I beg to move, That this House
disagrees with Lords amendment 83.
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Before addressing in detail the amendments made in the other place and the amendment the Government are now proposing, it might help if I summarise the purpose and history of clauses 228 and 229 in the latest print of the Bill. Their purpose is to put the use of public money in the proposed bank resolution arrangements, or in the provision of financial assistance to banks and their customers more generally, on to a proper statutory footing. Clause 228 does that by providing the statutory cover for expenditure in Supply estimates. That is required under a long-established convention, commonly called the PAC concordat of 1932, that there should always be specific enabling legislation to enable the finance for a new service to be provided from public funds. We amended the clause in Committee in this House to give statutory cover for financial assistance where the institution concerned was not a UK deposit taker or a financial institution that was not a deposit taker—for example, a bank holding company—but further issues came to light that had to be dealt with by Government amendments in the other place. I briefly commented on them in the money resolution debate, and I shall turn to them shortly.
Clause 229 provides statutory cover for drawing money from the national loans fund to make loans urgently where that is necessary to protect financial stability. We also amended the clause in Committee to extend the types of person to whom loans could be given to cover financial institutions other than UK deposit takers. I shall also talk about the Government amendments made in the other place after discussing clause 230. This clause, the result of the passing of amendment 83 in the other place, provides for more rapid detailed reporting of financial assistance given to banks, financial institutions and their customers. It provides for quarterly reporting of expenditure, and of guarantees and similar commitments that might result in expenditure, met with money voted by Parliament under the authority of clause 228(1). Clause 230 also provides for the same reporting arrangements for loans made under clause 229. It requires the Treasury to lay sufficiently detailed reports before both Houses of Parliament, but allows for the disclosure of the information to be delayed as long as there is a public interest in not disclosing it.
The Government have always appreciated the concerns that many people have about transparency and reporting. Those are important issues for the whole Bill, and not just in relation to public expenditure, and we discussed them at great length in Committee and they were discussed at great length in the other place. The Government's view is that it is necessary to balance the desirable objective of transparency against the need for confidentiality in a number of contexts. There will be cases where action to tackle financial crisis, taken under the Bill or otherwise, can be effective only if it can be kept confidential.
If we approve the Bill as it stands, is there a danger that because there will no longer be a weekly report from the Bank of England, some of this assistance could be provided on the Bank of England's balance sheet to avoid all scrutiny and accountability?
I shall discuss those points, but basically the answer is that we have the balance right in what we are proposing today.
The right hon. Gentleman will remember that there were concerns about this precise issue when the news about Northern Rock first broke. There were concerns that the provision of financial assistance by the Bank of England had to be disclosed by the recipient firm—as is the case for listed companies—under Financial Services Authority rules. There were also concerns about the way in which the publication of the weekly Bank of England return could be used to work out that such support was being given. Indeed, clause 244, which removes the obligation on the Bank to produce a weekly return—the right hon. Gentleman referred to that—was included in the Bill precisely because of those concerns.
So there must be a balance between the need for transparency and the need to protect confidentiality where it is clearly in the public interest to do so. The Government feel that the original clause 230, although a noble effort, does not quite get the balance right. We simply feel that there is too big a risk that it could be possible to identify the beneficiaries of financial assistance under some schemes or the amounts that they could receive. I am sure the House will appreciate the risk, therefore, of damaging speculation about the identity of the institution concerned. That could be bad for confidence and it could even lead to the kind of situation that we are all trying to avoid.
These issues were debated in Committee in another place, and the version of the clause accepted on Report in the other place has gone some way to recognising these difficulties. For example, clause 230 does allow the Treasury some leeway to delay the disclosure when it is in the public interest to do so—for as long as that remains the case. That is sensible, but because of the risks and concerns that I have just described, the Government might well end up relying on this public interest exemption rather too often.
That is bad for two reasons. The first is that it increases the chance that the Government may not be able to make a disclosure—that is clearly bad for transparency and we ideally want to avoid it. The second is that the frequent delay or omission of information could, itself, lead to destabilising and damaging speculation of the kind that we all want to avoid. So we have been considering ways in which regular reports of the kind provided for by clause 230 could be made while minimising the problems that I have described.
Does the Minister accept that normally the money resolution authorises, in general terms, the expenditure and that subsequently, as he said, there is an estimate, but it is not, in itself, a reason for accepting the money resolution? Does he also understand that much of the reason for the Bill's being discussed and voted upon by an unelected Chamber—the other place—is the fact that the Government imposed restrictions on the amount of debate to take place in this House and abrogated to the upper House matters that should properly be dealt with only in this House, because we are elected on behalf of the people?
Unfortunately, I do not agree with hon. Gentleman. Exceptional events have been taking place in money markets worldwide, and the Government have had to act quickly to ensure financial stability. We did that through recapitalisation, and the authorisation for that was in the money resolution that we passed in October. We have had to take further action since, and we need legislative cover for the action that we have taken, which is why we were discussing the money resolution. But we also want to ensure transparency and accountability to Parliament. I share with the hon. Gentleman the strong view that accountability for these matters should be to this House, and we are trying to achieve a reasonable balance between the need for transparency and the need for confidentiality. That is why we have tabled an amendment containing a new clause to take the place of clause 230.
