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Fraud Act
6. Mr. Andrew Mackay (Bracknell) (Con): How many prosecutions have been brought under the Fraud Act 2006. [258808]
The Solicitor-General: I answer only for the prosecutors whom the Law Officers superintend—not for the Department for Work and Pensions or the Department for Business, Enterprise and Regulatory Reform, for instance.
The number of offences under the 2006 Act are as follows: there were 9,221 in 2007 and 22,687 in 2008. This year, until 20 February, there have been 4,148. Small and very large frauds are included; it is difficult to make much of the figures.
Mr. Mackay: We supported the 2006 Act because the Government suggested that the consolidation of fraud legislation would dramatically increase prosecutions for fraud. Is the Solicitor-General satisfied that that is happening and that the Act is being used properly, correctly and to successful effect by our prosecutors?
The Solicitor-General: On the face of those figures, it appears that the Act is being used substantially—there was a great increase between 2007, when it was very new, and 2008, by which time everybody had had full training about it and appreciated its simplicity and utility. On the face of it, it looks as if the Act is being used extensively. As I said, it is hard to make very much of such bald figures.
Banking (Asset Protection Scheme)
11.34 am
The Chancellor of the Exchequer (Mr. Alistair Darling): With your permission, Mr. Speaker, I shall make a statement on the bank asset protection scheme and today’s agreement with the RBS Group. I hope that the House will understand, again, that it was necessary for the Treasury and RBS to issue market notices this morning, in the usual way.
In my statement to the House last month, I set out the principles behind the Government’s proposals to put the banks on a stronger footing, insure their balance sheets, and boost bank lending. I can now tell the House that those measures are being implemented: at the end of January, the Bank of England’s temporary special liquidity scheme was replaced with a permanent facility; last week, the Bank of England began purchasing assets to free up markets for commercial lending; and on Monday, Northern Rock announced that it would provide up to £14 billion of new mortgage lending.
Banks are at the core of all modern economies—they allow people and companies to make payments, and to save and invest for the future. Indeed, if we and other countries do not fix the banking system, we will not fix the rest of the economy. The basic problem that we are facing is a crisis of confidence about bank assets, which is preventing the UK banking system from providing loans for businesses, and mortgages for those who want to buy a home. The critical barrier to improving confidence and expanding lending is the uncertainty about the value of banks’ balance sheets. We must now enable banks to clean up their balance sheets so that they can become stronger and rebuild for the future, making them more able to lend to people and business all over the country. That will not happen overnight, but it is the essential starting point; it must go hand in hand with a broader reform of supervision and regulation of the banking sector; and that action must be taken not only here but by Governments right across the world, because the alternative is a failure of the banking system, here and elsewhere, which will make the recession longer and more painful, putting more jobs at risk.
The challenge today is to provide certainty against a background of a sharply deteriorating global economy. The IMF, which in October was forecasting world growth this year of 3 per cent., is now forecasting growth this year of close to zero. In the last quarter of last year, the world economy shrank for the first time since 1945, with Japan, America, Germany and Europe, as well as the UK, all now in recession. All that followed from the sudden collapse in confidence when Lehman Brothers—the world’s fourth biggest investment bank—went bankrupt in the autumn. That has meant even weaker banks, which are lending less, and in turn leading to further economic weakness. So getting the banks to lend again is essential to our economic recovery and to our fight against the global economic—financial—recession.
In October, we injected additional capital into the banking system to prevent the collapse of banks and to maintain their ability to lend to companies and home buyers. We had to act quickly—in a matter of hours, not months. We made available then up to £50 billion initially, of which £37 billion was taken up. I have always said that we stand ready to do whatever it takes
to maintain financial stability. So, as well as additional contingent capital, today I am making a further allocation of £13 billion for RBS in return for non-voting shares. These shares will be purchased at a similar price to those purchased in October, and they in turn will pay a preference coupon.
