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This does not mean that they go unreported. Contingent liabilities that are not entered into in the normal course of business are normally reported to Parliament by means of a departmental minute when the commitment is entered into. Of course, some guarantees have to be kept confidential; the established practice is that these are reported in confidence to the chairmen of the Public Accounts Committee and the departmental Select Committee. Contingent liabilities are also reported in the annual departmental resource accounts. There is, of course, full National Audit Office scrutiny and audit in the normal way.

I can appreciate why the noble Baroness and the noble Lord, Lord Turnbull, see a need for additional regular reporting of guarantees or similar commitments entered into under Clause 227(1), but this would not, in practice, add much to the arrangements that I have just described and which would continue to apply. I am afraid that this would also be impracticable, when at least some of the guarantees might be large and might have to be kept confidential. The problem is, of course, that if some commitments are kept confidential while others are not, there will inevitably be a mismatch between some published total and the sum of the numbers in the column above, which it would be hard to conceal. There is no way round this problem.

I hope that I have persuaded the House that there are already in place well established arrangements for accounting and reporting which will cope with most of what may happen under Clauses 227 and 228 in the normal way, and that the additional reporting arrangements in Clause 227(6) and Clause 227(7), which are now repeated in Clause 228, are suitable for the more unusual things that may happen under these clauses. I noted the strength with which the noble Baroness presented her amendment. I hope that, on reflection, she will accept that the Government have considered these issues and she will feel able to safely withdraw Amendment 81.

Baroness Noakes: My Lords, I thank all noble Lords who have spoken. I agree with the noble Lord, Lord Turnbull, that it is important to try to bring together all the schemes that are being used to provide assistance or support in various ways. The amendment deals with the money that comes from Parliament; it does not necessarily capture absolutely everything that goes through the Bank of England directly, but it covers the majority of it. I further agree with the noble Lord on the content of the PBR and the Budget, but we will have that debate another day.

The noble Lord, Lord Newby, is right that it is important to look at a series of reports to see a build-up over time. I think that I thank my noble

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friend Lord Eccles for his contribution on the typing error that has been made on the Marshalled List. I am sure that it is not a major impediment.

The Minister tried to portray the provisions of Clauses 227 and 228 as rather routine. I am sure that much is routine in their structure, although not the latter’s subsections. The issue is that the content is not routine. The content endorses both the payment and the commitment of very large sums of money. We learnt in Committee that this clause is being used to frank the £37 billion already committed via bank rescue 1. This clause will provide the backing for anything that comes out of bank rescue 2, including the guarantees to the Bank of England. This clause will provide the cover for the various guarantee schemes that the noble Lord, Lord Mandelson, has been announcing, as well as other schemes. We are talking about major sums of public money.

The Minister explained about estimates and the Comptroller and Auditor-General, none of which is in dispute. The issue is how we pull information together so that Parliament can, over time, track the build-up of not only the money that has been spent but, more important, the money that has been committed. These are exceptional times and it is right that Parliament should have an exceptional degree of scrutiny of what is being done under the authority provided by the Bill. Parliament should not have to wait for the normal production of annual accounts or the laying of Treasury minutes. The information should be pulled together and explained. This is a very important issue. I do not believe that any of the Government’s objections have real substance. I beg leave to test the opinion of the House.

6.15 pm

Division on Amendment 81

Contents 166; Not-Contents 131.

Amendment 81 agreed.

Division No. 1


Addington, L.
Anelay of St Johns, B. [Teller]
Ashdown of Norton-sub-Hamdon, L.
Astor, V.
Astor of Hever, L.
Attlee, E.
Barker, B.
Bates, L.
Bell, L.
Best, L.
Blackwell, L.
Bonham-Carter of Yarnbury, B.
Bradshaw, L.
Bridgeman, V.
Brookeborough, V.
Brougham and Vaux, L.
Burnett, L.
Burns, L.
Buscombe, B.
Byford, B.
Cathcart, E.
Chadlington, L.
Clement-Jones, L.
Colville of Culross, V.
Colwyn, L.
Condon, L.
Cope of Berkeley, L.
Cotter, L.
Craigavon, V.
Crickhowell, L.
Cumberlege, B.
De Mauley, L.
Dear, L.
Dixon-Smith, L.
D'Souza, B.
Dundee, E.
Dykes, L.
Eccles, V.
Eccles of Moulton, B.
Elliott of Morpeth, L.
Falkland, V.
Falkner of Margravine, B.

