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Lord Whitty: Although this amendment appears to be somewhat prescriptive, it is, I assure my noble friend, essentially probing. There may be arguments as

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to whether it is in the right part of the Bill, but it seems to me that it is because we need to mention the impact of all this on consumers and competition, and we need to mention it before we come to the next part of the Bill, entitled “Incidental functions”. This is not incidental; it is a central consequence of the measures that would follow the use of any of the three special provisions outlined in the Bill.

I am strongly in favour of the majority of the provisions in the Bill and indeed of the announcements that my noble friends Lord Mandelson and the Minister have made in relation to loans to business. However, whichever way we look at it, it is inevitable that these prospective interventions will cause major changes in the structure of one of our most important industries. Essentially, it is an industry on which the rest of the economy is dependent. It is also a service or industry on which ordinary people and small businesses depend very heavily. If we use the part-nationalisation or temporary nationalisation provisions, we create new state-owned companies. If we use the provisions for transfer into merged companies, the state is intervening to create a large company. If we use the bridge proceedings—at least, for a time—again, the Bank of England is using its leverage to create a substantially large banking company.

All these changes occur in an industry in which, so far as concerns most people who seek deposit facilities, mortgages, loans and other credit facilities, the range of options is already relatively small. It is already an oligopolistic industry, and that is why many of the regulations administered by the Bank of England and the FSA exist.

I declare my interest as chair of Consumer Focus. Looking after the interests of those who rely every day on retail banking, mortgages and credit from the banking system for their livelihoods and their very quality of life must be an essential part of the Bill. Objective 3 refers to the interests of depositors. However, the issue goes wider than that because we all depend on the banking system to work efficiently.

The service provided by the banking system benefits from competition, but the interventions under each of these three headings will almost inevitably restrict competition, at least temporarily. When we came to my noble friend Lord Mandelson’s first debate in this House, on the issue of Lloyds/HBOS, I asked him whether there was an opportunity to revisit what effectively was the exemption under that order for the merger. We were creating a retail banker which has 30 per cent of the market and a mortgage provider which has 30 per cent of the market. In any other circumstances, there would have been a reference to the competition authorities to see whether this was operating in the interests of the consumer.

This amendment says that, where any of the interventions creates the largest company in the particular sub-market which I suggest definitions for and has more than 25 per cent of the market, there is an a priori reason for referring that to the competition authorities within 18 months—one may argue about the timescale—if that structure still exists. The consumers,

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both business and individual, require some assurance that a reference will at some point occur to the competition authorities.

I also suggest that, because we are creating either a state bank or a merger sponsored by the state, some institutional provisions should be provided. The suggestion here is that if such a dominant bank were created in any of the markets I identify then that bank—which in many cases will be a state or part-state bank—should create within its structure a small business panel and a consumer panel. That may not be enough to create an institutional form but it recognises that a banking system and those who control, manage and direct banks are in a relationship not only with the whole economy but with millions of individuals. Their interests need to be reflected within that structure.

In earlier debates the Government by and large rejected the view that, although banking in some sense is special, the directors appointed by the state—I do not want to reopen this argument—or the Bank of England are no different from any other directors. We are not using the public interest at the director level to look after the wider interests of the consumer and of the taxpayer; I am suggesting we need some other measure so to do. The suggestion here is that we should establish two panels in consultation with those who represent small business and consumers. Those are the two measures: an automatic reference, or one that is more automatic after a certain time, to the competition authorities; and the creation of some structure which represents the key dependence of the banking system on small business and individual consumers.

I do not expect the Government to accept this tonight—maybe they will later on; I would be delighted if they did—but at least the issues which underline this amendment need to be addressed by the Government in the interests of wider society and the wider economy. I beg to move.

Lord Northbrook: While in theory I am sympathetic to the amendment of the noble Lord, Lord Whitty, and I understand his genuine fears about competition, in the circumstances of this Bill we are in emergency measures and, with the greatest respect, his amendment would create more uncertainty in an already difficult situation.

Lord Newby: I am grateful to the noble Lord, Lord Whitty, for bringing forward this amendment. I have a lot of sympathy for both its arms. I have a question for the Government, given that I think these are sensible ideas, particularly in respect of the consumer panel and the small business panel.

