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I want just to make a final point. The reason why I believe that science needs to attract particular funding and a concentration of resources is that it involves investment in technology and machinery that is much more expensive than in other disciplines. That is why we are drawn to science and why we have to look to applying the principles of resource concentration in that direction.

Baroness Shephard of Northwold: My Lords, I declare my interests as chairman of the council of the Royal Veterinary College and chairman-elect of the Institute of Education. The Statement mentions Alan Milburn's Panel on Fair Access to the Professions, of which I was a member. The noble Lord will know that the paper produced by the panel identified real problems with the careers service and the advice on careers given by teachers in schools in relation to tackling the aspiration gap. The paper made some fairly specific suggestions on what universities should do about this, but I do not think that I noticed what specific guidance was going to be given to schools and the careers service about what they should do on their part. After all, they have longer contact in terms of years with young people in which to help them to develop their aspirations. I would like an assurance from the noble Lord, because I do not think that I got it from the Statement, that these deficiencies will be addressed as vigorously as he says he will address the apparent deficiencies in the performance of the universities, although I must say that I think most universities are making every possible effort to address those.

Lord Mandelson: First, I thank the noble Baroness for the work that she put in with Alan Milburn and her other colleagues to produce an excellent piece of work and a first-rate report.

The noble Baroness is absolutely right to place emphasis on the careers service and the provision of information, advice and guidance on careers in schools. She would, if she had listened carefully, have picked up a sentence or more in my Statement. I invite her to look at the framework statement as a whole, where she will see the emphasis that we have placed on this. It is why we are going to co-operate even more closely and diligently than we have in the past with the Department for Children, Schools and Families, which has responsibility in this area.

I hope that teachers in schools will reflect on their own vital role in nurturing, cultivating and encouraging confidence and ambition. I benefited from education at a wonderful college at Oxford. I was the second member of my family to go to university but the first to go to Oxford. I would not have dreamt of applying there had it not been for my economics master,

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Mr Michael Brown. Despite my headmaster's opposition to my going anywhere near Oxford or Cambridge-he was not in the mood for encouraging me to go anywhere but down and out of his school, for a variety of reasons which I shall not detain the House with- Mr Brown stood up for young Mandelson and said, "No, he should apply", and I did. We need more teachers in our schools like the Browns, who do not think that going to university is elitist or superior but believe that it is an ambition that young people should rightly have if they have the aptitude, qualifications and potential to do so.

The Lord Bishop of Ripon and Leeds: My Lords, I declare an interest as a member of the court of Leeds University. I particularly welcome the references in the Statement to potential, to serving all who benefit, and also to universities' contribution to their local communities and the important part that that plays within the life of the towns and the cities of this country.

I have two specific questions. First, the Statement seemed continuously to stress economic growth and creating wealth as the chief aim of higher education. Will the Minister also affirm the tremendous contribution that particularly research departments make to, for example, pain research and the way in which the quality of life for the sick has been enhanced so greatly, especially by collaboration between our universities and the NHS?

Secondly, is the Minister prepared to say anything about the equivalent and lower qualification rules, which have been referred to a couple of times in this discussion, and about the way in which they damage widened access because they create considerable difficulty for people who seek to change their careers during their life?

Lord Mandelson: I welcome what the right reverend Prelate has said. However, he should not take my definition of economic growth and creating wealth in the narrow way that he implied. When we talk about pain research or other ways of paying attention to the needs of the sick, we are talking not only about creating wealth to provide a first-class health service in our country but about creating wealth in the broadest sense of the term. There is such a thing as public wealth. Public goods and public services constitute wealth in our society, and university research and the graduates that it produces contribute to those as much as they do to any other sort of wealth creation.

Lord Howarth of Newport: My Lords, I welcome all the thrust of my noble friend's Statement as well as the bipartisanship and commitment to continuity in policy on higher education that we have seen today. While agreeing absolutely with him that universities have a duty to be responsive to their students and to provide information, choice, value for money and a high-quality educational experience, I ask him to share with the House his thoughts on the following.

In a consumer culture-and my noble friend has just encouraged students to see themselves as customers of universities-and in a culture in which one person's

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entry in Wikipedia is as good as another, how is the principle of academic and intellectual authority to be sustained, as well as an ethos of professional responsibility that reflects values other than those of the marketplace? If we raise the cap on student fees, as I believe it is absolutely necessary that we should, this problem will be intensified. So, will he say that people should not expect to be able to purchase academic goods, including good degrees, as they might purchase a car or other accoutrements of a lifestyle?

