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The right hon. Gentleman explained to the House that the Chancellor is travelling to Brussels for a meeting tomorrow, but I think that the House will none the less
be disappointed that we have apparently reached the point where the assumption by the taxpayer of an additional £250 billion-worth of contingent liabilities is not considered a sufficient reason to reschedule one’s travel arrangements. There will also be disappointment that a Treasury Minister is before the House for the first time since the momentous decision last Thursday to begin quantitative easing, and has not taken the opportunity to update the House on that decision and its far-reaching implications for Britain.
This massive second round of banking bail-outs is proof that the Prime Minister’s first bail-out last October failed. The test of it will be whether credit actually begins to flow through our economy again, not what promises of more lending the Government say they have secured. The £14 billion of lending commitments that the Government claim to have extracted from Lloyds Banking Group is less than half of the total taxpayer investment in Lloyds, and less than 5 per cent. of the total taxpayer exposure to Lloyds HBOS. Will the Financial Secretary confirm that the additional promised lending will be subject to the group’s prevailing commercial terms and conditions, including on pricing and risk assessment, and, in relation to mortgage lending, that it will be subject to the group’s standard credit and other acceptance criteria? If that is the case, is not this pledge just more simple rhetoric?
It is now clear that the merger of Lloyds and HBOS was a bad deal, put together without full and proper understanding of the state of the HBOS book, certainly on the part of Lloyds and possibly on the part of the Government. Until last October, Lloyds had stood aloof from the chaos engulfing the banking sector, as a sound, somewhat old-fashioned bank with a reputation for caution that attracted small investors and drove to distraction those in the City who preferred riskier plays. In the space of a few weeks, that sound, solid bank, which would have been quite capable of prospering without the support of the taxpayer, has been transformed into a banking behemoth that is incapable of surviving without these huge infusions of taxpayer funding. I ask the Financial Secretary whether the Government really believe that the creation of this crippled giant at the heart of our banking system is the best outcome if the objective is to maximise the flow of credit from the banks to Britain’s recession-hit businesses and households.
Back in October we were told that the merger was a commercial deal put together by the managements of the two banks, and that all that the Government were doing was removing the competition barriers that would have prevented it from going ahead. However, there were persistent stories at the time, promoted by those close to the Prime Minister, that in fact the Prime Minister had brokered the deal and driven it through to completion.
Now that the taxpayers’ total exposure to Lloyds HBOS is approaching £300 billion, will the Financial Secretary explain why neither the Government nor the Prime Minister realised at the time that, far from rescuing HBOS, the merger would drag Lloyds down the path of taxpayer bail-out and part nationalisation? Is the Financial Secretary sure that, of all the options available to them, the route that the Government have chosen—insuring assets within the banks—is the best way to get credit
flowing at the minimum long-term cost to the taxpayer? Can he look the House in the eye and tell it that the guarantee option has been chosen on the basis of the economics and long-term best value for money for the taxpayer, not simply because, alone among the alternatives, it keeps the cost to the taxpayer off the balance sheet and out of sight until the losses crystallise?
The Prime Minister’s mantra is that the crisis was made in America and blew in on the wind to afflict a blameless Britain. He paints a picture of toxic assets, which comprise US sub-prime mortgages, complex derivatives and impenetrable credit default obligations. However, will the Financial Secretary confirm that more than a quarter of the toxic assets that the Government are guaranteeing in the deal are plain, old-fashioned UK mortgages, lent by HBOS in a bout of over-exuberance, which testifies to the failure of the Prime Minister’s tripartite regulatory system? In effect, is the taxpayer not taking a £75 billion bet on future house prices not falling by more than 10 per cent. from 31 December 2008? Perhaps the Financial Secretary has not noticed that they have already fallen by 3.3 per cent. in the first two months of the year. I do not know of a single commentator who does not believe that they have further to go.