Would the Government consider suggesting to the Lloyds Banking Group and RBS that they now establish such panels, because the Lloyds Banking Group has a very large share of the market and RBS is a largely nationalised bank? For both banks there are real questions, among their consumers of ordinary retail deposits and their small business consumers, about the way they are behaving or have behaved. This would be a good use of government influence on those two banks, which are already de facto partly nationalised.

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Baroness Noakes: We have considerable sympathy with the issues that the noble Lord, Lord Whitty, has raised. I think that we all felt a touch uncomfortable at the market position created by the Lloyds/HBOS merger and the way in which that was dealt with. However, after such a position has been created, I have a problem with instigating what can be a lengthy and costly process both for the Office of Fair Trading and for the bank concerned if there is no evidence of abuse of dominant market position. If there is no abuse, I rather hesitate to impose an investigation on everybody and I am uncomfortable with trying to impose panels on to organisations that we hope will be operating on commercial lines as far as possible. Panels may be fine for organisations such as the FSA and other public bodies, but I think that they are less obviously beneficial for companies that are operating in markets and to commercial remits.

9.45 pm

Lord Myners: I welcome my noble friend’s support for the central thrust of the Bill and I note the measured and constructive way in which he proposes the amendment. To the extent that we will ever have to use the special resolution powers that the Bill creates, I sincerely hope that it will be in the case of the smallest deposit-taking institutions rather than the major banks. It would be wrong to assume that, because of the circumstances in which we now find ourselves, this legislation is framed solely to meet the needs of very large banks. That is where the competition issue arises, but it would be wrong to assume that every use of the special resolution powers would raise the type of competition issue to which my noble friend referred in his comments in support of this amendment. That leads me to find myself in a rather similar position to that of the noble Lord, Lord Northbrook, which is to say that, where special resolution is under contemplation for a very large institution, this issue of competition is just one of many factors that would have a bearing.

The amendment is designed to make provision for a situation where the exercise of one of the stabilisation options results in a company with a dominant market share. In such circumstances, as defined in the amendment, two provisions would come into force. The first provision is that, if the company is still a dominant market player, as defined in the proposed new clause, after 18 months, the case must be referred to the Office of Fair Trading.

It is important to note that the OFT and the Competition Commission already have functions that can address competition issues. For example, they have an active role under Part 4 of the Enterprise Act 2002 in investigating markets that do not appear to be meeting the needs of consumers. This can have a variety of outcomes, including the OFT making recommendations to the Government or referring the market to the Competition Commission for a more detailed investigation. Therefore, we can be satisfied that the competition authorities will continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy.

An example of another safeguard can be provided. Part 6 of the Enterprise Act provides cartel offences, such as those relating to price fixing. Further to this, a

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private sector purchase, a bridge bank and a bank in temporary public ownership will continue to be regulated by the FSA in the same manner as other financial service providers are. For this reason, while respecting my noble friend’s intention, I do not believe that it is necessary for the Bill to include provisions on referrals to the OFT.

Furthermore, I am not convinced that this Bill is the appropriate place to provide legislation on such matters. It is for the Competition Act, the Enterprise Act and related legislation to cover, as they already do, the remit and powers of the OFT and the Competition Commission. On that basis, I do not, with all respect to my noble friend, agree with the first part of the amendment.

I turn to the second part of the amendment, which would require certain panels to be set up to advise the dominant company following the exercise of a stabilisation power on matters important to consumers and small business. First, I agree with the broad thrust behind that part of the amendment. It is of course right that the policies of private sector companies should be informed by the needs of their consumers, including small businesses and individuals. However, I do not believe—here I find myself on common ground with the noble Baroness, Lady Noakes—that it is the place of legislation to enforce on companies a structure such as the panels proposed in the amendment.

