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Lord Ezra: At Second Reading I spoke briefly about this issue. I said that I had nothing against Clause 41 as now drafted; but I was concerned about the element of retrospection. Certain societies took the effective decision to convert under the assumption that the existing protection rules would continue. This is something that raises doubts in our minds and I shall be glad if the noble Lord, in replying, will take that into account.
Lord Mackay of Ardbrecknish: In addition to my noble friend Lord Brabazon of Tara, who took the 1986 Bill through this Chamber, I am now faced by my noble friend Lord Stewartby who had to look after it in those days in his capacity at the Treasury in another place. I am delighted that they both believe the 1986 Bill needs updating and changing, otherwise I might have a rather difficult feeling going up and down my spine with the two authors of the 1986 Act, which I am changing so radically, sitting behind me. I am glad for their support in general and turn to Amendment No. 1 and the issue of the five-year protection rule.
The converting societies knew that we planned to introduce a Bill. My noble friend Lord Brabazon of Tara pointed out that initially the five-year protection point was not contained in it. They were able to see all the non-confidential responses to the consultation process which we held last year and it was clear early on in the process that the five-year protection was a matter of concern. The Alliance and Leicester was represented at
With that as the background perhaps I can say that the clause as it stands, unamended, will give a converted society the five-year protection in which it may consolidate its position, and may grow by acquisition of assets--such as mortgage books--and by acquisition of companies which are not authorised financial institutions, without any effect on that protection. The protection will lapse only if the new bank carries through an acquisition of an authorised institution, or if a high proportion of shareholders support a resolution to waive the protection.
Amendment No. 1 would let the new bank mount unlimited acquisitions of its immediate competitors--other Plcs in the financial sector--provided it did not bid for mutual institutions. For example, this bank could take over a former mutual insurer, which would have no protection following conversion, but such an insurer would be forbidden by law from making a bid for the new bank. Moreover, despite recent developments, takeovers of mutual institutions are very rare indeed. The vast majority of takeovers are of Plc structures as, no doubt, are the majority of takeovers that a new bank would undertake. So the effect of this amendment on the new bank would be that it could more or less carry on as planned, fully protected for five years. The umbrella of that protection would be widened to cover all the institutions acquired as well.
The amendment would therefore perpetuate the unfair advantage the five-year protection confers. As my noble friend Lord Stewartby said, the five-year protection was initially included in appreciation of the fact that at that time the building societies had not yet had an opportunity to widen their base, to bring new products into the range and to become conditioned to the more competitive market place prior to any conversion. They therefore needed time to learn and adapt. Now the building societies operate in a much more competitive market place and some of the powers in the Bill will help to improve their competitiveness in the market place.
My noble friends and, indeed, the Alliance and Leicester itself, made much of the retrospective nature, as they claim, of the Bill. I understand the point that is being made but, strictly speaking, it is not retrospective. It will be enacted after the Bill passes. My understanding of retrospective legislation is that it is legislation which takes effect prior to the passage of a Bill. In fact therefore it is not retrospective.
In any case, even for a society like the Alliance and Leicester which is going through its conversion--in fact it made an announcement today about the next step--the loss of the five-year protection is in its own hands. It can only be triggered by the successor company's
I do not believe the changes are unfair. I think it would be unfair to leave the converted societies--some are actually banks in the FTSE 100 and are powerful institutions--in this very privileged position. I understand the point my noble friends are making about the Bill being retrospective. But, strictly speaking, as we all understand it, it is not retrospective. Indeed, if one were to take the view that one could not do anything after the date of a new Bill being enacted that affected decisions which had previously been taken, it would be hard for a Government to make any changes in the financial sector because they could always be claimed to be affecting decisions which people had already taken; "and if they had known at the time, would they have taken them?". I suspect that even if the Alliance & Leicester had known at the time, it would probably still have taken them. Who am I to judge that? But certainly the vote it got to make the move was fairly substantial.
Perhaps I may put it this way and name terms to your Lordships. Under the amendment the Alliance & Leicester or any other plc would be discouraged from, for example, taking over the Airdrie Savings Bank, which is one of the few of that kind left, because it would lose protection. However, it could look at the Airdrie Saving Bank's bigger brother in Edinburgh and attempt to take over the Royal Bank of Scotland and yet retain its protection. In those circumstances, the Royal Bank of Scotland would be forbidden from mounting a counter bid. That is a serious distortion of everyday competition among the financial service providers. Put like that, I hope my noble friends will see that it is quite unfair that major institutions should be ring-fenced in a one-way ring-fence. They can do things out the way but no one can do things in the way.
While I understand the argument my noble friends have made, when one looks at the new scene, it would be quite unfair in the circumstances I have put for the Airdrie Savings Bank to be safe and the Royal Bank of Scotland not to be safe. There does not seem to be too much logic in that, especially when the Royal Bank of Scotland could not counter bid or put in a bid for any of the new converting building societies--now banks. It is not the intention of the clause to expose them necessarily and immediately to competition or to a bid. The protection is still there. If they do not bid, no one can bid for them. That is a reasonable protection which they will have to take into account if they decide to make a bid for any other financial institution. In addition to that, if someone suggested that they might bid and the shareholders themselves, by an overwhelming majority--75 per cent. of them voting--agreed to drop their protected status, that is wholly reasonable as well.
I appreciate that we would have liked a longer Committee stage in order to look at other aspects of the Bill. However, I know that this is one aspect, along with the two-year rule, which I hope I have explained, that has concerned at least two of the building societies which are converting and has concerned some of my noble friends and some Members of another place. I particularly think that the example I gave was a
I hope that explains the position to my noble friends. I thought that my noble friend Lord Stewartby clearly explained the same case from the experience he had in 1986 and what he has seen develop since. I trust therefore that my noble friend will feel able to withdraw the amendment.
Lord Brabazon of Tara: I am grateful to my noble friend for his reply and I am grateful to all Members of the Committee for taking part in the debate. As my noble friend Lord Stewartby said, this is a change to the protection which was offered originally. It is natural that if a building society converts and if it is to progress its business, it will have to make changes to the way it operates. One of those changes may be to make a bid for a financial institution. My noble friend made a comparison between a small savings bank and the Royal Bank of Scotland. As far as I see it, the operation of Clause 41 will not even allow it to take over the tiniest financial institution without losing its protection.
My noble friend said in his speech in reply to the Second Reading debate that the Bill was warmly supported on all sides of the House, including by my noble friends on this side of the House. It is indeed true that the Bill is warmly supported. What we are criticising is the speed with which it has been brought forward. It will have spent under three weeks in both Houses. I should certainly qualify my support for the principles of the Bill and I would have been much happier if it had been brought forward at a more leisurely pace so that both Houses could have examined it a good deal more closely. It has been pointed out to me that the Delegated Powers Scrutiny Committee of this House has looked at the Bill and has found that it contains no fewer than 10 Henry VIII clauses. It has let that go. Nevertheless, it is a point that might be made.
However, the purpose of the amendment was to protect the other mutual societies--whether building societies, mutual insurance companies or whatever. I have listened carefully to my noble friend's reply. I certainly do not propose to divide the Committee on the amendment at this stage of the Parliament, especially as I have had no indication from the party opposite of its views on the amendment. I do not know where it stands on the amendment. I can only assume that it does not support the amendment; otherwise it would have said so. On the other hand, nor did it say that it opposed the amendment. Never mind. With those few words, I beg leave to withdraw the amendment.