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The Treasury must have known that—that has already been referred to in this debate. What was Her Majesty’s Treasury advising British depositors with Icelandic banks from 2007, contemporaneously with the Northern Rock issue, through to July of this year—90 days before the instrument freezing the assets was laid? I emphasise that we have some responsibility for helping to resolve this issue. As members of the IMF, I hope that we are welcoming the $2.1 billion standby facility which has already been approved by the staff of the IMF, from which $833 million can be drawn immediately, given board approval.
Lord Sewel: My Lords, I strongly and warmly welcome the action of Her Majesty’s Government in this event. If we were to re-run it slightly differently, and we were standing here and the Government had not used the legislative peg available to them, the accusations rightly levelled at them would quite rightly be bitter and intense. The Government found themselves in a difficult position and used the option available to them; that was correct. It may not have been the most elegant way of dealing with the situation, but it was a necessary and effective one in dealing with circumstances that had developed quickly.
In passing, I refer to the somewhat idiosyncratic contribution of the noble Earl, Lord Mar and Kellie. Let us make it absolutely clear that nobody is using
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The Earl of Mar and Kellie: My Lords, there are more countries in the north Atlantic arc of independence than just Iceland. They stretch from Portugal through Ireland to Norway and Denmark.
Lord Myners: My Lords, I thank noble Lords for the warmth of their welcome. I was particularly touched to be welcomed by the noble Baroness, Lady Noakes, whose reputation and standing as an accountant and public servant are renowned. I have followed with great interest her contribution on matters relating to the Personal Accounts Delivery Authority, where she has been vigilant, energetic and at times terrier-like in her pursuit of her interests. I look forward to engaging with her on the Banking Bill; I shall be sure to be well prepared.
I was grateful to the noble Baroness for saying that she supported the action the Government have taken to protect the interests of UK depositors. Were we overhasty in making the decision? My noble friend Lord Haskel reminded us of the importance of acting swiftly in situations such as this. Money moves rapidly and in a situation where we believed the interests of UK depositors were likely to be prejudiced and treated in a discriminatory fashion, it was entirely proper that we took swift action. But we did not take that action before we had engaged in extensive discussions at ministerial and official level with the representatives of the Icelandic Government and of their deposit protection financial services agency. We were unable to obtain the assurances that we thought were necessary that Iceland would honour its obligations to treat all depositors equally and not to discriminate against those who were not from Iceland. For that reason we felt we had to act swiftly when it was clear that a very serious situation was about to occur. That does not mean that negotiations do not continue. Indeed, we are in regular dialogue with the Icelandic authorities to help secure an effective resolution of this unfortunate situation.
Was the amendment order brought into force too swiftly? To some extent I think that I have answered the point made on that by the noble Baroness, Lady Noakes. The amendment order is an affirmative order which must be made, but will lapse if it is not debated by both Houses of Parliament. We took the necessary action and have now brought it to the House for affirmation, that having occurred in another place yesterday.
The noble Baroness asked about the IMF loan, as did other noble Lords. The US Government support the extension of an IMF facility to Iceland. The IMF issued a press notice on 24 October announcing that the initial sum had been agreed with Iceland at $2.1 billion. This is a two-year loan to support economic recovery. Following a review by IMF’s management, the agreement
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The noble Baroness asked about taxpayer exposure. The Chancellor has guaranteed the retail deposits in full for Landsbanki’s branches, for Heritable, which was a subsidiary of Landsbanki, and for Kaupthing Singer & Friedlander. The top-up above the Financial Services Compensation Scheme threshold for Landsbanki is likely to be of the order of £800 million. So after the first tranche of protection to retail depositors is provided by the Icelandic compensation scheme, the second tranche by the Financial Services Compensation Scheme, the final top-up from the Government will be £800 million. To put that in context, the Icelandic share will be £2.2 billion and the Financial Services Compensation Scheme contribution will be £1.4 billion. In the case of Heritable and Kaupthing Singer & Friedlander, which were UK-registered, FSA-regulated entities, the Treasury top-up is likely to be of the order of £600 million.
The noble Lord, Lord Newby, asked why the retail deposits of Kaupthing Singer & Friedlander were transferred to ING but this did not occur in the case of Landsbanki. We did transfer the retail deposits of KSF and Heritable, but they were UK-regulated and UK-incorporated entities, as I said earlier. Landsbanki, through its Icesave account facility, was operating as a branch of Landsbanki in Iceland and, as such, we did not have powers to transfer the retail deposits of a branch to another banking institution under the Banking (Special Provisions) Act 2008—although it is clearly fortunate that those provisions were available to us to take action to protect retail depositors in Heritable and Kaupthing Singer & Friedlander. Instead, insolvency arrangements in the case of Landsbanki are the responsibility of the home state of the parent—in this case, Iceland. We cannot put Landsbanki into the insolvency process; that can be done by the authorities and parties in Iceland.
Several noble Lords asked why terrorism powers were used. I am grateful to my noble friend Lord Haskel for reminding us of the full title of the legislation. It is fortunate that we have such legislation in place to protect the interests of British depositors in these circumstances. I am pleased that a number of Members of this House expressed support for that view. Whether it is contained in one Act or another, let us not lose sight of the fact that retail depositors in the United Kingdom are in a stronger position as a result of the actions that we have been able to take to protect Landsbanki assets held in the United Kingdom.
