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We are not looking for a transfer order, but if there were one, I would hope to find that the Treasury would establish best practice.
Baroness Ford: My Lords, I ask my noble friend to take on board the point about UKFI. I absolutely support the sentiments expressed by the noble Baroness, Lady Noakes. UKFI is active in those banks owned or part-owned by the Government. The basis on which it is operating is not entirely clear. It has not been helped by the transfer of personnel. I make absolutely no criticism of Sir Philip Hampton, but to be in charge of UKFI one day and become chairman of RBS the next confuses people who are not as close to the situation as banking professionals—I should declare an interest: I work for a Canadian bank—or politicians. It is incumbent on the Government to be much clearer about the regime under which UKFI is operating. I urge my noble friend to attend to that with all speed.
Lord Myners: My Lords, I first congratulate my noble friend on working for a Canadian bank, a jurisdiction in which the experience of banks has been commendable by comparison with so many other jurisdictions. We were very fortunate that Sir Philip Hampton agreed to stand down as chairman of UKFI and accept the invitation from the board of the Royal Bank of Scotland to become its chairman. We will make every effort to ensure that there is good understanding about the role of UKFI. We have been very clear as to the objectives of UKFI. For my part, I am very keen that UKFI should be an exemplar as an investor. The noble Lord, Lord Northbrook, and I share a background in fund management. We have probably both seen examples of good investor behaviour engagement and too many examples of inadequate ones. I hope that UKFI will set new standards.
That also speaks to the point made by the noble Viscount, Lord Eccles. There is global recognition that bank accounting and reporting had certain shortcomings. That is being addressed by regulators and accounting standards bodies throughout the world. We will encourage improvement in that respect. I would expect the Treasury to match very best practice in its own reporting. If the accounting and regulatory professions and bodies take us to a further phase of new, fuller and more comprehensive reporting, I would very much hope that the Treasury would act in alignment with those new standards.
Baroness Noakes: My Lords, this has been an interesting debate and I look forward to the Minister writing to me if he has anything to add. He may also choose to add when the framework document for UKFI will appear; that would be helpful information. Beyond that, I shall express no sympathy whatever for the Minister having boxes delivered at all hours of the day and night; that is what he chose. I beg leave to withdraw the amendment.
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20: After Clause 21, insert the following new Clause—
(1) The Treasury may by order make provision concerning a remuneration committee in consequence of and furtherance of this Part and of Part 3 of this Act.
(2) An order (“a remuneration order”) under this section—
(a) shall be made by statutory instrument, and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(3) Before making a remuneration order, the Treasury shall consult—
(a) the FSA; and
(b) the Bank of England.
(4) The order may amend or modify the effect of an enactment passed before the commencement of this Act.
(5) The order shall enable the Treasury to appoint a person (with his consent) (“the appointee”) to sit as a full member of the remuneration committee of a bank, notwithstanding any provision in its constitution or any other agreement or arrangement.
(6) The person appointed under this section shall enjoy the immunity of an agent under section 234(2)(a) of this Act, save for the general duties of a director under Chapters 2 and 3 and Part 10 of the Companies Act 2006.
(7) A remuneration order may provide that entitlement to payment of any remuneration recommended by a remuneration committee shall arise only, notwithstanding section 439(5) of the Companies Act 2006, if it was approved—
(a) by the appointee, or
(b) in the absence of his approval, by the FSA.
(8) In this section “remuneration committee” means—
(a) in the case of a quoted company, any committee or body which prepares or drafts a remuneration report under sections 420 and 421 of the Companies Act 2006 (duty to prepare, and contents of, directors remuneration report) intended to be presented to the shareholders meeting as the directors’ remuneration report under section 439 of that Act (quoted companies: members’ approval of directors’ remuneration report); or
(b) in the case of an unquoted bank, any committee or other body which prepares such similar information and material regarding remuneration as shall be specified by the order; or
(c) in the absence of any such committee or body, the board of directors itself.”
