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House of Commons

Thursday 12 February 2009

The House met at half-past Ten o’clock


[Mr. Speaker in the Chair]

Business Before Questions

Manchester City Council Bill [ Lords] and Bournemouth Borough Council Bill [ Lords]

Motion made, and Question (15 January) again proposed,

Hon. Members: Object.

The debate stood adjourned; to be resumed on Thursday 26 February.

Canterbury City Council Bill, Leeds City Council Bill, Nottingham City Council Bill and Reading Borough Council Bill

Motion made, and Question (15 January) again proposed,

Hon. Members: Object.

The debate stood adjourned; to be resumed on Thursday 26 February.

Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Departmental Holdings (Banks)

1. Mr. Peter Bone (Wellingborough) (Con): What expenditure his Department incurred in acquiring its holdings in Royal Bank of Scotland plc, HBOS plc and Lloyds TSB plc; and what the monetary value of those holdings was on the most recent date for which figures are available. [256282]

The Chancellor of the Exchequer (Mr. Alistair Darling): Under the recapitalisation scheme that I announced on 8 October, the Government invested £19.97 billion in
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the Royal Bank of Scotland group and £16.96 billion in the Lloyds banking group, which was formerly Lloyds TSB and HBOS.

Mr. Bone: I think that the Chancellor forgot to answer the second half of the question; anyway, I will press on. What is the total exposure that British taxpayers face, both direct and contingent, as a result of the purchase of the bank shares, the provision of loans and the offer of guarantees? Chancellor, can we have a straight answer this time? Can we have the figure, and can you tell us how much of our children’s future you are gambling?

Mr. Darling rose—

Mr. Speaker: Order. The way in which the hon. Gentleman addresses the House is out of order; he knows that. I have had to say that to other hon. Members. We have got to stick to the rules.

Mr. Darling: At each stage, I have set out to the House what the Government propose to do and what the cost is. In relation to the purchase of a shareholding, the Government purchased shares, and that came to a total of £37 billion. That was part of the recapitalisation process. I have to tell the hon. Gentleman that that part of the Government’s proposals over the past few months was supported by hon. Members on both sides of the House. It was recognised as being absolutely necessary to recapitalise the banks because we were within hours of the banking system collapsing last October; that is why we did it.

The hon. Gentleman asks about other measures that we have put in place—for example, the special liquidity scheme, which I announced in April last year and of which the Bank of England reported last week that about £185 billion has been taken up. That has been more than covered by the collateral lodged by banks, which is over £240 billion, and in addition the Government charge fees that total about £2 billion for that. That is just one example of where we have given guarantees that are just that—guarantees, not money that is being paid out at the moment. I believe that the range of measures that we have taken—other countries around the world have done the same or similar—was absolutely necessary. What I really find surprising is that having supported us last October the hon. Gentleman is now attempting to run away from the decisions that we all took then.

David Taylor (North-West Leicestershire) (Lab/Co-op): With taxpayers now holding a majority stake in Lloyds, which Her Majesty’s Revenue and Customs is investigating for double dipping and tax avoidance via Cayman islands companies—biting off the hand that feeds it comes to mind—will the Chancellor of the Exchequer say what access the Government had to Lloyds’ books before pumping in billions of pounds of public money and whether any condition, such as an end to all tax avoidance activity, were attached to our cash being used to save a bank that has so successfully shifted the tax burden from corporations on to small businesses and families?

Mr. Darling: Let me make a couple of points to my hon. Friend. First, as he is no doubt well aware, because this matter is currently before the courts there is a limit
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to what I can say. As a matter of general principle, Ministers do not normally comment on the individual circumstances of any taxpayer, corporate or individual, for perfectly good reasons. However, I can say to him that the so-called double dip scheme was shut down by the Government in 2005. In addition, anti-avoidance measures that we have introduced have saved the taxpayer about £11 billion over the past couple of years. On top of that, from 2004 schemes of this sort have had to be reported to HMRC to ensure that if there is abuse or if any measures that are being taken have unintended consequences that are harming the taxpayer, action can be taken very promptly. That will remain the case. At each Budget, I will ensure that if there are loopholes that need to be closed, we will take the action necessary.

Mr. Michael Fallon (Sevenoaks) (Con): Can it really be right that the body looking after the taxpayer’s interest in these two banks should be chaired by Mr. Moreno, who appears to have been heavily involved in tax-dodging in Liechtenstein? In the interests of getting a consensus behind United Kingdom Financial Investments, is the Chancellor wise to proceed with that appointment?