The new clause would provide that reports should be submitted half-yearly rather than quarterly. In itself, that would significantly reduce the risk of identification as expenditure incurred or guarantees given over a longer period would be covered in any one report. The new clause would require the Treasury to ensure that individual recipients and the amounts that they have been paid or guaranteed cannot be identified. That will usually mean aggregation, and we expect that in practice each scheme would be reported on separately, but that, if necessary, data on schemes could be aggregated up to the level of the sponsoring department. The Government believe that that is the intention behind subsection (2) when taken with the recognition of the public interest in subsection (3), and our amendments are, therefore, in line with the clause as it stands, but make improvements in clarity and technical effect.
There are also some smaller points on which the Government propose changes to clause 230. First, the amendment provides that the reports should not include the loans made under clause 229. A Government amendment in the other place, which we will come to shortly, made the loans from the national loans fund under clause 229, which can also only be made when needed urgently to protect financial stability, subject to an ad hoc reporting procedure similar to that provided in clause 228 when money is taken directly from the Consolidated Fund in urgent cases. But there is no mechanism analogous to estimates for approving loans from the national loans fund, so there is no need to include them in reports under clause 230. Of course, those payments and loans will be included in the annual accounts of the national loans fund.
Finally, the amendment provides for reports to be laid only before the House of Commons. That is entirely normal, and follows the usual processes for reporting on public expenditure, in line with long established constitutional precedents in relation to public finances. As set out each year in the Queen's Speech, Supply estimates for the public services are laid before this House only. The reports that this amendment will introduce relate to money voted in those estimates, and it is proper, therefore, that they should be formally laid in this House. But the reports will of course be published so copies will be available to members of both Houses—and indeed the general public—in the normal way.
I hope that the House will agree that these proposals strike the right balance between the objective of transparency and the need for the appropriate level of confidentiality. I hope that the additional arguments that I have been able to make will enable those who expressed concerns in the debate on the money resolution to be reassured about the accountability mechanisms that will be built into the process.
My hon. Friend makes an important point. There is great outrage about bonuses being paid by banks, and it is felt that we should do more about that, given the amount of money being put into the banking system. The key is transparency. While I understand the thrust of the amendments, there is a conflict between transparency and the confidentiality that is needed for the reasons that my hon. Friend has outlined. Does he agree that we must make it clear to our constituents that transparency is a key part of the proposals?
I agree strongly: it is right that we should be as transparent as we reasonably can, while recognising that certain public policy objectives require some degree of confidentiality. The last thing that we would want to do is create a run on a financial institution by being too transparent and disclosing problems when by taking action as we propose, we could solve such problems.
I remember the debates in Committee over this point. One of the dangers of not having transparency is that someone might invest in an organisation, only to lose a lot of money later because it went down, and they would not have known that the Government had been bailing it out in between those times. However, I want to ask the Minister whether we will have an extraordinary Supply day to cover the estimates that we have just approved in the money resolution. If so, will he guarantee that the time allowed for that will not be three hours but will be enough to ensure that the subject is properly debated?
I cannot speak for the business managers of the House, obviously. However, as part of the normal reporting procedures there will be an opportunity to debate these matters. The hon. Gentleman has raised his point and he will have ample opportunities to raise the Government's programmes in debates on the Floor of the House and in Westminster Hall.
May I put three examples to my hon. Friend? Let us say that the Bank of England were to start buying Government debt; that the Treasury were to start issuing debt directly to businesses, institutions or arms of local government; or that the Government were to decide that they had to support credit insurers and created a new credit insurance facility in order to keep business moving. Those matters would all be covered by this new clause. How would Parliament be kept informed about these matters?
As a Government, we always want to be open and transparent. As an experienced Member of this House, my hon. Friend will know that when we make major decisions as a Government it is normal practice that we report them to Parliament either through an oral statement or a written ministerial statement. The normal financial accountability mechanisms will be considered and will be debated in due course. I assure him that the Government want to be absolutely clear about what we are doing and to explain why we are taking action. We think that it is vital that we should continue to do all we can to ensure the stability of the financial system in the UK. That is why the announcements that the Chancellor made in an oral statement to the House a few Mondays ago showed the normal practice that we would follow. That does not negate the need for other reporting mechanisms to be put in place. As I outlined earlier, the estimates and votes process is long established in this House and provides a means of financial accountability.
Let me turn to Lords amendments 75 to 80, which provide statutory cover for expenditure incurred in connection with schemes run by Departments other than the Treasury. They do that by providing statutory cover for schemes where the financial assistance being provided will both facilitate the activities of the bank or financial institution and provide a benefit to a third party, such as customers of banks or other financial institutions, or to the wider economy. Expenditure incurred in connection with schemes such as the home owners mortgage support scheme announced by the Prime Minister on
Lords amendment 81 addresses a different issue regarding the provision of financial assistance. As the House will know, the Treasury has made a number of arrangements to support the UK banking sector. They include the credit guarantee scheme for new inter-bank lending introduced in October 2008, as well as the asset protection scheme and guarantee scheme for asset-backed security that were announced on
Does that not undo what the Minister said earlier in the debate? He said that there would always be an estimate so that the House could decide whether or not to approve the expenditure of money, but it appears that money can be spent without any approval during a recess. I assume that we will not be able to come back afterwards and unspend it, so did not what we voted on earlier in fact commit us to spending it?