The Government are currently set to own up to 70 per cent. of RBS, for which the taxpayer will benefit when the bank recovers and strengthens in value. We believe it is important that there remains some private ownership in RBS—by pension funds and individual investors, for example. We have therefore decided that in injecting this capital, we will do so by purchasing non-voting shares, in line with practice in other countries. That means that the Government could now own up to 84 per cent. of RBS in economic terms, but the institution will remain as a privately quoted company. That will provide potential gains in the long term for the taxpayer and an easier return to full commercial ownership when the shares are sold and the proceeds come back to the taxpayer.
In January, we announced the creation of a scheme to identify losses and clean up the banks’ balance sheets, giving them the confidence to lend again. A range of different mechanisms have been suggested to do that, but in the end they all require the same basic approach: first, a thorough analysis of the banks’ balance sheets to establish what their assets and loans are worth and whether they are likely to be fully repaid; and secondly, a comprehensive stress test of whether the banks are strong enough to survive bad economic scenarios and establish what further losses the banks can bear, to satisfy us that the banks have enough capital to get through the recession and to keep lending going. Thirdly, it enables the Government to judge the necessary scale of their intervention, either by buying up the assets or insuring them, in return for a fee or a share of future gains.
That is the approach that we will follow in the asset protection scheme that I announced in January. In arriving at the design of the scheme, we have taken account of the experience of other countries which in recent months have announced similar action: including the Swiss, with UBS; the Dutch, with ING; and the United States, with Citigroup and Bank of America. The scheme is open to all eligible banks and building societies, and I expect a number of them to apply to use it according to this approach. Lloyds Banking Group has today confirmed that it is in discussions with the Treasury regarding participation in the scheme.
In relation to RBS, which has announced its results today, let me set out how the asset protection scheme will be applied. When the Government purchased their stake in December, a new management team was put in place, and it has been going through the books, identifying potential losses. As the House will understand, that cannot be done quickly, because the assets are both complex and numerous. As we have seen only recently in the case of the United States, the valuation of these balance sheets takes considerable time, and all the more so if it is done against a background of sharply deteriorating global conditions.
Today, the chief executive of RBS announced a plan to restructure and rebuild the bank, including an agreement to extend its lending in the UK. To complement that, RBS will include £325 billion-worth of assets in the
asset protection scheme. That will include a range of assets in the UK and abroad, most of them including mortgages and business loans that are currently hard to value. The Treasury, with the help of external advisers, has assessed the assets held by RBS and subjected its balance sheet to a series of different stress tests overseen by the Financial Services Authority and the Bank of England—a practice that the United States Government yesterday announced they will apply to institutions seeking support.
To protect the taxpayer, RBS will have to bear the first portion of any additional losses over the coming years, up to a total loss of 6 per cent., or some £20 billion, on top of the £22 billion of impairment and write-downs that it has already taken. As in any insurance scheme, RBS will have to bear the first losses. After that, the Government will cover up to 90 per cent. of any further losses. RBS will also pay a fee of 2 per cent. of the value of the assets insured—some £6.5 billion—again, as in any insurance scheme. It has also agreed for a number of years not to claim certain UK tax losses and allowances, meaning that when it does return to profitability it will not be able to benefit from the losses accrued in the intervening period.
In return for this, RBS has agreed to maintain and increase its lending for mortgages and businesses in 2009 by an additional £25 billion, with a further £25 billion in 2010 depending on market conditions. That is at the heart of the deal that we are striking with RBS. That new lending will be on top of maintaining lending on mortgages and other loans of just under £300 billion in the UK. These lending commitments with be legally enforceable and externally audited, and the Treasury will report annually on RBS’s delivery of its lending agreement. RBS has agreed to continue treating its customers fairly, including by participating in the Government’s home owner mortgage support scheme. That will go hand in hand with the tough conditions on RBS bonuses that we announced last week.
Together, these measures will help restructure and rebuild RBS, making one of the UK’s biggest banks also a stronger bank, better able to serve the people and businesses of this country, returning to tried and tested principles of banking. Other participating banks that join the scheme will have to agree to make more lending available, and banks will also have to review their policies on pay and bonuses to come up with long-term strategies that prevent excessive risk taking and reward successes, in line with the FSA’s new code of remuneration practice.
