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Mr. Hutton:
I agree with the right hon. and learned Gentleman that it would be very helpful if there were such additional forces in Afghanistan. Indeed, the strong argument that we have had over a number of years with our allies in NATO has been about making those sorts of deployments. It is not fair for the burden to fall on a few when there are many others who are capable of
shouldering it. I can assure the right hon. and learned Gentleman that those discussions are continuing.
Mr. David Hamilton (Midlothian) (Lab): In an earlier response, the Under-Secretary, my hon. Friend the Member for North Durham (Mr. Jones), indicated that medical records would be made available to local practitioners. As health comes under a different perspective for the devolved Parliaments, will he ensure that he speaks to them to ensure continuity?
Mr. Kevan Jones: I am grateful to my hon. Friend for raising that matter. He is always an advocate for ensuring that we do not forget about the devolved Administrations. I am meeting colleagues in Wales and Scotland with regard to all the issues in the Command Paper, of which that issue forms a part.
Ann Winterton (Congleton) (Con): Will not the decision to be announced in July by the Secretary of State about the ill-fated A400M most likely leave the United Kingdom with a disastrous lack of airlift capacity? Can he therefore assure the House that suitable conversations have been taking place to ensure that the situation is rectified?
Mr. Hutton: I can assure the hon. Lady that those discussions are indeed taking place. We will not allow a situation to develop where our air logistics are affected in any way by the current delays in the A400M.
Dunfermline Building Society
3.31 pm
The Chancellor of the Exchequer (Mr. Alistair Darling): With permission, Mr. Speaker, I would like to make a statement about the Dunfermline building society. I hope that the House will understand that an announcement had to be made as soon as possible this morning to provide certainty to the Dunfermline’s customers when branches opened this morning. I have previously disclosed to the Treasury permanent secretary, and it is appropriate that I draw to the House’s attention, the fact that I hold savings accounts on behalf of my children at the Dunfermline building society.
Most of the society’s core member business was transferred to the Nationwide building society this morning. Under the terms of the agreement, it will be business as usual for customers and Dunfermline’s deposit business will continue to operate normally. Branches and telephone banking will continue to be open and customers can access their accounts in the usual way. Savers can be assured that their money is safe. Loan and mortgage customers can continue to contact the Dunfermline in the usual way and to make repayments as normal. All the Dunfermline building society’s staff have been transferred to the Nationwide building society.
The decision to transfer the Dunfermline’s main business to Nationwide was made to protect depositors and safeguard financial stability, as well as to protect the interest of the taxpayers. I would like to set out the background to the decision and the options looked at by the Financial Services Authority, the Bank of England and the Treasury, in order to find a long-term solution to the society’s problems. The Dunfermline building society has 34 branches, employs about 500 people and has around 300,000 members, making it the 12th largest building society in Britain. The decision was necessary because of a significant deterioration in the society’s financial position in the past few months. That culminated in the decision by the FSA on Saturday that the Dunfermline building society was likely to fail to meet the FSA’s conditions to remain open for business and that it was not reasonably likely that action could be taken by the society to enable it to satisfy these conditions.
The Dunfermline’s problems were caused by a range of factors. The society has engaged in substantial commercial property lending, in excess of £650 million, making many of those loans in 2005 and 2006, when prices were at their highest. It is now losing money on many of those loans. In 2006 and 2007, the society also purchased more than £150 million of high-risk, self-certified mortgages from two American firms, GMAC and a subsidiary of Lehman Brothers, just before the global market for such loans completely collapsed. Those decisions, together with the need to write off £10 million from the purchase of a £31 million IT system, contributed to the society making an expected loss of more than £24 million last year.
The FSA has been in constant touch with the society since November, as is properly the case, as the FSA is its lead supervisor. It has been clear for some time that the society needed additional capital to continue operating. It was also clear that the society could not raise the amount of capital that it required in the markets and that it would need support from public funds. Under
the Banking Act 2009, the Government have to take into account three objectives in particular when deciding whether to intervene in the financial sector: the need to protect depositors; ensuring stability and confidence in the financial system; and safeguarding the interest of the taxpayers.