Let me consider fees. The Financial Secretary set out in his statement, and Lloyds set out in its statement to the stock exchange, the fees payable by Lloyds Banking Group to the Treasury. However, the end of the Lloyds announcement refers to “certain interim arrangements”, agreed between the Treasury and Lloyds and relating to the management of the assets in question. I imagine that the right hon. Gentleman knows that, in the deal between the Dutch Government and ING, as well as the fee payable by the bank to the Government for the guarantee, a fee is also payable by the Government to the bank for managing and financing the assets that the guarantee covers to maturity. Will he give hon. Members a categorical assurance today that no fees whatsoever are payable under the deal by the Treasury to Lloyds Banking Group? Will he confirm that the ban on cash bonuses that he announced for this year will extend to future years? Will he adopt, at least for Lloyds Banking Group, our policy of a £2,000 permanent limit on cash bonuses? Will he also tell the House what steps the Government have agreed, as part of the deal, about executive and director pensions in Lloyds Banking Group?
For the size of the British economy, we have committed more than any other country to bailing out our banks—approximately £1.2 trillion—and we have precious little to show for it so far. The first banking bail-outs failed to get lending flowing again, requiring taxpayers to stump up hundreds of billions of pounds in further guarantees and capitalisations. The temporary VAT cut has failed to stimulate consumer spending and the stamp duty holiday has failed to stop house prices nosediving. The Government have made a plethora of announcements of support for business and home owners, many of which have been shown up as hollow rhetoric, with most schemes not yet operational and none delivering measurable assistance to the front line.
Hard-pressed businesses, families and home owners throughout the country have had enough of the rhetoric, the endless announcements and the activity for activity’s sake. They want normal credit conditions to be restored—that will be the test of today’s announcement, and the
very least that taxpayers should expect in exchange for the £1,200 billion that the Government have pledged on their behalf to the banking system.
Mr. Timms: I can agree with the hon. Gentleman’s final comment, but there is not much else with which I can agree. To fix the economy we have to fix the banks first. As with previous measures, capital support for banks is an investment and it will eventually be sold for 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 assets are managed.
However, the key is ending the uncertainty that has been holding Lloyds back from lending and enabling it to make a significant additional commitment on lending, which is certainly not rhetoric, as the hon. Gentleman suggested, but an additional £14 billion on top of what was planned for this year, with a similar sum envisaged for next year. I can confirm that that lending will be subject to the bank’s normal commercial considerations, but that lending will be made. It will be reported regularly to the Government and we shall report regularly to the House, as I said in my statement.
The hon. Gentleman made some comments about the merger between Lloyds TSB and HBOS. The priorities that we were concerned about were stability in the financial sector and, in particular, avoiding a catastrophic failure on the part of HBOS. Lloyds and HBOS had been talking for some time and they asked the Government whether it was possible to modify the competition rules to allow the merger to go ahead. Like others, we concluded that that was the right thing to do. The hon. Gentleman suggested that it was not the right thing to do, but he might wish to have a word about that with the shadow Chancellor, who said on “Newsnight” on 17 September, “I spoke to both of the chief executives today of the two institutions and made it clear the Conservatives support what they’re trying to put together”. The shadow Chancellor’s view is therefore somewhat different from the one that the shadow Chief Secretary has put to the House this afternoon.
The boards of both banks recommended acceptance of the agreement to their shareholders and both sets of shareholders agreed. Lloyds shareholders voted on 19 November, with more than 95 per cent. of them in favour of the merger, and HBOS shareholders voted on 12 December. There was therefore broad agreement on what was done.
Of the assets that are covered by the announcement today, rather more than 80 per cent. come from HBOS, which was largely active in the UK, but also, to an extent, in Ireland and, to a smaller extent still, in some other territories. I can confirm to the hon. Gentleman that there are no fees payable to the Treasury as part of the package announced today. The costs of setting up the scheme will be charged to the participating institutions.
Finally, the hon. Gentleman is quite wrong about the VAT cut. because there is growing evidence of its effectiveness in stimulating the economy. Let me draw his attention to information published by Goldman Sachs just over a week or two ago. As others have pointed out, the effectiveness of the VAT reduction as a stimulus to the economy will grow over the course of this year, leading up to the rise back up to a rate of 17.5 per cent. on 31 December.