The noble Lord, Lord Newby, suggested that we should draw the comments of my noble friend Lord Whitty and the thrust of the amendment to the attention of the chairmen of Lloyds Banking Group and the Royal Bank of Scotland. That I will definitely do, and I will copy my letter to my noble friend and to the noble Lord, Lord Newby, and ensure that they also have copies of their reply. I absolutely find myself at one with the central thrust of the argument that successful organisations are aware of and responsive to the needs of their customers. One could argue that some of the failings that our banks have experienced have been because they became too distant and remote from their customers and too engaged in financial alchemy, as opposed to meeting consumer needs.

I ask my noble friend to withdraw his amendment. I hope that he will take considerable comfort from the views expressed on all sides of the Committee about the importance of the consumer. I also pay great tribute to his great commitment to consumers through his energetic work as chair of Consumer Focus.

Lord Whitty: I thank those who have at least expressed sympathy for what lies behind the amendments. In particular, I thank my noble friend for his commitment on Lloyds/HBOS and RBS. That is very welcome and I look forward to their response. Were the Government to commit themselves to using informal measures to ensure that dominant companies created as a result of one form or other of government intervention take account of the views of individual consumers and small businesses, we would not need to legislate. I remain slightly sceptical that they will in all circumstances so do, but I look forward to the response to my noble friend’s letter to the chairmen of the two banks concerned. Therefore, I will not press that aspect tonight.

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On competition, this does not affect where we are rescuing small depositors; it exists only when, fairly dramatically, we are directly or indirectly creating a dominant company. In those circumstances, given the importance of the banking sector, and the fact that the state is forcing that restructuring, there are special reasons for asking the OFT to have a look at it. Eighteen months may be too soon in an emergency; perhaps we need to give it a little more time. Nevertheless, I say to the Government that it is dangerous to have lifted the normal provisions of competition assessment and therefore to allow something through that would at least have had a cursory OFT inspection. The OFT could look at it in a preliminary way to decide whether it refers it to the Government or to the Competition Commission or takes some further steps.

Lord Forsyth of Drumlean: Wearing his consumer hat, and given his obvious interest in the subject, has the noble Lord looked at this from the other point of view? That is where government intervention in this field disadvantages the consumer. The examples that he cited of RBS and Lloyds/HBOS are good ones, where the Government setting a 12 per cent rate on preference shares has meant that consumers have to pay more for their loans or, indeed, their loans may not be available because the banks clearly want to pay back the preference shares. That is an example where government intervention is acting against consumers’ immediate interest. Has the noble Lord thought about that?

Lord Whitty: As a result of government interventions, there are clearly some disadvantages to certain groups of consumers, to use “consumers” in the widest sense. But there is the bigger picture, as the Minister has said. It was essential to rescue the banks and to intervene in order to restore a degree of confidence in the banking system. That, frankly, is the big picture for consumers at this point. The way the Government have done that can be argued about in terms of the effect on some consumers. This is why I started by saying I support the main thrust of this Bill. There are

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some consequences to consumers by the restriction of competition and I would not want the Government to lose the ability, or indeed the necessity, of having another look at it. This is, after all, the structure of the industry that they have created.

Lord Myners: I am sure the noble Lord, Lord Forsyth of Drumlean, has baited me into responding on this point, standing, as he is, waist deep in his waders, seeing a big, fat fish coming towards him. The noble Lord knows that there is a very significant difference between the rate of interest on a deposit and the cost of risk capital. In the circumstances prevailing in the middle of October, we were advised by our own financial advisors at the Treasury that 12 per cent was an appropriate rate for the instrument that was being offered to and accepted by the banks. Clearly, that was the view of their directors and their financial advisors as well. One major bank chose not to use that route to securing more capital. I salute them for that because our interest was in ensuring that the banks were appropriately capitalised, rather than where they drew the capital from. That bank certainly had to pay more than 12 per cent when you take into account the dilution and the warrants and new instruments they created which gave them short capital.

We could debate this issue for some time. The noble Lord, Lord Forsyth, is no doubt aware that we announced this morning that the Royal Bank of Scotland is converting its preference shares into ordinary shares. I indicated earlier that should the Lloyds Banking Group approach us with a request, we would look at that, as long as it represented good value to the taxpayer, because that is the other side of this transaction.

Lord Whitty: In the light of that, I will withdraw the amendment.

Amendment 105A withdrawn.

House resumed.

House adjourned at 9.58 pm.

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