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We have undertaken a targeted communications campaign. My colleague the Business Minister Ian Pearson wrote to all the major car manufacturers outlining what support may be available to their suppliers. On the difference of scale and scope of smaller firms, we have tried to make it clear that the larger players in industry and trade associations have a real responsibility to ensure a necessary level of knowledge cascading through the industry. As we unveil new schemes we will ensure there are ongoing communications and that point of clarification is continued.

Despite the scepticism voiced this evening by some noble Lords, we have scaled back the fees on vehicle excise duty and reduced VAT. There has been some criticism of the VAT measure, but a few hundred pounds off the price of car is significant even if the benefit does not apply to export models. As my noble friend Lady Wall knows, we have dedicated £65 million to fund training in the automotive and related sectors, part of the £1 billion allocated to Train to Gain that

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assists companies identifying appropriate training. I think only 45 of a possible 300 automotive companies have engaged with SEMTA, the sector skills council. If there is more we can do to help in training, design or simple communication—with SEMTA or with SSCs in conjunction—we are willing to do it. We are in constant communication with DIUS to see if there is more that can be done to make these schemes work effectively.

My noble friend Lord Harrison and others asked for a report on the meeting last Friday convened by European Commissioner Verheugen. My noble friend Lord Mandelson attended the meeting—arranged at his behest—where Governments agreed to co-ordinate support for the industry and seek early engagement with the new US Administration to understand the transfer of their measures to companies working and operating in the European markets. In addition, the Czech presidency agreed to put the issue on the agenda of the spring Competitiveness Council and we made a specific request to accelerate the accessibility and delivery of the already allocated EIB funding, ensuring that all manufacturers were eligible for the funds available. My noble friend also asked about the Government’s view of membership of the single currency. The Government’s position on that has not changed.

What further support is there? People say Government should do more. Many of you have said this evening that this is not enough. We understand this argument. Members of this House and others feel strongly about this issue. There has been much discussion about further support. My noble friend Lord Mandelson has made clear that if there is appropriate assistance that we can offer, we will consider it. We have also been urged to take action because other countries have already done so—the argument made here this evening is that companies in the United Kingdom will be at a competitive disadvantage if other companies act first and we are slow to follow. This is something for us to consider and monitor—we are doing both. We also need to be sure that any action we take will work in the United Kingdom and for the United Kingdom, given the structure of the UK’s industry in this sector. The circumstances and needs of car manufacturers in other countries are different. It is right that each country responds, albeit in concert, according to what is best for them.

My noble friend Lord Mandelson is meeting representatives from the industry for a second automotive summit at the end of the month—my noble friend Lady Wall referred to that. I would not go as far as another noble friend in describing being a junior Minister as “dehumanising”—though anyone who transfers from business to a ministerial portfolio recognises some of his analysis. I have learnt during my short time at BERR that it is inadvisable to pre-empt my Secretary of State and suggest what the outcomes from a future meeting he is chairing might be. Equally, on how we would choose to forecast the length of the challenges facing this sector, I have also learnt that forecasting the length of time current conditions will last is best done by forecasters not Ministers—let alone junior ones. You will not be surprised that

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BERR and Her Majesty’s Treasury are as one in recognising the significance of the issues being faced by the automotive sector.

We understand the urgency, but we will not and, I am afraid, cannot be rushed into taking action that might not be effective. Any assistance needs to be for the future and not for the past. This Government fully recognise the pain the sector is feeling—we are not debating this reality, but rather how to handle it and not make false assumptions of what the industry may look like in the future. We also need to have an eye on what would best help to keep jobs and investment in the United Kingdom, and ensure that we are best placed to win new investment in the future.

Noble Lords have asked about support for particular companies, but they would not expect me to comment on commercially sensitive discussions. However, to the specific points raised by the noble Lord, Lord Bates, with respect to Nissan, it is fair to say that the 1,200 job losses announced recently are regrettable. We understand that this decision was reached specifically in response to the market. The view of the plant is that it is one of the most efficient in Europe. The regional development agency, One North East, which I am sure the noble Lord knows well, will lead a taskforce to help Nissan and its suppliers deal with the consequences of the decision, and we will help any employee through the suite of schemes available to find alternative opportunities as quickly as possible. As a Government, we remain committed to the Sunderland plant. We contributed £6.2 million to it which did help to secure the model that the noble Lord referred to. We will continue to work with Nissan to secure new investment and, indeed, my noble friend Lord Mandelson plans to visit the plant as soon as possible to discuss plans to bring the manufacture of Nissan’s new family of electric vehicles to the site, in line with our commitment to the development of low carbon vehicles as an integral part of the UK automotive industry for the future.