Dr. Vincent Cable (Twickenham) (LD): There would once have been a time when a Government commitment of £260 billion of taxpayers’ money, which is just under a quarter of gross domestic product, would have merited the attention of the Prime Minister, let alone the Chancellor. It is no disrespect to the Minister, who is generally regarded as very decent and very capable, to say that on this occasion not only are we denied the attentions of the organ grinder, but we are not sent the monkey either, only the monkey’s second assistant.
I agreed with most of the questions that the hon. Member for Runnymede and Weybridge (Mr. Hammond) asked; most of his points were well made and valid. Like the Minister, however, I am a bit puzzled. The hon. Member for Runnymede and Weybridge—and, indeed, all of us—had five weeks in which to do due diligence on this merger, and to think about its implications. When the matter was put to a vote in the House, he and his colleagues voted with the Government in favour of it, leaving us to vote against it.
Let me get to the core of the statement and the Lloyds HBOS proposal. Will the Minister confirm that this is now a nationalised bank that is publicly owned and controlled? Will he also repudiate the comments of the chief executive, Mr. Daniels, who described the taxpayer—the majority owner of the bank—as
“just another name on the share register”?
How can the Government have retained as chief executive someone who treats the taxpayer with such total contempt?
When will the Government at last put their own Government directors on to the board to ensure that the bank acts in the national interest, particularly in relation to lending? The Conservative spokesman quite rightly referred to the ambiguities of the bank’s lending policy, but is it not the case that Lloyds entered into a lending agreement last October, which has not been observed? Why should we have any more confidence in this one, unless the bank is properly directed?
I want to ask the Minister about tax avoidance. Quite apart from HBOS, Lloyds is known to have undertaken large-scale tax avoidance. Will this stop, now that the bank is fully publicly owned? Mr. Daniels has been described as enjoying a £25,000 tax planning allowance from his bank, to help him to avoid paying UK taxes. Will this continue under public ownership?
As far as payments are concerned, we have had the scandal of Sir Fred Goodwin. Are we going to have a similar problem with Sir James Crosby and with Mr. Cummings, whose property dealings brought down HBOS and who I believe is entitled to a £6 million bonus? Are those arrangements going to be preserved? So that we can have clarity about who is being paid what, may we have an assurance that, if very highly paid executives in this bank and elsewhere are paid large amounts—let us say, more than the Prime Minister—those emoluments will be made fully transparent? I believe that Lloyds is today refusing to divulge the payments that are made to its senior executives. Why cannot those figures be put fully into the open?
On bonuses, I would go even further than the Conservative spokesman. I do not see any justification for paying bonuses. This is a bank that has made large losses. Why should the taxpayer pay those bonuses? It is all very well to appeal for sympathy for the relatively low-paid staff, but how would people react if it was
announced that every public sector worker was to be paid a £1,000 bonus, in the present state of the public finances? There is no justification for such payments, certainly at the top end, or altogether.
My final question relates to the document, “Evidence to the Office of Fair Trading on the proposed Lloyds TSB and HBOS merger”. The private shareholders are rightly outraged about the way in which they have been treated, and they are rightly calling for the head of Sir Victor Blank. They want to know why the documentation lying behind this Treasury paper is not being made publicly available. It states that, in September, the Government considered a range of alternatives. Will they publish those alternatives, and the reasons why they rejected them? As the paper is so heavily redacted, will they also publish the full version, so that we can be sure that nothing is being hidden from the public and the House?
Mr. Timms: I am grateful to the hon. Gentleman for his description of me as “decent and capable”. I regard him as decent and capable as well, but I ought perhaps to remind him of what he said about HBOS and Lloyds on 6 October. Referring to the Chancellor, he said that
“we have no quarrel with what he did in relation to Bradford & Bingley and HBOS-Lloyds—that seemed to be the right approach.”—[ Official Report, 6 October 2008; Vol. 480, c. 27.]
