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Government Amendment 66 is consequential to government Amendments 15 and 17. The Banking Liaison Panel’s remit will extend to building societies because the special resolution regime generally applies to building societies, as provided for by Clause 83. However, a consequential amendment to Clause 82
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As I have stated before, the creation of the expert liaison group has been welcomed by interested parties and already provides invaluable advice to the Government on the development of policy and the impact of their powers on the market. I hope that, when it is reconstituted as the Banking Liaison Panel, it will continue with this good work. The government amendments proposed today ensure that this work is given a firm and broad statutory basis. Given the breadth of the Government’s response to the concerns that she raised in Committee, I respectfully invite the noble Baroness not to move Amendment 16.
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Baroness Noakes: My Lords, I wholeheartedly endorse the Government’s amendment. They have produced an amendment that goes beyond my amendment, which is something one does not often get to say. It responds to the debates that we had in Committee. This is an excellent group of amendments and I commend the Minister.
Viscount Eccles: My Lords, I hope that it is recognised that the Government’s amendment and the stabilisation regime will have an effect before the regime is ever used on the banks. The certainty with which the banks understand the possibility of the regime being enforced will have a great effect on the way in which they behave and on their confidence. I make no apologies for reiterating that one of the great issues facing us is restoring the banks’ confidence in themselves.
Lord Myners: My Lords, I thank the noble Viscount for that observation, which is absolutely spot on.
17: Clause 10, page 6, line 7, leave out “and third party compensation orders” and insert “, third party compensation orders and orders under section 75(2)(c)),
“(b) the code of practice under section 5, and
(c) anything else referred to the panel by the Treasury.”
Clause 13 : Temporary public ownership
18: Clause 13, page 7, line 22, at end insert—
“( ) A share transfer order made under subsection (2) shall state the period of time that the Treasury estimate that temporary public ownership will last.”
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Baroness Noakes: My Lords, this amendment would insert a new subsection into Clause 13, which deals with the Treasury’s so-called temporary public ownership power. In Committee, when we debated an amendment that sought to define the likely duration of “temporary” as three years, we established that, at best, “temporary” was a statement of intent rather than a matter limiting the use of the option. As the House will know, nationalisation in all its guises is not the preference of my party, but we can just about live with it if it is genuinely meant to be temporary. That is why I decided to pursue the definition.
I was convinced by our debate in Committee that to specify any time limit, even in the form of my Committee amendment, which was framed in terms of expectation, would convey the wrong sense. However, at the end of the debate, I remained concerned that there was no mechanism for holding the Government to account on the non-permanence of the option, if that is what it turned out to be. Our debate crystallised the issue for me as being not exact timing but the Government sticking to their word that the power would be used for temporary ownership.
There are currently two banks in temporary ownership following the use of the powers in the 2008 Act. In neither case is it clear what timescales are involved. There was no clarity at the time of nationalisation and there is no more clarity now. In the case of Northern Rock, there was a business plan that involved a rapid return of government debt, though no clear plan for the return of the bank to the private sector. More recently, the debt rundown strategy has been superseded by Northern Rock returning to mortgage lending, although it is not clear whether that is a commercial strategy or a policy of soft mortgage lending to support the housing market. In the case of Bradford & Bingley, we know nothing whatsoever, as no business plan has yet emerged for the rump of the mortgage business. There is no exit plan, at least in the public domain, for either of them.
Amendment 18 would merely require the Treasury to state in the order taking a bank into public ownership its estimate—no higher than that—of the duration of public ownership. That estimate would naturally form the basis of the Treasury’s subsequent accountability to Parliament. If there are many such orders—we hope that there will not be—we may build up a pattern over time about how clever the Treasury is at seeing the exit point from public ownership. In individual cases, we could see whether the Treasury knew enough about what it was taking on in these banks and about how quickly it could turn a bank around.
The next group of amendments deals with the accountability of banks while they are in the temporary public ownership category. This amendment deals with the rather different issue of the accountability of the Treasury for that ownership in fact being temporary. I beg to move.
Lord Davies of Oldham: As the noble Baroness has faithfully reflected, we debated “temporary” in Committee, when the Government were somewhat unfairly accused of spinning that word. The noble Baroness nods at “spinning”. I see that she still believes that and that I have not got very far in convincing her of the
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Moreover, however imprecise and open to interpretation “temporary” may be, it signals that the Government’s intention is not to keep banks in public ownership permanently. In Committee, we also debated the benefit of setting an arbitrary date or time limit on how long a bank could remain in public ownership. This amendment would allow the Treasury to set a time limit for each transfer on a case-by-case basis. But even if this were determined flexibly on a case-by-case basis, any time limit would be arbitrary in the absence of a clairvoyant ability to anticipate accurately how long a successful resolution procedure to take a bank back into the private sector might take.
As I said, factors other than the meeting of an arbitrary set deadline should determine when a bank is returned to the private sector. Temporary public ownership should come to an end when the objectives of the special resolution have been achieved. It should not end before they have been achieved. The noble Baroness may ask what harm the amendment could do, as it calls only for the Treasury to estimate the relevant period. However, if it seeks only an estimate from the Treasury, what on earth is its benefit? It would be an exercise in arbitrary assessment.
