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House of Lords

Tuesday, 26 January 2010.

2.30 pm

Prayers-read by the Lord Bishop of Liverpool.

Banks

Question

2.36 pm

Asked By Lord Renton of Mount Harry

The Financial Services Secretary to the Treasury (Lord Myners): The Government's interventions to stabilise the financial system have been decisive in restoring confidence in the banking sector. To underpin this improvement in confidence, regulatory reform is also necessary. The Government, in conjunction with the FSA and the Bank of England, have already made progress in improving financial institutions' corporate governance, remuneration practices and risk management, and are working with international partners significantly to strengthen capital and liquidity requirements.

Lord Renton of Mount Harry: My Lords, I thank the noble Lord for his interesting Answer. I greatly appreciate the time that he has spent in recent days on this very important issue, but-there always has to be a "but"-does he agree that there is a strong sense of frustration that, after 18 months of talk, nothing has really changed? Goldman Sachs is back making huge profits and is having difficulty restraining its bonuses from being too large. I have two quick points on this very difficult issue. Will the noble Lord follow up the proposition that there must be a fundamental divorce between retail deposit banking and what is politely called investment banking, but in fact has often simply meant taking large and obscure risks in derivatives whose profit was based on the growth in house prices? Secondly, will the Minister persuade his colleagues to declare, as President Obama has done, that never again will the British taxpayer be held to ransom by a bank that is too big to fail?

Lord Myners: I thank the noble Lord very much. The answer to his first question is no, and to the second yes.

Lord Lea of Crondall: Does my noble friend agree that what would really restore confidence among the public at large, not least those who have lost their jobs as a result of the bankers' ramp, would be to make positive use of taxpayers' money to create jobs and to ensure that the investment banks, from Goldman Sachs downwards, are part of that? The public at large will

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no longer put up with the national scandal of banks paying themselves billions of pounds of money which is not theirs.

Lord Myners: I thank my noble friend for his question. The support we have given to the banking system is evident in the fact that the economy is now coming out of recession and has done so with much less damage in terms of unemployment, business failure or people losing their homes than was the case in previous Tory recessions. The support we have provided to the banking system has undoubtedly helped to support the extension of credit to achieve that goal. We continue to use the pressures of the FSA, other legislation and international engagement to bear down on bonus costs in banks, but ultimately these questions must be determined by the shareholders of those banks.

Lord Newby: My Lords, does the Minister agree that one of the best ways to restore trust in the banking sector is to split off the more risky elements of banking from the more utility functions? Has not President Obama shown how that might be done? Why will the Government now not follow suit?

Lord Myners: The observation made by the noble Lord does not accord with the facts. The failures that we have seen in the banking system have not come through the co-joining of utility banks and investment or casino banks. Lehman Brothers and Bear Stearns were pure investment banks. Freddie Mac, Fannie Mae, IndyMac, Northern Rock and Bradford & Bingley were pure retail banks. It is not the conflation of the two that was the source of the error. I have spent a lot of time looking at this and I have concluded that the answers lie not in architecture but in behaviour. The reason why these banks failed was because they were atrociously managed.

Lord Lawson of Blaby: My Lords, that may well be the case, but is the noble Lord not aware that the risk taking was an integral part of the atrocious management and it was risk taking on the knowledge that the taxpayer would bail them out? Are not my noble friend Lord Renton, the noble Lord, Lord Newby, and Mr Paul Volcker, who knows a great deal about this, more likely to be right than the Minister?

Lord Myners: I do not think so. It is a very challenging question that the noble Lord, Lord Lawson, puts to me. When I say atrociously managed I mean atrocious management of risk as that is what lies at the heart of banks. It was the failure through traditional bad lending that lay at the heart of the collapse of the Bank of Scotland, part of HBOS, and of Royal Bank of Scotland.

We will have to see the detail of President Obama's proposals. They lack detail at the moment but there is nothing in them that we see which accords with continuing concerns we have about the UK banking system. Proprietary trading, hedge funds and private equity were not at the heart of the problems that were faced by the UK banking industry. These are complex issues,

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as the volte-face of George Osborne over a matter of a few hours on Thursday night and Friday morning evidenced.

Lord Barnett: My Lords-

Baroness Noakes: My Lords-

Lord Davies of Oldham: It is this side's turn.

Lord Barnett: My Lords is not the real reason for any loss of confidence the appalling judgment of the bankers-who are still there-on lending? There is no guarantee that they will not still be there on any changes that will be made later. May I clarify my noble friend's policy on this? Unlike the President of the United States, is he saying that because those bankers are still going to be there, whether they are running small or large banks, the only way to get round the problem is by having some kind of compulsory insurance fund so that it cannot happen again and taxpayers and others are protected?