Mr. Darling: The hon. Gentleman will be aware that following Sir Philip Hampton’s appointment to chair the RBS board, I asked Mr. Moreno to take his place as acting chair. I will make a decision on the permanent replacement in the near future. I agree with the hon. Gentleman that we should take a firm hand on tax loopholes and on people not paying the tax they should, and I hope that he will have a word with one or two prominent Conservative donors who do not choose to pay their taxes in this country.

Mr. Brooks Newmark (Braintree) (Con): Using generally accepted accounting principles, how much has the nationalisation of the banks added to the national debt?

Mr. Darling: As I said to the hon. Member for Wellingborough (Mr. Bone), we have reported all the potential and actual exposures in relation to the purchase of assets or the guarantees, and we will continue to do that in the normal way.

Dr. Vincent Cable (Twickenham) (LD): Is it not becoming increasingly clear to the Chancellor that the ferocious resistance of the management of these banks to the Government’s full takeover of them, albeit on a temporary basis, is motivated by a desire to protect bonuses and salaries, to resist write-downs and loss declarations and to protect cynical tax avoidance schemes? When will the Government avoid this farcical and completely ineffective arm’s length management arrangement?

Mr. Darling: I do not agree with everything that the hon. Gentleman says. First, I believe that it was necessary to take Northern Rock into public ownership on a temporary basis, but I do not believe that we should seek to take over banks as a matter of course. They are better being commercially run, and I think that the hon. Gentleman and I would both agree that the Government cannot be in the business of running these banks in the long term. However, disclosing the nature and the extent of losses, and providing a greater degree of transparency,
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is absolutely necessary and we will continue, especially as we work out the insurance scheme of the assets, to ensure that people completely understand the nature of the liabilities that the banks have entered into.

Mr. George Osborne (Tatton) (Con): I think that the answer to my hon. Friend the Member for Sevenoaks (Mr. Fallon) means that the Government are about to lose their second key banking adviser, but may I ask about the resignation of the first? Are we really expected to believe that when the Prime Minister appointed Sir James Crosby to the board of the Financial Services Authority, and when the current Chancellor promoted him to the job of deputy chairman in 2007, neither of them had any idea that they were appointing someone whose business model at HBOS was being investigated by the regulator whose board they were appointing him to?

Mr. Darling: As the Prime Minister has just told the Liaison Committee, Sir James’s appointment in 2003 was made on the recommendation of a selection panel that followed an open competition, and that panel, which was chaired by the senior official then responsible for banking regulation, Sir James Sassoon, recommended the appointment of James Crosby. At that time, there was no reason to question that appointment. With the benefit of hindsight, many people now make claims about what they say they knew at that time, but the then Chancellor followed the proper procedures and followed the advice, and he had no reason not to make the appointment.

The FSA has said that in 2002, and subsequently, it drew attention to a number of concerns, as it did with several other organisations. In terms of the law, the way in which the FSA supervises any bank, let alone this one, is a matter for it. Neither the subsequent investigation into the allegations made against James Crosby, nor the concerns that it had, were reported to the Treasury. I would not expect them to have been, given the information that I have from the chief executive of the FSA at the moment.

Mr. Osborne: Either the Chancellor knew what was going on and did nothing, or he was entirely ignorant, and neither is much of a defence. Is not the net closing in on the Prime Minister and the Chancellor? Their accomplices are resigning, their alibi that no one knew what was going on has been blown apart, and their fingerprints are all over the mistakes that were made during the age of irresponsibility.

Is there a coherent view in the Cabinet about how long this recession will last? We know what the Treasury’s forecasts are, and we know what the Chancellor says about the economy recovering halfway through this year, but today the Health Secretary has said that we need to be ready for two years of recession. Is the Health Secretary expressing the collective view of the Government on this issue?

Mr. Darling: In relation to the FSA, the hon. Gentleman’s claims are frankly ridiculous. Appointments were made in the normal way, which is a great deal more open than for some of the appointments that were made in the past. At the time, there was no reason not to accept the recommendations in relation to Sir James Crosby.

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On the broader economic picture, as I have said to the House on a number of occasions, there has been an extremely sharp downturn not just in this country but in countries right across the world, and we can see the effects of that. I am clear, though, that if we had followed the hon. Gentleman’s advice and done absolutely nothing to prevent the full effects of the recession from being felt, the impact and the long-term damage to this country would have been substantial. I believe that the action that we have taken is not only justified but will ensure that this recession will be shorter and less painful than would otherwise be the case. I am sorry that the Conservative party continues to take the view that there is absolutely nothing that they are prepared to do to help people and businesses in this country.

