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David Taylor (North-West Leicestershire) (Lab/Co-op):
The hon. Gentleman is making the perfectly fair point that the content of the report ought to be spelled out in a little more detail than is provided for by the legislation. Does he agree that when a bank is apparently getting
towards the end of its period of temporary public ownership, or some similar change is about to occur, it should be incumbent on the bank to report on the prospects for what is being widely discussed—in the case of building societies that were privatised into banks and then collapsed, people are looking at the prospects of their being remutualised on return to the private sector? Something of that kind is a possibility in a report some years down the line, is it not?
Mr. Hoban: The hon. Gentleman raises an interesting point. He is an ardent advocate of the remutualisation of those building societies that became banks and are now in state control. The amendment tabled by my noble Friend Baroness Noakes provided for a report about the prospects. I can envisage that in a report with that level of detail, the prospects could include some statement about the exit strategy—how the bank emerges from the period of temporary public ownership.
Clearly, one of the debates that needs to take place, for which my noble Friend’s amendment created a vehicle, is how the Government intend those banks to exit the period of temporary public ownership. I recognise the points that the hon. Gentleman makes. A little more transparency about the exit strategy would be helpful for all of us when thinking about the future of both Bradford & Bingley and Northern Rock.
A problem emerges from the lack of transparency that we have seen in the context of, say, Bradford & Bingley, and in the way that the Government’s stake in the nationalised banks has been managed. There is very little transparency about the activities of United Kingdom Financial Investments Ltd. I asked the Chancellor of the Exchequer for details of the budget of UKFI. The Minister stonewalled that question in a parliamentary answer, and it is unsurprising that there is then press speculation about the arrangements for UKFI.
It is important that the Government are open and transparent about the activities of the nationalised banks. It was a feature of the debate that we had a year ago on the Banking (Special Provisions) Act 2008, particularly in connection with Northern Rock. Although we welcome the fact that the Government have listened again to proposals made in the House of Lords to increase transparency, greater detail about the type of report that we would expect to see would be welcomed in the House this evening.
I turn now to amendments 17 and 31. Of the three stabilisation options available to the authorities, two require transfer instruments to be made by the Bank of England. Those are the options relating to a private sector purchaser and a bridge bank. In the case of a bridge bank, a bank can be broken up and property transferred to a new owner, as happened with Bradford & Bingley and Banco Santander towards the end of September last year. If the Bill had been in place then, the Bank of England could have used a property transfer instrument to transfer Bradford & Bingley’s branch network to Santander. Of course, there would have been remaining elements of the bank in temporary public ownership until a resolution or exit strategy had been found.
Within the bridge bank mechanism there are elements that are similar to nationalisation or temporary public ownership. However, the transfer powers—this was the issue raised in the other place not just by my noble
Friend, but by the Delegated Powers and Regulatory Reform Committee—are exercised by the Bank of England without parliamentary approval. The Delegated Powers and Regulatory Reform Committee, when considering those powers, argued that because they were similar to taking a bank into temporary public ownership, their use should be subject to parliamentary approval. In effect, because the original owners are deprived of their property rights, Parliament should approve that. It should not be an action that the Bank can take without scrutiny by Parliament.
There was a vigorous debate on that in the other place. The outcome, as reflected in amendments 17 and 31, probably achieves the right balance. A copy of the share or property transfer instrument made by the Bank of England will be laid before Parliament. That will help to increase parliamentary scrutiny.
My final remarks relate to amendments 46 to 48 and the use of the word “subserviate” in legislation. The Minister seemed to think the word was used in everyday parlance. Perhaps it is used quite often in his constituency, but it is not a word that I had heard until the Bill was presented to me. I checked yesterday whether there was widespread use of the word and Googled “subserviate”. The first two results referred to an online dictionary, and—surprise, surprise—the next two references were to debates in this House and the other place.
Clearly, “subserviate” is not a word that is widely understood. When the Minister gave his example earlier, I was not entirely sure it would have been clear in a press release what his relationship was to the Chancellor or to the Prime Minister, but perhaps the Minister does not use such language in the “Dudley Star” or whatever the local paper is in his constituency.
I welcome the fact that the amendments have been made. The Minister ought to have a word with his noble Friend the Financial Services Secretary about how to concede the point gracefully. I read the debate in the Lords Hansard, where Lord Myners said:
“I do not think that the meaning of ‘subserviate’ is opaque or confusing. However, concern was also expressed in the other place, where the standards of learning are perhaps not as exceptional as in this House”—[O fficial Report, House of Lords, 2 February 2009; Vol. 707, c. 541.]
I do not know what it is about Lord Myners, but if there is a Treasury course on tact and diplomacy in dealing with Members of this place, he ought to be the first in the queue. None the less, I am pleased that he listened to the concerns that my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) expressed in Committee. We shall not oppose this group of amendments.
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Ian Pearson: It is a hiatus valde deflendus in the learning of the hon. Member for Fareham (Mr. Hoban) that he is not instantly familiar with the word “subserviate”. That lacuna in his knowledge has now been addressed, and I hope that the word can be used in future legislation.