No, the money resolution that we voted on earlier will not do what the hon. Gentleman suggests. Where funds are needed urgently and it is not possible to have estimates, that money can be provided. However, it will still be subject to the same accountability systems when Parliament returns after a recess.
The working capital scheme that is being progressed at the moment relates only to UK banks. We are discussing the scheme with the major UK banks, but we are not in conversation with foreign banks about it.
May I follow that up? My hon. Friend has made it clear that the facility will be available only to UK banks, but an important point that should not be overlooked is that much of the exposure that will be supported could be outside the UK. In fact, I can think of one or two big financial institutions that will carry most of their exposure outside the UK. Is that also covered by the loan facility?
We are trying, through the working capital scheme, to progress our discussions with UK banks about their credit lines to UK companies. The policy intention is not that the Government should underwrite the loans of non-UK companies or investments made by UK companies in assets outside the UK. We need to be clear that the purpose of the working capital scheme is to help UK companies that need access to credit. Some have had their credit lines withdrawn, and the Government want to give a reassurance that credit will be there in the future. I can assure the right hon. Gentleman that the policy is UK focused and that the intention is not to fund projects internationally in the way that he describes.
Finally, I turn to amendment 82 to clause 229. Clause 229 provides for loans to be made urgently from the national loans fund where that is necessary to protect financial stability. Of course, loans can be made with money voted by Parliament but, again, an estimate will have to be obtained first. However, loans can be provided from the national loans fund without an estimate, provided that the relevant requirements are met. That means that they can be used in urgent cases for which no estimate is available.
After further reflection, the Government felt that the same kind of reporting arrangements that apply to the urgent payments under clause 228(5) should also apply to individual urgent loans under clause 229. As I have just explained, Lords amendment 82 does that with the same kind of anonymity and public interest conditions as those used in subsections (6) and (7) of clause 228.
These Lords amendments are detailed. For what we believe are good reasons, the Government disagree with one of them, although we accept its general principle and thrust. We think that the balance between transparency and confidentiality that their lordships proposed needs to be changed slightly, and I have explained our thinking. I hope that the House will agree to our amendment in due course.
I will deal with the amendments in a different order from the Minister and start off with Lords amendment 79, which is important. It triggered much of the debate that we had on the money resolution, in the sense that it would broaden the way in which the Government can use public money to support the banking sector or other financial institutions. When we debated clause 225 in Committee, it was more narrowly focused, but the amendment would widen its scope. I want to test with the Minister my understanding of how broad the amendment is in practice.
My understanding is that the Bank of England's asset purchase facility would fall within the ambit of the clause, because the scheme permits the Bank to purchase commercial paper, and that indirectly benefits banks by reducing the potential demand for funding, so any financial commitment that arises from the asset purchase scheme would be covered by Lords amendment 79. The Minister mentioned Lords amendment 81; I am trying to understand where the Government have broadened the nature of the assistance that can be given. I am thinking of how new subsection (1A)(a) and (b)—particularly (b)—which is inserted into clause 225 by Lords amendment 79, will relate to a range of schemes. I assume that the funding package for the motor industry that the Minister announced in the House last month would come within the ambit of new subsection (1A)(b).
I wonder if I might push the Minister a bit further to see how elastic the provision is. Last week, at the CBI's manufacturing dinner, Lord Mandelson floated the idea of a scrappage allowance. The intention was that it would restart car purchases in the UK by encouraging people to trade in an old car for a new car. A number of people in the industry proposed the idea. I would have thought that it was within the realms of the Government's creativity to claim that any expenditure on such a scheme would be covered by the subsection, because new subsection (1A)(b)(iii) refers to
"its effect on a particular industry or sector of the economy".
Clearly, a scrappage allowance would stimulate the demand for consumer credit, kick-start the motoring sector and potentially reduce the demand for working capital finance from the banks. That may seem a far-fetched example of a scheme that could fall within the scope of the amendment, but it is not clear how Lords amendment 79 would be applied, or what schemes would fall within its remit. I would be grateful if the Minister clarified that.
When the clause was originally discussed in Committee, it referred just to banks. An amendment was made in Committee to extend coverage to other financial institutions, so arguably under the clause financial support could be provided to insurers, fund managers and independent financial advisers—a whole gamut of financial institutions. It would be down to the Government to determine which financial institutions could benefit.
I again ask the Minister about the scope of the provision. If the Government decided to fund free contents insurance for tenants in the social rented sector, it would clearly help the insurance sector. Would that be covered by Lords amendment 79? It would be helpful for the Minister to give us an idea of the areas that he believes fall within the scope of the amendment before the House decides to accept it. Clearly, as was demonstrated earlier, there is widespread concern across the House about the potential level of financial assistance and the commitments to be undertaken by taxpayers that could flow from the amendments.
Lords Amendments 81 and 82 deal with the process of granting financial assistance through the Consolidated Fund or the national loans fund. As the Minister said, an increase in transparency emerges from the two amendments, which state that a report should be laid before Parliament specifying the amount paid or loaned under the schemes, but will he be more specific about how he anticipates the House approving amounts lent under the scheme? In his exchanges earlier with my hon. Friend Mr. Bone, he referred to the normal process for approving estimates. Will the Minister set out more clearly how he anticipates the House approving commitments made under the financial assistance provisions of the Bill?
