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Other problems have also been brought to my attention. Some people transferred their money out of the Isle of Man into Kaupthing in the UK several days before the order took effect and their money—their entire life savings—has, in effect, disappeared into a black hole. I would be grateful if the Minister could signpost them and other people who are worried about their deposits in the Isle of Man to whichever body he thinks is best able to give advice at this stage. As he will be aware, there is very considerable concern about this.
We shall have to return on another occasion to the whole sorry story about the collapse of the Icelandic banks because it raises broader issues. First, the relationships between the UK and Icelandic Governments were far from satisfactory; there are huge disputes about who said what to who and a childish spat has developed between the Chancellor and his opposite number in Iceland over what they were talking about. The whole thing looks an amateurish mess.
It raises big issues about how depositors in banks other than domestic banks get their information and how they decide on risk when the deposits are outside the UK. Many people—not least, local authorities—have found that their money is in jeopardy yet, as the noble Lord mentioned, the IMF was issuing clear warnings about the state of the Icelandic banks before the
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How right he was. Yet sophisticated treasurers and relatively sophisticated investors either do not read the Times or choose to ignore this kind of advice and then, when something goes wrong, they look to the Government to sort out all their problems. This is an unsatisfactory situation. Although protecting people from their folly is something the Government will never completely achieve, we need to look at this in the context of the Icelandic banking collapse and banking collapses elsewhere and the advice and advisory structures available to enable people to be more aware of what is happening.
This applies not only to the local authorities, who clearly should know better, but, as we have seen from our postbags, there is a major problem with people who took out accounts in Kaupthing, particularly in the Isle of Man, who were completely ignorant of the differences in the regulatory frameworks of the Isle of Man and the UK. No doubt people in Guernsey and Jersey who find that they have no depositor protection are learning for the first time what some of the differences between the jurisdictions are.
The simplistic part of me thinks that sending a gunboat to these places and sorting out their financial arrangements to bring them into line with the UK might have a lot to recommend it. I suspect, however, that that approach will not commend itself to the Government. The large number of distraught people who, to a greater or lesser extent, either were misled or allowed themselves to suspend disbelief is a problem with which we need to grapple in the months ahead.
However, the Government have acted decisively in a way that they believed protected people. It has protected people and we therefore support the orders.
Lord Elystan-Morgan: My Lords, I, too, tender my warmest congratulations to the Minister and wish him every fulfilment and success in his new role.
I take up the point raised by the noble Baroness, Lady Noakes, which was to some extent echoed by the noble Lord, Lord Newby, with regard to the powers under which these orders are tendered. There is no reference to terrorism in Part 2 of the 2001 Act. Therefore, there can be no question as to, first, the efficacy and, secondly, the essential validity of an order made under Sections 4 and 14 of the 2001 Act. Even had there been a reference to terrorism, the golden rule of statutory interpretation would have applied, which is that, where the grammatical language of a provision is clear enough, even though Parliament may have had some different intention at the time, the ordinary grammatical words of the provision should apply. That applies to documents, including wills, and is of many centuries’ standing. Therefore, there does not seem to be any real question about using these powers in the way that they are used now.
Baroness Noakes: My Lords, if the noble Lord studies what I said in Hansard, he will find that I did not suggest for one moment that the laws were not
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Lord Elystan-Morgan: My Lords, I take the noble Baroness’s point, but it would be a luxury to redraft the Act in order to give Parliament powers that it clearly already has and is entitled to use.
It is not only entirely lawful for these powers to be used in this way but entirely just. The Icelandic Government—so far as I understand, this is still their position—have totally guaranteed the deposits made in Icelandic branches but have not extended that guarantee to any deposits made outside Iceland. That must breach the European Union rule in this regard, in that it unlawfully discriminates against those who are outside that country’s shores.
Many questions remain to be answered. The Statement made by the Chancellor of the Exchequer on 8 October was to the effect that these freezing orders would be made for the purpose of safeguarding the position in Britain of funds belonging to Landsbanki until such time as the position with regard to United Kingdom creditors was made clearer—I think that those were the exact words. What happens then? If the Icelandic Government say, “The guarantee that we have given to our own people will be extended to everyone”, then fair enough; there will be no problem. If they do not give that guarantee, what then happens to these funds? Will they be sequestered? If so, will they be there for division among United Kingdom charities and local authorities? I am conscious that my own county, Cardiganshire, has £5.5 million deposited in this way. What sort of dividend can be expected?