On the specific point also raised by the noble Lord, Lord Bates, on scrapping to stimulate demand—which I assume is what lies behind the question—we are aware of it and are considering it carefully. Some countries in Europe have looked at this, but as a number of speakers have already indicated, 86 per cent of the cars purchased in the United Kingdom are imports. In truth, scrappage is likely to be of greater benefit to other countries, although we recognise that it would be of some help to the retail sector.

The Government are looking at the industry as a whole and not just at the automotive sector. Suffice it to say that any government intervention to help the biggest companies would be exceptional and should not get in the way of necessary restructuring. We have a responsibility to the taxpayer and a responsibility, when considering intervention in any market, that we do not harm the fittest when seeking to help the most challenged. Critically, when one is considering sectoral intervention, one needs to be very clear that one is not propping up business models, product lines, capacity and pricing structures from another time.

I thank my noble friend Lord Harrison and all the other speakers for their contributions to this critical set of issues, and confirm that we will return in writing to any questions that were not answered.

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Banking Bill

Bill Main Page
Copy of the Bill
Expanatory Notes
DPCommittee: 1st Report

Committee (3rd Day) (Continued)

8.52 pm

Clause 58: Resolution Fund

Amendment 99

Moved by Baroness Noakes

99: Clause 58, page 28, line 29, leave out subsection (4)

Baroness Noakes: This is a probing amendment that seeks to delete Clause 58(4). The clause deals with resolution fund orders, and we have no fundamental problem with the concept. However, subsection (4) states that the resolution fund,

(a) a Minister of the Crown,(b) the Treasury,(c) the Bank of England, or (d) any other specified person”.

My amendment would delete this to find out what it is really about.

I cannot see that any other comparable provision has been made in the case of compensation orders or third-party compensation orders, and as usual the Explanatory Notes offer little or nothing about this subsection. When this was debated in another place, the Minister did reasonably well in explaining why the first three paragraphs were dealt with, although he did not explain why similar provisions were not necessary for the other kinds of order. I hope that today the Minister will be able to explain that. However, the Minister in another place ran out of steam when he came to explain why the phrase “any other specified person” was necessary. He started off by saying that it was to cover independent valuers, even though they are already mentioned specifically in the clause. He went on to talk about having an independent auditor of resolution costs, or a monitor of fees, although it is quite unclear why it is necessary to “confer a discretionary function” in order to purchase common or garden services.

The Minister then took refuge in an argument along these lines: “We don’t really know what we might need to do, so we are legislating to give ourselves enough cover to do whatever we come across”. That is the old excuse to cover up draft legislation that has not really been thought out in advance. I invite the Minister to place on the record a somewhat more convincing justification for subsection (4), particularly why it is contained in resolution fund orders but not compensation or third-party compensation orders. I beg to move.

The Financial Services Secretary to the Treasury (Lord Myners): The Minister in the other place might have run out of steam, but quite clearly the noble Baroness has not. Let me summarise briefly the purpose of the bank resolution fund. It is to provide either the failing bank or its shareholders, depending on the nature of the transfer power exercised, with a contingent economic interest in the net proceeds of the resolution. The fund is thus a proxy for compensation.

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A resolution fund order can provide for which parties will be entitled to a share of the proceeds, and how such proceeds will be calculated. Importantly, the proceeds may be calculated net of any resolution costs. Those costs could, for example, include any financial assistance including loans or guarantees provided from, or backed by, public funds or any other administrative expense incurred by the authorities during the course of the resolution. The provision is necessary to ensure the taxpayer receives a suitable return for public funds that have been invested, or put at risk in the bank, during that resolution.

