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House of Lords

Wednesday, 11 March 2009.

3 pm

Prayers—read earlier at the Judicial Sitting by the Lord Bishop of Rochester.

Banking: Corporate Governance


Asked By Lord Barnett

The Financial Services Secretary to the Treasury (Lord Myners):My Lords, Sir David Walker will examine the board management of risk, incentives to manage risk in bank remuneration policies, the competences needed on bank boards, board practices and structures, and the role played by institutional shareholders. As part of his review, a consultation document will be published in the summer of 2009, and conclusions will be published in the autumn.

Lord Barnett: My Lords, I thank my noble friend for his Answer and for an answer that he gave yesterday, when he explained an equation: MV=PY. I am sure that that pleased everyone in the House and that they thoroughly understood what he was talking about. May I put a simpler equation to him? If the banks, which are supposed to be lending and have been promised to lend, equal all the money that has gone in, rightly, to try to help them to do so, but they still do not lend, will my noble friend assure us that his policy of an arm’s-length relationship with the banks will change and that he will scrap that arm’s-length policy, or at least moderate it, and see that they do lend?

Lord Myners: My Lords, I thank my noble friend for his question. He brings considerable experience to these issues and I always welcome his questions, as indeed I welcome those of the noble Lord, Lord Higgins; they are a truly impressive duo. The negotiated lending commitments with the Lloyds Banking Group and the Royal Bank of Scotland have reached totals of £48 billion of new and additional loan commitments. After careful scrutiny of the plans of those banks and assurances from them on the basis of their economic forecasts for the next 12 to 24 months, and having regard to prudent lending criteria that they are entirely achievable goals, those banks will report to the Treasury on a monthly basis, and we will submit an annual report to Parliament on those lending commitments. All parties entered into them on the basis that they believed they were achievable.

Lord Higgins: My Lords, as reference has again been made to the very useful Cambridge monetary equation, may I point out that the correct formulation

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is MV=PT and not MV=PY, as the noble Lord, Lord Barnett, has just said and as the Minister said yesterday? I was going to say, “Eight out of 10. See me afterwards”.

Lord Myners: My Lords, I am not sure that I could spot the question there. I did, however, come prepared, because there are different formulations of this equation. The noble Lord, Lord Higgins, is absolutely correct that in previous days it was expressed as MV=PT. However, in more recent economic textbooks, I am told, it is now expressed as MV=PY. The basic concept remains the same.

Lord Newby: My Lords, the noble Lord, Lord Barnett, referred to the arm’s-length relationship between the Government and the banks, as has the Minister many times. Perhaps he will clear up a confusion in my mind. In his speech yesterday, the Secretary of State for Business, Enterprise and Regulatory Reform said that the taking of up to a 35 per cent share by the private sector would still ensure that the Royal Mail remains in public ownership. How can the Royal Mail remain in public ownership when the private sector has 35 per cent, whereas banks appear not to be in public ownership when the state has significantly greater than two-thirds of the shareholding?

Lord Myners: My Lords, I am sure that it all depends on the framework agreement for governance. My noble friend the Secretary of State for Business, Enterprise and Regulatory Reform has a very clear method by which he will achieve his declared objective in that respect. I will wisely not allow myself to be drawn further into that area.

Lord Hamilton of Epsom: My Lords, what does the Minister consider the rate of gearing should be for these banks now that they have been recapitalised by the taxpayer? Should that gearing be going up or down, or should it compare with what it was before? What are the Minister’s views?

Lord Myners: My Lords, the level of gearing can be determined only by reference to the nature of the banking activity. Clearly, a number of banks became substantially overleveraged throughout the world. One has to have regard to the quality of the assets and the nature of the funding. The approach to gearing levels and leverage must be particular to the specifics of the institution, rather than a generic statement that a certain figure is either appropriate or a maximum acceptable level. I look to the Financial Services Authority and other global regulatory bodies to provide more guidance on leverage levels.

Lord Inglewood: My Lords, I am sure that I am not the only Member of your Lordships’ House who is not terribly au fait with all these formulae. Will the Minister confirm that his first reply to the noble Lord, Lord Barnett, means that banks will lend to ordinary people who want to borrow money if they are solvent and good propositions?

Lord Myners: My Lords, that is precisely what I mean. We want banks to play a critical and important role in the provision of credit to support investment, enterprise, business and individuals. To do that, they must be able to lend with confidence on the basis that

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they have strong capital, which is more than sufficient to cope with the challenges that lie ahead, adequate funding and access to liquidity. That is the combination we have sought to achieve. I believe I can state with confidence that UK banks, which have already increased their lending over the past 12 months, will further increase that lending over the next 12 months because they can do so from a very confident background.

Lord Tomlinson: My Lords, does my noble friend agree that the banks of today are in a much better state with the Government’s help than they were when they were left to their own devices?