Having reflected on this question, I believe that the benefit of the Government’s position is twofold. First, it signals an expectation of debate in Parliament. Parliamentary scrutiny is a great benefit. The amendment that we have brought forward for an annual reporting on banks in public ownership will allow that debate to take place. Further, as the transfer order will be made through the negative procedure in Parliament, Parliament may call for a debate in respect of the order. This would provide the opportunity for Parliament to question the expected time limit. For the reasons that I set out, the authorities will, first and foremost, seek to pursue a strategy to return banks to the private sector and will do so in a way that best meets the special resolution objectives. They will not pay too much regard to inevitably arbitrary deadlines.
Although transparency is undoubtedly important, as the noble Baroness emphasised repeatedly, it may ultimately be less than helpful to force the Government to signal an intention that they may be obliged to change. I realise that this argument may lead to anxiety that the Government will act to take a bank into public ownership before an exit strategy has been planned in detail. That may be the case, but the authorities may have to act very quickly to stabilise a failing bank whose failure would threaten financial
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It is certain, however, that the period of public ownership will end; that is why the word “temporary” is used in the legislation. That is the fundamental principle, which the market and public will legitimately expect to be achieved and in respect of which Parliament can call the Government to account. That is the basis of the Government’s position. I hope that the noble Baroness is sufficiently convinced of our genuine intentions with regard to “temporary” to be able to withdraw her amendment.
Baroness Noakes: My Lords, I thank the Minister for setting out the Government’s objections to my modest amendment, which was designed to get the Treasury to say what it thought “temporary” meant in any individual case. The Minister said that, if the Treasury did that, it would signal an intention that it might be forced to change. Well, exactly. There is nothing wrong with it changing, but the Treasury should then be accountable to Parliament and others for that change of tack. At the moment, such information is kept out of public view unless it is dragged out of the Treasury, probably before the Treasury Select Committee in another place. There is no other forum for examining the Treasury’s actions and intentions because there is nothing on the public record against which the Treasury can be judged. At the end of the day, I suppose that we will find out whether temporary public ownership will certainly end, as the Minister put it.
Lord Davies of Oldham: My Lords, is the noble Baroness seriously contending that Parliament would not find a way of holding the Government to account if the operation of Northern Rock was such as to cause enormous public anxiety and a feeling that it would be kept in public ownership in perpetuity, or that the bank was being directed in anything other than the arm’s-length way that the Government had indicated?
Baroness Noakes: My Lords, I am sure that Parliament would find a way, but it would have to search for it. Northern Rock is a very interesting example, because there has been a change of tack and a diversion into additional mortgage lending for reasons that may not be related to the preparation for its exit strategy into the private sector. I shall not press the amendment further, because who determines whether temporary public ownership is temporary will almost certainly not be the current Government; it will be overseen by another Government. On that, I rest many hopes. For that reason, I can with some comfort withdraw the amendment. I beg leave to withdraw it.
6.45 pm
19: After Clause 13, insert the following new Clause—
“Transparency: temporary public ownership
(1) The Treasury shall ensure that regular financial and other information is made available about—
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(a) banks which have been taken into temporary public ownership under section 13,
(b) banks which are in public ownership as a result of the exercise of the powers in the Banking (Special Provisions) Act 2008 (c. 2),
(c) any company within paragraph (b) of section 13(2) of this Act.
(2) The information referred to in subsection (1) shall enable an understanding of—
(a) the financial position, prospects and plans of each of the banks referred to in subsection (1),
(b) the amount of any guarantees or similar arrangements in respect of those banks which may result in a call on public funds, and
(c) such other information as the Treasury considers relevant.
(3) Information made available under this section shall be laid before each House of Parliament and shall be published in such manner as the Treasury shall determine.”
Baroness Noakes: I thought that I was going to have a rest. The amendment calls for regular financial and other information to be made available to Parliament in respect of nationalised banks. I was rather taken aback when in Committee the Minister said that this was not a problem, because the Treasury was always accountable to Parliament on everything. If only. I shall not, however, pursue that issue further, because the Government have tabled Amendment 60, which, although not as extensive as my amendment, goes some way to dealing with the basic issue of accountability to Parliament.
I intend to give way to the government amendment at the appropriate time; however, I wish to raise some detailed points. My amendment asks for a broader range of information than the activities mentioned in the government amendment and, in particular, asks for any details of guarantees. The need for better information about this latter aspect is dealt with in the recent report of the Treasury Select Committee in another place and, to some extent, crosses over with information that I seek in an amendment to Clause 227. I shall leave that issue until then.
However, there are some other important gaps in the information required to be sent to Parliament. First, there are banks already in public ownership by virtue of the 2008 Act. I noted in Committee that the lack of accountability information was a weakness of that Act. Secondly, there is no information about UK Financial Investments—a rather shady body which is being kept from public view—getting control of billions of pounds of taxpayers’ money. These bodies are dealt with in my Amendment 19, but not in the Government’s Amendment 60, which is why I have tabled Amendments 61, 62 and 63 to that government amendment. I look forward to the Minister’s explanation of his amendment and his reasons for the exclusion of the important bodies to which I have referred. I beg to move.