I understand that the purpose of Amendment 99 is to remove the ability of the Treasury to confer, in a bank resolution fund order, a discretionary function on a Minister, the Treasury, the Bank of England or any other specified person. In summary, I do not agree with the amendment, as it is essential that the Government should have the ability to confer functions on persons to ensure that the appropriate level of compensation is paid to appropriate persons. The bank resolution fund order may specify a role for a number of persons: an independent valuer, an independent auditor of the resolution costs, or a monitor of the fees could, for example, be appointed to perform certain roles. Therefore, instead of listing all persons that may have discretionary functions conferred on them, subsection (4)(d) allows the Treasury to,

in the bank resolution fund order.

I recognise that this discretion does not appear in the clauses on the compensation schemes or third-party compensation schemes order—the noble Baroness is quite correct in that observation. This is because the bank resolution fund is a new device, specific to this Bill. It is possible, therefore, that we find that various individuals will be required to perform ad hoc functions. Clearly, those cannot all be specified in advance in the Bill. I hope my explanation of the importance of this power reassures the Committee and I therefore beg that this amendment be withdrawn.

Baroness Noakes: I told the Minister at the outset that I was probing the content of subsection (4), not challenging its position within the Bill. I said that I had accepted the case for the resolution fund. However, the Minister gave no new information whatsoever, other than falling back on that tired old reason, “We don’t really know, so we are going to legislate for things that we might come across”. I shall think about what the Minister has said; it added little to what was said in the other place, and I feel we have taken this no further forward. I beg leave to withdraw.

Amendment 99 withdrawn.

9 pm

Amendment 100

Moved by Baroness Noakes

100: Clause 58, page 28, line 37, leave out subsection (6)

Baroness Noakes: I shall speak also to Amendment 102. The amendments seek to delete subsections (6) and (7) of Clause 58 on a probing basis. The subsections give

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permissive powers for the order setting up a resolution fund to include provision for a bridge bank or temporary public ownership to require the Bank of England or the Treasury to maximise the proceeds available for distribution subject to various things which are specified. My question is: why is this permissive?

Is it not the case that, as property is being taken from the shareholders of the bank or the bank itself, the Bank or Treasury must seek to maximise the proceeds, subject to achieving the special resolution objectives? If it could ever be argued that proceeds maximisation was not a proper and essential objective, that makes the draconian powers in the Bill start to verge on the unacceptable. It may also cause conflict with the European Convention on Human Rights.

Apart from this basic challenge to the underlying premise in the two subsections that proceeds maximisation might not be appropriate, will the Minister explain how an order can both specify the maximisation of proceeds and, as in paragraphs (b) of the subsections, specify its extent? Surely maximisation is a little like pregnancy—one cannot be a little bit pregnant and one cannot maximise a little bit either. I hope the Minister can shed some light on this. I beg to move.

The Deputy Chairman of Committees (Baroness McIntosh of Hudnall): I should inform the Committee that if this amendment is agreed I cannot call Amendment 101 by reason of pre-emption.

Lord Higgins: The amendment raises a number of interesting issues concerned with a bank in temporary public ownership. We find ourselves in a situation in which it is difficult to realise exactly what is going on because much of it is so radical that we have no previous experience of it. Effectively, we have had a situation where a huge percentage of the UK economy is dependent on financial services for its whole prosperity to a large extent. We are now moving into a situation where the returns from that will clearly be substantially less than they were before.

Much of the banking sector will be run, effectively, by the Government. That raises the question—I shall be interested in the Minister’s response—that what we are really trying to do is to tie them down or even encourage them to maximise the proceeds available for distribution. There was a similar experience in the way in which conditions were imposed on some of the banks which have already been affected. It may be that one really wants to maximise the long-term prospects of the bank concerned, which is not the same as maximising the proceeds for distribution in accordance with the order. Is the Minister proposing at some stage to set out what the serious objectives should be of banks which suddenly find themselves either temporarily or in part under government control?

Lord Myners: I note that the noble Baroness, Lady Noakes, said that this is a probing amendment. There is not a great deal of difference between us on this point and the noble Baroness is right to refer to the European convention.

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Dealing first with the point made by the noble Lord, Lord Higgins, I repeated the Chancellor of the Exchequer’s Statement in the other place earlier in which there was a clear statement that the Government’s view is that banks are best in the private sector and best run on a commercial basis. We have no interest as a matter of policy in taking control of a bank for even the shortest period. However, the Bill contemplates circumstances in which that may, through force of what has happened, become necessary.