Does my hon. Friend share my reading of the amendments? Under Lords amendment 82, if the Treasury decided that it did not want to report to the House or anyone else, it need never tell us anything about the amount paid. The amendments state that it may dispense with the requirement, which is extremely worrying.
My right hon. Friend makes an important point. My interpretation is that although at the time the Government might decide for reasons of confidentiality not to lay a report before Parliament, that would be swept up in what was Lords amendment 83, which we pressed in the Lords. I hope that would be covered in the new amendment tabled by the Government in lieu, so there would be a report. It may not be as timely as we would like, but there would be reporting at six-monthly intervals.
The Minister made an important point about the balance to be struck between confidentiality and public scrutiny. Clearly, the transparency of information provided was a barrier to giving covert assistance to Northern Rock. We need to have that debate in mind, but I hope that the six-monthly reporting will act as a sweeper, so to speak, to pick up all those instances where financial assistance has been given but no report has been laid before Parliament.
When the Government decided, in the first phase of the bank bail-out, to take stakes in RBS, what was then Lloyds TSB and HBOS, we had a debate on the Floor of the House in which the Financial Secretary to the Treasury and my hon. Friends the Members for South-West Hertfordshire (Mr. Gauke) and for Wellingborough participated. Specific approval was given for an estimate to pay for that investment. Will we have the same opportunity to vote on the elements set out in the second bail-out package? It was not clear from the Minister's remarks whether we would have a specific vote on those elements, or whether they would go through the normal estimates procedure, where individual items are not voted on.
Not only have we seen the second phase of the bank bail-out, but money has been lent to the financial services compensation scheme in respect of the rescue of the Icelandic banks in the UK, and we should ensure proper scrutiny of that in the House. I would welcome greater clarity from this Minister as to how items would be voted on and whether there would be stand-alone debates on the various aspects of financial assistance envisaged in Lords amendment 79.
The Minister also drew the House's attention to the words "too urgent" in Lords amendment 81, which relate to when there was a pressing need to provide money from the Consolidated Fund, the issue being whether money could be granted before there was a vote on it. He gave the specific example of there being a crisis during a recess and Ministers having to act urgently without the approval of the House. Will he confirm that when the House is sitting, the Government's first preference will be to go through the estimates procedure, rather than rely on the powers set out in Lords amendment 81?
Lords amendment 83 was tabled by my noble Friend Baroness Noakes and Lord Turnbull in the other place. One of the important themes in the debate is transparency and understanding the scale of the taxpayers' liability. We touched on that in different contexts during our debates on the Bill in this place. I felt at times that there was a bias towards secrecy as a way of enhancing financial stability, so I welcome the increased level of scrutiny that comes from the amendments made in the other place. It is important that the tripartite authorities are accountable to Parliament and others for the use of their powers under the Bill. The report envisaged in Lords amendment 83 went a long way towards increasing that transparency. It set out the requirement for a quarterly report to be made to Parliament on sums actually and potentially committed under the financial assistance powers in clauses 228 and 229.
During our earlier debate on the money resolution, I set out a number of the schemes that the Government have announced in the past three or four months, and I have no intention of repeating them. Clearly, however, there is a range of schemes that involve significant financial commitments. I have talked about the asset protection scheme; one estimate this weekend suggested an amount of up to £400 billion. The Minister referred to the working capital scheme, and there is the scheme proposed by Sir James Crosby in relation to asset-backed securities. There is also the asset purchase facility, under which the Bank of England has been authorised to acquire commercial paper. So there is a range of schemes with significant price tags. It is important that taxpayers should understand the extent to which they are exposed to the financial assistance given under the schemes, and that Parliament and the taxpayer should hold the Government to account for the money involved in them.
One of the points made in the other place was that the schemes are put forward by a range of Departments: the Treasury is responsible for some, the Department for Business, Enterprise and Regulatory Reform for others and the Department for Communities and Local Government for the homeowners' scheme. It is important that the Treasury acts as the focal point for drawing the schemes together and ensuring that a proper report is made to Parliament.
When Lords amendment 83 was debated in the Lords, there was significant support from the Liberal Democrats, the Conservatives and a number of Cross Benchers. The majority of 35 in the vote on it demonstrated the strength of feeling about the welcome move to increase transparency. During the debate, Lord Davies of Oldham, speaking for the Government, opposed the amendment as he felt that it was unnecessary and that there were sufficient existing powers within the legislative programme to ensure that there was proper scrutiny. He prayed in aid the Exchequer and Audit Departments Act 1866 and the various Consolidation Acts and Appropriation Acts. Frankly, his arguments did not wash with the House of Lords; it did not feel that they would ensure sufficient transparency. Lords amendment 83 was backed so that there could be proper reporting of the amounts involved.
In their amendment, my noble Friend Baroness Noakes and Lord Turnbull reflected some of the concerns that the Minister mentioned. They referred to summarising data so that individual obligations were not necessarily seen and pointed out that there may be situations where information could be withheld as a matter of public interest.
What I take from the Minister's remarks is that the Government have listened to the well-argued points that were made in the other place. Lord Davies said that the current mechanisms of accountability are sufficient. Conservative Members would like the Government's conversion to the recognition that given the sums involved there must be greater transparency and accountability in the financial assistance that is given. We welcome the Treasury's willingness to be as open as possible in disclosing information on exposure, subject to the caveat in new subsection (4) in the Government's amendment. That represents a significant move by the Treasury and a recognition of the strength of the arguments made in the other place, and it is an important advance for transparency in how these matters are dealt with. Taxpayers have a right to know how much a bank bail-out is costing them. We therefore welcome the fact that the Government have tabled their amendment in lieu and we will not divide the House on it.