On 13 October, the Chancellor of the Exchequer announced that £100 million would be made available to Landsbanki in order to assist it in its difficulties. Were any counterundertakings given by Landsbanki in that regard and, if so, what were they? There must be something in the nature of a contract here.
Local authorities, such as my own county council in Cardiganshire, were exhorted time and again by the Treasury to try to gain the highest possible interest from their deposits; indeed, from time to time there was some element of threat. The Treasury may or may not be liable for negligent statements in that connection, although the fact of a crash would not make it negligent. Who could have foreseen a year ago exactly what was going to happen? Beyond that, the Treasury does not seem to have given a clear picture of any fine-toothed-comb examination of the condition of Icelandic banks, balancing assets against liabilities and all sorts of eventual possibilities.
The question remains: is there any possibility of a legal responsibility—or, if not that, a moral responsibility—regarding the Treasury’s relationship with charities and local authorities? It is clear that, some months before the crash occurred, there were signals. Did the Treasury then communicate with those on whom it had lent earlier to say, “Look, the situation has now changed. You are now sailing into danger”? I would welcome a reply to those questions.
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8.30 pm
Lord Campbell-Savours: My Lords, I congratulate my noble friend Lord Myners on his appointment to the Government’s Front Bench and on his informed contribution to our debate. His reputation comes before him and he arrives at a time when the Government need his considerable financial sector experience in the House. We all look forward to his many contributions to our debates in the future.
I want to say a few words about the impact on Iceland of what is happening. Before doing so, I declare an interest: my wife is an Icelander. She retains her Icelandic nationality, although she is a citizen of the United Kingdom, and we do not have any deposits in any Icelandic banks. I have visited Iceland many times over the years, and there is constant, almost daily, contact between my family, my wife and her family in Iceland.
Our family in Iceland tells us that everyone is profoundly affected by the current crisis. People in Iceland believe that there is a real risk to their savings, despite government assurances to the contrary. They believe, in particular, that there is a risk to the savings of the elderly, who were advised to invest in products that are believed to be at risk. There is already public debate over a proposed reduction in pensions, which is frightening generations of people. Some Icelanders have foreign currency mortgages and are particularly vulnerable to the loss of their homes. There is fear of massive inflation if the currency is to be refloated. Prices are already beginning to rise, some by 50 per cent. Many people are worried about a possible exodus of parts of the working population unless an early solution is found.
There is worry over students abroad being called home. The banks in Iceland are seeking to be flexible on necessary expenditure, although that obviously does not deal with the effects of currency devaluation. For many Icelanders, the opportunity to travel abroad may well now be frozen. As my sister-in-law has said to me on the phone, “I am a prisoner in my own country”.
There is a strong feeling that action taken in the case of Kaupthing was premature. There is concern that discussions with the Russians over financial support should have been interpreted as an invitation for Russian domination, a suggestion made in the British press. The proposition is regarded in Iceland as ludicrous. There is also concern that the actions of a few Icelandic oligarchs, as I would almost describe them, should be blamed on the whole population of Iceland. The population of Iceland is not to blame for what has happened. Finally, there is deep-seated resentment over the use of counterterrorism legislation.
My view is that there is a complete failure of Icelanders to understand that alleged statements by David Oddsson on central bank deposits, which triggered a sovereign debt downgrade, placed the UK Government in an impossible position. That statement, with reported suggestions that attempts might be made to move Icelandic assets out of the United Kingdom, meant that, if the Government had not acted, they would have been accused of dithering. That was not going to happen.
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Our mistake has been not to separate out the issue of economic well-being and damage into self-standing legislation. I understand that there were some calls for that in recent years—the noble Baroness, Lady Noakes, referred to this—but that we simply did not have the legislative peg and opportunity to do so. We really need to get this message over to the Icelandic people, because they do not understand the pressures that the British Government were under.
