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19 Jan 2009 : Column 1536

Lord Myners: It is the Government’s view, as I said earlier, that the bank resolution fund satisfies the conditions of the ECHR. The proceeds of resolution will be the product of a series of management decisions by a bridge bank’s board of directors and the Bank of England as a shareholder—for example, how the business should be managed, when and at what price to sell parts of the bridge bank and so on—or, alternatively, the Treasury if the bank is brought into temporary public ownership in the light of prevailing market conditions. We consider that a duty is necessary in some circumstances in order to provide a specific protection for all the beneficiaries’ interests and to help to ensure that the proceeds of resolution will bear a reasonable relation to the value of the property expropriated from the failing bank, subject to the overriding need to act in a manner consistent with the SRR objectives.

The noble Baroness asks why the wording is permissive, and I fully understand why she should seek an explanation. In certain circumstances, such as the initial transfer to a bridge bank, disposals by the Bank of England days after the initial transfer or where there is no need for duty and no ongoing management decisions, the word “may” would be appropriate. However, I agree with the noble Baroness that in the majority of circumstances one would contemplate that the use of the word “may” was permissive. I should like to take away her comments. I assure her that we will reflect carefully on whether a modification of language would be helpful in addressing the point she has raised. On that basis, I hope she might be kind enough to withdraw her amendment.

Lord Higgins: My noble friend will come back again, but, first, I agree wholeheartedly with the view the Minister expressed after my previous intervention with regard to the Chancellor’s statement about wanting to keep it in the private sector and not in the public sector. I am certainly not in favour of not doing that.

I am worried about the maximising argument. There is clearly a substantial element of timing in it. Just to talk about maximising the proceeds without saying how quickly or over what period is pretty well meaningless. We need to look a little more carefully at that.

9.15 pm

Lord Myners: In many years as a pension fund portfolio manager, I struggled with objectives that were expressed in such language as “maximise the return on the portfolio in accordance with an acceptable degree of risk”. When one asked for qualification, on the whole the client felt that it was better to leave it in those vague terms. In saying that I will look again at the wording of this part of the clause I will also take account of the point made by the noble Lord, Lord Higgins.

Baroness Noakes: We have spent long enough on the fun of this amendment. I beg leave to withdraw.

Amendment 100 withdrawn.

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Amendment 101

Moved by Baroness Noakes

101: Clause 58, page 28, line 40, leave out “subserviate it to” and insert “subordinate it to the”

Baroness Noakes: This amendment is even more fun. Amendments 101 and 103 replace the words “subserviate it to” with “subordinate it to the” on the two occasions that they appear in Clause 58. My question is: is “subserviate” a word? My spellchecker does not think so and the word appears in virtually no dictionaries, although we found it in the Oxford English Dictionary, which cites only two known uses of the word. We may conclude that it just about qualifies as part of the English language. On the other hand, it is most definitely not a word used by lawyers apart, presumably, from the parliamentary draftsmen on this Bill. From our research the word has never been used before in an English statute.

In another place the Minister first dismissed this as “stylistic”, which my honourable friend took as a compliment, but agreed to consult officials. Perhaps officials really did persuade the Minister that mucking around with the English language and using words that no one has heard of is a good thing to do in legislation. In any event, I hope the Minister will have a rather better answer than we received in another place. I beg to move.

Lord Myners: We move around in this debate from issues of extraordinary technical complexity to lighter moments. I also asked my officials why this word had been chosen. They also referred to the dictionary. They found two known uses in quotations, one being from Winston Churchill. I suggest to the noble Baroness and her colleagues on the other side of the Committee that the fact that the other place had difficulty with this word should not mean that we should indicate that we are in any way uneasy—or lacking in familiarity—with it. I believe the dictionary definition is very clear. It is clear that it is almost identical to “subordinate”.

I say to the noble Baroness that, as noble Lords know, I am new to this process. I understand that, at some stage, we begin to focus on narrowing down the areas where there are differences on the Bill between the parties in the House. It is probable, given my poor handling of the Bill to date, that I am likely to have to make concessions. If the noble Baroness indicated to me now that this was one of the more important concessions that she would expect me to make, rest assured that I would respond positively to that. I look forward to an indication in due course. If this really is the most important clause in the Bill, I will look kindly on responding in a helpful way on Report. Pro tem it would be appreciated if the noble Baroness withdrew the amendment.

Baroness Noakes: I am disappointed with the way in which the Minister has handled this. I raised a serious issue which arises from the scrutiny role of the House of Lords. This word has never been used in statute. That is the important thing. That point was

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not made when the issue was debated in another place. While it is in the Oxford English Dictionary, I think that is the only dictionary in which the Minister will find it. It is not a word that lawyers recognise, nor would be expected to recognise. I hope that the Minister will take it away, discuss it with his officials and bring back an amendment on Report because that would be the correct thing for him to do.

Lord Myners: I am happy to concede the point.

Baroness Noakes: Does that mean I can move the amendment formally? However, I am happy to wait for Report. I beg leave to withdraw the amendment.

Amendment 101 withdrawn.

Amendments 102 and 103 not moved.

