Clause 159
Banking Bill
3:00 pm
Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)
The effect of the proposed amendments would be to limit the interest rate that could be charged on NLF loans to the FSCS to between an upper limit, set by the Bank of England base rate, and a lower limit set by the Government’s cost of funds—I assume that would be the consequence of amendment No. 38. It is surely fair that the interest covers the Government’s cost of funds. In any event, it is a statutory requirement of the National Loans Act 1968, which governs NLF lending, that the rate of interest on a loan must be set at a rate that would be sufficient to prevent a loss, taking into account the cost of the borrowing to finance the loan.
It is not clear what would have to happen if the Bank’s base rate fell below the Government’s cost of funds; that is not just a technical possibility. The rate of interest on any loan would also depend on the expected maturity date of the loan. Depending on market conditions and other factors that affect the rates on longer-term loans, the applicable rate of interest may have to be higher then the Bank’s base rate.
However, it is not sufficient that the interest charged on NLF loans merely covers the Government’s cost of funds. Loans to the FSCS are really loans to the levy payers, who are ultimately responsible for meeting the scheme’s costs. Government loans to commercial undertakings need to be made at proper commercial rates, which ensure that they can compete fairly, and that there can be no question of any subsidy or state aid, which could, of course, be challenged under European law.
I hope that I have clarified the situation. If the amendments are pressed, I invite the Committee to vote against them.