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House of Lords

Monday, 3 December 2007.

The House met at half-past two: the LORD SPEAKER on the Woolsack.

Prayers—Read by the Lord Bishop of Newcastle.

Banking: Global Credit Crunch

Lord Barnett asked Her Majesty’s Government:

Lord Davies of Oldham: My Lords, the Chancellor regularly meets the governor to discuss a range of issues, as was the case with previous Administrations. It is not the Government’s practice to provide details of all such meetings.

Lord Barnett: My Lords, I note my noble friend’s Answer. The crunch itself is primarily the responsibility of the banks. That is a considerable responsibility, but the seriousness of the problem should not be exaggerated. Most banks, if not all, could well lose the odd billion or two and still make large profits. On the other hand, my noble friend, in a recent letter to the noble Baroness, Lady Noakes, made one or two important points that I assume came from the Treasury. The letter is worth quoting, as it relates to how and why Northern Rock was helped. Support,

Would that not apply to every bank?

Lord Davies of Oldham: My Lords, the reason why action was taken on Northern Rock was that it was clear that it was becoming a potential casualty of the lack of liquidity and it was becoming stretched in certain areas. None of that alters the fact that Northern Rock’s basic mortgage book has a considerable asset value, against which the loan from the Bank of England is secured. My noble friend will recognise that it was important, with a bank in that degree of difficulty, that support was given in the interests of financial stability. He is right, however: the vast majority of banks are clearly facing some shocks due to the problems of international liquidity, but of course most banks are entirely sound.

Lord Forsyth of Drumlean: My Lords, do the Government accept that the tightening of credit markets will mean that people’s mortgages will go up? Do they also recognise that one of the consequences, in a housing market where prices are falling, of taking house prices out of the retail prices index will be that the Bank of England will be forced to set higher interest rates than would otherwise be necessary and therefore to put more pressure on mortgage payers?



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Lord Davies of Oldham: My Lords, the noble Lord will recognise that the present inflation figure has been used for a number of years now. He will appreciate that if interest rates rise, there is increased pressure on mortgage payers, but it will also be appreciated in the House that large numbers of people have seen significant increases in their house values in recent years, we have full employment in this country and people are able to maintain their debts adequately. Within that framework we can look forward, with some degree of equanimity, to a period that we all recognise will be more difficult than in the recent past.

Lord Peston: My Lords, my question follows on from the important Question of my noble friend Lord Barnett. Since we are not allowed to know what the governor and the Chancellor talk about—the fact that Arsenal beat Aston Villa might have been central to their discussions today—will the Minister ask the Chancellor of the Exchequer whether he would intervene with the governor to clarify the lender-of-last-resort function, and to distinguish between properly behaved deposit-taking institutions and the chancers who ran Northern Rock? As I understand it, the lender-of-last-resort function exists to assist those deposit-taking institutions that behave properly, but is not meant to underwrite the risks of those that do not.

Lord Davies of Oldham: My Lords, the latter is true. That is exactly the criterion that is to be adopted. However, my noble friend will appreciate that Northern Rock was an established bank and mortgage-holder, with a very considerable mortgage book. It ran into difficulties because of injudicious borrowing—there is no doubt about that; that is why the price is being paid in terms of the significant collapse in its share price—but it made sense, with reference to the British economy and the British people, for the Bank of England to take appropriate action to ensure that we controlled the overall position. It will be recognised that confidence can be lost in the banking system. It was important that it should be reinforced. The House, I think, will recognise the success of the governor’s action and the tripartite arrangement.

Lord Newby: My Lords, does the Minister accept that the credit crunch is in part a response to reckless lending, both in the US and the UK? With that in mind, will he ask the Chancellor to ask the current management of Northern Rock why it is still offering on its website today a so-called “together” mortgage at 125 per cent of the current value of housing? Is that not reckless lending being pursued on the back of a government guarantee?

Lord Davies of Oldham: My Lords, on the noble Lord’s more general point, there is not a banker in the United Kingdom, Europe or the United States who is not aware that reckless lending in the past has produced the credit crunch, which has a significant impact on a large number of institutions, a number of which are making losses, which, although they are not on the scale of those of Northern Rock, are nevertheless significant. Lessons are being learnt by the financial institutions at this time of crisis.



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As for Northern Rock’s general operations, the noble Lord is straining at the gnat rather than dealing with the elephant. The gnat is the strategy that Northern Rock is presently pursuing on certain lending; the elephant that we need to deal with is how Northern Rock is set up as a viable institution for the future. That depends on the bids that are coming in. The Government and the British taxpayer have a real stake in the success of that operation.

