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Where the bridge bank stabilisation option has been exercised, the owner of the bridge bank will be the Bank of England. The Bank of England will therefore have the powers of the sole shareholder of the bridge bank and be able to put in place an appropriate governance structure, including relating to matters of remuneration. This is set out in more detail in the published draft code of practice. Again, I argue that it is clearly not necessary to have an explicit power to appoint members of a remuneration committee by order, given these circumstances.

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Finally, the private sector purchaser option gives the Bank of England the power to transfer a failing bank’s property or shares to a private sector purchaser. Although such a transfer will take place outside the normal commercial transactional mechanisms appropriate for a sale, one private entity will be purchasing the shares or property of another. I believe that it would clearly be inappropriate for the Government to intervene in such circumstances in matters of remuneration, including through the making of appointments to a remuneration committee.

I have so far discussed remuneration as it relates to the stabilisation options. I hope that I have persuaded noble Lords that the amendments proposed by my noble friends Lord Wedderburn and Lady Turner are not needed.

Let me turn briefly to the question of remuneration more widely. Generally speaking, pay for directors and employees must be a matter for the banks in question, as it is with any company. I appreciate, however, that there is the specific question of whether executive pay regimes in the banking sector have led to a risk-taking culture that has contributed to the financial crisis. That is why the FSA is looking at remuneration structures in the institutions that it regulates.

The FSA has said it will take remuneration structures into account in risk assessments of financial institutions “with increased intensity”. Its chief executive, Mr Hector Sants, has noted the need to consider the implication of remuneration structures to a greater extent when judging the overall risk of individual institutions.

I agree with my noble friend Lady Turner regarding the attention she has drawn to the social consequences within banks and elsewhere in the economy as a result of bank failures here—social consequences which are being felt elsewhere in the world where banks are experiencing similar difficulties.

My noble friend Lord Borrie suggested that I was conveying the sense that being a director of a bank was of a higher order than it was for other companies. I do not want to diminish the seriousness and responsibilities of a director of any company, but I think that directionally he is correct in conveying my sentiment. Nobody should contemplate lightly the challenges and responsibilities of being a director. With regard to our earlier discussion, it might be wise for banks to incorporate in their director appointment letters and employment contracts reference to Clause 20 to make it absolutely clear to directors of banks that certain rights exist and are vested with the authorities. That seems a wise and sensible thing to do in the interests of shareholders and, quite frankly, as a way of showing some recognition of social consequences.

I am grateful to my noble friend Lord Borrie for reminding me that the noble Lord, Lord Jones of Birmingham, was a member of this Government. From my limited time in this Chamber, I have to say that it is not always obvious that he was. My own views are rather different from his, and they go wider than just the banks. I share the view expressed by the noble Baroness, Lady Noakes, that the power and influence of the external comparator—the benchmark, the remuneration consultancy—has become too dominant. Boards of directors should look at not only external

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but internal comparability. They should look at the structure of remuneration in their company and not limit themselves to those of the directors. They should have a clearer understanding of the intention of the company’s overall remuneration policy, the cultures and values they seek to encourage and the behaviours that they seek to discourage. I find remuneration reports of many public companies seriously deficient in conveying a sense of what the company is trying to do. They are long on language and detail—the language is often opaque—and they fail in many cases to convey those simple and straightforward messages which are so important.

With reference to some of the points made by my noble friend Lady Ford, while the primary responsibility in a remuneration committee rests with independent directors, I do not excuse executive directors from responsibility. Executive directors should be setting the example of behaviours that they wish to see reflected throughout the organisation. It may be rather old-fashioned, but tone from the top and restraint are appropriate in many cases.

Baroness Ford: Just to be absolutely clear, I was using “independence” as a term to mean independence of thought; I certainly was not suggesting that executive directors did not carry the same burden of independence and integrity as non-executive directors.

Lord Myners: I am grateful to my noble friend for her comment. I certainly was not suggesting that that was her view. However, it is often argued in the media that the responsibility for remuneration is an issue for the independent or non-executive director. I do not think that this is an issue where the executive directors are excused responsibility, because they tend to set the broad framework for remuneration throughout the company.

