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As for Northern Rock, I have already set out my intention to split the bank into two separate companies, and we now have Commission approval for that. That will mean that less capital support is needed to keep
Northern Rock lending, and when the time is right it will facilitate a return to the private sector. Lloyds will sell Cheltenham & Gloucester, the Intelligent Finance internet bank, the TSB brand, Lloyds TSB Scotland and some Lloyds TSB branches in England and Wales-altogether, more than 600 branches by 2013. RBS plans to sell its insurance businesses, including Direct Line and Churchill, as well as its commodity trading arm and its card payment processing operation. It will also divest itself of more than 300 branches across the UK, again by 2013. Together, those businesses could amount to about 10 per cent. of the retail banking market in the UK.
In each and every case, we will insist that those institutions should not be sold to any of the existing big players in the UK banking industry. Lloyds and RBS will each be required to sell their retail and SME businesses as a single viable package to a smaller competitor or new entrant to the market. That, together with Northern Rock, will potentially create three new banks on our high street in the space of five years, which will increase diversity and competition in the banking sector, giving customers more choice and a better service.
The financial services sector will remain an important part of our economy. Yesterday's job losses announced by RBS and today's job losses announced by HSBC are a reminder that for many employees, these are difficult times. We will do everything we can to work with the banks to help them find new jobs for those affected.
My proposals today will ensure that we have a strong and vibrant financial services sector in the future. They will mean strong and safer banks that are better able to support the recovery, and more competition and choice for people who use them. I commend this statement to the House.
Mr. George Osborne (Tatton) (Con): Once again, Mr. Speaker, the Chancellor tells the House of Commons what he already has spun to every national newspaper-last night, long before any market notices were put out.
Let us separate fact from Government fiction. First, we welcome the modest break-up of some of those large banking conglomerates-a break-up that the Chancellor wholly opposed when the Conservatives proposed it six months ago, and which everyone knows was wholly imposed upon him by Commissioner Neelie Kroes. We also welcome the ban this year on all significant cash bonuses in these major retail banks-not least because we proposed that a week ago. Again, the Treasury and the Chief Secretary to the Treasury wholly opposed us. Yet again, the Conservatives are setting the agenda.
However, is not the real story the sheer size of this bail-out? The Chancellor could not bring himself to give us the actual figure in the House of Commons-£39.2 billion, equivalent to £2,000 per family. It is bigger even than the bail-out last autumn, and with the Royal Bank of Scotland, it now breaks a new world record as the single biggest bail-out of any single bank anywhere in the globe.
Of course, the Chancellor presents this as positive Government action, but he had little choice, because the alternative was seeing RBS unable to fulfil the basic requirements of a solvent bank. However, it results in a bail-out bigger than that of Citigroup and that of Bank of America. Indeed, all of that is going into a bank the former chief executive of which, we must remember, was knighted for banking services by the Prime Minister.
In return for this huge slug of money, there is still no guarantee that this will get lending flowing in the real economy, help real businesses to stay afloat or keep people in work. The Chancellor wants us to believe that this is a new era for British banking, when in truth the British people are being presented with yet another enormous bill to try to clear up the mess from the old era of irresponsible banking supervision over which this Labour Government presided.
Let me press the Chancellor on the details-first on the enforced sale of branches and bank businesses. Why did he oppose that when we first suggested it six months ago? He dismissed it out of hand. Is that because-perhaps he could confirm publicly what everyone is saying privately-although he did not want to do it, it was imposed on him by the actions of the European Commission, right up until the weekend? Indeed, during their time in office, this Government have never made any secret of the fact that they have actively promoted the policy of creating a small number of large banks.
Mr. Darling indicated dissent.
Mr. Osborne: The Chancellor shakes his head. Does he not remember what he said in the pre-Budget report last year? He said that
"consolidation"-
"results in stronger and better-capitalised...institutions, which will lead to greater financial stability; more protection for consumers; and better availability of competitive financial products."
Is that still his view? Does he think that the recent consolidation has resulted in stronger institutions, greater financial stability or more competition? Can he really believe that, after he has seen what has happened over the last year?
Secondly, let me ask him about the details of this £39 billion bail-out. He said that it was broadly the same as the deal that he put before the House of Commons in February, and presented the various numbers involved in that deal. Of course, what he was actually doing was comparing apples with pears. In February he told us that RBS would get a £13 billion capital injection and a £6 billion contingency reserve-he just added to the total today-and today he says that it is going to get £25.5 billion capital injection and an extra £8 billion in reserve. Will he confirm that this is not the same as the deal he announced in February?
The Chancellor talks about the asset protection scheme. Again, will he confirm in public what everyone involved in these negotiations is saying in private-that the asset protection scheme he announced in January proved to be unworkable, impossible to negotiate and incompatible with European state aid rules, which is why he has had to go back to the drawing board? When did he realise that the asset protection scheme would not work? Why does he think that the United States has been more successful with its public stress tests in leveraging private capital into its banking system so that, unlike Britain, it is not turning to the taxpayer for further large-scale capital injections?