Lord Wedderburn of Charlton: My Lords, the amendment raises the question raised in Committee when my noble friend Lady Turner of Camden and I tabled an amendment concerning the operation of remuneration committees, which in all companies and most banks recommend the rewards and remuneration for directors. In my unavoidable absence the first time that the new clause that the amendment would insert was relevant, my noble friend Lady Turner spoke on 14 January concerning what had happened with regard to that remuneration over the years and the resentment that it had caused over a wide scan of British society. Indeed, this afternoon your Lordships have heard of remarkable events: the unusual taking to the streets by British workers in an almost Gallic fashion. This has in part been fuelled by that powder keg of resentment and the inequalities which helped to ramp up British society.
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The amendment is different from the one in Committee, as indeed it must be. It raises the question of remuneration committees in the weak form that the amendment in Committee sought to insert—namely that the Treasury should have power to appoint a person to a remuneration committee—and it goes on from there. I have two questions for my noble friend. First, has he rethought his objections to the weaker amendment brought forward in Committee? Secondly, does he have any similar objections to the stronger one which takes account of what was said by some speakers at that stage?
All speakers in the debate in Committee, including the Minister to some extent, expressed strong sympathy with the concerns that lay behind the amendment. This is hardly surprising. When I first wrote and spoke on these questions in your Lordships’ House in 2003, for example, it was difficult to get people to believe that directors had had their remuneration raised in the previous 10 years by 288 per cent instead of the 45 per cent which overcame most salaries and remunerations in society. The top bankers, whose irresponsible practices have been part of the reason for the crisis into which we have fallen, must not be allowed to profit from any of the provisions in the Bill. It should be made explicitly clear, not merely implicitly clear, as the Minister and others have sometimes argued, that measures can be taken to prevent that happening.
Indeed, President Obama, in his recent broadcast to the American people, said that the measures in America need,
- “transparency, rigorous oversight and clear accountability so taxpayers know how their money is being spent”.
With the billions of pounds of taxpayers’ money being offered to the banks in our jurisdiction, that formula would be adequate only if one adds what my right honourable friend the Prime Minister always adds in his descriptions of what is being done: that there must also be fairness, in a social sense across the board, in the results of what is being done.
All speakers in Committee suggested that the weak form of the amendment that was then moved had a particular defect. The noble Lord, Lord Higgins, for example, said, at col. 1652, that it was very modest and that it was still open to colleagues on the remuneration committee to ignore the appointee’s voice, which is meant to be the voice of public opinion and reasonableness, because they could not follow his objection to the remuneration that was being proposed.
As my noble friend Lord Borrie pointed out, the non-executive directors, who are supposed to keep a special eye, as he put it, on the remuneration of executive directors, are somewhat disinclined to vote down the proposed remuneration in companies in which they are merely non-executives. In Committee, I quoted from one of the many books that make a general point about the defect of the remuneration committee regime that we exercise in our law. We must not pass a Bill that says nothing about this question.
There is widespread public resentment and concern, to which I have already referred, that when a bank falls within Part 1 or Part 3 of the Bill—I am entirely responsible for the defect in my amendment on the Marshalled List, in which Part 1 is printed without the
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My noble friend and I therefore tabled Amendment 20 to cure the defect which a number of your Lordships pointed out in Committee: namely, that the appointee of the Treasury might be put on a remuneration committee and be ignored. That is a justifiable objection if the rest of the proposals are accepted. We cannot rely either on institutional shareholders to take the point on remuneration committees or on directors who have shown that they cannot be trusted not to restart the same old spiral into huge excesses that are quite unjustified in any social sense, and at the same watch working men and women risk and lose their jobs and their futures in a society in which they have so much influence.
My noble friend and I sought to cure this defect—as I said, the noble Lord, Lord Higgins, among others, pointed out that the voice of the Treasury appointee had no sanction behind it and could be ignored without consequence by other members of the remuneration committee as he did not have a decisive voice—in subsection (7)(a) and (b) of our proposed new clause, which seeks to provide for the necessity of approval by the Treasury appointee, or alternatively by the FSA, which will have been consulted by the Treasury before any such order will have been made, as your Lordships will see from the Marshalled List.