Lord Mandelson: I am sympathetic to the sentiment that my noble friend has expressed. If he does not mind, though, I would like to reserve my response for the time when we launch our fees review.

Lord May of Oxford: My Lords, I welcome the Statement from the noble Lord, Lord Mandelson, under whom I have had much pleasure in serving for several years. There is no doubt that the present Government have done many good things, both for universities in general and for research in particular, but, as a voice from the trenches, I tell them that not all the trends have been happy.

One remarkable achievement that the Secretary of State did not mention is the growth in administrative and bureaucratic processes and staff in universities in this country. There is a study, based simply on the telephone directory of a major university from 15 years ago to today, that shows that the ratio of administrative staff to faculty has doubled. There are other studies of this kind. I assure him from my 20 years at Harvard, Caltech and Princeton, that that is totally different from the leanness of the administrative staff in American universities. While I do not wholly agree with the simple statement that producing growth is what higher education is all about-it has many other purposes-the one thing it is certainly not about is producing growth in administrative services.

Lord Mandelson: I give the noble Lord the firm undertaking that, as we take forward and consult on all the proposals contained in this framework, I and my Universities Minister will want to be satisfied that any change that comes about will not lead to the growth of the trend that he has described.

Baroness O'Neill of Bengarve: My Lords, everything that the First Secretary has said-

Lord Tunnicliffe: My Lords, I am afraid that the 20 minutes for Back-Benchers is up.

Banking Reform


4.08 pm

The Financial Services Secretary to the Treasury (Lord Myners): With the leave of the House, I would like to repeat a Statement made by my right honourable friend the Chancellor of the Exchequer.

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"Mr Speaker, with permission, I would like to make a Statement on the banks in which we have shareholdings. This morning the Treasury, Lloyds and RBS issued market notices in the usual way.

In October last year, I set out a range of measures designed to prevent the collapse of the banking sector. These measures are working, and countries across the world took very similar steps over the following weeks. But the uncertainty in global financial markets had a very serious impact on confidence, resulting in a world recession. This, in turn, worsened the outlook for our economy, leading to higher losses for UK banks.

It was clear that further action was needed to strengthen the banks, and in January we announced the asset protection scheme to prevent a further shock to confidence and ensure that lending could continue. We continued to support the economy through fiscal and monetary policy and co-ordinated a global policy response at the London summit in April. These measures are working, too. Fears of a global depression have receded and market confidence has started to return. As a result, we are now able to achieve our objectives on financial stability and banking reform at a lower overall cost to the taxpayer.

The asset protection scheme that I announced in January has played a vital role in supporting confidence in financial markets. Let me remind the House of the key features which I set out then. It provided insurance against losses arising on a pool of bank assets and, in return, the banks paid a fee in the form of shares. The effect of the scheme is to strengthen the capital position of any bank in the scheme but, of course, this carries a risk of exposure for the taxpayer. The scheme was open to all major UK banks. In the event, improved market conditions meant that only two banks decided to participate. Since then, further improvement in market conditions means Lloyds has been able to develop a better plan. It does not now need to participate in the scheme, which will significantly reduce the cost and exposure for the taxpayer.

I will now explain in detail our proposals to better restructure the banks and make them stronger. I turn first to Lloyds. Following the recapitalisation last October, the Government owned 43 per cent of the bank. In March, we reached an agreement in principle with Lloyds on its participation in the scheme. This would have increased, through the fee, its capital by over £15 billion, increasing the cost to Government and increasing our stake in Lloyds to 62 per cent. We agreed then in principle to insure £260 billion of assets, giving us a very large contingent liability. But now that market conditions have improved, we have agreed a better proposal for Lloyds, to bring in substantial private capital and reduce taxpayers' exposure.

So, Lloyds has announced today that it will raise £21 billion in the open market. This capital raising is fully underwritten by commercial banks. As a shareholder, the Government have the option to take up part of the newly issued equity. If we did not do so, the value of the existing taxpayer shareholding would be diminished. So, to protect the value of our shares, we have decided to take up our share of the new capital, investing £5.7 billion net of an underwriting fee.

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By raising capital in the markets, Lloyds will begin its transition from state support to private finance, and no longer need the insurance of the asset protection scheme. Because Lloyds has benefited from the existence of the scheme since March, it has agreed to pay the Treasury a fee of £2.5 billion and to reimburse our costs.