I, too, am happy to support the amendments. The balance between transparency and accountability is very difficult to achieve in these areas. Trying to ensure that we get as much information as we can without undermining the whole purpose of what we are trying to do is a delicate balance. The original amendment was a useful contribution, and I welcome the Government's slight amendment to it while nevertheless agreeing the principle.
I welcome the inclusion of other financial institutions. I have always felt that a significant number of financial institutions are doing a good job in that they do not receive deposits but take wholesale money, they have lent responsibly, and they have been a genuine provider of consumer credit to an important market that we would not want to be diminished in any way.
However, there is a problem with confidentiality. We seem to have got ourselves into a situation where the leaking of information is becoming more prevalent. Given the ingenuity of financial journalists, in particular, in phoning around various institutions and individuals, I suspect that, whatever we do to try to ensure otherwise, it will not be too long before these bits of information will regrettably be coming out in the press, possibly undermining our actions.
That is absolutely right. It is a bit of a conundrum, and it will be difficult. I am assuming that institutions that receive Government support will have to make the appropriate note in their audited accounts, so if they take it late on in their financial year it may not be long before they have to report it anyway.
When I mentioned the banks' audited accounts, it occurred to me that they might have to make a market announcement if they took large amounts, so I suspect that the information will come into the public realm anyway. I hope that the public, through an educational process, will be able to assimilate this knowledge in a much more balanced way, following what they were subjected to at the front end of Northern Rock, and will begin to understand how organisations are availing themselves of facilities.
Overall, the amendments are worthy of support, but they may not quite achieve all that the Minister expects them to.
It is typical of the whole debate about banks that we are in this miasma of nonsense. I do not know whether Ministers and those who drafted the legislation have ever operated under company law, or know any company law, but the simple truth is that if the Government are to inject equity capital into a bank, they not only need to make a prompt announcement to the stock market, but they need to table the details and get the approval of its shareholders before the transaction can be completed. If a large amount of longer-term loan capital or other priority capital is to be injected into a bank, that bank would be duty bound under company law to make an announcement as soon as it had an agreed deal with the Government.
If we are trying to shield nationalised banks, the purpose of the amendments is wholly damaging. Where we have nationalised banks, we know that the Government stand behind them. Presumably, the point of nationalising them was to transfer all the credit risk and difficult risks in the bank to the Government's account so that the bank's credit is as good as the Government's. Once we are in that position—short of the Government themselves getting into an uncreditworthy position, which we pray they will not—it is the duty of the Government to come to the House immediately when they wish to inject subsidy, loan capital, share capital or whatever it may be into a bank in public ownership. There can be no harm in telling us that immediately because the bank is nationalised and the public can take reassurance from the fact that the bank effectively has a claim on the Consolidated Fund of the United Kingdom, or on good will and votes in Parliament on the initiative of Ministers.
I find both the original amendment, well-intentioned though it was, and the Government's amendment in lieu, far too weak and feeble with respect to nationalised banks, where we have a right to know soon or immediately what they are putting in and why. When it comes to private sector banks, where we are dealing with longer-term share capital and loan capital, we find out details promptly, and so we should, because there are good rules to ensure that there are not dishonest or false markets. Those are relevant considerations for the trading position of the banks.
Why has this situation arisen? Because the authorities got into difficulty when it was rumoured that they were trying to find a shotgun marriage for Northern Rock after it first hit difficulties. We were then told that they were not able to do that under time pressure because a combination of British rules and European legislation meant that they would have to disclose details before they had done a deal, which was very embarrassing for them. If that is the case, they ought to fix those rules and that legislation, because the bank or the other authorities need the power, in extremis, to act as an honest broker to a deal if one of the commercial banks or other financial institutions is in such trouble and there are buyers out there. That always used to happen without any problem. The problem seems to be based on a British lawyer's interpretation of a European law—an interpretation that does not seem to be shared by other Community lawyers or other Community Governments, where they have been able to do such deals without the same difficulties. I hope that we can address the underlying issue because these proposals do not address it.
The other possibility is that the proposals are designed to deal with short-term assistance, given in the normal way, with a central bank acting when there are extraordinary stresses and strains on the market as a whole or on individual banks. The Economic Secretary is nodding his head, showing that that is what the proposals relate to. If he reads the clause in question, he will find that it relates to all the things that I have already spoken about, which is why I think it is clumsily drafted.
Let us examine how much secrecy there needs to be for short-term assistance for an individual bank, and how that relates to the rules of company law. These are all difficult cases, but there could be a situation—there certainly was in August and September 2007, which the authorities did not respond to in a timely way—where an institution such as Northern Rock is in immediate need of cash to replace borrowings that it can no longer access from the private market. In such a case, we would hope for the central bank to be responsive, and that it would make loans against good security. If they are made as short-term loans against security within the normal borrowing powers of the bank and within what it has already reported to its shareholders, that could be done in secret, and it is best done in secret. It always used to be done in secret, and if there was any danger of the market finding out that a bank needed such assistance, the Bank of England used to say to several banks, "We want you all to take a bit of money from us this week, so that we can let the market know that quite a few banks need us, because the market is a bit stressed." The finger of doubt would therefore not be pointed at one particular institution. Other techniques could also be used. My concern about the amendments is that they imply that we are talking about longer-term finance that should be properly reported and completely transparent.