Clause 58 agreed.

Clause 59 agreed.

Clause 60 : Third party compensation: mandatory provision

Amendment 104

Moved by Baroness Noakes

104: Clause 60, page 29, line 18, leave out “may” and insert “shall”

Baroness Noakes: I temporarily lost my notes. I was about to move the next amendment, which might have confused the Minister. Amendment 104 seeks to change “may” to “shall” in Clause 60(1), which deals with third party compensation arrangements in cases of partial transfers. This clause allows the Treasury to make an order which will give effect to the “no creditor worse off” safeguard promised by the November consultation document. The industry has welcomed this and we support it, though as I mentioned in connection with the set-off and netting issue, the lack of certainty about outcome of the processes set out in the draft order—and, indeed, in the clause—means that it adds nothing to the legal certainty that is required for set-off and netting arrangements.

We cannot understand why the Treasury should have the option to issue the “no creditor worse off” order. It promised it as a safeguard and should be required to deliver it. Anything else would create uncertainty, which we have already debated in the context of partial transfers. I hope that the Minister can agree to this because it is a straightforward case of making an order and is not subject to the more complex provisions that we came across in the context of whether we should have “may” or “shall” in Clause 48. Clause 60 is very much more straightforward and I hope that the Government agree that this is a no-brainer. I beg to move.

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Viscount Eccles: I wish to speak to Amendment 104A and in support of Amendment 104. I seek to introduce another piece of greater certainty into the clause by leaving out,

so that the clause reads:

“In making regulations the Treasury shall ensure that”.

We have discussed “have regard to”, but this set of words also includes “desirability” so we have two uncertainties. The language is another example of “now you see it, now you don’t”; that is to say, there is an intent but how far will the intent be translated into what happens? This is an area of great sensitivity and there is a need to achieve equity. I suggest that certainty is needed.

Lord Davies of Oldham: I am grateful to noble Lords who have spoken to their amendments. The Government’s current plan is to make regulations under Clause 60 to provide for the “no creditor worse off” safeguard. I hope that the consultation document on safeguards, which included a draft of the regulations for the “no creditor worse off” safeguard, makes this clear.

The Government’s continuing work with the expert liaison group should provide further evidence of the sincerity of the Government’s intention to provide standing secondary legislation under this enabling power. Our intention is to ensure that these safeguards are in place at the same time that the powers to make partial transfers come into force.

However, it does not necessarily follow that the Treasury should be required always to maintain secondary legislation under Clause 60 or any of the other powers that enable legislation to be made in relation to partial transfers. The Government should have the flexibility to develop and update the content of partial transfer safeguards should they, or stakeholders, believe that there are better ways to protect certain interests.

For example, if the Government and the market agreed that compensation to pre-transfer creditors under Clause 60 was redundant because a better way to protect this category of person could be developed, the Government should be allowed to revoke the regulations that had been made under Clause 60; but the amendment proposed by the noble Baroness would not allow this. However, I emphasise the Government’s commitment to making this secondary legislation and providing appropriate protection to creditors following a partial transfer. I hope that the noble Baroness respects the Government’s commitment and sincerity in these terms and feels able to withdraw the amendment.

On Amendment 104A, proposed by the noble Viscount, Lord Eccles, I will set out in a bit more detail how the safeguard will work. In some circumstances, in a partial transfer, the payment received by creditors of the residual bank after the winding up of the residual bank may be less than they would have received had the whole of the bank gone into an insolvency procedure.

In these situations, this clause provides a compensation mechanism. This compensation would be calculated by an independent valuer and would involve an estimation of what realisations would have been made had the whole of the bank been wound up. I believe that the purpose of the noble Viscount’s amendment is to

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require that the Treasury must ensure that pre-transfer creditors do not receive less favourable treatment than they would have received had the bank been wound up immediately before transfer.

As drafted, the clause refers to having,

that this is the case. The clause has been drafted with care and with purpose in this respect. The regulations made under this clause will put in place a procedure that includes a calculation of a hypothetical insolvency of the failing bank.

Given that this calculation necessarily requires an assessment of a situation which has not in fact occurred, it would not be appropriate for the Government to commit in statute that this procedure will “ensure”—which is what is envisaged in the amendment—that creditors are no worse off than if the bank had been wound up. It is not possible to know definitively what this would mean. Therefore, the language has been drafted in less concrete terms than those suggested by the noble Viscount, Lord Eccles, and appropriately so. We are dealing with areas of some uncertainty.

I assure the noble Viscount that the Government are committed to providing adequate compensation to creditors to ensure that this is an effective safeguard that provides confidence to creditors dealing with banks. I believe that the Government’s provision under this clause and the draft regulations that we are consulting on provide this confidence. I hope that the noble Viscount will consider that those are sufficient reassurances and will not press his amendment.

9.30 pm

Baroness Noakes: We discover our old friend flexibility has come back again; the flexibility not to have the third-party compensation arrangements that the Government have promised. They have said that they might find some other way, but they would then need some statutory cover that would give them the opportunity to remove Clause 60. Putting that on one side, even if we do get the secondary legislation, the issues raised by my noble friend suggest that the third-party compensation arrangements may well have been oversold, because the Government are saying that creditors may well not be put in a no-worse-off position. That is another bit of spin in the Bill.