3 Feb 2009 : Column 604

Fookes, B.
Freeman, L.
Gardner of Parkes, B.
Garel-Jones, L.
Geddes, L.
Glasgow, E.
Glentoran, L.
Goodhart, L.
Goodlad, L.
Griffiths of Fforestfach, L.
Hamilton of Epsom, L.
Hamwee, B.
Hanham, B.
Hanningfield, L.
Harris of Richmond, B.
Hodgson of Astley Abbotts, L.
Hooper, B.
Howard of Rising, L.
Howarth of Breckland, B.
Howe, E.
Howe of Aberavon, L.
Howe of Idlicote, B.
Hunt of Wirral, L.
Inglewood, L.
James of Blackheath, L.
Jay of Ewelme, L.
Kerr of Kinlochard, L.
Kilclooney, L.
Kingsland, L.
Kirkwood of Kirkhope, L.
Knight of Collingtree, B.
Krebs, L.
Laing of Dunphail, L.
Laird, L.
Lamont of Lerwick, L.
Lawson of Blaby, L.
Leach of Fairford, L.
Lee of Trafford, L.
Lindsay, E.
Linklater of Butterstone, B.
Livsey of Talgarth, L.
Low of Dalston, L.
Luce, L.
Luke, L.
Lyell, L.
Lyell of Markyate, L.
McColl of Dulwich, L.
MacGregor of Pulham Market, L.
McNally, L.
Maddock, B.
Maginnis of Drumglass, L.
Mar and Kellie, E.
Marland, L.
Marlesford, L.
Masham of Ilton, B.
Mawhinney, L.
Mawson, L.
Mayhew of Twysden, L.
Methuen, L.
Miller of Chilthorne Domer, B.
Monson, L.
Montgomery of Alamein, V.
Montrose, D.
Morris of Bolton, B.
Naseby, L.
Neuberger, B.
Neville-Jones, B.
Newby, L.
Noakes, B.
Northbrook, L.
Northover, B.
Norton of Louth, L.
Oakeshott of Seagrove Bay, L.
O'Cathain, B.
Onslow, E.
Palmer, L.
Palumbo, L.
Patel, L.
Pearson of Rannoch, L.
Perry of Southwark, B.
Plumb, L.
Rawlings, B.
Razzall, L.
Reay, L.
Redesdale, L.
Roberts of Llandudno, L.
Rogan, L.
Rotherwick, L.
Rowe-Beddoe, L.
Ryder of Wensum, L.
Scott of Needham Market, B.
Seccombe, B.
Selkirk of Douglas, L.
Selsdon, L.
Sharman, L.
Shaw of Northstead, L.
Sheikh, L.
Shephard of Northwold, B.
Shrewsbury, E.
Skelmersdale, L.
Steinberg, L.
Stern, B.
Stewartby, L.
Strathclyde, L.
Taylor of Holbeach, L.
Teverson, L.
Thomas of Gresford, L.
Thomas of Walliswood, B.
Tonge, B.
Tope, L.
Trenchard, V.
Trimble, L.
Tugendhat, L.
Turnbull, L.
Tyler, L.
Verma, B. [Teller]
Waddington, L.
Wakeham, L.
Wallace of Saltaire, L.
Walmsley, B.
Walton of Detchant, L.
Warsi, B.
Wilcox, B.
Williamson of Horton, L.


Adams of Craigielea, B.
Ahmed, L.
Alli, L.
Amos, B.
Anderson of Swansea, L.
Andrews, B.
Barnett, L.
Bassam of Brighton, L. [Teller]
Berkeley, L.
Bhatia, L.
Billingham, B.
Bilston, L.
Blackstone, B.
Blood, B.
Boyd of Duncansby, L.
Bradley, L.
Bragg, L.
Brennan, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.