Today's decisions make Lloyds a stronger bank and provide better value for the taxpayer, ending exposure through the insurance scheme, with a substantial fee in return for the insurance provided to date and a substantial capital contribution from the private sector, while maintaining our shareholding at 43 per cent.

I turn to the Royal Bank of Scotland, which is a bigger bank than Lloyds, with a more complex balance sheet, and greater exposure to losses, mainly due to its purchase of the Dutch investment bank ABN Amro. Under February's agreement in principle, the Government would insure £325 billion of assets through the asset protection scheme, as well as providing an additional capital injection of £13 billion, a second tranche of capital amounting to £6 billion, and a further £6.5 billion worth of capital support through additional shares issued to pay the fee. Together, this would have increased RBS's capital by £25.5 billion, taking the Government's stake to 84 per cent.

Before we could reach a binding agreement, we needed to carry out due diligence on the assets, and ensure that the final terms were consistent with emerging European Commission guidelines. The restructuring guidelines were published in July, following extensive work with the UK and other countries. We and the FSA have now also completed due diligence work on the RBS balance sheet. As a result, we are making a number of changes to the terms of the scheme, which will improve incentives and better share risks with the private sector.

While market conditions have improved, RBS still needs to do more to be able to stand on its own feet, so we will continue with our plan to invest £25.5 billion of capital into RBS, but there are three key changes. First, there will be a £43 billion reduction in the pool of assets covered by the insurance scheme, reducing the Government's contingent liability. Secondly, the first loss on these assets-payable by RBS-will be increased from £42 billion to £60 billion, further protecting the taxpayer. Thirdly, in return, RBS will pay an annual fee of £700 million for the next three years and £500 million per year thereafter, giving it an incentive to leave the scheme as conditions improve, and when it does leave the APS, it must have paid a minimum fee of £2.5 billion or 10 per cent of the actual capital relief received.

To reflect the increase in the first loss, amounting to £18 billion more payable by RBS, we will no longer require RBS to give up its tax losses, which it estimates at between £9 billion and £11 billion. In the unlikely event of a severe downturn, it may be necessary to provide up to £8 billion of contingent capital, but this will only be triggered if there is severe stress, taking its core capital ratio below 5 per cent. Again, in return for this, RBS will pay an annual fee of £320 million for as long as the contingent capital is available.

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In the case of RBS, the overall level of government support will remain broadly the same as announced in February, but this revised deal is better structured, with better risk sharing and greater incentives to exit. There is a higher first loss payable by RBS of £60 billion, up from £42 billion. There are better incentives, with a fee of £700 million for three years and £500 million thereafter, and fewer assets to be insured-£282 billion instead of £325 billion. I will also provide the House with full details of the operation of the scheme when the final agreement is signed and approved by the Commission.

As part of these restructured deals, we are pushing forward with reform at these banks with improved lending and remuneration policies. Both Lloyds and RBS will be in a stronger position to continue lending. Lloyds will increase lending capacity this year and next, with an additional £11 billion for businesses and £3 billion for homebuyers in each year. RBS will continue to meet its lending commitments of £25 billion this year and next. Both will publish customer charters on good practice on SME lending, increasing transparency and improving loan conditions for business customers.

On pay, all major retail and investment banks in the UK need to meet the G20 principles and FSA rules, so that bonuses have to be: transparent, variable, and with no multi-year guarantees; between 40 and 60 per cent deferred over a number of years, not paid immediately; and subject to claw-back, to ensure pay is aligned with long-term performance. However, we have agreed with RBS and Lloyds that they will go further than this. For this year, there will be no discretionary cash bonuses except for staff earning less than £39,000 a year. In addition, the executive boards of both banks will have their bonuses deferred in full until 2012. This goes much further than any G20 agreement and further than any other banks in the world.

I will continue to strengthen the supervisory regime, building on my proposals in July by adopting the recommendations of the Walker review on corporate governance for banks, reforming the mortgage markets, and legislating to make banks put in place "living wills", as well as enhanced powers and objectives for the FSA, to further strengthen regulation.

I believe these steps are better for the taxpayer, better for the banks and better for the economy. As a result, the likely cost to the taxpayer and the risks faced by the public finances have reduced markedly. The total assets protected have reduced by over £300 billion, there is more private sector investment and the fees received are better structured. I also expect, subject to wider factors, to revise downwards the provision for financial sector interventions in the Pre-Budget Report.

