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My noble friend’s penultimate observation was on the danger that these policies will encourage people to be even slower in making payments. We will structure them so that we take what insurers refer to as the tail risk. The first or primary risk will rest with the banks, which will also take a proportion of the tail risk. They will continue to have an equity interest in ensuring that the existence of the insurance does not in itself lead to any moral turpitude.

Lord Lamont of Lerwick: My Lords, I thank the Minister for the Statement and I hope that it will remove some of the uncertainty that prevents banks lending to each other. I want to ask the Minister about the insurance scheme for bad past investments made by banks. On the radio the Chancellor said that the objection to the bad bank solution has been rightly rejected because it requires evaluation of these bad debts, which would take too long. Yet here we are with a solution that is going to take time and requires the valuation of those bad assets.

Secondly, while the insurance scheme is a lot cheaper than the horrifying costs of the bad bank solution, it is not quite a non-cash item as the Minister suggested. The costs will build up over time and could be very significant. If the Minister cannot respond to my noble friend Lady Noakes about giving a cost now, will a cap and a cost be given at the point when the insurance scheme is put in place?

Thirdly, how long might an insurance scheme last? I know that the “bad bank” solution has disadvantages, but one advantage would have been that it created certainty and got the assets off the balance sheet. The insurance scheme cannot last forever, so is it not the case that it has very considerable uncertainties attached and that, because we need full declaration and certainty, it may not do the trick?

Lord Myners: My Lords, the noble Lord, Lord Lamont, asks well informed questions. I did not hear the Chancellor of the Exchequer on the wireless, so I will not comment on what he said. The problem with the terminology “good bank, bad bank” is that it oversimplifies. The principal challenge in separating assets out into a new institution is that it would need separate funding, and there would need to be absolute agreement on the value of assets. If the Government paid too much for these assets it would be gifting value to the banks; if it paid too little, it would further diminish the capitalisation of the banks.

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The attraction of an insurance proposal, as opposed to the sale-and-purchase model of “good bank, bad bank” is that there is continued equity as far as the bank is concerned. To the extent that it does not need to call on the insurance and that the value of those assets improves, and they perform better than current expectation, it will continue to retain all the interest in those assets, less the premium it has paid for the insurance. I believe that I said clearly that the insurance was a non-cash item at first. It could be a cash item later, but might not be; that would depend on the efficacy of the insurance policy.

I entirely agree with the noble Lord’s best informed comment. The duration of the policy will be important, because we need a policy that will take financial markets through this economic downturn and beyond the next cycle, so we are probably talking about a policy duration of no fewer than five years and probably no longer than eight or nine years. In terms of the ultimate structure of the policy and the scale and value of assets covered, I imagine that matter will be disclosed publicly, not least by the banks, which will, in some cases, need shareholder approval to enter into the contracts. I commit that the Government will make available details of the broad nature, scale and coverage of those policies when they are entered into, should such policies be written.

The Lord Bishop of Chester: My Lords, may I return to the Royal Bank of Scotland? It may not be nationalised, but it is under national control if the Government own 70 per cent of the ordinary shares. Do the Government now guarantee the liabilities of that bank to the same extent as other government securities?

Lord Myners: My Lords, the Royal Bank of Scotland is not under national control. It is under the control of all its shareholders and its board of directors, and no discrimination or advantage accruing to depositors of the Royal Bank of Scotland is denied to depositors with other banks in terms of the Government standing behind those deposit liabilities.

Lord Cotter: My Lords, led by my noble friend Lord Newby, I want to carry on asking for clarification about the Royal Bank of Scotland. I am specifically concerned that, to quote the Statement,

I am somewhat puzzled by that, because there is widely felt concern about small businesses and the Royal Bank of Scotland has particularly portrayed itself as their supporter. Can the Minister clarify exactly what is meant by,

Is that at a cost to the small business sector?

Lord Myners: My Lords, in October the Royal Bank of Scotland, along with Lloyds TSB and HBOS, entered into commitments related to the availability and marketing of competitively priced credit to small businesses and private borrowers. That commitment remains in place, but this effectively extends it to

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include large companies. I believe that although there is considerable concern about the availability of credit to smaller companies, the initiatives announced at the time of the pre-Budget review, which my noble friend the Secretary of State for Business, Enterprise and Regulatory Reform expanded upon, have considerably eased anxiety among smaller companies about the availability of credit.