3 Feb 2009 : Column 605

Brooks of Tremorfa, L.
Campbell-Savours, L.
Carter of Coles, L.
Chandos, V.
Clark of Windermere, L.
Clinton-Davis, L.
Cohen of Pimlico, B.
Corbett of Castle Vale, L.
Corston, B.
Crawley, B.
Davies of Coity, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Dubs, L.
Eatwell, L.
Elder, L.
Elystan-Morgan, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Ford, B.
Gale, B.
Gibson of Market Rasen, B.
Golding, B.
Gordon of Strathblane, L.
Goudie, B.
Graham of Edmonton, L.
Griffiths of Burry Port, L.
Grocott, L.
Harris of Haringey, L.
Hart of Chilton, L.
Haworth, L.
Henig, B.
Hilton of Eggardon, B.
Hollick, L.
Hollis of Heigham, B.
Howarth of Newport, L.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L.
Jones, L.
Jones of Whitchurch, B.
Judd, L.
Kennedy of The Shaws, B.
Kingsmill, B.
Kirkhill, L.
Layard, L.
Lea of Crondall, L.
Leitch, L.
Lipsey, L.
McDonagh, B.
Macdonald of Tradeston, L.
McIntosh of Haringey, L.
McIntosh of Hudnall, B.
McKenzie of Luton, L.
Mandelson, L.
Massey of Darwen, B.
Maxton, L.
Meacher, B.
Mitchell, L.
Morgan, L.
Morgan of Drefelin, B.
Morgan of Huyton, B.
Morris of Aberavon, L.
Morris of Yardley, B.
Myners, L.
Newcastle, Bp.
O'Neill of Clackmannan, L.
Parekh, L.
Patel of Blackburn, L.
Patel of Bradford, L.
Pendry, L.
Pitkeathley, B.
Ponsonby of Shulbrede, L.
Prosser, B.
Prys-Davies, L.
Quin, B.
Radice, L.
Ramsay of Cartvale, B.
Rendell of Babergh, B.
Richard, L.
Robertson of Port Ellen, L.
Rooker, L.
Rosser, L.
Royall of Blaisdon, B.
Scotland of Asthal, B.
Sewel, L.
Simon, V.
Smith of Leigh, L.
Snape, L.
Soley, L.
Stone of Blackheath, L.
Symons of Vernham Dean, B.
Taylor of Bolton, B.
Temple-Morris, L.
Thornton, B.
Tomlinson, L.
Tunnicliffe, L.
Turnberg, L.
Vadera, B.
Wall of New Barnet, B.
Watson of Invergowrie, L.
Wedderburn of Charlton, L.
West of Spithead, L.
Whitaker, B.
Williams of Elvel, L.
Woolmer of Leeds, L.
6.28 pm

Clause 230 : Definition

Amendment 82

Moved by Lord Myners

82: Clause 230, page 116, line 25, leave out paragraph (a) and insert—

“(a) provide that a specified class of institution, which has a permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity, is to be treated as an investment bank for the purpose of this group of sections;

(aa) provide that a specified class of institution is not to be treated as an investment bank for the purpose of this group of sections;”

3 Feb 2009 : Column 606

Lord Myners: My Lords, as I said yesterday, there are a number of areas in relation to this Bill where further consideration would be helpful before the issues are debated again. One such area is the Government’s provisions for investment bank insolvency. While these provisions have been accepted by the House, there are a number of areas where the Government continue to work to refine the proposals. It has therefore been agreed through the usual channels that the noble Baroness, Lady Noakes, and I will not move Amendments 82, 83 and 84, relating to Clauses 230 and 233, today. We will return to these matters at Third Reading.

Baroness Noakes: My Lords, I am grateful to the Minister for that statement and I look forward to further discussions before Third Reading.

Lord Goodhart: My Lords, I shall speak as chairman of the Delegated Powers Committee, which has expressed strong views on this matter. The Government’s proposals for giving themselves almost unlimited powers to rewrite the whole law of insolvency in relation to investment banks reminds me very much of the words of King Lear in his madness:

“I will do such things,—

What they are yet I know not,—but they shall beThe terrors of the earth”.