The transcripts of conversations between the two Governments, and statements by the ministerial team in Iceland and by David Oddsson, should be made available in their entirety. The fullest possible explanation of all Icelandic and British actions and discussions should be made available, otherwise the issue will fester like an open wound. I cannot exaggerate the impact of the Government’s action on the attitude of the people of Iceland towards the people of Britain and the resentment that it has generated. Far more information needs to be placed in the public domain so that we fully understand the position in which we have been placed.
I am concerned also about the artificial pegging of the krona by the Icelandic authorities at a rate of just over 200 krona to the pound, which cannot be sustained long term. The narrow spread between buy and sell in conditions where Icelanders are finding it almost impossible to buy sterling for foreign visits—they can buy, but only in very special circumstances—and for expenses incurred abroad will leave British visitors to Iceland feeling short-changed, yet Iceland has no alternative if it is to protect its economy and avoid massive, immediate inflation and an explosion in wages.
I am concerned also about the failure of the rating agencies within the United Kingdom to recognise the potential for difficulties. There have been references to reports in the British media, but why did alarm bells not ring when, earlier in the year and prior to the period of currency uncertainty in recent weeks, the currency fell 20 per cent against sterling, which itself was in difficulty, and when the Icelandic banks were paying 16 per cent on deposits?
What is the solution? Iceland must no longer be allowed to climb out of its only-too-frequent economic crises by way of devaluation, as has happened over the years. The banks need stability. Iceland needs to rebuild its financial system on currency stability and it needs the euro. Politicians in Iceland must grasp the nettle. People on the streets of Iceland say that they need the stability of the euro, yet many politicians there are locked into an anti-euro position, perhaps in part because of their concerns about having to make concessions in fisheries policy. The voice on the street in Iceland says: “Join the euro and stop the nonsense”. I hope that Iceland does so and that the British Government will play every part possible in trying to help Iceland through its current difficulties.
We have to understand the difficulties for the Icelandic population. If Iceland decides to proceed down the euro route, we must give it every possible support, because we will have its people on our side. If Iceland ultimately joins the euro, I hope that it will do so without having to concede anything on the fisheries
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Viscount Goschen: My Lords, I, too, welcome the noble Lord, Lord Myners, to his new responsibilities. We are fortunate to have in the House the benefit of his tremendous commercial and financial experience. I trust that this debate will have given him some taste of the breadth of the area over which your Lordships’ House roves. On a single order, we have had discussions about the euro, cod fishing, security and banking regulation. The Minister’s task is formidable.
I wish to make only one point. I support the remarks of my noble friend Lady Noakes about the inadvisability of mixing anti-terrorism legislation with banking or financial regulation legislation. When legislation is introduced under the overriding banner threat of terrorism, it is not appropriate for it to be used for general financial regulation, any more than it is appropriate for it to be used for ejecting octogenarians from Labour Party conferences or for householders to be placed under surveillance for not recycling their waste properly. The House gives tremendous authority to the Government when they bring in such wide-ranging anti-terrorism powers, which should be as narrowly drawn and as narrowly used as possible. The consequence if that does not happen is that assurances given by Ministers are later called into question and it becomes more difficult for the Government to win support for future national security legislation.
I quite understand that Section 4 in Part 2 of the 2001 Act makes specific provision to allow this type of order to be made. I do not think that the House takes issue with that. The question is whether that legislative settlement is really appropriate. One has only to look at the questions and concerns that were raised at the time of the making of the order, including in Iceland. I have much sympathy with the points made by the noble Lord, Lord Campbell-Savours. For another friendly Government to be brought under the auspices of this legislation and for action to be taken against them under an Act that deals with anti-terrorism, crime and security cannot be right, when what we are dealing with here is the regulation of banking institutions.
I strongly support my noble friend’s common-sense argument that these powers need to sit in a dedicated banking Act and not within an anti-terrorism Act. If that happened, the noble Lord would no longer have to come to the House and defend this complex and inappropriate legislative settlement.
The Earl of Mar and Kellie: My Lords, I, too, welcome the noble Lord, Lord Myners, to the House. As it is his first day, all he has to do is agree with me.