Will the Chancellor confirm that the Royal Bank of Scotland will not be paying taxes even when it returns to profit? That is a remarkable circumstance that I suspect will be a feature of several debates in the House
over the next few months. What signal does that send to the rest of the global banking sector which is trying to minimise its UK tax bill at the moment?
On bank lending in the real economy, every time the Chancellor has announced another form of bank bail-out, he has promised that it would lead to more lending. In October the Government said that their banking policy would
"ensure the flow of money to small businesses and families".-[ Official Report, 20 October 2008; Vol. 481, c. 30.]
In January they said that their banking policy would
"get lending going in the wider economy".
Perhaps they believe that they have succeeded, because Lord Myners has been telling everyone today that there is no problem with credit in the economy. Will the Chancellor confirm that the latest evidence shows that the flow of lending to businesses has now fallen for the seventh consecutive month, and the money supply is now shrinking at the fastest rate since records began?
The Chancellor again tells us of his changes to the banking system. He promises yet another banking Act, but the verdict of the Governor of the Bank of England is simple: there has been "little real reform" under this Government. Meanwhile, credit and confidence remain in desperately short supply, and still the Chancellor and Prime Minister have no plans to provide either. Indeed, as Treasury questions have just demonstrated, they do not have the simple answer to the simple question of why Britain is still in recession while the rest of the world is in recovery.
That is the truth about this Government. They went around boasting that they had saved the world, but they are still trying to save the British banks, and they have not got on to saving the British economy.
Mr. Darling: The hon. Gentleman raises several points, to which I will reply-but what I find difficult to take is the impression that he gives that somehow he is against these measures, whereas his deputy was on television today saying that he agreed with what we are doing. Indeed, the hon. Member for Fareham (Mr. Hoban) was asked by the BBC interviewer,
"would you have not done this?"
"it's worth reminding people, no bank here has collapsed, no individual, no business, had all of their savings wiped out and that is because of what the Government did".
[ Interruption. ] No, it was not the hon. Member for Fareham who said that. What he said was, "Absolutely". He agreed with what was being said, and he went on to say that he supported the measures that I am announcing today. [ Interruption. ] I will answer all the points that the hon. Member for Tatton (Mr. Osborne) made, but the House should be aware that the Conservatives' position at the Dispatch Box is rather different from the position that they take outside the House.
The hon. Member for Tatton went on about what "everybody's saying in private". I remind him that what everybody is saying in private, and increasingly in public, about him is that he tends to play politics rather too often on issues that are far more important than that.
The hon. Gentleman asked about the break-up of the banks. To argue that we have been against that recently is nonsense. I said in the Mansion House speech in June
that one of the things that we had to do as we stabilised the banking system was to get more competition in the system. The hon. Gentleman also mentioned what I said last year about Lloyds-HBOS. Yes, we did support that merger, because at that stage financial stability was important. I remind him that he agreed with that as well, and he went out of his way to say that he had spoken to the people involved on both sides and assured them of the Conservative party's support. There is not too much between us on that point.
As for the point about bonuses, it is not true to say that our position is the same as his. I remind him that on Sunday night, when he put out his press release in anticipation of the statement on bonuses, he said that it would apply to British retail banks. By Monday, when the wind started to blow the other way, there was a subtle change and the investment banks were included. It was still only British banks though, while our measures affect all major banks based here. With RBS and Lloyds, we have gone further than any other country in restricting the amount of bonuses that executives can receive, and that goes far further than he or anyone else has suggested.
The hon. Gentleman asked some specific questions about RBS. Yes, it is a large sum of money-there is no doubt about that-but RBS was one of the largest banks in the world. Indeed, by some measures it was the largest in the world. Unfortunately, however, it got itself into huge difficulties-partly, as I said, because of the acquisition of ABN Amro, and partly because, frankly, parts of its operations had taken on risks that it could not manage, and it did not have enough capital. As he correctly recognised, our choice is whether to support it. If we did not, however, not only would RBS fail, but the knock-on effect would be catastrophic. I appreciate the point about these being large sums of money, but they are unavoidable.
As for the £25 billion, I went out of my way in my statement to break down how the figures are calculated, so that the House could see what the position is. The hon. Gentleman is right to say that the £8 billion contingent capital is new-that will only happen if the core tier 1 ratio falls below 5 per cent., or there is a severe downturn-but stress tests have been carried out, and the FSA believes that the £25 billion that we have put forward today is sufficient.
The hon. Gentleman asked about the asset protection scheme rules. He is right to one extent: they were not consistent in January with Commission rules-but that is because there were no rules from the Commission in January, because this is all new territory. The Commission has had to work up rules during the course of this year. While those were being worked up, obviously we found out more about the assets, and the Commission found out more about what is going on in other banks in other parts of Europe-and yes, that has developed.