One would hope that under the six-month provision suggested in the Government's amendment, any temporary assistance would be lent and repaid in that period. The idea of temporary assistance is that it should meet a short-term shortage in the market, or that a bank could replace it in other ways, in the normal course of business and reasonably promptly. The reporting requirements would not then need to apply. My concern is that the Government's amendment sets out an effective override so that we would never know which individual bank or arrangement was involved. We have a right to know about many arrangements, particularly in relation to nationalised banks.
Mr. Breed made the extremely good point that if we look back on the sorry story of the past few months, we see that the various attempts to prop up or support banks have been conducted through the media. One of the most unpleasant things about the injection of shotgun money into the banks—£37 billion of share capital over that fateful weekend—was that we had a running commentary on it. We should not have been told about it. The banks should have gone into the Treasury by the back door or done things by a video conference link. We should not have been told that there were crisis talks, that the banks were in trouble and that there had to be a deal by the opening of business on Monday. All that added to the crisis atmosphere.
We have never known who was responsible for that. I do not blame the journalist who got wonderful stories out of it and provided us all with a running commentary, as any journalist who got such information would obviously see it as public information and want to use it. However, that was not the way to mount a rescue if the banks in question really needed it. Personally, I do not believe that they were in desperate need of such a rescue at that point, and there would have many easier and cheaper ways of helping them. Of course, I would not have wanted any of them to go under, but the high drama was not required, and there certainly did not need to be such public exposure over that weekend.
If it was necessary for public capital to be injected into those banks—I remain to be persuaded—it should have been done after proper reflection, evaluation and valuation. Of course it had to be made public, but only when the participants knew the details and had something reassuring and confidence-building to present to the market. The commentary during the run-up to the deal undermined confidence by suggesting that the banks were in crisis, and indeed by naming one bank that turned out not to need any public money, which was not terribly helpful to that bank.
I therefore do not believe that the Lords amendment goes far enough, and I do not believe that the Government's proposed revision goes nearly far enough. It is a cover-up amendment rather than a transparency amendment. Fortunately, we will get more transparency in the private sector through other rules, regulations and laws, but I am concerned about the complete absence of transparency that will yet again exist in the public sector. I hope that the Economic Secretary will think again, and that he agrees that every penny going into a state-owned bank should be reported to Parliament promptly, with its full terms, so that we know what is going on.
I wish to speak mainly to Lords amendment 83 and the Government's alternative to it.
I was struck by the Economic Secretary's saying that the Government had acted quickly during the banking crisis. This is
The Economic Secretary knows that transparency has caused concern since the publication of the consultation last January, and at various stages of the Bill's passage. I am therefore especially struck by proposed new subsection (2) in the new clause that the Lords amendment proposes. It states:
"The Treasury shall ensure that the report contains sufficient detail to enable Parliament to understand the actual and potential commitment of public money to financial assistance".
That is sensible given the hundreds of billions—possibly a trillion or more—of pounds that are actually and, more important, potentially committed. Taxpayers have a right to know what they are in for and what the loss and liability may be.
Transparency is also important because of what the Economic Secretary said: the Bill uses public money. Again, transparency is important because clause 235 removes the need for the Bank of England weekly return—people have commented on that for some time—and clause 236 allows the Bank of England to determine what it reports, when and to whom.
I make no apology for repeating points that have already been made. Transparency is important because support now extends beyond the banks, financial institutions and deposit-taking institutions. Already, around £200 billion has been put in the special liquidity scheme. We have had the £37 billion recapitalisation of the banks, some of which was lost through the removal of the preference share into ordinary capital. We have the £250 billion guarantee scheme for new inter-bank lending—I am not sure what the draw on that was or is.
There are also: the £10 billion working capital scheme; the enterprise finance guarantee scheme of potentially £1.3 billion; the £75 million capital for enterprise fund; the unlimited Government insurance for banks for expected excess bad debt, which is an extraordinary liability; and the £50 billion for the Bank of England to buy assets in all sectors. If I have understood the press reports, that process might continue, if the £50 billion runs out, through quantitative easing, which means the bank printing money to buy assets. That has not been denied and it worries me greatly.
There is also the £50 billion of bank credit guarantees, the £1 billion of direct loans to the car industry, and the additional £1.3 billion of EU funding, which is to be unlocked. There is therefore a massive need for transparency. We are considering scary, big numbers, which have the potential to do huge damage to the public finances in the medium and long term if things begin to go badly wrong.
In the normal course of events, we would not see the Treasury balance sheet until the Treasury accounts were published, probably at the end of each July. Given the scale of the schemes, which the hon. Gentleman has described so well, should not we have a monthly or quarterly update from the Treasury about the exact state of the balance sheet?
Yes, that would be helpful. However, I am conscious of the need to protect individuals or organisations that may receive assistance. There is a balance to be struck. I am worried that the Government's alternative to the Lords amendment does not do what the Lords amendment provides for: allowing Parliament to understand the actual and potential commitment. I am less vexed about whether the report is made weekly, monthly, quarterly or six-monthly, as long as we can begin to understand the genuine extent of actual and potential liability.