Lord Myners: My Lords, whether we would have needed to give the support we have is an entirely different matter. But the support we have provided in terms of capitalisation, funding and liquidity puts British banks among the best capitalised in the world and the most effectively positioned to provide their critical economic function in supporting British jobs, British families and individuals in the pursuit of their goals and objectives.

Lord Renton of Mount Harry: My Lords, I am glad to hear that from the Minister. But can he also assure us that the interest rate on new loans to be made by the banks will reflect at least in part the reduction in interest rates down to 0.5 per cent by the Bank of England?

Lord Myners: My Lords, I assure the noble Lord, Lord Renton, that the data we receive at the lending panel indicate that the full cost of lending is declining in accordance with the reduction in interest rates. It is very encouraging to see that LIBOR, which at one stage was somewhat isolated from the base rate, has come down as we expected. We have grounds for some encouragement in the way in which that trend is developing.

Energy Efficiency


3.10 pm

Asked By Lord Teverson

The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, the Government have a number of measures to encourage small and medium-sized businesses to adopt energy saving measures, including the provision of information, advice and financial support. We are working to establish an energy services development network to promote the energy services market in this sector. We are also working with Business in the Community and the Small Business Consortium to consider what further steps the Government can take, and they will be making their recommendations later in the spring.

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Lord Teverson: My Lords, I thank the Minister for that reply, although it seems a little threadbare. Around 20 per cent of our energy is consumed in industrial buildings owned by the SME sector. The Government used to have a good scheme which allowed insulation and other energy-saving measures to be carried out in the sector but that disappeared several years ago. Will they introduce a scheme similar to CERT, which covers domestic dwellings, so that SMEs can play their full part in saving energy in the economy?

Lord Hunt of Kings Heath: My Lords, the noble Lord is right, although we reckon that SMEs are responsible for 26 per cent of business emissions. The scheme to which he refers was very small indeed: my understanding is that between 1994 and 2000 it raised about £5 million to £10 million to help small businesses. However, CERT is having a huge impact on domestic households, and it should be remembered that many SMEs actually operate from domestic premises. The support which we think it is better to focus on is the excellent advice given by the Carbon Trust, which also runs a loan scheme which has proved to be successful, while the enhanced capital allowance scheme is also available to small businesses. We think that that is the best way to provide support for these companies.

Baroness Wilcox: My Lords, knowing the Government’s cavalier attitude to consultations I find it baffling that the department has launched four more over the past four weeks. However, the challenges for small and medium-sized businesses in this country are now so urgent that perhaps I may ask the Minister whether he will have a good look at the study which the Conservatives put into the plan for action that is on his table and get the country moving again?

Lord Hunt of Kings Heath: My Lords, I always give Conservative Party documents the attention that they undoubtedly deserve. I am surprised to hear that the Government are thought to be cavalier about consultation when my experience is that we consult until the cows come home. We pay careful attention to what the small business sector says to us and we recognise that in the current circumstances it is coming under very great pressure indeed, which is why the Government have taken the action they have. On energy, however, we want to encourage smaller businesses to look at their energy costs. A lot of advice is available. Many energy saving measures cost hardly anything at all for businesses to take up. We will do everything we can to encourage small businesses to take advantage of that advice.

Internet: Social Networking Sites


3.13 pm

Asked By Lord Mackenzie of Framwellgate

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The Parliamentary Under-Secretary of State for Communications, Technology and Broadcasting (Lord Carter of Barnes): My Lords, the Government work with providers of social networking sites to ensure that users and their data are protected securely and appropriately. As the noble Lord will know, the global nature of these sites and the ability of users to hide their identities mean that national limits of jurisdiction hold little sway. However, the Government support the safer social networking principles recently agreed by providers and the European Commission and consider that self-regulation through co-operation between industry and government is the most appropriate and flexible approach.

Lord Mackenzie of Framwellgate: My Lords, I thank my noble friend for that reply, but is he aware of a group on Facebook called “Northumbria Police—what a group ov”—here I use the topical rhyming slang—“bankers”? On a more serious note, the group is posting messages that identify individual police officers, their families and their addresses, as well as sometimes posting photographs, and is threatening them with violence. Does he agree that this is an unacceptable abuse of freedom of speech and an intolerable attack on front-line police officers and their families? These officers are doing a difficult and dangerous job and this amounts to an undermining of the rule of law in a liberal democracy.

Lord Carter of Barnes: My Lords, like my noble friend, I have visited the site and am aware of the group to which he refers. My officials translated the name into a slightly more agreeable, bowdlerised form: “Northumbria Police—what a group ov onanists”. Having reviewed the content of the site, I share my noble friend’s view that it is deeply unacceptable. My understanding is that that particular site was originally a so-called open group, so the volume of members, as he will be aware if he has looked at the site, is of a greater magnitude than that of other comparable groups. We understand that some of the more offensive and racist remarks have been taken down within the site’s conditions of service. It has now become a closed group, although that does not remove the offence. On a personal note, I rather share my noble friend’s views.