It certainly seemed to us that Amendment 84 would create a proper balance between the need to act urgently in a crisis and the need for Parliament to give full scrutiny to legislation of serious importance. I am very pleased to know that discussions will continue on this. I hope that they will come to a satisfactory conclusion.

Lord Myners: I beg leave to withdraw the amendment.

Amendment 82 withdrawn.

Amendment 83 not moved.

Clause 233 : Regulations: procedure

Amendment 84 not moved.

Clause 235: UK financial stability

Amendment 85

Moved by Baroness Noakes

85: Clause 235, page 119, line 20, after “be” insert “, in co-operation with the Treasury and the FSA,”

Baroness Noakes: My Lords, when the noble Lord, Lord Turnbull, and I reflected on the somewhat unsatisfactory debates on the new financial stability objective and the Financial Stability Committee, we broadly decided that, while we did not much like the Government’s proposals, we would go for a minimalist solution of at least recognising that the Bank’s objective was one that could be delivered only in conjunction with the other tripartite actors. The Government have reached a similar minimalist conclusion and tabled Amendment 86, which is in a similar form. I prefer the

3 Feb 2009 : Column 607

formulation that the noble Lord, Lord Turnbull, and I came up with, which uses the words “in co-operation with”, rather than the words,

in the Minister’s amendment. However, I shall listen with care to what the Minister has to say about his amendment before deciding what to do with mine.

The amendments in this group, while useful, do not go to the heart of the concerns that we raised about the new arrangements within the Bank of England. I shall not argue them in detail, because many will emerge from the next group of amendments in the name of the noble Lord, Lord Eatwell. To summarise, there are issues about the Financial Stability Committee not having the right internal or external people on it and there are issues about it ignoring the FSA. It is working to an objective about which there may be a lack of clarity. There may be a need to appoint members to court to fill the Financial Stability Committee, thus unbalancing court. The terms of reference of the committee are a ragbag of overlapping functions and there is no transparency about the committee’s working.

I know that the Governor of the Bank of England wants no change to the proposals in the Bill. The Government did not need to put him up to writing formally to the Minister to reinforce that, as it was already well known. I do not believe that the arrangements will work well in practice and I predict that we may well need another bit of legislation to unwind some of this 2009 experiment. However, as the Government have at least accepted the thrust of Amendment 85, we are prepared to listen to their version. I beg to move.

Lord Turnbull: My Lords, I regret that I was unable to attend the latter part of the Committee stage, when what is now Clause 235 was debated. I congratulate those who stayed to the bitter end at gone two o’clock in the morning on their stamina. Had I been present, I would have supported the concerns expressed by the noble Baroness, Lady Noakes, and the noble Lord, Lord Eatwell. The principal shortcoming of the clause was that it almost entirely overlooked the fact that we have a tripartite structure for regulation and crisis management. The clause was entirely introspective, making provision for a change in the structure within the Bank but making no reference to the other players. Hence the amendment, which would insert the words,

I am pleased to see that the Government have come up with a similar wording. We can debate whether our wording is better than theirs in due course.

I know that some people—indeed, some people of great eminence—perhaps driven more by nostalgia than by evidence, long to return to a world where the whole system revolved around the Bank. This Bill, in my view correctly, works on the premise that the tripartite structure should be retained but strengthened. For example, earlier clauses sought to define the areas of responsibility in which each player takes the lead. The old system did not work in the modern world, where threats to financial stability come from insurance companies such as AIG, which I believe is still the largest recipient of assistance anywhere in the world to date, from investment banks such as Lehman Brothers

3 Feb 2009 : Column 608

and, in the crisis in 1998, from hedge funds such as Long-Term Capital Management.

If the tripartite system is to be retained, it makes sense for the Government to show their commitment to making it work well and to entrench some wording that places a duty on each of the players to collaborate fully. I, too, will wait to hear what the Minister has to say before deciding whether to support the Government’s wording. However, I think that we are both seeking the same outcome.