If it is objected that this takes the matter out of the hands of the normal machinery of banks and companies, shareholders and the other normal instruments of the law, the answer is that it is time for something to be done. Billions of pounds of public money have been put into these institutions and especially into the lack of activity by institutional shareholders, who should pay special attention to the issue. Should this be so—and it is—and they have failed in the past to deal with the issue, and directors have felt free to abuse the institutional gap that this has created, then there is a need for new institutions. On 4 January, the president of the CBI said that these problems need a new institutional base. Today, with £37 billion of taxpayers’ money engaged, it is not surprising if that argument gains further force every day. Your Lordships overlook it at the peril of us all.
If it is said that the time is not yet ripe to deal with this matter in regard to banks, when the Companies Act 2006 failed to adopt an institutional regime by regulation of companies as a whole, my reply is that those who resort to the feeble excuse of the principle of unripe time should remember Professor Cornford’s argument. Time is like the medlar: it has a habit of going rotten before it is ripe. This is not a Bill in which your Lordships should exercise that kind of option.
It is time that regulation in the public interest extended its beneficial range beyond the frontiers that have so far protected directors’ remuneration from abuse. The old protectionist notion that company institutions are enough to protect society against the scandals of the past two decades has now been shown
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Lord Myners: My Lords, this amendment addresses an issue of concern with regard to the levels of remuneration paid to directors by some of our largest financial firms. I share my noble friend Lord Wedderburn’s concerns about the impact of excessive remuneration, which can cause undesirable behavioural distortions, particularly where it is inadequately linked to performance and produces outcomes that are manifestly unfair. But I must also point out that we debated these matters in Committee not once, but twice, with my noble friend showing a formidable knowledge of the procedural avenues available to those determined to press their case in your Lordships’ House. I can only reiterate what I said twice in Committee: the issue of pay and incentives for the directors and employees of a private firm—it is important to emphasise that it is also about employees, because if we have concerns about remuneration they should not be limited to the remuneration of directors—is a matter for that firm, not the Government. There is surely little place for government in determining wages and incomes, a policy approach that has not been attempted for many decades.
I am not as persuaded, however, that there is not a public interest concern regarding the process followed in framing remuneration decisions and regarding the role of shareholders, particularly institutional shareholders, in the determination of those frameworks and outcomes. There is a real issue which the FSA is actively addressing around the impact of incentives in remuneration. The chief executive of the FSA wrote to the chief executives of the major banks in October to clarify the expectations of the authority with regard to remuneration. This letter sets out some high-level criteria for good and bad remuneration policies and urges firms to review their remuneration policies against those criteria. The FSA has followed it up through active engagement with firms on their remuneration policies and has reiterated the importance it places on appropriate and balanced remuneration.
I can assure noble Lords that the issue of excessive remuneration regimes is one that the Government take seriously, particularly to the extent that they may give rise to reckless behaviour, threatening the stability of financial firms and the financial system. But to the extent that this is an issue related to the prudential oversight of the banking sector, it is fundamentally a matter for the FSA. I can assure noble Lords that the FSA is tackling the matter with vigour.
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I turn once more to the specific proposals put forward by my noble friend. I should reiterate that I find myself in some agreement with the comments made in Committee by my noble friend Lady Ford and the noble Baroness, Lady Noakes. The proposal to insert a government appointee into the governance structure of independently managed firms would undermine that very independence and weaken the governance links that bind together the employees, directors and shareholders of a firm. I should note that where firms in which the Government have a shareholding continue to be run on an independent basis and the Government are not seeking to interpose themselves into their governance structures, this also applies to their remuneration policies. Having given my noble friend this assurance, I wonder if I might prevail upon him to withdraw his amendment.
Lord Wedderburn of Charlton: My Lords, I am very grateful to the Minister for his answer. My mind naturally returns to the many occasions on which the late Lord Dormand tried again and again, almost weekly, to put before your Lordships the scandal of remuneration being extorted from companies and banks by directors and other highly paid executives. If my noble friend is not happy that the amendment is aimed only at directors and he has other people in mind, I have already said that he has the draftsmen at his elbow to put forward a new clause in an amendment to cover those aspects which he has hinted at and to which he spoke in Committee. Then, he said that he knew that there were people earning 20, 30 or 40 times what directors sometimes earn in banks. If he wants those people to come within the scope of the clause, I shall be the first to vote for it, as I hope will the rest of your Lordships.