The hon. Gentleman asserted that in America there is no public money. Tell that to the US Congress! The then American Administration had no end of difficulty in getting the legislation through, because it involved public money. It is simply not true, therefore, that America is managing to do this without involving the public. That simply is not right at all.
The hon. Gentleman also asked about lending. It is important to consider closely what is happening in the economy. In September the stock of gross lending to businesses was £492 billion, which compares with a
gross stock flow of £478 billion in September two years ago-just before the crisis. So money is being lent. At the same time, however-this is the point that Lord Myners made in the interview on "The World at One"-undoubtedly one thing that happens during recessions is that businesses repay their money as well. At the same time as more lending, therefore, money is also being repaid. That said, everybody agrees that there are still problems with lending and cases of businesses not getting money when they probably should get it, and that there are still problems with pricing. The difference between the Government and the Conservative party is that we propose to do something about it.
In conclusion, I very much welcome the support of the hon. Member for Fareham for what we are doing, and I hope that at some point during the day he can have a word with the shadow Chancellor. Then perhaps we will see universal support for what we are doing, because I think that that is the right way forward.
Dr. Vincent Cable (Twickenham) (LD): I thank the Chancellor for giving us good notice of this statement, but may I check the numbers involved? We have the £25.5 billion for RBS, the £3.3 billion after the fee for Lloyds, the £8 billion contingent capital commitment and the £282 billion insurance for the RBS toxic assets. Why did he not also mention that-as I understand to be the case-RBS has been given an additional £10 billion in tax write-offs, which were not previously accounted? Can he explain that?
On remuneration and bonuses, will the Chancellor explain in simple terms why state-or state-supported-banks are still paying bonuses at all? A bonus is surely a bonus, whether it is paid now or in three years' time. Why do he and the Conservatives think that it is a great discipline and hardship for the bankers to be asked to wait three years for their Ferraris? The Walker report on remuneration says that banks should declare their remuneration packages. Given that the Government have adopted that proposal, will the Chancellor be clear about whether that will be compulsory or voluntary?
On lending, is it not true to say that if we take into account net lending, which the Chancellor has just mentioned in relation to repayments, the banks are falling well short of their obligations to lend to solvent British companies? Is it not also true that Lloyds has been trying to wriggle out of its lending obligations by opting out of the asset protection scheme? Can the Chancellor therefore clearly explain the nature of the banks' lending obligations? Are they binding and what sanctions are applied if the banks fail to meet them?
Finally, I want to raise the issue of the breaking up of the banks through the sale required by the European Commission, which I welcome, in order to stop the process by which banks have long been ripping off their customers. Is it not true that the break-up relates purely to 10 per cent. of the banks' assets? The one issue that neither the Commission nor the Chancellor has dealt with, but which the Governor of the Bank of England has raised, is the continued existence alongside each other of retail banks and the large speculative trading operations-the so-called casinos.
The Government have set their mind against implementing the advice of the Governor and have opted for a more gradual regulatory approach. However, is it not right that private banks that continue to benefit
from those guarantees should compensate the taxpayer for the considerable benefit that they thereby derive? We should not today simply be discussing transferring public money from one pocket to another, but discussing how the remaining private sector in the banking system continues to benefit enormously from the guarantees that the Government continue to give it, in the event that it should fail.
Mr. Darling: Let me deal with the hon. Gentleman's questions in turn. First, I explicitly mentioned tax losses in my statement. [Interruption.] He is kind enough to acknowledge that.
I take a slightly different view on bonuses from the hon. Gentleman, in that I do not think that they are wrong in themselves. There is everything to be said for rewarding good behaviour or ensuring that the interests of the executives are the same as the public interest, which is what we are trying to do by ensuring that they cannot get bonuses for three years. Also, there is a distinction to be made between, on the one hand, somebody who is paid large sums of money and, on the other, the many bank employees who work in branches or back offices who are not on large salaries, and who in some cases are paid pretty modest incomes.
That is why we said that people earning less than £39,000 could get bonuses, but individually we are talking about several hundred pounds, or perhaps up to £2,000, which is nothing like the large figures that are commonly thought of as bank bonuses. That is especially important at a time when, as I said in my statement, there are many bank employees who are understandably worried about what is happening, but who never got the great bonuses. I am thinking of the many constituents of mine who were employed by RBS and, in particular, HBOS who were paid in shares that are now worth an awful lot less. We must ensure that we treat people on lower, modest incomes properly.
On Sir David Walker's recommendations, which we will get at the end of this month, I have said that we will legislate to implement them. We will have to see what he comes up with at the end of the day, but I hope that we can accept his recommendations.
The hon. Gentleman mentioned lending. He has said again today-and on the "Today" programme at 10 to 9 this morning-that Lloyds has got out of its lending conditions. No, it has not: as I said in my statement, both Lloyds and RBS have to stick with the lending agreements that they have already reached. I do not want to labour the point that I made about lending, because I accept that there are still problems, but it is important to look not just at the net position, but at what is happening in lending and accept that during a recession it is understandable that businesses with big exposure to the banks might want to reduce that.
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