The hon. Gentleman said that we had reached the right point with amendments 17 and 31, so I need not explain them any further. I will just say that we reflected on Baroness Noakes’s amendments and that I appreciate the hon. Gentleman’s support and his agreement that we have the balance right at the moment.
The hon. Gentleman did some probing about what we could expect to see in the report introduced by Government amendment 58. We have had numerous debates about what should rightly be in a Bill and what should be done through codes of practice, secondary legislation or the normal course of Government reporting. We do not believe that the Bill should list the specifics of what should be included in every report. The bounds of commercial confidentiality need to be respected; we have to bear it in mind that banks in this situation will still be commercial bodies undertaking commercial transactions, and that there is rightly a duty of commercial confidentiality. However, while respecting that, we should still be as open and transparent as possible in respect of the information that we provide.
I hear what the hon. Gentleman said about Bradford & Bingley. My understanding is that it will publish a version of the business plan on which it has been working. The hon. Gentleman will be aware of the reporting with regard to Northern Rock. As I outlined earlier, there are other opportunities, in addition to the annual report, for hon. Members to probe Ministers on banks in temporary public ownership.
Mr. Hoban: I am grateful to the Minister for his comment about the publication of the Bradford & Bingley business plan, but when will we see the first set of accounts of Bradford & Bingley under public ownership? Will there be a quarterly update shortly, or will we have to wait for full-year results?
Ian Pearson: I do not have that information to hand. I expect that Bradford & Bingley will publish a version of its business plan, although naturally there will be some commercially confidential matters. If I get further information on that issue, I shall be happy to transmit it to the hon. Gentleman.
The amendments have cross-party support; they come from the other place and they strengthen the Bill.
Lords amendments 18 and 19 agreed to.
Ian Pearson: I beg to move, That this House agrees with Lords amendment 20.
Mr. Deputy Speaker: With this it will be convenient to deal with Lords amendments 51 to 53 and 95.
Ian Pearson: Lords amendment 20 removed from clause 36 a subsection that made provision for tax. The clause deals with the maintenance of continuity when a transfer is made under the powers in part 1. The subsection was not needed in the light of the detailed powers on tax in clause 74, and I am grateful to the Opposition spokesman in the other place for drawing that to our attention and tabling the necessary amendment.
Lords amendments 51 to 53 and 95 respond to comments made by the Delegated Powers and Regulatory Reform Committee, widely supported in the other place, about the parliamentary scrutiny of secondary legislation. The amendments switch the order-making power in
clause 74 to the affirmative procedure; again, we have had many debates about whether matters should come under the negative or affirmative procedures. We are happy to support the amendments and the view of the Delegated Powers and Regulatory Reform Committee in that respect.
Mr. Hoban: We welcome the fact that amendment 20 was accepted in the House of Lords and we are happy that it forms part of the amended Bill. However, will the Minister help me out on one issue? When the amendment was debated in the other place, the point was made that there were provisions under clause 74 that would allow the Treasury to make regulations about the fiscal consequences of the exercise of the stabilisation power. When a normal transaction takes place, there are fairly well established precedents about how tax should be dealt with; corporation tax, for example, is apportioned between the former owner of a company and its new owner, based on when the completion date was. There are mechanisms for calculating what the tax bill would be. Will the Minister explain a little more about what he thinks the fiscal consequences of the exercise of the stabilisation power will be and where the Government are on making regulations on that? That would be helpful.
On Lords amendments 51 to 53 and 95, one of the themes running through our consideration of the Bill is that there should be proper parliamentary scrutiny of the secondary legislation, so we welcome the Government’s moves to accept more situations in which regulations should be dealt with through the affirmative procedure rather than the negative procedure.
Ian Pearson: I welcome the hon. Gentleman’s support for the amendments, particularly in respect of the decision to move to the affirmative procedure for scrutinising some of the secondary legislation.
On the fiscal position, the Government will assess the range of likely tax consequences that follow from the exercise of the stabilisation powers, and we will bring forward any necessary tax provisions in due course. Explanatory material accompanying any tax provisions will set out further details about the basis on which the changes are to be made. I have nothing further to add to that at this point.
Lords amendment 20 agreed to , with Commons privilege waived.
Lords amendments 21 to 48 agreed to.
Ian Pearson: I beg to move, That this House agrees with Lords amendment 49.
Mr. Deputy Speaker: With this it will be convenient to consider Lords amendments 50, 59, 60, 70 and 71.
Ian Pearson:
The amendments provide for the extension of the provisions on temporary public ownership to bank holding companies. Hon. Members who served in Committee will remember that I first raised that matter then; I now return to the matter as the Government
have laid the amendments in the other place. I hope that hon. Members will forgive me if I set out the issues in a little detail, as we did not have the opportunity to discuss them first in this House.