In the 90 years since Iceland achieved political independence, this is the third time that the United Kingdom and Iceland have been in difficulties. The first time was, obviously, the military occupation in 1940; the second time was the cod wars; and now this. All are different issues, but I can well understand why the Icelanders feel unhappy about the way in which their neighbour, the United Kingdom, has treated them during the past 90 years.
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I want to talk about the comparison made by the Prime Minister and the Chancellor between Iceland and Scotland. I understand the need for the unionist jig to be danced, generally for the people of Scotland and particularly for the people of Glenrothes, but I hope that the Minister will agree with me that Scotland and Iceland are not good comparisons, whereas, if it comes to it, Iceland, Jersey, Guernsey or the Isle of Man would be quite good comparisons. That is all I have to say. I am just concerned about the use of the crisis in which Iceland has found itself being used against the people of Scotland.
Lord Haskel: My Lords, I, too, congratulate my noble friend on his excellent maiden speech. I make just two points. First, the Act that we are concerned about is not just an anti-terrorism Act; it is the Anti-terrorism, Crime and Security Act. I agree that it is unfortunate that all those things were combined, but the title of the Act certainly entitles the Government to do what they have had to do.
I also think that the Government were right to take quick and effective action because, in any receivership, as we all know, the money goes to those with the loudest voices and the heaviest hands. The action of the Government has at least ensured that this matter will be cleared up in an orderly way.
8.45 pm
Viscount Eccles: My Lords, I join in the welcome to the noble Lord, Lord Myners. I speak as a member of the Merits Committee. We considered the first order on 15 October, reported on it and then considered the second order immediately after it was laid. We reported:
“By means of this Order, the UK Government are taking action to ensure that Landsbanki assets are not transferred from the UK until the position of UK creditors becomes more clear”.
At the same time, a Statement was made in the House by the Chancellor of the Exchequer, which stated:
“I am taking steps today to freeze assets of Landsbanki in the UK until the position becomes clearer”—[Official Report, Commons, 8/10/08, col. 279.]
When we reported to the House, we felt that we were not in a position to give any detailed advice. I had personally hoped that by today—three weeks after the first order was laid—the position would have become somewhat clearer. Although I welcome the opening explanation of why the orders were laid, whatever we may think of the rights and wrongs of that, I regret that so far we have not been brought adequately up to date with what has happened.
I do not want to repeat a lot of the things that other noble Lords have said, but the gearing between the United Kingdom and Iceland should not be forgotten. There are 60 million people in the United Kingdom and 300,000 in Iceland. Her Majesty's Government, in dealing with this matter, should remember that. As it happens, Iceland has the highest rate of literacy probably in the developed world—higher than we have here. Also, up until now, it has had a per capita income about the same as the United Kingdom.
However, the resentment notably referred to by the noble Lord, Lord Campbell-Savours, has amounted to a diplomatic problem that should be solved. I wish
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“Gordon Brown unjustifiably used the Anti-terrorism, Crime and Security Act of 2001 against the people of Iceland for his own short-term political gain. This has turned a grave situation into a national disaster ... Hour by hour ... the actions of the British government are indiscriminately obliterating Icelandic interests”.
That should be set against the background of what was said in the beginning by the Chancellor of the Exchequer and in the explanation of the statutory instrument—that our Government would seek to solve this problem as quickly and positively as they could, because it was a grave problem.
Finally, the Minister referred to the International Monetary Fund’s report of 4 July this year. I want to read out its conclusions, but before I do that I want to say that the International Monetary Fund looked at Iceland's situation every year. In 2007, it issued what, if you read it carefully, was a Gypsy's warning that things could not go on in Iceland the way they were then going.
In July of this year, it said:
“Outlook ... Economic activity is expected to slow significantly from unsustainably high levels”,
“Looking forward, policies will have the difficult task to facilitate an orderly rebalancing process, while mitigating risks by shoring up confidence. Close coordination between monetary and fiscal policies, along with actions to address financial sector vulnerabilities, will be key in this respect”.
This bureaucratic language, means that Iceland was facing a serious economic and banking crisis.
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