I would hazard to suggest that in a number of our banks there may be 20, 30 or 40 people who are paid more than the highest paid director. There are issues here which go beyond remuneration of the directors. I have gone on for rather longer than I should, for which I apologise, but they are matters which are of some concern to me, as I think noble Lords might see. I urge the noble Baroness, Lady Turner, to withdraw the amendment, but not to do so believing that the sentiments that she expressed are not shared by some on the Front Bench.

Baroness Turner of Camden: I thank the Minister. I am of course disappointed by the Government’s reaction to the amendment, because, as my noble friend Lord Borrie said, it was modest and not particularly radical. Before it became operational, there would have to be an order, which would have to be approved. The Treasury would be responsible for making the remuneration order or recommendation; it would have to agree it with the FSA and the Bank of England; and then a draft would eventually have to be laid before, and approved by resolution of, each House of Parliament. So quite a procedure would have to be followed before it could be put into operation anyway, which would be only where there were problems which meant that the situation would have to be dealt with in that way.

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I say to Members who have opposed what I have suggested that we are no longer in the situation that has prevailed in past years; we are unfortunately in an economic crisis, about which many people are very concerned. It has social effects, which I tried to indicate when I moved the amendment. I was glad to hear the Minister say that the amendment was not needed, which I presume means that something is being done about the matter, because the FSA has the responsibility, I gather, to look at remuneration. I suppose that that is at least something.

In the mean time, I shall examine carefully what has been said by our Front Bench, because public as well as social problems are involved. The large sums that have been paid to senior executives have resulted in a fair amount of unfavourable publicity. It is clear that a lot of people have become worked up about it, particularly employees who suddenly find themselves facing redundancy. They are not responsible for the decisions that have landed us in these problems—those have been taken higher up. Ordinary employees now face redundancy, sometimes in areas where other employment is not readily available. There will be enormous resentment if people are allowed to take large sums of money when they are felt to be responsible for some of the difficulties in which others find themselves. In the mean time, I beg leave to withdraw the amendment.

Amendment 38 withdrawn.

Clause 20 agreed.

Clause 21 agreed.

Clause 22: Termination rights, &c.

Amendment 39

Moved by Lord Davies of Oldham

39: Clause 22, page 10, line 15, after “means” insert “a Type 1 or Type 2 default event provision as defined in subsections (1A) and (1B).

(1A) A Type 1 default event provision is”

Lord Davies of Oldham: I shall also speak to the other amendments in this group. My contribution will be rather lengthier than is normal with government amendments as they are on the whole regarded as technical. These amendments have their technical qualities, but, as we all appreciate—the noble Baroness, Lady Noakes, has tabled amendments to this clause as well—some interesting issues arise, to which my remarks are addressed. I shall consider the opposition amendments when they are moved fairly shortly.

Clauses 22 and 38 set out certain provisions in relation to events of default. An event of default clause in a contract gives a specified right to a counterparty if a specified event occurs. For example, a contract could stipulate that a counterparty has the right to terminate the contract if a bank’s credit rating changes or if there is a change of control of the bank. These clauses are important since most modern contracts make heavy use of them.

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7.15 pm

The exercise of property or share transfer powers under the special resolution regime may in future be characterised as an event of default, which would give counterparties the right to terminate or modify contractual arrangements in the event that the authorities exercise the transfer powers. It is clear that any termination of key contracts could significantly reduce the likelihood of the deposit-taker being able to continue as a going concern. It could necessitate renegotiating contracts, potentially with new counterparties, with no guarantee that similar terms could be arranged. In extreme circumstances, for example, if the majority of a bank’s counterparties sought to rely on termination rights, the bank would be unable to continue its operations. In addition, the very act of counterparties terminating their contractual arrangements with the deposit-taker would send a strong signal to the market that other counterparties should not do business with the bank. Thus, a number of counterparties closing out their contracts could lead to a wider counterparty flight from the deposit-taker, which could have severe consequences for the success of the resolution.

Clauses 22 and 38 therefore make provision to address events of default which could impede resolutions under the special resolution regime. The most obvious example would be the authorities making provision for a share or property transfer instrument or order to be disregarded when determining whether a default event provision applied; in other words, such default event rights may be disapplied in relation to a transfer of control by way of a share transfer order or instrument.