I do not think that I shall pursue this matter again—certainly for this evening. I beg leave to withdraw the amendment.

Amendment 104 withdrawn.

Amendment 104A not moved.

Clause 60 agreed.

Clause 61 : Sources of compensation

Amendment 105

Moved by Baroness Noakes

105: Clause 61, page 30, line 30, leave out paragraph (c)

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Baroness Noakes: I am moving the amendment on a probing basis. Clause 61 deals with the sources of compensation for the various compensation orders, and lists in subsection (2) the Treasury, the Financial Services Compensation Scheme and then “any other specified person”. It is this latter category that I am seeking to probe with my amendment. Will the Minister say who these other persons might be? The clause is drawn very widely. Will he say whether there are any limits on the categories of person who may be required to cough up for a compensation order?

In addition, Clause 5, which requires a code of practice, does not extend to compensation orders, and in view of the breadth of Clause 61(2), it seems odd that the code of practice will not cover this issue. I invite the Minister to reflect upon whether the code should in fact be the place where this is spelt out in more detail, so that people understand how this is expected to work in practice. That is what I understood the code of practice to be aimed at. I beg to move.

Lord Davies of Oldham: The Government’s response to this amendment is fairly straightforward, and, I hope, constructive. I hope that the noble Baroness will feel that she has received a proper reply. Clause 61 sets out the sources of any compensation and subsection (2)(c) refers to “any other specified person”. The noble Baroness has indicated that that gives rise to suspicion. I hope that we have sufficiently identified the Government’s actions in these terms to be beyond suspicion. Nevertheless, I recognise the noble Baroness’s obvious right to probe us on this.

Let me provide an example of who are meant by “any other specified person”. I have not got a little list, a big list or even a microscopic list. I have a category, and if I can I shall provide more, or an illustration of the nature of the situation which has obliged us to set out the Bill in those terms. Where a price agreed between a private sector purchaser and the Bank of England was felt to reflect the market valuation of the failing bank at the time of the transfer, the Treasury could specify in the compensation scheme order that the price agreed was deemed to be the compensation to be paid.

The provision would facilitate this by making it clear that the compensation payment—in this case, the price paid by the purchaser—may originate from sources other than the norm—either the Financial Services Compensation Scheme or the Treasury. All that we seek to do in this respect is identify that the norm is envisaged as certainly being those two, but it is possible that an agreement could be struck by the Bank of England which does not involve those. We are seeking to make provision for that eventuality in circumstances where, I hasten to add, yet again we are not in a position to envisage every possible significant development with regard to these negotiations and developments. However, we have to construct the legislation in such a way that it does not inhibit or prohibit action which might be very much in the interests of the parties concerned because it is drafted too rigidly. That is why the subsection is set out in those terms.

Baroness Noakes: I thank the Minister for that reply and for the one example, which at first sight certainly seemed an entirely plausible explanation. I

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suppose that my concern relates to the question “What else?”, which is why I invited the Minister to consider whether the code of practice should outline the way in which compensation orders might be used in practice. That is what the code of practice is for.

Lord Davies of Oldham: I shall certainly take that point on board.

Baroness Noakes: I am grateful to the Minister for that and beg leave to withdraw the amendment.

Amendment 105 withdrawn.

Clause 61 agreed.

Clause 62 agreed.

Amendment 105A

Moved by Lord Whitty

105A: After Clause 62, insert the following new Clause—

“Competition and consumer issues

(1) This section applies when evocation of any of the stabilisation options under sections 11, 12 or 13 results in the resultant company being the largest provider in any of the markets defined in subsection (6) and accounting for 25% or more of that market; for the purposes of this section such a provider is described as “resultant dominant company”.

(2) Where subsection (1) applies and continues to apply for eighteen months from the implementation of that process the relevant market shall be referred automatically to the Office of Fair Trading for it to undertake an investigation as to whether effective competition operates in that market and if not whether the market operates in the consumer and public interest.

(3) Where subsection (1) applies the resultant dominant company shall be required to take immediate steps to establish within its structure—

(a) a consumer panel, and

(b) a small business panel.

The Board of the resultant dominant company shall be required to consult these panels on overall policy and significant changes to that policy.

(4) Appointments to panels established under subsection (3) shall be made in consultation with organisations representing the interests of consumers and small businesses respectively, and where the resultant dominant company has been created under sections 12 or 13 such appointments shall be made by the Secretary of State according to the provisions for public appointments.

(5) The Financial Services Agency may as appropriate make regulations to give effect to subsections (3) and (4).

(6) The markets referred to in subsection (1) shall be in—

(a) retail banking services for individuals;

(b) mortgage provision for domestic housing;

(c) advancing of credit for small businesses;

(d) banking services for small businesses;

(e) mortgage provision for small businesses.

(7) The Secretary of State or the Financial Services Authority shall have the power to propose variation of the markets defined in subsection (6) subject to the agreement of both Houses of Parliament.”

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