Lord Myners: The truth is that the senior management of Royal Bank of Scotland and HBOS has changed almost entirely since the failures so there has been a complete re-engineering of leadership with new people brought in from other more successful organisations. It is axiomatic that a failed bank must see the shareholders suffer and the management must be removed. That is what we have done in the case of failed banks.

As for levies, as the House is no doubt aware, I chaired a meeting in Downing Street yesterday which looked at contingent capital and risk-based systemic levies in order to assist the world banking system become more resilient and to feed into the work of the IMF and the G20 when they meet later in the year.

Baroness Noakes: My Lords, the Question of my noble friend Lord Renton was about confidence. Can the Minister not accept that what the Government have done so far has failed to restore confidence in UK banks? Why is the Minister so stubbornly refusing to accept that President Obama's solution could add to that? Does he not agree with the Governor of the Bank of England who told the Treasury Select Committee in another place this morning that structural reform is needed?

Lord Myners: Again, I wonder where the noble Baroness gets her information from, because the share prices of our major banks have in some cases quadrupled since their low point. That is a real sign of improved confidence, as are lower interest rates, a lower OIS spread, the fact that a bank such as Lloyds Banking Group can launch the largest-ever rights issue in this country, and the decline in the credit default swap rates. This is real evidence of returning confidence. I could go on for much longer; I shall not, but I can assure the noble Baroness that if she wants to ask fact-based questions we will have a better dialogue.



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Unemployment

Question

2.45 pm

Asked By Lord Roberts of Conwy

The Parliamentary Under-Secretary of State, Department for Communities and Local Government & Department for Work and Pensions (Lord McKenzie of Luton): My Lords, in the quarter to November 2009, 2.46 million people were ILO unemployed, which is down 7,000 on the quarter. In December 2009, 1,606,500 people were claiming jobseeker's allowance, which is down 15,000 on the month.

Lord Roberts of Conwy: My Lords, the falls in the total and claimant figures are a welcome relief-temporary though they may be. Does the noble Lord agree that there is still real cause for concern about the fall in the employment rate to 72.4 per cent, the lowest since the winter of 1996-97, and the increase to November 1997 levels in the number of those unemployed for more than 12 months? Does the noble Lord agree that today's announcement of 0.1 per cent growth in the last quarter of last year hardly holds out much hope to the record number of 8 million economically inactive people in this country?

Lord McKenzie of Luton: My Lords, there was a host of questions in there. As regards today's news on the economy, the Chancellor has always said that it would return to growth by the end of the year. The estimate makes clear that the Government are right to be confident but cautious about the prospects for the economy. There are now clear signs that the impact of the recession on the labour market is easing. The level of redundancies has fallen significantly since the spring. As regards jobseeker's allowance, the December on-flow figure of 328,000 was the lowest for a year, but more than 350,000 people left JSA, which is the highest figure for 15 years. On the inactivity figures, I suggest that you need to unpick the raw data, because you need to take account of the fact that the population has increased. If you extract the number of full-time students in that data, you will see that the proportion of the working-age population that is inactive is actually 2.3 per cent lower even than in 1997, let alone previous Tory recessions.

Lord Oakeshott of Seagrove Bay: My Lords, I should like to ask a fact-based question, if the noble Lord, Lord Myners, would allow me to; 1,034,000 people have been made redundant over the past year, an increase of a third over the previous year. How many of them have been able to find new full-time jobs?

Lord McKenzie of Luton: My Lords, the latest figure of 182,000 redundancies for the quarter is down on the previous quarter and is certainly down on the

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peak during spring 2009. The noble Lord is correct to raise issues around full-time and part-time employment. If the import of his question is that there has been an increase in part-time employment, he is right. However, just under 14 per cent of the total are looking for full-time, rather than part-time, employment.

Baroness Wall of New Barnet: My Lords, does my noble friend agree that the investment in skills that this Government have made over the past two or three years has made a big difference to the unemployment figures, and has most definitely made a difference when comparing redundancy figures and the number of people being placed in other jobs?

Lord McKenzie of Luton: My Lords, yes, I very much agree with my noble friend and it allows me the opportunity to remind noble Lords of the announcement yesterday that from 25 January every young person who is unemployed for six months will be guaranteed the offer of a job, training or work experience, supported by up to 470,000 opportunities over the next 15 months through the Government's young person's guarantee.

The Lord Bishop of Manchester: My Lords, during the past half century the north-west had some particularly high levels of unemployment. Given that the Manchester city region is currently the strongest economic engine outside London, is that reflected in the regional breakdown of the current figures, or does unemployment in the north-west remain disproportionately high?