Having established the significant context of Clauses 22 and 28, I shall speak to the government amendments. We have tabled a series of amendments to alter the definition of a “default event provision” for the purposes of Clauses 22 and 38. The amendments do two things: first, they extend the scope of the definitions used in the clauses; secondly, they provide for the fine-tuning of which default event provisions are modified in a particular resolution.

I shall now describe in greater detail the purpose of the amendments. The changes give further effect to the principle underlying the default event provisions by seeking to limit the extent to which banks and their counterparties can seek to “draft out” of the special resolution regime. The amendments seek to extend the scope of the provisions in a technical way to address drafting devices which would have a similar practical effect to the situations already covered by the Bill. As I have already explained, it is crucial that the authorities can take appropriate action with respect to events of default and termination rights. The risks of a significant number of a bank’s counterparties exercising such rights could be severely detrimental to the resolution and therefore certainly not in the public interest.

Since the Bill was introduced, it has come to our attention that the definitions in Clauses 22 and 38 may not be broad enough to deal with a device known as a “condition precedent”, which is already in commercial use and which could easily be substituted for a termination right. For example, a contract may provide for B to perform an obligation in favour of A, but only where one of a number of specified events has not occurred.

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These events will typically be similar to events which would entitle a party to terminate a contractual arrangement; for example, non-performance by A of his obligations to B or matters relating to A’s creditworthiness. The crucial point about a condition precedent is that the performance obligation will arise only at such time as the condition precedent is satisfied.

It is the Government’s view that there is some ambiguity about whether these events would be captured in the existing definitions of default events in these clauses. Given the risks involved, the Government consider there to be a strong case for amending the clauses.

The failure to cover adequately events of default could allow counterparties to restructure transactions in a way which would enable them to evade the application of the powers of the special resolution regime. This would subvert the objectives of the regime, including maintaining financial stability and protecting depositors. Any ambiguity is likely to be relied upon by commercial drafters seeking to subvert the intention behind these provisions. In particular, the effectiveness of these clauses is likely to be tested in litigation arising in relation to transfers. As a result, any ambiguity in the governing primary legislation of course needs to be removed. This is particularly important in the case of a transfer of banking business to a private sector purchaser, which is likely to be the authorities’ preferred resolution option, as we have discussed earlier in Committee. As such parties tend to have a low level of risk appetite in respect of transactions, uncertainty about the effectiveness of transfers under the special resolution regime would have the capacity to undermine the potential to achieve such a resolution.

The amendments seek to prevent formalistic drafting devices from being used to evade the regime more generally. For example, a person might try to use drafting devices to characterise an event of default as something other than that. The amendments, particularly proposed new subsection (1C) in Amendment 43, make it clear that it is the substance of a provision that matters, rather than its form. This is a common approach adopted where legislation creates distinctions between different types of contractual arrangements.

The second matter addressed by the amendments is that they make technical changes to enable these provisions to be fine-tuned to particular resolutions. For example, they can apply differently for different purposes or different circumstances.

I apologise for the length of this introduction to government amendments, which in previous Bills I have always enjoyed as relatively limited. However, this is a complex area. The Government are making these changes due to representations made to them. Accordingly, I beg to move.

Baroness Noakes: We have received no representations about these amendments, but the Minister will appreciate that they have not been on the Marshalled List for long, as they were tabled relatively recently. I hope that we will not need to return to this matter on Report, but I certainly have nothing to raise in connection with them at the moment. I leave the issue open to

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return to on Report if one of the lawyers with whom we are in contact produces something that we wish to debate at a later stage.

Lord Davies of Oldham: I greatly appreciate that response. I apologise to the noble Baroness for the limited time she has had, but the Bill is operating against a limited schedule. The Government have tabled these amendments in good faith to make effective these crucial clauses. Of course, the noble Baroness may well raise issues on these matters at a subsequent stage, and we will make our responses accordingly.

Amendment 39 agreed.

House resumed. Committee to begin again not before 8.25 pm.