To meet these objectives, the FSA, the Bank of England and the Treasury had two options. The first was for the Government to inject more capital into the society, possibly alongside the Building Societies Association and the Scottish Government. The FSA advised that a minimum of £60 million was required just to allow the society to continue trading. This, however, would not have provided the Dunfermline with a long-term solution. First, it was the judgment of the Bank of England, the FSA and the Treasury that even with an injection of £60 million, the society would have been very unlikely to have an independent long-term future, and that it would have needed to come back for more. Secondly, the society would not have been able to service or repay this amount of new capital; in the past few years it has never made an annual profit of more than £6 million. Thirdly, that course of action would not have dealt with the commercial property loans and the high-risk mortgages, totalling some £800 million, held by the society.
The second option was to find a long-term solution for the Dunfermline building society, in which it had sufficient backing from a larger society and in which the riskier assets were separated out. It was therefore decided, after the Bank of England had invited offers over the weekend, that as a result of that process, core parts of the Dunfermline would be transferred to the Nationwide building society. The Dunfermline’s retail and wholesale deposits, its 34 branches, its head office and its residential mortgages have been transferred. Savers who are retail depositors with the Dunfermline and with the Nationwide will continue to benefit from separate Financial Services Compensation Scheme limits—that is, £50,000 per person per institution.
The Nationwide already has more than 40 branches in Scotland, where it has been operating for many years. It has the strength to provide financial support for the Dunfermline building society. It has said that it will maintain the Dunfermline building society brand, and that there will be no compulsory redundancies in branches for the next three years. The social housing loans of Dunfermline’s customers have been transferred temporarily to a bridge bank owned by the Bank of England. This will continue to provide support for the Dunfermline’s social housing commitments while the Government talk to a number of other parties, including the Scottish Government, about securing a long-term future.
The remainder of the Dunfermline’s assets and liabilities—including commercial loans, high-risk mortgages and subordinated debt—have been put into administration. These assets will be managed and wound down over a period of time. In this way, the return for the taxpayer can be maximised as conditions improve. Any losses associated with these assets will be met in the first instance by the remaining capital in the society, and by the Financial Services Compensation Scheme, leaving a small residual exposure for the Government.
In line with previous resolutions of this kind—such as that involving Bradford & Bingley—because the retail deposits have been transferred in full, the assets to back them had to be provided in the short term by the
Treasury. Therefore, following normal practice in such cases, the overall net financing provided by the Treasury to the Nationwide is around £1.6 billion. Included in this amount is a sum of £69 million, an amount broadly equivalent to the capital reserves belonging to the Dunfermline’s members. Again following normal practice, this is being transferred along with the rest of the business, and will support prime residential mortgage lending. The Treasury will reclaim the money from the wind-down of the assets outside the transfer and from the Financial Services Compensation Scheme.
The Dunfermline building society has provided services for many years. However, we had to find a long-term solution for it, in order to protect savers, to protect the taxpayer and to give its members a more stable future. We will continue to deal with the impact of the global banking crisis on the banking system, ensuring stability and rebuilding confidence, which is an important precondition to economic recovery. I commend this statement to the House.
Mr. George Osborne (Tatton) (Con): I thank the Chancellor for his statement. Of course, it is sad that the 140-year history of the independent Dunfermline building society should have come to such an end. It is depressing to see yet another pillar of the Scottish banking system fall in this way. I note that the Chancellor has for the first time made use of the special resolution regime passed in the Banking Act to deal with this troubled institution. Of course we called for such a regime 18 months ago, and we now know that the Governor of the Bank of England was calling for one five years ago. However, it is good to see that it is now in place and being put to use.
The absolute priority for the Dunfermline, as the Chancellor has said, is to protect the depositors, and their transfer to the Nationwide will do that. I have spoken to my colleagues in the Scottish Parliament, and we agree that we should all be concerned about the future of the 500 staff who work in the branches and the head office. This will be an anxious time for them and their families. In his statement, the Chancellor provided some reassurance for the 245 employees in the branches, but he said nothing about the remaining 289 people who work in the head office. Perhaps he will do so when he responds to my questions.