As for the question of independence, it was that which made me think of Lord Dormand, who got such poor answers from Government after Government, including this one, when he put the matter to this House in Question after Question. He was told that it would interfere with the independence of companies and banks. At the time, he mainly asked about companies and was told that fixing the remuneration of directors would prevent them being independent. In Committee, my noble friend Lady Ford made a similar point in different words, which I carefully studied before helping to draft this amendment.
It is an argument of despair to say that we can do nothing. I understand the Front-Bench position put to us by my noble friend to be, “Yes, of course it is a scandal but we cannot do anything about it by regulation because that would interfere with the independence of the whole operation”. Either this is a Government, an institution, who are here to put the public interest into legislation or they are an institution in thrall to the institutions that they fear to control. Regulation does not have frontiers set by natural law; it has frontiers set by men and women who are bankers or legislators and who choose where the frontier of regulation will stop. If in this instance this Government choose the frontier of regulation to stop at the walls of the Bank, then on their head be it when the resentment to which I have referred grows stronger and stronger among working people, who see the results of such choices in their very livelihoods.
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I promise the Minister that I shall not come back to this matter; I have no opportunity to do so. However, I will leave it only on condition that he thinks again about the consequences to which I have referred. He plays a major and vital part in financial affairs for this Government. That is why he sits where he sits, and that is what he must think about as a consequence of the Government’s next electoral liabilities. I beg leave to withdraw the amendment.
Clause 22: Termination rights, &c.
Amendments 21 to 23 not moved.
Clause 24: Procedure: instruments
24: Clause 24, page 11, line 31, at end insert—
“( ) As soon as is reasonably practicable, the Treasury shall lay a copy of the copy share transfer instrument sent to it under subsection (1) before each House of Parliament.”
Baroness Noakes: My Lords, I shall move Amendment 24 and speak to the other amendments in my name in this group. I say at the outset that I anticipate a harmonious outcome for this group of amendments. Amendments 24 and 32 amend Clauses 24 and 41 respectively so that where the Bank of England makes a share transfer instrument or a property transfer instrument and sends it, in accordance with those sections, to the Treasury, the Treasury must in turn lay it before Parliament.
In Committee, we debated the Delegated Powers and Regulatory Reform Committee’s recommendation that the House consider a parliamentary approval process for these instruments because they have the same effect as temporary public ownership. In Committee, I was persuaded—just—that that procedure was unnecessary, although whether that proves to be the correct judgment will be tested only when the Bank exercises those powers if, indeed, it does so. If there is any doubt about the appropriateness of the Bank's action, that could well call into question whether it should be allowed to have confiscatory powers without direct parliamentary oversight. However, as I say, I have accepted that point.
My fallback position was that there ought to be at least a formal notification to Parliament. The Government agreed to take the issue away and they have tabled Amendments 25 and 31. They deal with the same points as my Amendments 24 and 32 and therefore, if asked nicely, I shall withdraw them.
For the convenience of the House, I shall speak briefly to Amendments 32 and 33, which are in this group, although I do not intend to move them. In Committee, we debated the parliamentary procedures attached to the various supplemental and other types
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Lord Myners: Government Amendments 25 and 31 are a direct response to the amendments tabled in Committee by the noble Baroness, Lady Noakes. They propose that when a share transfer instrument or property transfer instrument is made by the Bank of England, the Treasury should lay it before Parliament. I note that the noble Baroness has brought these amendments forward again on Report. During the Committee stage debate, I signalled the Government’s intention to reflect on this matter, and the proposed additions to Clauses 24 and 41 are the result of that reflection. Should the Bank of England make a share or property transfer instrument, these amendments require the Treasury to lay a copy of such instruments before Parliament, thereby allowing Parliament to have direct access to the instruments. I hope they achieve what the noble Baroness was seeking to achieve with her amendments. I believe they reflect a constructive response to the Delegated Powers Committee’s recommendation that the House reflect on the matter of parliamentary accountability for these instruments. Accordingly, I ask, ever so nicely, that the noble Baroness withdraw her amendment.
Baroness Noakes: My Lords, the Minister asked so nicely that I can do nothing but withdraw my amendment.
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