The hon. Gentleman is doing the Minister's job for us, by spelling out the almost £700 billion of commitments that we would like to be reported properly. In addition, the hon. Gentleman might like to know that the Bank of England balance sheet was around £40 billion at the time of the run on Northern Rock. It hit £240 billion at the end of last year, which is a sixfold increase. However, the Bank of England increases, together with those other schemes, amount to about £1 trillion. That is why we want to know where the money is going.
That is absolutely right. I am sure that right hon. and hon. Members will know of other liabilities, real or contingent, that they could add, but I will not into that today.
The Government's alternative to Lords amendment 83 says:
"The Treasury must aim to give as much information as possible in a report, subject to" not specifying individuals or amounts to individuals, and I understand why. My question for the Minister is this: will he put it on record that the intention behind the words with which the Government intend to replace Lords amendment 83 is still to provide sufficient detail to enable Parliament and the public to understand the actual and potential commitments in the public finances?
At the beginning of the debate the Minister seemed to say something about working capital that rather surprised me. He said that working capital would be provided only for British banks and that it would not be allowed to cover foreign loans. Some might suggest that that would mean British credit for British business, but surely it would be illegal under EU law. The Minister needs to clarify that—I am sure that he did not mean it, but that is what he seemed to imply.
It was interesting that the money resolution went through on a very small vote. The Government could only muster fewer than 300 Members to vote for it, which is way less than half the Members of this House, so clearly there is considerable concern about that open-ended cheque. The Minister could not tell us how much money is involved, because he does not know how much money is involved. However, we are talking about a simply extraordinary amount—billions and billions of pounds.
I want to talk about Lords amendment 81 to clause 225, which deals with transparency—or, should I say, the lack of it. We have already heard from the Minister that if there was a major financial crisis in August when Parliament was not sitting, the Treasury could spend billions and billions of pounds off its own bat, and when we came back in October, we might get a report about that. However, proposed new subsection (5) to clause 225 says:
"Where money is paid in reliance on subsection (4)"— perhaps by the Treasury in the recess—
"the Treasury shall as soon as is reasonably practicable lay a report before Parliament specifying the amount paid...but not the identity of the institution".
We would get a report, although it is interesting that we would not know which institutions had received the money. Proposed subsection (6) to clause 225 says:
"If the Treasury"— and the Treasury alone—
"think it necessary on public interest grounds, they may delay...a report".
That is bad enough, but the words after "delay" are:
"or dispense with a report" altogether. Therefore, a massive amount of money could be spent in the recess that would never be reported to this House, because somebody in the Treasury claimed that Parliament should not be told on public interest grounds.
That is what this Government are all about. They do not like debate, they do not like transparency and they want to do everything behind closed doors. This Government's fundamental mistake is not believing in their own arguments and not coming to Parliament to debate them fully. Despite what the Minister claims, we have not had any debate in Government time on the economic situation. We have had a few statements, where a Minister or the Chancellor gets up and spends—
Thank you, Madam Deputy Speaker. I am sorry if I strayed from new subsections (4), (5) and (6) to clause 225, as proposed by Lords amendment 81, but the implication seems to be that they would stop debate on the Floor of the House. I was trying to make the point that the Government's mistake is not to have that debate and not to believe in their own—
Thank you, Madam Deputy Speaker.
In conclusion, then, I would say that we are in a difficult position with all these Lords amendments and revisions by the Government, but we are committed to getting the Bill through Parliament as soon as possible. However, we are dealing with an Alice in Wonderland situation, in which the Government can spend vast amounts of money without any reference to Parliament.
I am surprised that the Government are opposing the Lords amendment that would require a quarterly report on financial assistance. Our proposal in the Lords amendment is very much in accord with democratic values and the kind of practice that many of us see in the private sector when we report to our shareholders. The Government talk about normal mechanisms, but these are not normal times. As the Children's Minister himself has said, this is the most serious recession in 100 years. Even the Prime Minister thinks that we are already in a depression, but perhaps that is just his own state of mind.
Taxpayers have a right to know what liabilities the Government—and, in turn, taxpayers—have. Those liabilities should be made clear to the public, whether we call them on-balance sheet liabilities, off-balance sheet liabilities or contingent liabilities. Unfortunately, however, this is part of the Government's pattern of hiding the real state of their finances. According to recent figures from the Office for National Statistics, net debt is about £697 billion, or 47 per cent. of gross domestic product. To put that in normal terms, it represents £25,000 per household. The reality, however, is that the Government are hiding about another £1.2 trillion off-balance sheet, primarily in public sector pension liabilities. So taxpayers actually owe more than £75,000 per household—
I appreciate your guidance, Madam Deputy Speaker. I was trying to point out the importance of the need for greater transparency by highlighting a pattern of a lack of transparency. However, I will return directly to the subject of the debate. As Stewart Hosie and others have said, taxpayers have a right to know what their exposure is. That is the point that I was trying to make. If we are to maintain the trust of taxpayers, we must be as open and transparent with them as we can. Quarterly reporting on what we are doing with their money does not seem to represent an undue burden in these extraordinary times.