As I said in my statement in July, our second objective is to encourage greater banking competition in the high street and for small and medium businesses. Since the financial turmoil started in 2007, the banking industry has become more concentrated in most advanced economies. But over the course of the year we have been working with the Commission to agree on how to restructure the banks while meeting state aid rules. For Northern Rock, I have already set out my intention to

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split the bank into two separate companies, and we now have Commission approval for this. This will mean less capital support is needed to keep Northern Rock lending, and when the time is right, it will facilitate a return to the private sector. Lloyds will sell Cheltenham and Gloucester, the Intelligent Finance internet bank, the TSB brand, Lloyds TSB Scotland, and some Lloyds TSB branches in England and Wales-altogether more than 600 branches by 2013. RBS plans to sell its insurance businesses, including Direct Line and Churchill, as well as its commodity trading arm and its card payment processing operation. It will also divest more than 300 branches across the UK by 2013.

Together, these businesses could potentially amount to about 10 per cent of the retail banking market in the UK, and in each and every case we will insist that these institutions should not be sold to any of the existing big players in the UK banking industry. So, Lloyds and RBS will each be required to sell their retail and SME businesses as a single viable package to a smaller competitor or new entrant to the market, and this, together with Northern Rock, will potentially create three new banks on our high street in the space of five years. This will increase diversity and competition in the banking sector, giving customers more choice and better service.

The financial services sector will remain an important part of our economy. Yesterday's job losses, announced by RBS, are a reminder that for many employees these are very difficult times. We will do everything we can to work with the banks to help find new jobs for those affected. I believe my proposals today will ensure that we have a strong and vibrant financial services sector in the future. This will mean stronger and safer banks better able to support the recovery and more competition and more choice for the people who use them. I commend this Statement to the House".

4.22 pm

Baroness Noakes: My Lords, I thank the Minister for repeating the Statement made by the Chancellor in another place. The Minister made it sound like some sort of triumph for the Government, but the truth is very different. A year ago the Government came to Parliament to say that they were injecting £37 billion of taxpayers' money in order to recapitalise RBS and Lloyds. In their usual hubristic way this was presented not only as saving the banks but also saving the world. Thirty-seven billion pounds was an almost unbelievable sum of money last year. Since then, of course, we have become almost inured to the scale of the banking bailout against the background of government debt scheduled to rise to £1.5 trillion, with £175 billion to be borrowed this year alone. But today the Government pop up to say that, "By the way, we are putting another £39 billion of taxpayers' money into these two banks". That is £13 billion more than the worst case provided for in this year's Budget Statement. Even more taxpayer cash for the banks is the true story of today's announcement.

Another story is muddle and confusion around the asset protection scheme first announced last January. We were told that both Lloyds and RBS would participate

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in it and that it would cover nearly £600 billion of assets. As the months passed it became increasingly clear that the Treasury's grand design was not roadworthy. It cost too much, was too complicated and involved too much extra government equity. Lloyds has been trying to wriggle out of it for some time and today's announcement confirms that it has succeeded. Who could blame it? The release fee of £2.5 billion might sound like a large sum of money but Lloyds made it very clear today that it was fantastic value for money compared with staying in the asset protection scheme.

Poor old nationalised RBS did not have the flexibility available to Lloyds and it has been stuck with putting £280 million of assets into the scheme and increasing the government shareholding to 84 per cent. I know that the Minister likes to pretend that RBS is not nationalised, but in my party we believe in calling a spade a spade. On the other hand, RBS appears to have done rather well out of its negotiations with the Government. It has completely renegotiated its terms of entry into the asset protection scheme. It has managed to get its tax status revised, whereby it now looks as if the taxpayer will not see much in the way of corporation tax receipts for some time to come. Can the Minster give further detail about this tax deal? Why did the Government agree to it and what is its cash impact?

Much of the rest of today's announcements show that the Government have been playing catch-up with my party. A week or so ago, my honourable friend George Osborne proposed that the banks owned by the taxpayers should not pay out cash bonuses except for lower-paid staff and with a cap of £2,000. Mr Liam Byrne, the Chief Secretary to the Treasury, gave an extraordinary response and said that our policy would,

and that it was "unworkable". Even more extraordinary is the fact that today's announcement shows that the Government are adopting our policy. The Evening Standard is even reporting-based, I am told, on government briefing-that the bonuses will be capped at £2,000. Will the Minister confirm that and will he say what brought about this damascene conversion?

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