do everything behind closed doors. This Government’s fundamental mistake is not believing in their own arguments and not coming to Parliament to debate them fully. Despite what the Minister claims, we have not had any debate in Government time on the economic situation. We have had a few statements, where a Minister or the Chancellor gets up and spends—
Madam Deputy Speaker: Order. I do hope that the hon. Gentleman will confine his remarks to the amendment that he said he wished to discuss.
Mr. Bone: Thank you, Madam Deputy Speaker. I am sorry if I strayed from new subsections (4), (5) and (6) to clause 225, as proposed by Lords amendment 81, but the implication seems to be that they would stop debate on the Floor of the House. I was trying to make the point that the Government’s mistake is not to have that debate and not to believe in their own—
Madam Deputy Speaker: Order. I think that the hon. Gentleman has already made that point.
Mr. Bone: Thank you, Madam Deputy Speaker.
In conclusion, then, I would say that we are in a difficult position with all these Lords amendments and revisions by the Government, but we are committed to getting the Bill through Parliament as soon as possible. However, we are dealing with an Alice in Wonderland situation, in which the Government can spend vast amounts of money without any reference to Parliament.
Mr. Brooks Newmark (Braintree) (Con): I am surprised that the Government are opposing the Lords amendment that would require a quarterly report on financial assistance. Our proposal in the Lords amendment is very much in accord with democratic values and the kind of practice that many of us see in the private sector when we report to our shareholders. The Government talk about normal mechanisms, but these are not normal times. As the Children’s Minister himself has said, this is the most serious recession in 100 years. Even the Prime Minister thinks that we are already in a depression, but perhaps that is just his own state of mind.
Taxpayers have a right to know what liabilities the Government—and, in turn, taxpayers—have. Those liabilities should be made clear to the public, whether we call them on-balance sheet liabilities, off-balance sheet liabilities or contingent liabilities. Unfortunately, however, this is part of the Government’s pattern of hiding the real state of their finances. According to recent figures from the Office for National Statistics, net debt is about £697 billion, or 47 per cent. of gross domestic product. To put that in normal terms, it represents £25,000 per household. The reality, however, is that the Government are hiding about another £1.2 trillion off-balance sheet, primarily in public sector pension liabilities. So taxpayers actually owe more than £75,000 per household—
Madam Deputy Speaker: Order. The hon. Gentleman has had a degree of latitude, but he is now going wide of the amendments under discussion.
Mr. Newmark: I appreciate your guidance, Madam Deputy Speaker. I was trying to point out the importance of the need for greater transparency by highlighting a pattern of a lack of transparency. However, I will return directly to the subject of the debate. As the hon. Member for Dundee, East (Stewart Hosie) and others have said, taxpayers have a right to know what their exposure is. That is the point that I was trying to make. If we are to maintain the trust of taxpayers, we must be as open and transparent with them as we can. Quarterly reporting on what we are doing with their money does not seem to represent an undue burden in these extraordinary times.
Jim Cousins: I had not intended to speak in this debate, but the correct description by the right hon. Member for Wokingham (Mr. Redwood) of the United Kingdom as a large pool of bank debt loosely tied to a medium-sized country was a telling one. He went on to refer to the possibility that our Government, and others in the western world, might be testing to the limit the ability of Governments to raise their own debt. That was also a fair point, which we need to address when we consider these issues.
The other place has done us a service in providing us with these amendments. I understand the Government’s difficulty in working out how to report to Parliament on an ever-changing and fast-moving situation. Their efforts to do so are set out in their alternative to Lords amendment 83, and I have no quarrel with them, but they must accept that the House cannot wait until the end of the first six-month period set out in their amendment for a comprehensive report on where we have got to. That point was fairly made by the hon. Member for Dundee, East (Stewart Hosie).
We should not have to wait until October to discover where the state aid reference to Northern Rock—which has paralysed Northern Rock’s ability to serve the Government’s purpose of opening up new lending—has got to. We should not have to wait until October to work out the extraordinary situation that is now developing with the remnant of Bradford & Bingley—which is still in state ownership—in which the Government will find themselves owning a significant proportion of the outstanding buy-to-let mortgages in this country. That proportion could be in the order of 20 per cent.
Through their ownership of Bradford & Bingley, the Government are still observing the terms of the deal that Bradford & Bingley made with GMAC, the American General Motors company that branched out into finance. Many of us have had to deal at constituency level with GMAC-provided mortgages, which are in a sorry state. Bradford & Bingley did a deal in which it undertook to acquire billions of pounds’ worth of those mortgages on a quarterly basis. The last quarter in which those mortgages will be acquired ends on 31 March 2009, by which time 20 to 25 per cent. of the stock of self-certified mortgages for the self-employed will, through the GMAC acquisition, be in state ownership. The House needs to know where we have got to with all this. We need to know what the immense policy consequences of those deals will be, and what they will mean for public expenditure.
In this debate, we have clarified that the Government intend to support UK banks and not other banks. I think that we have also established that the support that the taxpayer is making possible through the working capital fund will go only to UK companies. However, through the guarantee of assets—part of which has already been undertaken, and more of which will be decided at the end of this month with Lloyds and RBS—it is clear that the British taxpayer will be supporting loan books that are not UK-located.
Mr. Redwood: The hon. Gentleman is making a powerful point about the need for transparency. Is he aware that only one pound in seven on the balance sheet of RBS is a loan to a British person or company?
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