Lord Northbrook: My Lords, I welcome my noble friend’s Amendment 19. I am very pleased to see that government Amendment 60 has been tabled, but I reiterate the advantages of Amendment 19, which includes,
- “banks which are in public ownership as a result of the exercise of the powers in the Banking (Special Provisions) Act 2008”,
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and the inclusion by my noble friend of,
- “the amount of any guarantees or similar arrangements in respect of those banks which may result in a call on public funds”.
I reiterate her comments on UKFI, which I agree is a rather shadowy organisation that we do not seem to know enough about.
Lord Myners: My Lords, I not sure whether the description was that UKFI was a shady or a shadowy organisation.
Baroness Noakes: My Lords, I shall withdraw “shady” and stick with “shadowy”.
Lord Myners: My Lords, government Amendment 60 requires the Treasury to lay before Parliament every year a report on the activities of any bank in temporary public ownership. This is a direct response to concerns expressed by the noble Baroness, Lady Noakes, that insufficient reporting requirements are placed on banks taken into temporary public ownership.
As I have stated previously, there are numerous ways in which the Government are accountable to Parliament on their role with regard to banks in temporary public ownership. Parliament can already request Treasury Ministers to report on the activities of a bank in temporary public ownership whenever it wishes, including, should it so desire, on a more-than-annual basis. Furthermore, as I made clear in an earlier debate, all the usual accounting and reporting requirements under the Companies Act 2006 will apply to banks in temporary public ownership.
However, having reflected on the matter, the Government are persuaded that it would be helpful to have an express requirement to produce a report on the activities of a bank in temporary public ownership. Therefore, I have brought forward Amendment 60, which I believe has the same effect as that brought forward by the Opposition in Committee. I should note that this reporting requirement includes banks taken into public ownership under a company wholly owned by the Treasury or a nominee of the Treasury.
The noble Baroness, however, seeks to amend the Government’s amendment by extending it to banks taken into temporary public ownership under the Banking (Special Provisions) Act 2008. Of course it is hard to disagree with the principle behind the noble Baroness’ amendment, but I believe that such an addition in this Bill is neither necessary nor desirable. It is right that the Banking Bill requires reporting on activities taken under the powers within it, but I do not believe that the requirement should extend back to powers exercised under the Banking (Special Provisions) Act. For that reason, the amendment is not appropriate. However, I said that I agreed with the intention behind it. The Treasury has demonstrated its commitment to sharing information on the important matter of the activities of banks in temporary public ownership; for example, the publication of the business plan for Northern Rock and the publication of its accounts. For that reason, the noble Baroness’s amendment is unnecessary.
On the “shadowy” UKFI, we will publish a framework document for UKFI in due course, which will set out much more information on that body. However, we
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On the issue of there being no requirement in the Banking (Special Provisions) Act 2008 for reporting on Northern Rock, as I have said, Northern Rock has already demonstrated its openness through publishing its annual report and accounts in April 2008, six monthly trading statements and its half-yearly results in October 2008.
On the noble Baroness’s question about guarantees, contingent liabilities have to be declared in departmental accounts, in line with general public accounting principles. In cases where confidentiality is required in the public interest, the report is made to the chair of the Public Accounts Committee and relevant Select Committee. On that basis, the noble Baroness’s amendment is unnecessary, and I invite her withdraw it.
Baroness Noakes: My Lords, I have two questions for the Minister. He referred to the information made available by Northern Rock. It was notable in his description that he did not refer to Bradford & Bingley; I do not think that even he could claim that there has been a lot of information in the public domain about that. Does this commitment to information apply to Bradford & Bingley? Some of us might think that that was not the case.
Secondly, on UKFI, the Minister referred to the framework document. Can he say, first, when we might expect it? UKFI has been meddling in nationalised banks for quite a long time, with no framework document as yet. Secondly, will that framework document deal with the accountability issues of the information flow in the department? That is rather important.
Lord Myners: My Lords, I shall endeavour to help the House by giving noble Lords straight answers to their questions. However, I do so from my memory of a huge volume of papers that I read over the weekend. I assure the noble Baroness that, if she finds herself content with certain amendments on the basis that there will be a change of Government, there is a new world dawning in which one loses personal time, ceases to have any contact with one’s family or personal interests and waits until midnight for the bell to ring to tell you that another box of papers has been delivered in order to submerge you in yet more information.
Nevertheless, on the basis that the occasional fact sticks, I believe that we will be reporting on Bradford & Bingley no later than the end of March. I believe that the framework document for UKFI will include a section explaining how it will report and account to Parliament. If, however, I am wrong on either of those points, I will of course immediately write to the noble Baroness.
Viscount Eccles: My Lords, Amendment 60 is welcome but is written at a time when it is pretty clear that the banks did not know how to report on their activities. Just to say that there will be a report about the activities of any bank is a pretty bold statement if it encompasses that we should all understand when we read the report exactly what that bank’s situation is. Knowing that if the special regime is brought into play
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