Perhaps he needs to be a little more cautious before he attempts to rewrite history.
The hon. Gentleman asked some questions about the board, and I can tell him that Mr. Tim Ryan and Mr. Tony Watson have been appointed to the Lloyds board, with Government agreement. That arrangement is in place for two directors now, and that opportunity has been taken up. The hon. Gentleman talked about agreements that were reached as part of the arrangements that were made before Christmas—the announcements that were made at the beginning of October—and the lending commitments. Actually, bank lending on the part of the UK banks involved has, indeed, risen but as the hon. Gentleman knows, the great problem we faced was the withdrawal of non-UK banks from the UK market, leaving a gap of perhaps some £100 billion of lending capacity. The £14 billion that Lloyds announced on Saturday is a valuable step towards making up some of that shortfall.
On tax avoidance, let me reassure the hon. Gentleman that we will continue to take a very assertive approach to it, wherever it occurs and whoever is responsible for it. Her Majesty’s Revenue and Customs will continue to be very robust and I can also say that the G20 leaders will boost the role of global co-operation to address tax avoidance at the London summit on 2 April. The Prime Minister spoke about it last week in the US. The key is transparency and exchange of information; we are confident that we can make substantial progress on that when the leaders meet at the beginning of next month.
On the question of bonuses, I do not agree with the hon. Gentleman that, as a result of these arrangements, relatively modestly paid staff who have done a perfectly good job should be prevented from receiving the rewards that they were entitled to expect. What we most certainly have put in place is the assurance that there will be no rewards for failure. The Financial Services Authority
has published good practice guidelines for bank remuneration and the arrangements that Lloyds is putting in place are consistent with those guidelines: no reward for failure, minimum payments only in 2009 and the rest deferred, nothing in cash and all subject to clawback if good standards of success are not achieved. We are tying rewards to long-term sustainable success, which is the right approach.
On the chief executive’s pay and pension, I believe that they are publicly announced; certainly the chief executive’s pension pot was in the most recent Lloyds TSB annual report, so the hon. Gentleman can find the details there. As to the documentation, only commercially sensitive information has been redacted—as, of course, it must be. The arrangements announced on Saturday are an important and valuable step towards bringing back into the UK economy lending capacity that has been lost, rebuilding the economic momentum that we all want to see.
Sir Stuart Bell (Middlesbrough) (Lab): May I thank my right hon. Friend for reiterating the position on bonuses? May I tell him that a number of junior staff in my constituency have been exercised that the bonus that is part of their salary might be impaired by the present arrangements whereas in other banks, not in this particular bank, those on higher salaries have been rewarded for poor performance? May I ask him to look again more liberally at the bonus for those on an average salary of £20,000 to which he referred, as there are many in my constituency and elsewhere who actually receive less than that amount?
Mr. Timms: My hon. Friend is, of course, absolutely right that there are plenty of staff in Lloyds on £17,000 salaries or less. I understand that the average bonus of which we are speaking amounts to less than £1,000. I think it is absolutely right that much more senior staff forgo their bonuses—and they have done—but when it comes to the sort of staff my hon. Friend speaks about, I completely agree with him.
Mr. Hugo Swire (East Devon) (Con): The Financial Secretary said in his statement that £11 billion-worth of loans to small businesses would be provided. Given that we are now the majority shareholder in this bank, can he reassure us that those loans will be genuinely new loans for new businesses and will not be used by the bank to service existing contractual loans?
Mr. Timms: I can reassure the hon. Gentleman that the £11 billion of business lending will be additional to what was being planned by Lloyds in the course of this year.
Ms Sally Keeble (Northampton, North) (Lab): My right hon. Friend referred to the fact that the bank would be making monthly reports to the Government in compliance with the lending agreements. Will he make at least the headline figures in those reports available to the House so that we and the public can see that the bank is complying fully with the increased lending agreements? Probably what the public most want to see is the banks resuming lending and the money going into the economy.
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