Indeed, it would be good moment, if the Chancellor felt able, to say something about the total job losses both in Scotland and in the rest of the UK resulting from the problems at HBOS, Royal Bank of Scotland, Bradford & Bingley, Northern Rock and now Dunfermline, and to clarify whether the Government are able to provide specific help to unemployed bank staff, with their particular clerical and IT skills, in finding the new jobs they are looking for.
Specifically on Dunfermline, will the Chancellor answer these questions? First, he says that the Treasury has provided £1.6 billion of net financing to Nationwide, so what is the maximum possible loss for the taxpayer? He mentioned in his statement a small residual exposure. How small is it, and what is the maximum exposure? Can he give us the figures today? What is the risk from holding £500 million of social housing loans, and how quickly does he expect to find a buyer for them? What is the maximum loss for the Financial Services Compensation
Scheme—a scheme designed, of course, to protect customer deposits, but now burdened with the liabilities of Dunfermline, and Bradford & Bingley? What will be the impact on the levy charged to other banks and building societies, and no doubt passed on to customers? Indeed, is the Chancellor confident that the additional costs can be met by the rest of the industry, given the weak state that much of it is in?
Secondly, when was the FSA first aware that Dunfermline was purchasing UK buy-to-let mortgages from the likes of Lehman Brothers and GMAC, and increasing its exposure to commercial property by £500 million—an increase of more than 400 per cent. in the last three years alone? These are British loans, to British households and British companies, that have gone bad, and they are further evidence of what we have been saying all along—that not all the banking problems have blown in from America. Did our financial regulator ever ask whether this was a sensible business model for a medium-sized building society to pursue? Were any doubts ever expressed or any questions ever raised or any warnings ever issued—and if not, why not? Will the Chancellor now instruct the FSA to publish a full account of its dealings with Dunfermline, as he did with Northern Rock, so that we know the whole truth, rather than it just dribbling out over the coming months? Of course the management at Dunfermline must bear the primary responsibility for taking a safe and—dare I say it?—quite boring building society and turning it into a high-risk property speculator, but why did the FSA let it do that?
Is the Chancellor satisfied with the way in which the Treasury has conducted itself throughout the negotiations? The Government’s decision to pull the plug on Dunfermline was, of course, never going to be popular with the management, but could not more of an effort have been made to explain that decision? The chairman of the society, Mr. Faulds, says he is “astounded” that senior Treasury officials would not speak to the society, and that the only contact with Ministers was a cup of tea with Lord Myners. Why did the Chancellor not feel it necessary to meet the management himself, and at least hear its alternatives? Is it really the case that Dunfermline staff learned of their fate only through a Treasury leak to the media, and does that not show insensitivity to bank clerks on modest incomes who now face losing their jobs?
Finally, will the Chancellor say something about his relationship and dealings with the Scottish Government? He mentioned in his statement that he was going to talk to the Scottish Government about the future of some aspects of this deal. Does not the handling of the Dunfermline building society highlight the fractious and unhelpful relationship between a Labour Government in London and a nationalist Government in Edinburgh? Given that we have a Chancellor of the Exchequer who comes from Edinburgh and a Prime Minister who used to be the MP for Dunfermline, should they not try harder at least at their side of the relationship? The financial industry is so important to Scotland, and the problems have been so great, that the Scottish people are entitled to expect a bit more co-operation and a bit less confrontation between those elected to govern them in Edinburgh and in London.
Mr. Darling:
Let me answer the hon. Gentleman’s questions, and let me start by saying that I agree with him that it is a real shame that the Dunfermline building
society has got into this position—and many people who have used its services over many years will be very sad about that.
The hon. Gentleman asked a number of questions, and I am going to start with the last one. I strongly believe that, no matter what the political differences may be between the Administration in Holyrood and the Government here in Westminster, we should work together. I had an extremely constructive and, in my opinion, friendly meeting with the First Minister last Wednesday. I also spoke to him on Saturday morning, shortly before the FSA contacted him in Dunfermline to explain the position to him.