As I said to the noble Baroness, Lady Noakes, there is concern about larger companies as well. That is why the Royal Bank of Scotland willingly volunteered this extension in our discussions on Sunday. I repeat my earlier comment: over the weekend a number of banks expressed a step change in their confidence toward the availability of credit and profitable lending opportunities, as a result of the steps that have been taken, here and globally.

Lord St John of Fawsley: My Lords, in asking this question I must first declare a marginal interest. Is the Minister aware that I invested my modest savings in the national Bank of Ireland? There was then a series of takeovers, and I ended up with the Royal Bank of Scotland, which I had no desire to have any connection with whatsoever. In desperation, I then left the Royal Bank of Scotland and went to Coutts, which I thought was a safe haven. The next minute, I found that Coutts was taken over by the National Westminster which, after a short time, was taken over by the Royal Bank of Scotland, so I was back where I started.

The gravamen of my question is: what will happen to those banks which, like Coutts, have hitherto had a proud record of independence? They have also had the great privilege of not only my membership but that of Her Majesty, whose interest is probably marginally larger than mine. What will happen now that Coutts bank is a wholly owned subsidiary of the Royal Bank of Scotland? What will the Minister do to safeguard the interests of the innocent who put their trust in financiers?

Lord Myners: My Lords, I was a director of Coutts bank. I am not sure whether many of my noble friends on these Benches were directors there, but it shows what an open party Labour is when casting its net into the areas from which it captures its supporters. Coutts is one of a number of subsidiary banks of the Royal Bank of Scotland, Ulster Bank in Ireland being another, for example. I can reassure the noble Lord that Coutts is, in my experience, a fine bank to bank with. It enjoys the same protections that apply to any other bank in the United Kingdom. Regardless of whether it is a subsidiary of the Royal Bank of Scotland, it has a good board of directors—chaired by a Member of this House—and has, I believe, always exhibited cautious and conservative lending policies. No doubt that was one of the things that attracted the noble Lord, Lord St John of Fawsley, to it.

Lord St John of Fawsley: My Lords, I am obliged to the noble Lord. I shall sleep better tonight.

Lord Blackwell: My Lords, in assessing whether these measures are now adequate to the task, do the Government have a target for the level of credit they

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believe is necessary to support the economy in the next year to replace the previous aspiration of banks continuing to lend at 2007 levels? It is clear from the Statement that bank credit is contracting in the economy, both because, as the Minister said, foreign banks have disappeared from the economy and because UK banks are having to de-gear their balance sheets for both capital and liquidity reasons. Some of that decrease in lending may simply reflect the fall in the value of previously overvalued assets but we are all concerned about whether there is enough credit in the economy to support the genuine needs of business. As we look at these various packets of £50 million, £100 million, £200 million and add them up, is there behind that a government view of what level of credit they are trying to achieve to support the economy and whether these measures will achieve that?

Lord Myners: My Lords, we have given serious consideration to the quantum of support being provided through the asset purchase scheme, the asset protection scheme, the discount window and the support to securitize assets based on the Crosby model as extended and refined. We believe it will make a significant contribution. I wish I could give the noble Lord, Lord Blackwell, a more precise answer but there are a number of variables. Just as my doctor keeps telling me that there are two types of cholesterol—one of which it is all right to have and another which is not—there are two types of users of credit. There are many users of credit, for instance, in the world of hedge funds and speculation where, quite frankly, a de-leveraging of that kind of credit does no economic damage; it is the credit availability to the real economy that matters. We also need to take into consideration the global factors and the extent to which the process of banks retreating into their home markets continues to be a significant factor. The extent of credit that would need to be supported by government programmes is, to some extent, a response to certain factors that we have to take into account. We believe that a serious, comprehensive, integrated proposal is right to support the British economy in this global challenge and to make credit available to hard working British families and to British business.

Israel and Palestine: Gaza


7.02 pm

The Minister of State, Foreign and Commonwealth Office (Lord Malloch-Brown): My Lords, with permission, I shall repeat a Statement on Gaza made by my right honourable friend the Foreign Secretary.

“With your permission, Mr Speaker, I would like to make a further Statement to the House on Gaza.

