Supplementary memorandum from HM Treasury
I am writing to provide the information requested
by Committee members at the PAC hearing on maintaining financial
stability across the United Kingdom's banking system of 14 December.
Question 81 (Dr Pugh): asked for details of UKFI's
bonus arrangements and whether any bonuses have yet been paid.
Specific remuneration arrangements within UKFI
are a matter for the UKFI Board. As stated in UKFI's Framework
Agreement with HM Treasury, we expect all such remuneration arrangements,
including any incentivisation packages, to be developed and recommended
by the Board's Remuneration Committee for directors and senior
management, and to be in line with the FSA's code. HM Treasury
has authorisation over the terms on which each director is appointed,
remunerated and incentivised.
HM Treasury's interest is primarily in ensuring
that remuneration levels:
— are sufficient to attract and motivate
high calibre individuals to drive the delivery of the activities
and objectives described or set out in the Framework Document;
— are tied closely to performance, as measured
by compliance with the Investment Mandate (and implementation
of the Company's investment strategy), adherence to the UKFI Business
Plan and delivery of the objectives in the Framework Document;
— are aligned with the objectives set out
in the Framework Document; and
— deliver value for money.
In addition, HM Treasury does not condone rewards
for failure, and would expect the Board to support the removal
of any director or member of senior management responsible for
a failure to adhere to the UKFI Business Plan, comply with the
Investment Mandate or for any other serious failure.
I am informed by UKFI that no bonuses have yet
been paid to UKFI staff, that any bonuses will be paid as a proportion
of salary (not multiples), and that even if maximum payouts were
made they would only be in aggregate up to 20% of total staff
costs. UKFI has some civil servants on secondment who are eligible,
like all civil servants, for modest bonuses. Employees from the
private sector are earning substantially less than they have earned
and could earn elsewhere. In addition, UKFI's Chief Executive
has agreed not to receive any bonus.
Question 73 (Dr Pugh): asked whether the £25
billion raised by businesses from equity markets and corporate
issuance, has been used to repay debt through choice or because
banks have called in loans. You asked that the Treasury present
the Committee with the work undertaken on that matter.
Data on repayments includes both the roll-off
of existing debt and repayments by customers. Information we have
from the Bank of England Trends in Lending report covering the
whole banking sector (not just the lending commitment banks) indicates
that the total level of repayments has been £16bn greater
than the total level of new lending for quarters 2 and 3 of 2009.
Information from the lending commitment banks shows a pattern
in line with this market.
Survey evidence from BCC and Deloitte suggests
that apart from perceptions around access to finance, businesses
have stated tough economic conditions and a lack of customer demand
as key challenges to growth and investment decisions. In line
with this, independent survey evidence by BIS reflect steps by
SMEs and Mid Caps to cut costs and manage debt by reducing dependency
on bank finance and seeking alternative sources of funding.
Also, the Bank of England's Agents have described
banks as being unwilling to foreclose in the face of breached
loan covenants, in response to low collateral values, suggesting
that repayment levels may be less driven by banks demanding repayment
and more so by businesses' restructuring decisions.
Question 66 (Dr Pugh): that I clarify a statement
made by the Chancellor on the Pre-Budget Report, in the context
of Figure 14 from the NAO Report (page 34). I believe he was referring
to this exchange
Official Record 15 Dec 2009 : Column 782
Mr Michael Fallon (Sevenoaks) (Con): Is not the
reality that businesses in our constituencies still cannot access
the credit that they need, and that all this newly printed money
is being siphoned off into purchasing gilts to finance the extra
borrowing that is a direct result of the Chancellor's failure
to come up with a proper fiscal plan to reduce the deficit?
Mr Darling: No. I believe that the quantitative
easing measures taken by the Monetary Policy Committee of the
Bank of England are helping the process of recovery. The hon.
Gentleman has a point, however, about bank lending. As I have
said before, the stock of lending is broadly similar to what it
was before the crisis. In addition, the banks in which we have
major shareholdings—RBS and Lloyds—have lent an additional
£50 billion. At the same time, however, there has been a
repayment of lending by other businesses, which is why the net
figure looks so low. As I said last week, it is necessary that
the deficit be reduced, and we will halve it over a four-year
period once recovery has been established-but it is important
to ensure that we get that recovery established.
Analysis of past financial crises by the Bank
of England in their July 2009 Financial Stability Report shows
that in the aftermath of a credit crisis real credit growth turns
positive several quarters after the resumption of output growth.
However, whilst monthly flows of net lending to private non-financial
corporations have been volatile over the past two years, the total
stock of lending to private non-financial corporations has remained
broadly stable. For example, the total stock of lending to private
non-financial corporations was £494 billion in November 2009
as compared to £492 billion in November 2007.
Sir Nick Macpherson
Permanent Secretary
13 January 2010
Following my previous letter, this note addresses
the request for information regarding bonus arrangements for Asset
Protection Agency staff.
No bonuses have yet been paid in respect of
Asset Protection Agency staff, and there will be very few staff
eligible for payments covering the period to March 2010. Eligibility
and payment of any performance bonuses are fully in accordance
with approved practice for civil servants, and will be disclosed
in the APA annual report in due course.
Sir Nick Macpherson
Permanent Secretary
15 January 2010
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