Mr. Dennis Skinner (Bolsover) (Lab): Is the Chancellor aware that the most delightful thing about this episode is that most bankers naturally represent the Tory party? I am quite enjoying the spectacle of these Tories liaising with bankers one day and attacking them the next. As a socialist, I think that at the end of the day we might see a better banking system and, next time, put some socialists on the banks. The other thing that has emerged is that the Tories are complaining about tax avoidance, and they are people who, over the years, have been experts at it.

Mr. Darling rose—

Mr. Speaker: Order. I think that we have drifted away from supplementary questions to Question 1.

Short Selling

2. Mr. Lindsay Hoyle (Chorley) (Lab): What discussions he has had with the Financial Services Authority on its decision to lift the ban on short selling in the financial markets; and if he will make a statement. [256283]

The Economic Secretary to the Treasury (Ian Pearson): The UK tripartite authorities—the Treasury, the Bank of England and the Financial Services Authority—are working closely together to ensure the stability of the UK financial system. The FSA, as an independent regulator, reviewed its ban and decided not to maintain it. It stands ready to reintroduce the ban should circumstances require it.

Mr. Hoyle: I thank my hon. Friend for that answer, but the FSA has let the public and business down, and it acts like a toothless tiger. It is time that it got tough. The only time that it got tough was on short selling, and what did it do? It withdrew the ban. The time has come for the Minister to introduce strong regulation and make the FSA use it, because the people of this country would not forgive it if this were to happen again. Let us get tough and take action now.

Ian Pearson: I understand what my hon. Friend says about tough regulation, but I have to say that there is no evidence that hedge funds and speculators are short selling and driving down the stock of banks at the moment. There is a short selling disclosure regime in place, whereby if short selling transactions reach 0.25 per cent. they must be disclosed. All the evidence that we
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have at the moment shows that there is no significant short selling activity in bank stocks. Of course the FSA, as the independent regulator, will continue to monitor the situation and stands ready to reintroduce a ban if it is necessary to do so.

Richard Ottaway (Croydon, South) (Con): The Minister is distancing himself from the decision to lift the ban, so why did he take the credit when it was imposed?

Ian Pearson: I am not distancing myself from it at all. I am just making it clear that the FSA is an independent regulator and takes its own decisions, although it works closely with the other tripartite authorities, the Bank of England and ourselves in Her Majesty’s Treasury. As the hon. Gentleman will know, in addition to the current temporary disclosure regime, the FSA is proposing greater transparency in short selling more generally. We believe that that is important and can help to protect all UK firms, not just those in the financial sector. A discussion document was issued just over a week ago on this issue.

Mrs. Ann Cryer (Keighley) (Lab): In his discussions with the FSA, will my hon. Friend ask for an explanation of why the building societies pay 15 per cent. of their pre-tax profits into the Financial Services Compensation Scheme while the banks pay only 5 per cent.? Will my hon. Friend meet colleagues and representatives of the building societies?

Ian Pearson: My hon. Friend refers to the Financial Services Compensation Scheme. We consulted on the rules over a couple of years, and the scheme was introduced in April 2008. I remember that, at the time, the building societies said that they wanted to be in the same category as the banks for deciding the rate that they pay for their protected deposits. They might have changed their minds since, and they will want to take that up with the FSA as an independent regulator, but I am always happy to meet my hon. Friend to discuss any problems.

Sir Nicholas Winterton (Macclesfield) (Con): I agree entirely with the hon. Member for Chorley (Mr. Hoyle). Is not short selling an immoral and corrupt practice that makes no positive contribution to the creation of wealth? There should be a permanent ban on it.

Ian Pearson: Perhaps we should demystify short selling a little. I do not know whether the hon. Gentleman buys goods over the internet, but if one buys books, hi-fi equipment and televisions, they are often bought from a supplier who does not have the goods, but makes a commitment to get them from a purchaser. That is short-selling activity. We believe—and the markets understand—that short selling can help facilitate price discovery, which is important for valuing companies fairly, price efficiency and liquidity in the market. However, we need to ensure great transparency about the matter. We do not want to go back to the days of George Soros, speculation, and major runs on companies and countries. That is why the disclosure regime is important.

Banking Industry

3. Chris McCafferty (Calder Valley) (Lab): What recent assessment he has made of the effectiveness of steps taken by his Department to recapitalise the banking industry in the last six months. [256284]

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