From the outset of the conflict, the UK has called and worked for an immediate ceasefire. I know from questions last week that the whole House will have felt enormous relief when on Saturday night Israel halted its military operations in Gaza, and on Sunday when Hamas stopped its rockets. Our relief at the ceasefire is matched by our distress that it has taken so long to be achieved. The respite has come too late for too many.

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A ceasefire, as Security Council Resolution 1860 made clear, was always going to be the essential first step. We urge Israel to complete the withdrawal of its troops from Gaza with all due speed. Hamas must put a definitive end to rocket fire at Israel. That is why the Prime Minister travelled to Sharm el-Sheikh and Israel yesterday to join other world leaders in starting to embed that ceasefire and ensure it becomes the durable and fully respected ceasefire that we—and the Security Council—have called for.

In the 22 days of the Israeli offensive over 1,200 have died and we are yet to know the full extent of the destruction. But horrific accounts and images already fill our news bulletins and we can be sure that life for Gazans, already grim, has become desperate. Systems for power, sewerage and food distribution are broken or under acute strain.

Meanwhile, rockets have reached further than ever from Gaza into Israel. Israel has lost nine soldiers.

The Gaza crisis has reverberated around the world. There have been large demonstrations in the Middle East but also in the West. The conflict has also been used to whip up hatred, including in this country, and I am sure the whole House will want to send a very clear and cross-party message that we all denounce the anti-Semitic attacks that have taken place and vow to work for their elimination.

We are faced with two immediate challenges: stopping the flow of arms and starting the flow of aid into Gaza. In respect of trafficking in arms, as the Prime Minister announced yesterday, we are ready to play our part. The immediate security responsibility lies with Egypt but the origin of these arms stretches way beyond the Egypt-Gaza border. This is where international help aimed at interdiction, using intelligence and a range of military assets, is important.

But it is not just arms that are smuggled. The closure of the crossings has also created a thriving illegal trade in necessities, which has filled Hamas’s coffers without providing Gazans with the basics they require. Hand in hand with closing of illegal traffic must go a vast increase in legal traffic. The immediate priority is to meet the desperate humanitarian needs. That means not simply food and medicine but, for example, sanitation equipment. Then there are all the supplies which are required to repair Gaza’s ruined infrastructure and return power and water. The Government have pledged a further £20 million on top of the £6.8 million we pledged earlier in the conflict. British charities have raised millions more.

The Prime Minister made clear in Egypt and in Israel that reopening the crossings will be vital. The 2005 movement and access agreement between Israel and the Palestinian Authority should provide the framework. We are ready to help, including by reinstating and, if necessary, extending the EU Border Assistance Mission at the Rafah crossing.

Smuggling and the crossings will be at the heart of the discussions this Wednesday evening when all 27 EU Foreign Ministers meet with Foreign Minister Livni, and on Sunday evening when we meet our Palestinian, Egyptian, Jordanian and Turkish counterparts.

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However, the critical actors in securing progress, never mind peace, are the Palestinians themselves. Full humanitarian reconstruction will be impossible unless accompanied by political reconstruction. Unity in Palestinian politics is vital to so many things: to rebuilding Gaza, to holding elections, to delivering peace. It is for President Abbas to lead this process. The Arab League and Egyptian commitments of November last year point the way forward.

At a time of enormous loss for Palestinians, one thing should not be forgotten: Palestinians on the West Bank did not respond to Hamas’s call for a third intifada. In fact, the Government of Prime Minister Fayyad in the West Bank showed clearly in their management—political, economic, security—that, given half a chance, the Palestinian Government can be hugely effective and provide a real partner for peace.

At the UN and last week in this House, I said the Gaza crisis was a symptom of political failure. To avoid its repetition we need a political process. The Arab League showed in its letter to President-elect Obama in December that it was serious about its ground-breaking offer of peace embodied in the Arab Peace Initiative: the creation of a Palestinian state in return for Arab normalisation of relations with Israel—a genuine 23-state solution.

The challenge is to ensure that this Gaza crisis does not simply provide another grim milestone in an endless conflict. As we help Gazans rebuild their lives, we must find a way to ensure that this is the last time they will have to do so. That means showing serious progress towards a Palestinian state alongside improved Israeli security. It means a peace process where closed door negotiations are buttressed by Israel and the Arab world taking steps to support rather than undermine the peace process.