Women in Prison

Question for Short Debate

7.25 pm

Tabled By Baroness Howe of Idlicote

Baroness Howe of Idlicote: My Lords, I am grateful for this opportunity to hear from the Minister how plans for the different treatment of women offenders—the Corston approach—are progressing. I am also looking forward to hearing the contributions of other noble Lords speaking this evening, all of whom bring important expertise to this debate. My own background as chairman of an inner London juvenile court for over 20 years, and a member of the Parole Board, has left me with a firm belief in prioritising two aspects of penal policy that are of particular relevance to the way in which we treat women offenders: first, prevention—that is, early intervention—with deprived and/or chaotic families, where the potential for children offending is obvious; and, secondly, for those children that we have already failed, and who are already in prison, rehabilitation.

It is precisely for these reasons that the proposals in the excellent Corston report are so important. Corston makes it clear that the dominant male ethos of prisons is particularly inappropriate for women offenders. This theme is equally emphasised in no fewer than six other reports on this subject over the past 12 years, including two from my noble friend Lord Ramsbotham. He will no doubt refer to these in his speech.

Women still comprise a small percentage of the prison population; 20 per cent of known offenders, but no more than 6 per cent of the actual prison population. What is alarming, however, is the fast growth of the number of women in prison. Between 1992 and 2002, the male prison population grew by 50 per cent, while the female prison population increased almost four times as fast, by 173 per cent. Increasing prison overcrowding has meant women offenders being housed even further than male prisoners from their families, at least 60 per cent of them outside their home region with an average of 58 miles for families wishing to visit.

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Then there are the different characteristics of this growing number of women prisoners that, again, call for urgent action. For example, there are acute mental health problems, often resulting from a background of violence—physical, emotional and/or sexual abuse—endured as children and continued when older by a current partner; 50 per cent of women offenders fall into this category. Unsurprisingly, 40 per cent of women prisoners self-harm. In Styal prison alone, self-harm has leapt in the past five years from 376 to 1,324 incidents.

Then again, 70 per cent of women imprisoned are in for short sentences of less than 12 months because the vast majority are convicted of non-violent crimes, such as theft and handling stolen goods. Theft accounts for 60 per cent of female offending, but only 34 per cent of male offending. However, short sentences—even remands in custody, of which there are far too many—do harm enough. Two-thirds of women who enter prison, remanded or otherwise, are mothers. A third have children under five years of age. No less than 40 per cent of women offenders lose their accommodation while in prison, which destroys not just their homes but those of their families as well. The Children's Commissioner for England reported that only 9 per cent of children whose mothers are sent to prison are cared for by their fathers, with only 4 per cent remaining in their own homes. How can we then be surprised at the resulting, almost inevitable, cycle of deprivation that this will activate in their children? Corston herself estimates that at least 17,000 children a year are affected in this way.

I have mentioned only a few of the important issues that Corston sets out in supporting her overwhelming case for an entirely different road for the majority of women offenders. Essentially, that requires locally provided community and/or community payback sentences for the vast majority. Crucially, however, this must also be combined with treatment and help for a range of problems: mental health, drugs and drink, housing and parenting skills, and, not least, education and training to enable flexible working when their children reach an appropriate age.

I have at least four areas on which I hope the Minister will be able to provide some answers. The first is equal treatment for male and female prisoners. Is it now accepted, as Corston so clearly argues, that the gender equality duty allows different treatment for men and women prisoners? I ask because during our debate last year there appeared some hesitation about adopting the Corston route in case it was in breach of the Sex Discrimination Act. It is my view, speaking as a non-lawyer but as the first deputy chairman of the EOC, that the Sex Discrimination Act's legal concept of indirect discrimination could more than adequately justify the Corston route. Perhaps the Minister will be kind enough to confirm that that is so.

My second question is about the various pilot schemes that are now under way. The Together Women projects were commended last February by the noble Baroness, Lady Corston, as having potential for providing a route back into the community for women offenders and reducing reoffending rates. Moreover, they are certainly value for money with the cost of a place at

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one of them—the Asha centre—costing no more than £750 a year compared to the £77,000 cost of a prison place. Can the Minister tell us how many of these Together Women projects will be operational on a local basis by the end of 2009 and how many more Together Women or similar projects are planned and within what timescale?

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