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Mr. Darling: The agreement on remunerationthe pension arrangementsof employees of a bank is a matter between the employee and the board of directors. Last autumn, we were told that there was a contractual agreement between the banks board and Sir Fred. We previously understood that his pension arrangements were an unavoidable commitment, but we did not knowwe became aware of it only very recentlythat the decision of the previous board of RBS to allow Sir Fred to take early retirement had the effect of increasing his pension entitlement, and that that might have been a discretionary choice. We did not know that and, on finding out[Hon. Members: When?] Last week, actually. It became clear that the matter may have been a discretionary choice. When we found out, I asked United Kingdom Financial Investments, which holds the shares, to discuss with the new board of the bank whether there was any scope for clawing back some or all the pension entitlement, and whether the board made the decision in full knowledge of the facts. That investigation is going on at the moment. As I said, and I agree with the hon. Gentleman, the matter could be concluded swiftly, because Sir Fred Goodwin could decide not to take the pensionthat has been put to himbut the ball remains in his court.
I believe that the measures that we have taken on RBS and the asset protection scheme are necessary and unavoidable. It is an essential part of what we must do and what other countries must do if we are not only to fix the banking system but, more importantly, to ensure that we can rebuild our economy and help people and businesses in this country.
Dr. Vincent Cable (Twickenham) (LD): In October, we broadly supported the Government because we thought that that was the right patriotic response in an emergency and because their proposals for bank recapitalisation were sensible. However, I am afraid that they have now almost completely lost the plot. The proposal for asset protection is a disgrace and a betrayal of the taxpayers interests. It is a classic case of privatising profits and socialising loss.
We know from American experience that valuing bad assets is hideously difficult. We also know that the banks know more about their bad assets than the Government, so there is now an open invitation to the banks to dump their worst assets on the Treasury, for a fixed fee, knowing that the taxpayer will pick up 90 per cent. of the losses. That is a fraud at the taxpayers expense.
There is a much better approachthe way in which the Government started dealing with the problem. It is to acquire shares in the banksordinary shares with full voting rights. That guarantees that any upside in recoveryif there is oneand any eventual sale fully accrues to the taxpayer. It also gives the Government full effective control over banks lending strategy and remuneration, instead of the current feeble agreements, which the banks have treated with contempt.
We know what the Government are afraid of: being accused of nationalisation. Let me quote what the Governments old friendthe Prime Ministers heroMr. Alan Greenspan said about that only last week. That American Republican free-market ideologue stated:
It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring
allow the Government to transfer toxic assets to a bad bank without the problem of how to price them
should not get caught up on a word
It doesnt matter what you call it, but we cant keep on funding these zombie banks without gaining public control.
The problem is that we have not only zombie banks, but a zombie Government: the walking dead, controlled by people who have a strong vested interest in protecting their bonus arrangements and covering up large-scale tax avoidance scams.
However, there is a wider point about bonuses: they are public expenditure. These bonuses are a massive spending increase on public wages for which there is no justification whatever. What response will the Chancellor give this morning to Barclays, which has said that it will not deal with the Government unless all its bonus arrangements are fully protected? That is blackmail and he should make it absolutely clear that he will stand up to it.
I have one final question about what the Prime Minister said in the paper on Sunday about the proposal, which a growing number of people on all sides accept, that in the long term the low-risk high street lending activities of the banks have to be separated from the high-risk casino-type activities with which they have been associated. The Prime Minister seems to have capitulated to pressure to abandon that proposal altogether. I can understand why the banks want to hang on to the operations that generate their bonuses, but why on earth should the Government be giving a long-term guarantee for gambling activities on a global scale? It is incomprehensible and completely without justification.
Mr. Darling: On the last point that the hon. Gentleman made, there has been a lot of debate about whether banks should be separated, so that they organise themselves along the lines of what that they had in America for many years, with what he calls low-risk retail banks and, on the other hand, investment banks. I would just remind him that the first bank that got into trouble in this country was not an investment bank but Northern Rock, which is a retail bank. The problems have been experienced both by banks with complex models, and by investment banks pure and simpleindeed, many have now collapsedand retail banks. The regulatory system should distinguish between the two. Perhaps on another occasion there will be an opportunity to discuss what we need to do on supervision and regulation.