The Lord Bishop of Newcastle: My Lords, is it still the Government’s intention and commitment to keep Northern Rock intact and hence safeguard the jobs of 6,000 people? Does he agree that if the Rock were to be sold off piecemeal, it would cause incalculable damage to the north-east?

Lord Davies of Oldham: My Lords, the right reverend Prelate is of course right. It is important that Northern Rock is stabilised, which is why the Government and the Bank of England are registering support for Northern Rock to ensure that it gets back on to a stable basis with exactly the significant advantages that the right reverend Prelate identified. But he will appreciate, too, that even bigger issues were at stake; namely, the stability of the financial system and confidence in the banks. That is why it was necessary for the Bank of England to act as it did, while at the same time guaranteeing as far as possible the security of public moneys in Northern Rock.

Charities Act 2006

2.45 pm

Lord Hodgson of Astley Abbotts asked Her Majesty’s Government:

Lord Bach: My Lords, good progress is being made in implementing the Charities Act 2006. A number of significant provisions were brought into force in February, April and November this year; further provisions will be brought into force early next year. The Office of the Third Sector has published an implementation plan for the Act, which was updated in November.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister for that response, but it reveals that his office is slightly off the pace. Is he aware that the Scottish Parliament—charity law being a devolved matter—is passing regulations without reference to or co-ordination with the Charity Commission for England and Wales in London, so national charities have to face a two-tier system of regulation and incur considerable professional fees doing this? Is that really a good use of charitable resources? If the Minister agrees, as I hope that he will, that it is not a good use, what are the Government going to do to prevent this getting worse and put right the situation that exists already? What steps are they going to take to avoid a similar situation arising when Northern Ireland gets its own charities Act, as is anticipated for next year?



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Lord Bach: My Lords, I congratulate the noble Lord on recently being elected president of the National Council for Voluntary Organisations. It is a title that he well deserves.

I cannot accept for a moment that we have been slow in bringing this Act into force. The first provisions came in in February, raising the financial thresholds for registration and audit of charities, giving charity trustees new powers to help in the governance and administration of their charities, and modernising the constitution and powers of the commission. Other activities have taken place all through this year and will continue into next year. There has been no slowness at all. If there is a particular problem in what the noble Lord has raised, I shall go back to the department and ensure that he has a fuller answer.

Lord Borrie: My Lords, what progress does my noble friend feel fee-paying schools have made towards demonstrating a public benefit to the general community, which is now required under the Charities Act for them to retain charitable status?

Lord Bach: My Lords, the Charities Act provides a robust and flexible framework for the Charity Commission properly to take forward the public benefit test. As the House knows, the definition of charity includes the removal of the presumption of public benefit for charities,

That definition will be commenced next spring, following the publication of the commission’s guidance on public benefit next year and the establishment in February of the charity tribunal to hear appeals against the commission’s legal decisions. There will of course be discussions with all interested parties once that happens.

Lord Trimble: My Lords, surely it would be quite wrong for changes in the law and the accepted definition of charity to be made by guidelines. These are matters in which there are established principles that should be changed, if at all, by legislation here and not by administrative actions.

Lord Bach: My Lords, principles are for Parliament to decide. However, what is being looked at is the guidance for the various bodies that will lose the presumption that has been there for a long time. As I understand it, they are content that the Charity Commission will come up with the guidance shortly.

Baroness Harris of Richmond: My Lords, has the Minister had any discussions with the Scots to sort out the problem of the UK-wide charities now that they have to comply with two sets of regulations?

Lord Bach: My Lords, personally I have not, but I am sure that discussions are going on between the Office of the Third Sector and the devolved Administrations in Scotland, Northern Ireland and Wales.



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Lord Laming: My Lords, will be Minister take this opportunity to acknowledge publicly how fortunate we are in our society to have such a vast range of charities that do such an excellent job of work, particularly for vulnerable people? Will he also accept that these charities should not be expected to make up shortcomings in statutory public services?

Lord Bach: My Lords, I am happy to acknowledge that. The work that the charities do is beyond compare. It is a marvellous part of our British system. The 2006 Act, passed without political recrimination in this House or the other place, will do a great deal to make the lives of charities better. We are keen to deregulate as far as smaller charities are concerned, because that can be a completely unnecessary burden on them.

Baroness Howe of Idlicote: My Lords, going back to the education question and the public benefit test, are there any examples of ways in which the independent sector will be expected to play a broader role within the community? I should have thought that that would be quite helpful as plans go forward for the future.

Lord Bach: My Lords, there have been discussions. The Independent Schools Council says that indirect benefit through the relief of public funds is not enough on its own. We as a Government do not think that it is enough and nor does the Charity Commission. Each independent school will have to decide how best it can meet the public benefit requirement in its own circumstances. Some may choose to do so through supporting the academies programme, but there are many other ways in which independent schools can demonstrate their public benefit including, for example, bursaries or outreach schemes.