During the course of developing and consulting on this Bill, the authorities have continued to consider the question of how best to resolve different types of failing banks. The events of autumn last year made it apparent that, in some cases, exercising a power conferred by the special resolution regime in relation only to the bank in a financial group may be problematic. Specifically, acting on the bank alone may not be sufficient fully to achieve the resolution objectives, particularly that of protecting and enhancing the stability of the UK’s financial system. The starting point for this issue is that banks often form part of complex corporate groups. The company within the group with the deposit-taking permission—the bank—may not be the ultimate parent company within the group. In such circumstances, therefore, as originally drafted the SRR powers could not have been exercised against the parent company, but only in respect of the bank within the group.
There are a number of reasons why a power limited to banks may be insufficient. First, the activities of the bank and the rest of the group may be so inter-related that the exercise of the transfer powers only in relation to the bank may be insufficient to resolve the bank successfully. Secondly, taking action only in relation to the bank may give rise to serious difficulties within the rest of the group, which is likely to include other financial companies that may be relevant for stability purposes. In certain cases, the exercise of the transfer powers in relation to the bank may so disturb the operation of and confidence in the group as a whole that it leads to the insolvency of some or all of the other entities in the group. Wherever such entities in the group are financial institutions, their failure may impede the achievements of the SRR objectives. In addition, the failure of other entities in the group may give rise to difficulties in the continued operation of the bank given the interconnectedness of the group. Finally, a private sector solution may be more likely on a group-wide than on a bank-only basis.
I should like to note up front that the Bill already contains provisions that seek to address aspects of these potential difficulties. In particular, we have an obligation on group companies to continue to provide necessary services or facilities—“continuity obligations”—to the bank following an exercise of the transfer powers. However, the Treasury concluded that the imposition of continuity obligations, while remaining a vital tool in certain cases, may be insufficient to address the full range of difficulties outlined above. Therefore, as I signalled in Committee and on Report, amendments to extend the Treasury’s power to take a failing bank into temporary public ownership to include bank holding companies were tabled in another place.
Let me set out how these amendments work. Lords amendments 59 and 60 provide new clauses that allow the Treasury to take a holding company into temporary public ownership. As with any stabilisation option, there are significant conditions that must be met before the power may be exercised. A bank holding company may be taken into temporary public ownership only if the Financial Services Authority is satisfied that a bank in the group satisfies the general conditions set out in
clause 7. In addition, the Treasury must be satisfied that it is necessary to take action for the purposes specified in the conditions for temporary public ownership set out in clause 9.
In determining whether it is necessary to take such action in relation to the holding company, the Treasury will have to consider whether action in relation to the bank alone would suffice for the purposes specified in clause 9. I should also point out that, as with any stabilisation power, the exercise of the holding company temporary public ownership tool would be governed by the SRR objectives provided in clause 4 and subject to the code of practice provided for in clause 5, to which the authorities must have regard. I should also note that the power is limited to the Treasury. This approach ensures that Parliament can hold the Minister exercising powers in relation to a holding company directly to account. The Government consider that ministerial accountability is important given the breadth of interested parties that the holding company power may affect.
Mr. Bone: I am trying to follow carefully what the Minister is saying. In circumstances where a large group, say a supermarket chain, has a banking sector and the bank needs to go into temporary public ownership, does that mean that the Government could end up owning a supermarket?
Ian Pearson: No. I shall go on to explain that in more detail.
A group may contain entities that are not directly involved in the financial services sector, so the decision to resolve a bank on a group basis will involve balancing the interests of a range of parties against the public interest in resolving the difficulties caused by the failing bank. It is the Government’s view that Ministers are best placed to make that judgment. Once a holding company is in temporary public ownership, the Treasury will have a range of powers available to it to transfer on the shares and property, rights and liabilities of the holding company.
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This approach has been adopted in order to provide the Treasury with appropriate flexibility to complete the resolution of each bank effected by the transfer to temporary public ownership of the holding company. All the limitations on partial property transfers provided for in clauses 47, 48 and 60, and secondary legislation made under them, will apply. I am happy to confirm, for example, that the netting arrangements will be protected in line with the order made under clause 48. Furthermore, the Government consider it appropriate to restrict the powers of the Treasury with respect to non-bank entities within the group. Therefore, the full range of onward transfer powers apply only to deposit-takers in the group and the holding company itself. We have adopted this position in order to minimise commercial uncertainties arising from the taking of these powers.
Mr. Hoban:
I am grateful for the Minister’s comments, which clarify the Tesco point raised by my hon. Friend the Member for Wellingborough (Mr. Bone), which I was going to mention in my speech. The Minister referred to onward transfer powers being available only in relation to the interests of the holding company and
the banking subsidiary. Does that mean that where there are other financial services businesses in that group, such as insurers and fund managers, there will be no onward transfer powers in respect of those entities?
Ian Pearson: My understanding of the situation is that that is correct. Let me explain in a bit more detail.
As I outlined, the Treasury may take a holding company into temporary public ownership only under the purposes set out in clause 9—that is, if it is
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