We would not wish to see the stigma of terrorism associated with Iceland. It was with sorrow that we felt we had to take the action we took. We made every effort to secure appropriate commitments from Icelandic Ministers and authorities that they would not discriminate against UK depositors. Those assurances were not forthcoming. Here I rely not upon a partial disclosure of the transcript of a single conversation but, rather,
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We have a warm and close relationship with Iceland. It is a country which we admire; we admire its people, its culture and achievements. As the noble Viscount, Lord Eccles, said, it has—or did have—the fifth or sixth highest GDP per capita in the world. It is a matter of great sadness that, as a result of the failures of Iceland’s banks, the country, as my noble friend Lord Campbell-Savours said, is now having brought upon it significant, serious economic consequences. That is why we, through our membership of the IMF, are doing what we can to support the people of Iceland. I want to make it very clear that we would not wish our friends in Iceland, the Government, their ambassador or anyone else to believe for one moment that we regarded Iceland in any way to be a terrorist nation.
The noble Baroness, Lady Noakes, asked whether these powers should be in the Banking Bill. Of course, I was not a Member of this House when the Newton committee reviewed these matters in 2003 but I have acquainted myself with the arguments used at the time and the reasons why the committee’s proposals were not accepted. The provisions of Part 2 of the 2001 Act are emergency powers, which could be used in the context of terrorism but are not limited to that context. I think that we stand here today seeing the efficacy of this legislation and the foresight of the Government in putting in place action which could be used to protect the interests of the British economy in circumstances such as this. As such, I—albeit as a relative youth when it comes to these matters in this House—would need to be persuaded that it was necessary for us to move this legislative provision to another piece of law. It has acted as we anticipated that it would in such circumstances.
The noble Lord, Lord Newby, also asked about issues relating to Kaupthing Singer & Friedlander in the Isle of Man. Kaupthing Singer & Friedlander (Isle of Man) is a subsidiary of the Icelandic parent company and not a subsidiary of the UK company Kaupthing Singer & Friedlander. The Isle of Man authorities are responsible for the supervision of KSF (Isle of Man), and arrangements for depositors are therefore a matter for them. A provisional liquidator, PricewaterhouseCoopers, has been appointed over KSF (Isle of Man), and queries relating to lost funds should be directed to PWC. The Isle of Man has a deposit guarantee scheme and the Isle of Man authorities have indicated that they will ensure that depositors are compensated up to the £50,000 threshold. They are not going as far as the UK in respect of retail depositors; nevertheless, they have given assurances regarding that threshold.
To clarify matters for the noble Lord, Lord Newby, I point out that the Chancellor has put in place arrangements to ensure that all retail depositors of the UK branch of Landsbanki, including those with deposits
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The noble Lord, Lord Elystan-Morgan, raised a number of questions, some relating to investments by local authorities, including his own. The relevant government department issued new guidelines in 2004 in which it advised local authorities that in the placement of deposits they should have primary regard to security and liquidity and only then should they consider rate. The law treats local authorities and larger charities and companies as informed investors who have the benefit of judgment and resource and the capacity to diversify. That is why retail depositors who do not necessarily have access to those skills are treated differently. The Government stand ready to provide advice and support through a rapid response unit in the Department for Communities and Local Government to any local authority which is experiencing difficulties. However, I believe that at the moment there is no suggestion that acute difficulties are being experienced, because, as we in this House would expect, local authorities have exercised wisdom and care in the placement of deposits and there has been no excessive concentration of such deposits.
The noble Lord, Lord Elystan-Morgan, also asked about the £100 million working capital provision for Landsbanki. This loan is secured over a significant amount of Landsbanki’s assets. It is at a commercial rate of interest and it is expected that the loan will be recovered in full from these assets within a reasonably short period. It is designed to facilitate the creditors receiving the highest possible sum under the administration process.
My noble friend Lord Campbell-Savours has already told us about the impact on the Icelandic economy, to which I have already referred. He also asked questions about the IMF and I am pleased to see that good progress is being made. He said that the view had been expressed by some in Iceland that action in respect of Kaupthing Singer & Friedlander was premature. KSF in this country is regulated by the FSA, which concluded that that company no longer met its threshold conditions. It did so after due and proper inquiry and very close engagement with the company. In those circumstances I stand ready and content to accept the advice of the Financial Services Authority. It should also be stressed that this move did not have any bearing on the status of the parent company. The decision to place that company into receivership was taken in Iceland.
I welcome the contribution of the noble Viscount, Lord Goschen, on terrorism. I hope that my comments about Iceland have given some comfort. I also note his concern that this measure would be better placed elsewhere, but I have already spoken to that point. The most important issue is efficacy. This may have been inelegant or a slightly uncomfortable process in which to engage, but it was highly effective in protecting the interests of British depositors and the British economy.
I thank the noble Viscount, Lord Eccles, for reminding us in some detail of what the IMF said. It was prescient in its observations, and it is a matter of regret that earlier action was not taken. He also mentioned the
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I was grateful for the observations about Scotland. I am very new to your Lordships’ House, but it would be wise for me to steer clear of any matter relating to the politics of Scotland. I commend the orders to the House.
On Question, Motion agreed to.
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Landsbanki Freezing (Amendment)Order 2008
9.13 pm
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the order laid before the House on 20 October be approved. 28th Report from the Joint Committee on Statutory Instruments.—(Lord Myners.)
On Question, Motion agreed to.
Local Transport Bill [HL]
The Bill was returned from the Commons with amendments. The Commons amendments were ordered to be printed.
- House adjourned at 9.14 pm.
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