In relation to the hon. Gentlemans broader point, about nationalisationthe one on which he takes fundamental issue with the GovernmentI just disagree with him. We have, as it happens, nationalised a bank already: Northern Rock. However, I have always made it clear that our long-term objective is to get that bank and the banks in which we have shareholdings operating back into the private sector. That is something with which the Liberal party and he agree. I therefore do not believe that it is in our interests to completely squeeze out the remaining part of the private shareholdings in RBS, which is what nationalisation would entail. Also, as we have 70 per cent. of the votes there, it is beyond doubt that we control the bank. It is not as though it could block a decision that we really insisted upon.
It is important to strike the right balance. Even in these times, we need to look at the long-term destination of those banks. It is right that we should strike that balance, as I said earlier this morning. I just think that the hon. Gentleman is plain wrong in what he said about that.
Mr. Dennis Skinner (Bolsover) (Lab): Is the Chancellor aware that we all recognise that the reason why todays measure has been announced, as well as the previous one, is to ensure the bank deposits of the vast majority of people in Britain? However, it is becoming increasingly apparent with every statement that those in the banking fraternity have, by and large, been on a winner for a long time. They are no different, really, from Nick Leeson, and that fellow Madoff in America who made off with the money. I have a novel suggestion for the enemy within. Instead of paying out vast executive bonuses and Freddie Goodwins massive £650,000 pension, why not tell them that those of us on the Labour Benches will gladly walk through the Lobby to ensure that all those executive bonuses and that pension fund for Freddie Goodwin and his mate will be paid for out of the toxic debt when it has been repaid, which will be never? That is the proposal that we ought to put to those bankers and we should treat them with the contempt that they deserve.
Mr. Darling: I agree with my hon. Friend that it is essential that we change the culture that has been prevalent in so many financial institutions and that bonuses be tied to the long-term performance of a company and paid for some special effort or as part of a reward for working hard to ensure the long-term health of the bank. I also agree with him that the reason for the action that we have taken is to protect depositors and ensure that we do everything that we can do to get lending going again in this country.
Mr. Michael Fallon (Sevenoaks) (Con): Will the Chancellor confirm that the full details of Sir Fred Goodwins pension were set out in RBSs 2007 annual report? If he is really telling the House that he spent £20 billion of our money four months ago and has only just checked out the details of the chief executives entitlements, he is even more hopeless and hapless than we thought he was.
Liz Blackman (Erewash) (Lab): Bank lending in Erewash is, as it is everywhere else, pretty variable and constrained by the current climate of uncertainty. The freeing up to lend initiative that was announced this morning has the prospect of helping some of the businesses and the families in my constituency, but can my right hon. Friend give some more detail about how it will be monitored locally, so that RBS does what we are asking it to do?
Mr. Darling: As I have said, we will be publishing an annual report. Into how much detail and how local it can go remains to be seen but, in addition, it is important that we regularly monitor lending to ensure that it starts flowing through to individuals and businesses.
Mr. Graham Brady (Altrincham and Sale, West) (Con): Can the Chancellor tell the House what assumptions about the state of the economy and the performance of the assets at RBS were used in arriving at the level of the fee, or did he just pluck it out of the air?
Mr. James Plaskitt (Warwick and Leamington) (Lab): I welcome my right hon. Friends statement. It is clear that large public holdings in the banks are beginning to drive major and essential structural change. However, as banking is a global business, does he agree that the restructuring that is starting to take place and the redrafting of the regulatory system need to be globally co-ordinated and if so, how will we help to achieve that?
Mr. Darling: I agree with my hon. Friend on that. We need to do what is necessary in both restructuring and financing, but we also need to ensure that the regulatory and supervisory framework is effective. However, that only gets us so far, because most banks trade across borders throughout world. It is also necessary to ensure the same approach in different countries, which is why I said in my statement that we need to work with the Americans and in Europe. That will be very much part of the focus of the meeting of the G20 Finance Ministers in a couple of weeks here in London.
Mr. Desmond Swayne (New Forest, West) (Con): If the amount that the Chancellor has said that RBS must lose before his guarantee kicks in is correct, then, if I were still doing the job that I was doing 12 years ago in group risk management in RBS[Hon. Members: Ah!] It would not have happened on my watch. On the basis of traditional banking practices, I would be urging the bank to build up reserves rather than engage in additional lending. Why would I be wrong?
First, I will happily pass on the hon. Gentlemans name to the new chief executive of the bank and see whether he can re-employ him. Secondly, and rather more seriously [ Interruption. ] I am glad that the right hon. Member for West Derbyshire (Mr. McLoughlin) is thinking of the health of RBS. In relation to the hon. Gentlemans general point, the Government have to intervene and make it possible for there to be more lending precisely because, if left to
their own devices, banks stop lending to individuals and businesses, and that would simply make the present difficult situation far more difficult. That is why my argument is that doing nothing not only does not work, but is damaging to our future prospects.