As with previous measures, the capital support for the banks is an investment that will eventually be sold to the benefit of taxpayers. With the insurance scheme, the eventual cost to the taxpayer over the lifetime of the scheme will depend on economic conditions and how the assets are managed. That means taking that risk on to the taxpayer for a fee, but in a way that ensures that the banks remain able to lend. That strategy for tackling the bad assets has worked elsewhere in the past. So while the taxpayer does face risks as a result, the cost of doing nothing is far greater. In the long term, the taxpayer will benefit from returning our stake in these banks to full commercial operation because, as I have said before, I am clear that British banks are best owned and managed commercially, and not by the Government.
The future of the UK as a financial centre, and the future of our economy and thousands of jobs, depend on being able to run banks commercially. All countries are having to deal with the same problem: how to isolate assets that are damaging confidence in the banking sector and preventing banks from lending more. Over the coming weeks, we will continue to discuss with other countries, including the new US Administration and with the European Union, how best to co-ordinate our approach to the common challenges we face. As part of our presidency of the G20, I have written to Finance Ministers setting out a set of principles for dealing with asset protection and insurance.
It is essential to restore confidence in the banks to allow them to clean up and rebuild, and get lending going again. The economic recovery, and thousands of jobs, depend on it, and I commend this statement to the House.
Mr. George Osborne (Tatton) (Con): I thank the Chancellor for his statement, but to be blunt, we have heard all these claims before. Back in October, just like today, he told us that a huge taxpayer bail-out of the banks would “get lending started again”. He stood there waving a piece of paper, just as he has again today, and claimed that he had binding legal agreements with RBS, yet of course business lending has fallen by £5 billion since October and, as the inflation report shows, continues to fall.
Back in October, just like today, the Chancellor said that his first bail-out was a good deal for the taxpayer. Indeed, the Prime Minister claimed that we would soon be making money on the shares that we had bought. But now we all know that the taxpayer has lost £16 billion to date on the deal that was done in October. Back in October, just like today, the Chancellor said that a key condition of the bail-out would be an end to excessive bonuses and rewards for failure, yet today we discover that the chief executive who helped to bring RBS to its knees is getting a £650,000 a year pension for life, negotiated with the Government. While a second bail-out seems inevitable, we will therefore treat the Chancellor’s claims about his latest plans with a healthy degree of scepticism.
Let me ask the Chancellor these specific questions. First, on lending, he says that RBS has committed to lend £25 billion a year. Will he confirm that that represents just 3.4 per cent. of total RBS lending to non-bank customers? He said once again, as he often has, that he has a legally binding agreement, but the new chief executive of RBS said on the radio this morning that that agreement is subject to its continuing to price on arm’s length terms. Given that that price is currently prohibitive to many businesses large and small, why does he expect this legally binding agreement to be any more binding than the last one? Indeed, he says that the lending agreement is legally enforceable. How exactly is he going to enforce it? Will he give RBS the money to pay the fine when he enforces the agreement?
My second set of questions ask the Chancellor to be absolutely straight with people about how much the taxpayer could lose. Of course, this is a sweet deal for the banks, their management, the remaining shareholders and above all their creditors. The first loss to be borne by the bank is just 6 per cent. That is much lower than the 10 per cent. that the Treasury was initially briefing and the 10 per cent. that the Dutch authorities have
imposed on ING. The fee is just 2 per cent.—half the level that the Treasury set out to try to negotiate—and it is being paid only in non-voting shares. Will the Chancellor confirm that that is because otherwise, according to stock exchange rules, RBS would stop being listed altogether? What is more, we are giving the bank billions of pounds to pay the fee to ourselves. That is like saying, “Lend me a tenner and I’ll buy you a pint.”
Will the Chancellor now say exactly what the potential exposure of the taxpayer is under this deal? He did not answer that question on the radio, so will he answer it today? Will he now impose the full independent, asset by asset audit of the British banks that the Governor of the Bank of England has just called for in the Treasury Committee and that I called for at the Dispatch Box last month?