Lord Razzall: My Lords, while recognising the need to protect the police from unnecessary harassment, does the Minister agree that there is a danger in this area for excessive regulation and does he agree with the statement made last year by the Information Commissioner, who is shortly to retire, that we are in danger of walking into a surveillance society?

Lord Carter of Barnes: My Lords, I certainly agree with the noble Lord that in this area aggressive, prescriptive, statutory regulation is inappropriate. It simply does not work. The particular social networking site to which my noble friend refers is, in fact, US-based. None of its servers is hosted in the United Kingdom and they have no capability in the United Kingdom. Therefore, the reach of the rule of UK law, however severe, would in truth be meaningless, even if it were appropriate. It is also inappropriate because, for many of these sites, the technology and the capability change. We have to address this area as a community of

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interest. Like all communities of interest, we need to encourage a degree of disciplined and effective self-regulation. While this particular site borders on the offensive, many other sites show excellent examples of effective self-regulation, notice and takedown, control and self-discipline. These sites are attracting 10 million active users in this country and the volume of positive activity far outweighs the volume of negative activity.

Baroness Massey of Darwen: My Lords, does my noble friend not agree, following the last question, that young people need protection on these sites and their parents cannot always give it?

Lord Carter of Barnes: My Lords, young people indeed need protection, and not just young people, which is what lay behind the agreement published last week under the auspices of the European Commission—the so-called safer social networking principles. This is a classic example of an area that is far better dealt with on a pan-Europe basis because of the international nature of these sites. There are seven basic principles contained in that document. They make sound sense, are subscribed to by all the major social networking sites and, in the main, seek to get the balance right between providing protection and allowing communities to work in a way that suits their own interests.

Lord De Mauley: My Lords, the press recently reported that Whitehall has advertised a senior post paying £120,000 a year, the job description for which includes that it,

Is it so uncomfortable to the Government not to be able to control the message that it is necessary to spend £120,000 of taxpayers’ money a year on it?

Lord Carter of Barnes: My Lords, I feel that we are a long way from social networking sites. I entirely share the view that we are living in a world where control of the message is very different. My noble friend’s Question asks Her Majesty’s Government what powers they have to control social networking sites. In this world, control in those terms is no longer an appropriate model. We have to learn to work in a very different way, however well or expensively we are advised.

Baroness O'Neill of Bengarve: My Lords, if it is the case, as the Minister has just suggested, that control is not possible, how does he suggest that we deal with cases where the content on these sites is not offensive, which perhaps is neither here nor there, but is endangering? The original example—namely, the home addresses of police officers—can endanger, particularly in the context of Northern Ireland.

Lord Carter of Barnes: My Lords, there are in some instances fine lines. As a starting principle, it is worth restating that what is illegal offline is illegal online, a point that is often forgotten. There are also specified offences—child pornography and race hate abuse are two examples—where there is an immediate notice-and-takedown requirement on any service provider or social networking site. In our collaborative and co-operative non-advised fashion, we have worked with service

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providers to agree a set of guiding principles. Each of these service providers and sites has its own acceptable use policies, but these vary. For example, Yahoo!—a site of which many noble Lords may be aware—has a policy that it describes as recognising dignity in death. For example, when the hanging of Saddam Hussein was available as video material, it did not allow it on its site. By contrast, other sites, which have a freedom of speech principle enshrined in their terms of use, did allow it. These are in part matters of interpretation and in large part the world we are now living in.

Lord Avebury: My Lords, the noble Lord mentioned incitement to racial hatred as being one of the considerations as to what should be on a website, but what is the responsibility of social networking sites, newspapers that allow comments on their news items or any providers of space on the net for a third party who places on the site material that incites racial or religious hatred? Does not the provider have some responsibility in that regard?

Lord Carter of Barnes: My Lords, as the noble Lord will be aware, this is a grey area. There is a degree of policy and legal debate and discussion around what is called the “mere conduit” principle as it applies to service providers specifically and to host sites. In large part, when notification of illegality or offence is received, the host will, as long as it matches either the terms of use or the rules, withdraw the content. But allocating absolute responsibility to the provider is a difficult and grey area.

Lord Howell of Guildford: My Lords, is there not also a major security problem in the centre of the whole question of control of cyberspace? Are not terrorist and criminal organisations adept at developing their own co-ordination and efforts through the internet and cyberspace? Should we not be moving towards a more co-ordinated regime, if not control, under which the servers will agree to common standards, rather than going their own way? I understand that they are not being very helpful at the moment. Is that right?

Lord Carter of Barnes: My Lords, that is not correct. The industry co-operates fulsomely and in some detail with the relevant parts of government that deal with the issues of cyber and digital security, however you wish to provide it. On the questions raised by the noble Lord around network resilience, data security, data centres and access to information, there is a co-ordinated approach and the industry is constructively engaged with government.

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