Olympic Games 2012

2.51 pm

Lord Naseby asked Her Majesty’s Government:

Lord Davies of Oldham: My Lords, the roof cover is substantial and will cover more than two-thirds of spectators during the Games. As well as providing shelter and shade to spectators, the roof serves to limit wind conditions on the field of play to a level which is in accordance with the guidelines of the International Association of Athletics Federations and the International Olympic Committee to ensure the appropriate setting for world records.

Lord Naseby: My Lords, I am grateful to the Minister and am glad to see that we have moved from no cover at all, to 10 per cent the last time I asked this Question, to 68 per cent today. Nevertheless, why can

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it not be 100 per cent? After all, the West Indies provided 100 per cent cover or thereabouts for the Cricket World Cup. In any case, is the Minister aware that because of the current layout of the stadium and the prevailing wind in August, that 68 per cent of people will get as wet as anybody?

Lord Davies of Oldham: My Lords, if the noble Lord keeps asking his Question at the rate at which we are increasing the roof, we will reach 100 per cent. I assure him that—although I bow to his superior knowledge—I cannot think of an international athletics stadium in the world that has total roof cover. All athletics stadiums are open. This one now will have coverage for the vast bulk of spectators and guarantees that there are restraints on the intrusion of wind which could affect performance. I think the noble Lord ought to stop while the going is good.

Lord Addington: My Lords, would the Minister care to enlighten the House on exactly how many of these covered seats are permanent and how many are temporary? And will the noble Lord, Lord Naseby, take it from me that if he does not want a ticket on a wet day, I will have it?

Lord Davies of Oldham: My Lords, there speaks a sportsman. The concept behind the stadium is that more than 50,000 of the seats will disappear at the end of the Olympic Games when it will be translated into an athletics stadium holding 25,000 people, which is about the viable size for athletics stadiums. The concept is therefore that it should be a full Olympic stadium holding 80,000 people for the Olympic Games, and that instead of then becoming a white elephant or sepulchre to sport as has happened in so many cities which have hosted the Olympic Games, it will be a working athletics stadium after the conclusion of the Games.

The Countess of Mar: My Lords, is it not important that British manufacturers of raincoats and umbrellas should share in profits of the Olympic Games and that our overseas visitors should share in our rather perverse delight in sitting on soggy wet benches with rain pouring down the backs of our necks?

Lord Davies of Oldham: My Lords, one has to be careful about using umbrellas while watching international events, particularly if one is manager of the England football team, but I hear what the noble Countess says. We believe that the stadium will stand up to the rigours of any English weather to be anticipated when the Games are held in August—though of course we all expect that the sun will shine on the London Olympics in 2012.

Lord Glentoran: My Lords, does the noble Lord take great comfort from the fact that the stadium will be filled to capacity, hence needing all the open-air seating, on perhaps only three or four occasions?



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Lord Davies of Oldham: That is certainly the case, my Lords. There will be full attendance at the opening and closing ceremonies and at perhaps two or three of the really major events during the Games, but attendance even at the Olympic Games, although they are extraordinarily well supported, drops from full capacity for most events. One normally expects about 25,000 people at athletics events, but at the Olympic Games the attendance is more than double that. The stadium will cater more than adequately for the four weeks of the Olympic Games, and the commitment to the legacy—that the stadium should be of value to the people of London and the United Kingdom after the Olympic Games—is a very important built-in consideration.

Baroness Sharples: My Lords, will the roof remain after the Olympic Games finish or will it be removed; and if the latter, is it recyclable?

Lord Davies of Oldham: My Lords, the intention is that the seating and structure of the stadium may be translated elsewhere. We all congratulate Glasgow, to take an obvious point, on landing the Commonwealth Games two years after the Olympic Games. Perhaps seating which is surplus after the Olympic Games have been held in London can be transferred to Glasgow. That strategy must be worked through. After the Games are over the stadium will be stripped down to the size which I indicated, but during the Games the stadium will look as magnificent as any other international arena.

Lord Mawhinney: My Lords, what is the Government’s latest estimate of when this partially covered stadium will be available to hold pre-Olympics athletics meets?

Lord Davies of Oldham: My Lords, I have a little difficulty with that question. We are certainly hoping that in 2011 there will be a series of national and even international meets at schoolboy and schoolgirl level at the stadium. That will also facilitate the training of the staff and enable detection of the strengths and potential weaknesses of the stadium arrangements. So we intend to have trial runs, but I do not think that it is anticipated that any of those events will take place much more than a year before the Olympics.


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