The noble Lord made an interesting observation about the size of the financial services sector and whether there is a point at which it can be too large for an economy. Some of the work that I am doing in a group chaired by the Chancellor of the Exchequer and Sir Win Bischoff on the financial services market and its future addresses this, among a number of other issues. I believe that those are matters to which this House and the other place may wish to return. We were blessed in the past, because of the prudent and cautious management of our great financial institutions, our banks and insurance companies, to be a major provider of banking and other financial services to the world. That has been a source of strength. At the moment, it is not obviously clear that that remains the case.

I say to the noble Lord, Lord Higgins, that there is no inconsistency between maximising the value of the business and maximising the proceeds. To put a bank in a safe, secure and commercially strong position is good not only for the customers, but for the owners of the bank before it was put into a resolution regime. I hope that there is no inconsistency here, but the noble Lord is right to draw attention to the inevitable challenges that will arise.

The purpose of Amendments 100 and 102 would appear to be to remove the power of the Treasury to specify, in a bank resolution fund order, that the Bank of England or the Treasury must ensure that a bridge bank, or a bank in temporary public ownership, must be managed in a manner that maximises the proceeds available for distribution. The bank resolution fund provides those with a residual interest in a resolved bank—either the residual bank in the case of a property transfer, or former shareholders in the case of a share transfer—with a contingent economic interest in the proceeds of resolution. It is surely right that, in some circumstances, a management duty should be placed on either the Bank of England or the Treasury to maximise any proceeds in such a fund. The noble Baroness is right to say that, in the absence of this requirement, the draconian consequences of other measure in the Bill would have to be revisited. It is designed to ensure that the interests of the previous owners of the business or assets are not treated in a capricious or dismissive manner.

I stress that any management duty is subordinate to the SRR objectives and compliance with the code of practice. I also point out that the proceeds in a bank resolution fund may be calculated net of any public funds or other forms of financial assistance, including the costs of the resolution, as I explained when addressing the previous amendment. This measure was inserted specifically to protect public funds.

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After my explanation of the purpose of this subsection, and because there is a lot of common ground between the position of the noble Baroness and the one that I have explained, I hope that the noble Baroness will withdraw her amendment.

Baroness Noakes: The Minister made an interesting digression on the future nature of the financial services industry in the UK, but he did not answer the points that I made about this amendment, so I will have another go.

The Minister said that “in some circumstances” there would be a duty to maximise. He went on to say that the subsection was designed to ensure that previous owners are not treated capriciously or dismissively. My point was: why was this only permissive? Why would a resolution fund order not always require the maximisation of proceeds, subject of course—as I accepted—to the special resolution objectives, specified in paragraph (a)? Why would a resolution fund order not require the Bank of England or the Treasury to maximise proceeds? The Minister did not say why that would be the case.

Lord Myners: The provision is designed to ensure that there is no doubt regarding the intention that that obligation should so rest. I ask the noble Baroness: in what circumstances would it not be appropriate to have this provision in the Bill?

Baroness Noakes: I ask the Minister: why would it not be appropriate to have a resolution that the fund “shall” require a bank, in managing a bridge bank and so on, to maximise the proceeds? Why is this permissive? The Minister is telling me that it just allows the bank to maximise proceeds, but I am asking why it is not required to maximise proceeds. That is what has not been answered.

Lord Myners: I believed that I had done that when I said that this was subordinate to the objectives of the Bill. The objectives are overriding in that respect. Subject to achievement of those objectives, including compliance with our obligations under the European directive, this is a requirement—but it is subordinate to the Bill’s objectives.

Baroness Noakes: I do not want to prolong this debate unnecessarily, but that is exactly what subsection (6)(a) says, as does subsection (7)(a). The Minister is not saying anything additional. The opening words of both subsections say “may require” maximisation; then,

The Minister has not answered that at all. He has merely repeated, as if it is a separate answer, that maximisation is subordinate to the special resolution regime objectives, but it says that right in the middle of the subsection. I am asking why it is permissive.

When the Minister replies, perhaps he would also answer my other point about what specifying the extent of profit maximisation means in subsection (6)(b) and subsection (7)(b) .

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