Lord McKenzie of Luton: My Lords, I think it is right to say that the impact of the recession has been felt across the UK. I was trying to seek the regional breakdown of the data, which I have, and it might be easier if I write to the right reverend Prelate specifically on that. The key point, however, is that action the Government have taken through local employment partnerships, through Backing Young Britain, through the jobs guarantee, impacts across our country and is not just concentrated in certain areas.

Lord Freud: My Lords, will the Minister, provide us with the Government's projections for ILO unemployment when it peaks, as we hope, in 2010? He has acknowledged that the convention not to provide these figures ended last autumn.

Lord McKenzie of Luton: My Lords, I would refer the noble Lord to the Statement made on the Pre-Budget Report, where for purposes of openness the Government set out projections of the claimant count over the next few years, consistent with the other projections that were made in the PBR. I would refer him to that document. If memory serves, I think it showed the claimant count peaking at 1.75 million but the projections made by outside commentators in current times have been way over the out-turn.

Lord Kilclooney: My Lords-

Lord Davies of Oldham: My Lords, I am sorry, we must move on.



26 Jan 2010 : Column 1296

Redundancy Payments Order

Question

2.52 pm

Tabled By Baroness Gardner of Parkes

Baroness Gardner of Parkes: My Lords, I beg leave to ask the Question standing in my name on the Order Paper on this Australia Day.

The Parliamentary Under-Secretary of State, Department for Communities and Local Government & Department for Work and Pensions (Lord McKenzie of Luton): My Lords, responsibility for the redundancy payments modification order was formally transferred from the Department for Business, Innovation and Skills to Communities and Local Government in November 2009. Officials are considering the content of an amending order and I can confirm that the former Traffic Director for London will be one of a number of bodies or organisations to be included in a statutory instrument that CLG aims to make in the spring.

Baroness Gardner of Parkes: I thank the Minister for that half-encouraging answer. Will he say why it has taken so long, passing from department to department over all these years, and can he promise that the order will be laid before the general election?

Lord McKenzie of Luton: My Lords, I cannot promise the latter because I do not know when the election is to be. The reason why the Traffic Director for London was not included in the original 1999 order is, I am afraid, shrouded in a bit of mystery and it seems to have been overlooked when subsequent orders were made, both in 2001 and in 2004. There is now a clear commitment to make sure that it is included and the proposal is for the order to be laid in spring. Timing is not very precise, but it is anticipated that it would be in late March or early April.

Lord Tope: My Lords, one of the principal concerns of the Traffic Director for London when he was in post was congestion in London caused by roadworks, which Transport for London now estimates cause 37 per cent of disruption to traffic in London. The Minister will be aware that the Mayor of London has recently adopted Liberal Democrat proposals to charge utility companies. Can he say what more central government can do to get London moving?

Lord McKenzie of Luton: My Lords, I cannot off the top of my head, as it is way outside the Question.



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Lord Bates: My Lords, I will have another try. When the Traffic Director for London arrives, could he be invited to undertake a review of the PPG13 planning guidance from the Minister's department, which requires councils to increase parking charges and reduce the number of parking spaces? Will the Minister confirm that his noble friend the Secretary of State for Transport, in a Written Answer on 7 December 2009, said that government chauffeurs had incurred £17,000 in parking fines last year? He added that parking restrictions in London make it impossible to avoid fines. Is this not precisely what councils and businesses have been telling the Minister and will he now act to review this damaging measure?

Lord McKenzie of Luton: My Lords, I say to the noble Lord that his understanding of the Traffic Director for London seems to be profound. The Traffic Director for London was set up as a corporate sole in 1991. It ceased to exist about eight years ago. Some of the individuals who were employed by the Traffic Director for London-it was not a post but an organisation-have gone back to local councils. That is what this order and issue are all about. Therefore, it no longer exists as a body and has no responsibility for the areas that the noble Lord is probing.

Baroness Gardner of Parkes: The Minister's answer to the last supplementary question was helpful. Is it clear to him and to the House that the Traffic Director for London was not just one person but something called a "corporate sole"? I understand that the Clerk of the Parliaments is a corporate sole, which is both an individual and a body of people. The number of staff members working for the Traffic Director for London whose rights might have been affected by this if they had been made redundant was 26.

Lord McKenzie of Luton: The noble Baroness is absolutely correct. The inclusion of the Traffic Director for London in the next amending order means that all the staff members will be protected should they be made redundant at any stage in the future.

Lord Brooke of Sutton Mandeville: My Lords, in the light of an earlier answer, do the Government maintain a best estimate of how many other things lost in antiquity and the mists of time may suddenly rise up to surprise them?

Lord McKenzie of Luton: No, my Lords, if we knew what was missing, we would be able to deal with it.


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