Clause 156
Banking Bill
1:30 pm
Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)
We have made it clear that if the Government considered the timing to be right, we would have discussions with the Bank of England and the FSA, and undoubtedly more widely. The powers that we seek in the Bill could potentially go further than deposit takers and banks and building societies. In the future, a scheme might allow different funds to be established with different legal entities. But pre-funding cannot be introduced without parliamentary approval and the affirmative resolution procedure. The Bill confers flexibility that can be exercised only if subject to full parliamentary scrutiny at that time.
Amendments Nos. 3 and 6 would ensure that when making regulations for pre-funding, the Treasury could specify how a levy was to be apportioned between different members of the same class of levy payer. That could make the introduction of risk-based levies by the Treasury possible—an issue that my hon. Friend the Member for South Derbyshire raised a few moments ago.
The Government consider that apportioning any levy between firms within the same class should be a matter for the FSA. The FSCS will have to raise levies under different powers as a result of the Bill, and those powers must be co-ordinated at a detailed level. The FSA is best placed to do that.
The FSA already has the power to decide the rules that govern the apportionment of levies between levy payers of the same class under the existing FSMA provisions, so it could already bring in risk-based levies if it was considered appropriate to do so.
Amendment No. 4 would limit to banks and building societies the classes of person who may be required to contribute to levies to repay borrowing from the national loans fund. In our view the amendment is unnecessary, as it would be possible to set out in the regulations which classes of person will be required to contribute to the repayment of borrowing. Perhaps more importantly, any type of financial services firm could default and if the costs of the default were large enough, it might be appropriate for the FSCS to borrow from the national loans fund, to obtain the liquidity it would need to pay compensation. If the firm concerned was not a deposit taker, it would not be appropriate for levies to be imposed only on a deposit-taker class of firm for the purpose of repaying the loans.
Amendments Nos. 5 and 7 would impose an unnecessary restriction on the making of regulations regarding the levies to build up contingency funds, or to finance the repayment of borrowing from the national loans fund. Clearly, any type of firm could default, and in principle, therefore, any class of levy payer should have to contribute to the costs of repaying of borrowing. As I have just explained, it will be possible to have different contingency funds for different purposes, and for different classes of persons to be required to contribute to different funds.
The hon. Member for Fareham raised the issue of the general retail fund and the possible introduction of pre-funding, and the mechanisms through which levy payers in one class may be required to contribute to the compensation costs of other classes. Those are separate issues, but I agree that if pre-funding were introduced, consideration would have to be given to the interaction of pools covering different types of business. I want to emphasise that this will be part of any consultation about the introduction of pre-funding. The two arrangements—pre-funding and the general retail pool—are not incompatible. Pre-funding is a way of providing the resources needed to meet the costs that fall on one class of levy payers, such as banks and building societies. A contingency fund could be used to meet compensation costs that a class of levy payer has to bear, whether those costs originated in that sector or elsewhere. Equally, the existence of a fund could reduce the extent to which levy demands spill over on to other sectors.
If regulations for pre-funding or NLF borrowing were made, we would ensure that the appropriate class of levy payer had to be the primary contributor towards the levy concerned. I entirely agree with the general principle that each sector should consume its own smoke, but this is yet another point where flexibility is important, and in the Government’s view it would be better not to tie our hands too much for possible future circumstances that we cannot anticipate at this stage.
I hope that that will give the Committee the assurance it needs on this issue. It is worth remembering that any regulations the Treasury makes will be subject to parliamentary scrutiny, through either the affirmative or the negative procedure. I am confident that any unsatisfactory allocation of levies would be speedily challenged.