But anyone who doubts that peace in the Middle East requires the full, intense engagement of the international community only needs to look at the streets of Gaza today. International engagement that is full and intense includes the immediate engagement of the new American president and Administration. President-elect Obama and his Secretary of State designate, Hillary Clinton, have made clear that they understand the urgency and are committed to act. It will certainly be the first topic when I speak to the new Secretary of State this week.

Palestinians and Israelis will be asking themselves whether they are fated to permanent conflict. I know that I will have the support of the whole House in doing everything possible to avert this future”.

My Lords, that concludes the Statement.

7.10 pm

Lord Astor of Hever: I thank the Minister for repeating the Statement made by the Foreign Secretary in the other place. We welcome the ceasefire announced by the Israeli Government on Saturday, and the reciprocal ceasefire announced by Hamas. We also welcome reports of the continued gradual withdrawal of the Israeli defence forces.

We all want to see the Middle East as the top priority for the incoming United States president and Administration. In the mean time, it is vital that we do

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what we can to help bolster what, at the moment, is a fragile ceasefire. Clearly, this must involve mechanisms to prevent weapons-smuggling into Gaza. Will the Minister be more specific about how weapons-smuggling through tunnels will be prevented? As part of the ceasefire arrangements, the Prime Minister has apparently offered Royal Navy support. The nature of this support is unclear. Will the Minister be more specific about this? What impact will it have on the many competing priorities of the Royal Navy, which now has so few frigates and destroyers? The Falklands guard ship has just been taken away to east Africa, so there is only one frigate covering west Africa, the West Indies and the Falklands. How can a single ship shuttle between these places and have any effect? Much as the Royal Navy would like to take on this commitment, it is hard to see how the Prime Minister is in a position to offer it, certainly for any length of time.

Will the Minister also confirm that the Prime Minister has offered to help remove unexploded bombs in Gaza? Is the Minister satisfied that we have sufficient service personnel to do this, in addition to what they are doing in Afghanistan and Iraq, and their enduring commitments in this country? I declare an interest as honorary colonel of the Royal Engineer Territorial Army Bomb Disposal Regiment.

It is vital that we help to ensure that there is a quick and effective aid supply to the people of Gaza. The Statement rightly points out that life for Gazans, already grim, has become desperate. We welcome the announcement that Britain will make available an additional £20 million in humanitarian aid. What steps will be taken to ensure that the severe constraints on the ability of humanitarian workers and supplies to reach the population are quickly addressed? In particular, what technical assistance will be needed to restore the basic infrastructure and prevent the spread of disease?

Given the obvious need to open the crossings if aid and assistance is to enter Gaza on the scale needed, have the Israeli Government indicated when the crossings will be opened? Did the meeting at Sharm el-Sheikh agree a timetable for the opening of the crossings? Who will monitor the crossings? What role will the Palestinian Authority play, and what will happen to the Hamas representatives who are there on the ground? Are there any plans for a broader international monitoring mission?

Finally, we on these Benches support the Statement’s clear message denouncing the anti-Semitic attacks that have taken place in this country. We will do all we can to work for their elimination.

7.14 pm

Lord Wallace of Saltaire: We welcome this Statement, but it is not enough. We welcome the ceasefire, but it is not enough. This conflict has been about not just rockets fired from Gaza but future relations between Israel and the Palestinians, and whether they are to be based on repeated assertions of military superiority, or on a return to negotiations and the achievement of a negotiated settlement.

The Statement’s aim of,

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is far too limited. We have to get back to a much more active peace process that addresses not just Gaza, but the future of the whole of historic Palestine, or historic Israel, and which involves all interested parties, inside and outside the region, and therefore has to find some way of bringing in Hamas.

Will the Minister comment on the quotation in Haaretztoday from King Abdullah of Saudi Arabia, saying that the Arab peace proposals would not necessarily be on the table for ever? Does he feel that this reflects the degree of urgency we face in saving some sort of wider peace negotiation?

For Israel, this has been a tactical victory and a strategic defeat. We all recognise that Israel has lost the sympathy of public opinion across much of the western world, and has further undermined its claim to moral authority. I spent some time last week talking to a number of Israelis about what their preferred end game was for the Gaza conflict, and was frustrated to discover that nobody could tell me what the Israeli strategy was. Mr Netanyahu said that the aim had to be to destroy Hamas. However, if one does destroy Hamas, who runs Gaza? Does the Minister know how we can reconstitute Gaza without the engagement of the political wing of Hamas?

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