Lynne Jones (Birmingham, Selly Oak) (Lab): I share concerns about socialising losses and privatising gains, but whatever means are used to back the banks and private financial institutions with public money, I think everybody is agreed that it is necessary. Given that situation, my question is: why are the Government still relying on commercial loans to secure investment in public-sector infrastructure projects and public services such as the Royal Mail? Should we not cut out the middle man?
Mr. Darling: On PFI projects, I hope that we will shortly be able to publish proposals that will take account of the difficulties about funding that my hon. Friend referred to. On her more general point, I believe that a combination of the public and private sectors working together, whether it be for the provision of finance or elsewhere, is a good thing. That applies to the Royal Mail, too, as it needs more money to help it modernise and improve. That is why I think that bringing in private capital to work alongside the public sector is a good thing.
Mr. Andrew Robathan (Blaby) (Con): I guess that the banking crisis and the recession are the most important issues facing the country and Parliament today. I do not know whether the Chancellor noticed while he was making his statement that there were only about a dozen Government Back Benchers behind him and three times that number on these Opposition Benches for a party half the size. To what does he ascribe that? Does he think that it is because Government supporters are not interested or are idle, or does he think that Government Back Benchers have, like the rest of the country, lost confidence in him and his Government?
Ms Sally Keeble (Northampton, North) (Lab): I welcome my right hon. Friends statement. In addition to the commercial and residential property loans that are among the eligible assets for the scheme, the Treasury statement of this morning also mentioned structured credit assets, which are the ones that have proved very difficult for the banks. Who exactly in the Treasury or among the Chancellors advisers will be doing the due diligence on this and roughly what proportion of those assets does he expect to make up the scheme?
Mr. Darling: The diligence examination of the assets was carried out by the same people in respect of all the assets. It was not done by the Treasury alone, as we brought in outside advisers so that we could be satisfied as to what was being offered for insurance and then take a view on what price would be appropriate.
Stewart Hosie (Dundee, East) (SNP): I agree with the Chancellor that fear of the toxic assets was the main inhibitor to securing confidence in lending and I give a cautious welcome to the asset protection scheme. As to RBS, however, it will fund its insurance by taking the first losses, 10 per cent. of subsequent losses, a 2 per cent. fee and, most significantly, deferred tax assets. If any other eligible banks wish to take part in this, will they be subject to the same payment terms, the same deferred tax assets and the same attachment point, and will it be done on a bank-by-bank basis?
Mr. Darling: The answer is that we will look at each bank on its merits. We do so because what is offered for insurance will vary from bank to bank and we will have to make an assessment of the position of the individual bank. In the meantime, I welcome the hon. Gentlemans general support for our proposals and his agreement that this is the right thing to do.
Andrew Mackinlay (Thurrock) (Lab): Does the Chancellor understand that many ordinary people are bewildered and dismayed that, across the Atlantic, there are obligations to fiduciary duties, compliance and due diligence, which are backed up by the sanction of the criminal law, yet there is an absence here of such obligations. Unless or until financial institutions, managers and directors know that they could face the law, we will continue to see this recklessness and selfishness enduring. Will my right hon. Friend tell the House that Lloyds TSB and the RBS group are fully co-operating with the United States Justice Department in respect of the documents that were doctored in London in order to get round US sanctions on money for Iran, as the conduits were the RBS group, Amro and Lloyds TSB?
Mr. Darling: I hope that any institution in this country would co-operate with the relevant authorities, whether it be in the United States or anywhere else. On my hon. Friends more general point, it is important that people obey the law, irrespective of their area of work, and that has to be enforced by authorities that are independent of the Government.
Sir Nicholas Winterton (Macclesfield) (Con): I am deeply concerned about the hundreds of thousands and perhaps millions of people in this country and abroad who have lost or are losing their jobs. We have to get the banks lending again to ensure that our economy can grow so that unemployment will not be as high as we perhaps fear. Does the Chancellor believe that the money put aside for Sir Fred Goodwin to enable him at the age of 50 to have an annual pension of £650,000 will give people the confidenceit is confidence that is lacking in this country and elsewhere at the momentthat we can come out of the recession? Will he give an assurance that that pension will be stopped because it is being funded by taxpayers money?
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