I believe that the offer made by the Scottish Government in an effort to resolve the problem was made in good faith. I spoke to the First Minister about that. The problem was that, as I said in my statement, we believed—and the regulator believed—that even if we had put all that money in, it would not have been enough. Given that the society has never made more than about £6 million in any year, how would it had served us if all that additional capital had been put in? There was also the whole question of the now bad assets to which the hon. Gentleman referred.
I consider the co-operation between the Administrations north and south of the border to have been extremely constructive. Both the First Minister and I fully understood the building society’s problems, and both of us wanted to work towards a solution. The hon. Member for Tatton (Mr. Osborne) also mentioned contact between the society, the regulator and the Treasury. I understand that the Treasury first spoke to the officials in November, once it was becoming apparent that there were difficulties. The representatives of the Dunfermline have also met the Secretary of State for Scotland, and Lord Myners in my Department.
I must point out to the hon. Gentleman that it is not surprising that most of the contact—and there has been a lot of it—has been between the FSA and the Dunfermline, because the FSA is the regulator. It is the body that must decide whether, at end of the day, institutions can continue to receive deposits.
The hon. Gentleman raised a number of other points. He asked about the special resolution regime and the 2009 Act. I can confirm that this is the first time that the regime has been used. As he seemed to want to make a political point, let me also say to him that it was foreshadowed in the Banking (Special Provisions) Act 2008, which he did not support. Be that as it may, however, we both agree that the Bank, the FSA and the Treasury need powers of this sort, especially in the current environment.
The hon. Gentleman asked about jobs, which are clearly very important. I spoke to the chief executive of the Nationwide building society this morning. He said that the Nationwide would guarantee that there would be no compulsory redundancies in the branches, but he also explained to me that, over the next few weeks, it would need to meet people in the headquarters in the Dunfermline and then decide what the requirement is. As the Government have now taken over the commercial loans, that work will not need to be done. Let me also say—anticipating future questions—that it is almost certain that even had the Dunfermline carried on, with support, there would have been reductions in the number of jobs available. I think that that would have been inevitable, given the Dunfermline’s present position.
I want to make it very clear that Jobcentre Plus will be ready to help in Dunfermline, just as it has helped in the case of other banks where there have been job losses. Many people who are very skilled and dedicated have put in years of hard work, and would make first-class employees elsewhere. It is important for us to do all we can to turn such people’s lives around if they lose their jobs. That is why we put more money into Jobcentre Plus at the end of last year.
The hon. Gentleman asked about the social housing loan. I hope that the discussions about that will begin in the next few weeks, because I want to secure some certainty. The Scottish Government clearly have an interest in the issue, because much of Scotland’s housing was being financed by the Dunfermline.
The hon. Gentleman wanted to know how all this arose in the first place. I think that there are two answers to that question. The hon. Gentleman is right: I am afraid that the management in this building society, like management in other institutions that have got into difficulty, are primarily responsible. However, I have asked the chairman of the FSA to let me know what happened, and of course I will keep the House informed.
Dr. Vincent Cable (Twickenham) (LD): Let me begin by paying tribute to the people—particularly members of the Building Societies Association and my hon. Friend the Member for Dunfermline and West Fife (Willie Rennie)—who have tried to rescue the situation and take account of the interests of the 310,000 customers, the work force and, of course, the taxpayer.
As for the Secretary of State’s statement, I shall start with the last part of his reply to the hon. Member for Tatton (Mr. Osborne), which dealt with how this failure occurred. It is clear that there was disastrous management and a failure of oversight on the part of the directors. This morning I was sent a copy of some details of the kind of business that the building society was transacting almost two years ago. It refers to a loan of £10 million to a company based in Lancashire called In-House plc—described as a company that was loss-making and insolvent, which had never filed any properly audited accounts. Substantial numbers of loans of that kind were taking place, and I repeat the point that the Conservative shadow Chancellor has already made: is this not a gross failure of regulation by the FSA? It is very difficult to see how that could have happened under the old building society regulator, who kept a much closer eye on the conduct of societies.
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