Lord Myners: My Lords, I assure the House that I have taken seriously the concerns expressed last week by several noble Lords about the interaction between the members of the tripartite in the area of financial stability. Before turning to the amendments in this group, I emphasise that the Government believe, as I have previously said, that the tripartite system remains fundamentally sound. The Treasury, the Bank of England and the Financial Services Authority all have roles to play in protecting financial stability, but these roles are different, defined and distinct. The tripartite Memorandum of Understanding shows how each must work with the others as appropriate.

The Government, with this Banking Bill, are taking steps to further support and strengthen the tripartite system, extending the powers and responsibilities of the Treasury, the Bank of England and the FSA. We are responding in this way to the call from the noble Lord, Lord Turnbull, to evidence our commitment to making sure that the tripartite system works. These steps are being taken in line with each institution’s current mandate and responsibilities, to avoid overlap, to ensure that at each point it is clear which institution is in the lead and to enable each body to rely on and build on its existing expertise and experience. This must surely be the right approach to take, rather than creating overlap, duplication or uncertainty over the extent of an institution’s authority.

For example, in establishing the special resolution regime, the Bill sets out resolution processes whereby each of the tripartite authorities has lead responsibility within those areas in which its expertise and authority lie. In addition, where appropriate, where one authority has lead responsibility, the Bill also requires appropriate levels of consultation with the other two authorities.

As I have said in debate on several occasions, I entirely agree that full and effective co-operation between the tripartite authorities is both desirable and necessary. That is why the Memorandum of Understanding establishes mechanisms for the tripartite authorities to communicate and co-ordinate their actions in relation to their joint and individual responsibilities. This is especially important in safeguarding the UK’s financial stability, in which, as I said, each of the tripartite authorities has a distinct role to play. It is also vital that they meet regularly to co-ordinate action within their individual spheres of responsibility to address those issues.

When addressing the financial stability objective in the other place, my honourable friend the Exchequer Secretary referred to the phrase “to contribute to” and said:

“That phrase reflects the fact that the Bank does not have a duty to ensure financial stability on its own, because that would

3 Feb 2009 : Column 609

be impossible. That responsibility is shared nationally with the FSA and HM Treasury and internationally with the European Union and other international bodies, which all have a major role to play, alongside market participants themselves”.—[Official Report, Commons, 30/10/08; col. 240.]

It is clear that the phrase “to contribute to” implies that the UK’s financial stability is not the sole responsibility of the Bank of England.

On reflection, however, and having considered the concerns raised by noble Lords on this point in debate last week, we have decided to refer explicitly in the Bill to the fact that the Bank’s financial stability objective will be pursued in collaboration with other relevant bodies, including the other tripartite authorities. That is why Amendment 86, which appears in my name, inserts wording to the effect that the Bank should aim to work with the Treasury, the FSA and other relevant bodies to protect the UK’s financial stability. I recognise that Amendment 85, in the names of the noble Baroness, Lady Noakes, and the noble Lord, Lord Turnbull, has a similar intention, and I hope that they are content that the Government’s amendment has responded to their concerns.

Baroness Noakes: My Lords, I thank the Minister for that explanation and, indeed, for tabling his amendment. I continue to believe that simply asking the Bank to aim to work with the Treasury and the FSA is setting rather a low hurdle, but at this stage of the game one accepts half loaves and does not hold out for the full loaf. I beg leave to withdraw the amendment.

Amendment 85 withdrawn.

Amendment 86

Moved by Lord Myners

86: Clause 235, page 119, line 22, at end insert—

“(1A) In pursuing the Financial Stability Objective the Bank shall aim to work with other relevant bodies (including the Treasury and the Financial Services Authority).”

Amendment 86 agreed.

6.45 pm

Amendment 87

Moved by Lord Eatwell

87: Clause 235, page 119, line 27, after “a” insert “joint”

Lord Eatwell: My Lords, there is a slight oddity in the grouping in that we are going to have the same debate all over again, but with the more sweeping proposals that I tabled first in Committee and have retabled on Report because we did not get satisfactory answers in Committee to the issues that were raised.

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