Finally, on excessive bonuses and rewards for failure, once again the Chancellor has promised there will be none. Yet this morning he said in his radio interview that he learned only a very short time ago that Sir Fred Goodwin was paid off with a £650,000 a year pension funded by the taxpayer. However, the new chief executive, who was on the same radio programme, said that the deal was negotiated with the Government. Who exactly in the Government knew about that deal? Will the Chancellor answer the claims that Fred Goodwin’s departure was delayed so that he could secure that pension? Whichever way one looks at it, that obscene pension is unacceptable and the Government are on the hook. Either they did know and failed to act or they did not know and failed to ask the right questions. It is a totally irresponsible use of taxpayers’ money. There is, of course, now only one person who can correct that huge error of judgment by the Chancellor, and that is Fred Goodwin himself, who should in all decency renounce his pension.
The Government have no option but to undertake a second enormous taxpayer bail-out of the banks, because the first enormous taxpayer bail-out has failed. Let us hear no more nonsense about what a good deal has been struck. The British taxpayer is insuring the car after it has crashed. The sad truth is that families throughout the country pay the price, while those responsible try to walk away from the wreck—so far, unscathed.
The Prime Minister who presided over the fiasco is off trotting on the world stage while the man he knighted, Fred Goodwin, is walking off with a £650,000 a year pension. That is why the Government have lost the confidence of the British people in their ability to deal with the recession that they helped create and the banking crisis that they failed to prevent. [Interruption.]
Mr. Osborne: The Chief Secretary should just concentrate on her leadership campaign and stop barracking the Opposition.
The Government have announced so many different schemes, executed so many about-turns, made so many false claims and broken so many promises that no one believes a word they say any more. They are running around like headless chickens, trying to save their own necks. Once again, the British taxpayer will pay a huge bill for the mistakes of Labour’s age of irresponsibility.
Mr. Darling: First, once again, it is clear that, although the hon. Gentleman could not quite bring himself to say it, he agrees with what we are doing. Although he now tries to criticise what we did last October, at the time he expressed full agreement with it, because he recognised that our banks, along with those in other parts of the world, faced collapse, and that we had to step in to recapitalise them. We had to do it quickly—in a very short time. We did not have the luxury of months to go through the books and make decisions about what might happen further down the track; we had to take action quickly. At that time, the Opposition supported our actions, although they subsequently found it convenient to change their mind and walk away from that support.
On the agreement that we reached in October, we said that the banks in which we took major shareholdings—RBS and Lloyds TSB—would undertake to maintain the same level of lending as in the previous year. They have been able to do that, but against a background of a marked reduction of lending in this country, especially from foreign banks, which have either withdrawn to their own countries, or in the case of the Icelandic banks, for example, have got into such great difficulties that they cannot lend. In the last quarter of last year, there has also been a sharply deteriorating position in the economy.
We want—it is important—to get lending going again because, as I said earlier, if we do not fix the banking system, it will be difficult to fix the wider economy. It is a problem that we face, the Americans face, the Germans face, the Japanese face—it is a problem right across the world. That is why I said in January that we would have to do something about the problem of assets on bank balance sheets that people either could not value or had deteriorated in value because of what is happening in the economy. As a result of what we have been able to do, RBS will increase its lending by £25 billion this year and next year, on top of the £300 billion that it currently lends in this country.
I believe that the insurance rates are appropriate. It is also right to put in the additional capital to help the bank get through the recession. Nobody wants to be in that position—no Government wants to be in that position—but, throughout the world, we must all face up to the fact that banks need additional capital and that we need to ensure that they have a proper insurance scheme to enable them to continue lending.
The hon. Gentleman asked about audit. I said in my statement that there needs to be a thorough audit of banks that come into the scheme. I am aware of what the Governor of the Bank of England said this morning—I have heard him say it on previous occasions. I agree that, especially when insurance is involved, there needs to be a rigorous audit, not only so that banks understand the position, but so that we do, too.
The hon. Gentleman mentioned the remuneration of Fred Goodwin. It is beyond doubt that most people find it hard to understand, given what has happened to RBS, that such an enormous pension can be paid from the age of 50. Let me explain the position. First, the agreement was not negotiated by the Government; nor was it approved by the Government. Nor would it have been— [Interruption.]
Mr. Speaker: Order. Let the Chancellor of the Exchequer answer.
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