I had not intended to speak in this debate, but the correct description by Mr. Redwood of the United Kingdom as a large pool of bank debt loosely tied to a medium-sized country was a telling one. He went on to refer to the possibility that our Government, and others in the western world, might be testing to the limit the ability of Governments to raise their own debt. That was also a fair point, which we need to address when we consider these issues.
The other place has done us a service in providing us with these amendments. I understand the Government's difficulty in working out how to report to Parliament on an ever-changing and fast-moving situation. Their efforts to do so are set out in their alternative to Lords amendment 83, and I have no quarrel with them, but they must accept that the House cannot wait until the end of the first six-month period set out in their amendment for a comprehensive report on where we have got to. That point was fairly made by Stewart Hosie.
We should not have to wait until October to discover where the state aid reference to Northern Rock—which has paralysed Northern Rock's ability to serve the Government's purpose of opening up new lending—has got to. We should not have to wait until October to work out the extraordinary situation that is now developing with the remnant of Bradford & Bingley—which is still in state ownership—in which the Government will find themselves owning a significant proportion of the outstanding buy-to-let mortgages in this country. That proportion could be in the order of 20 per cent.
Through their ownership of Bradford & Bingley, the Government are still observing the terms of the deal that Bradford & Bingley made with GMAC, the American General Motors company that branched out into finance. Many of us have had to deal at constituency level with GMAC-provided mortgages, which are in a sorry state. Bradford & Bingley did a deal in which it undertook to acquire billions of pounds' worth of those mortgages on a quarterly basis. The last quarter in which those mortgages will be acquired ends on
In this debate, we have clarified that the Government intend to support UK banks and not other banks. I think that we have also established that the support that the taxpayer is making possible through the working capital fund will go only to UK companies. However, through the guarantee of assets—part of which has already been undertaken, and more of which will be decided at the end of this month with Lloyds and RBS—it is clear that the British taxpayer will be supporting loan books that are not UK-located.
I did have some idea about that, but I am grateful to the right hon. Gentleman for pointing it out, because it brings me to my next point. Through British taxpayers' support for the RBS balance sheet, we are supporting a very large stock of United States car loans. The British taxpayer is standing behind those loans. Does the House not find it peculiarly ironic that the Government are wrestling with schemes to underpin the UK car industry when we are already guaranteeing car loans in the United States, through RBS's exposure? I do not blame the Government for that situation. It follows inescapably from the support that RBS has been given. However, it does mean that the Government have to report to Parliament on all this at a very early date. These matters cannot be left until October.
I shall focus on three main areas in response to hon. Members' comments on the Lords amendments. The first is the widening of the extension of statutory cover for expenditure incurred by the Treasury or other Government Departments; the second is the parliamentary accountability mechanisms ordinarily in place; and the third is the Government motion to disagree with Lords amendment 83, which has been much debated.
In passing, however, I would first like to deal with the accusation that the Government delayed taking action to support Northern Rock. I completely refute that: the Government took timely action— [Interruption]—and let me point out that the official Opposition would have let Northern Rock fail, which would have created a crisis for savers in this country. We were entirely right in what we did.
The role of the media, which Mr. Redwood and Mr. Breed mentioned, is another important issue to deal with in passing. It is true to say that we live in a 24-hour news culture in the UK. In that environment, it is not possible to have the sort of cosy relationship that might have existed in the past between the Bank of England and other banks or to justify the expectation that cosy deals can be done and kept secret. Extensive scrutiny takes place through the media. On the whole it is helpful, but the right hon. Member for Wokingham was right to point out that, on some occasions, media speculation has resulted in damaging activity—damaging to markets and damaging to companies' reputations.
Does the Minister accept that many big mergers and fundings in the private sector, which involve large numbers of people, are done with complete confidentiality? It is then preserved until a formal announcement is made because people know that they could face a criminal charge if they do not respect it.
I agree with the right hon. Gentleman's point. I would like to see those proprieties respected much more frequently, but it does not seem to happen that way.
The Minister is being his usual generous self in giving way. The point he seems to be making is that because the Government were worried about misinformed speculation getting to the markets, they decided they would use one particular BBC media person to present the Government's case. Is that the reason all the stories came from the same BBC man nightly on our news screens?
That was not the point I was making at all. I was responding to comments from right hon. and hon. Members about the role of the media, and I was pointing out that that role could be both good and bad. It can be good in respect of the level of scrutiny brought to proceedings, but it can sometimes be bad and damaging if unwarranted speculation creates problems in the economy.
Let me move on to the three main areas that I outlined earlier. First, I shall deal with the extension of statutory cover to expenditure on schemes—principally the Department for Communities and Local Government scheme to support home owners' mortgages and the Department for Business, Enterprise and Regulatory Reform's working capital scheme. Members are right to point out that amendments 75 to 80 cover the authority to spend in those areas.
We think it right not only that we recapitalise the banks, but that other action be taken to help to support the economy in these difficult times. That is why it is important to support home owners who are facing difficulty paying their mortgages and why it is fundamentally right to ensure that UK companies maintain good levels of working capital. What we are trying to achieve through the working capital scheme is to agree a portfolio of companies with each of the major banks that are UK-based and for which we will provide a 50 per cent. guarantee of credit, which will stimulate the further credit lending that the UK economy needs at this time.
Mr. Hoban asked a specific question about amendment 79, particularly about widening the scope. Let us be clear: the amendment allows Departments other than the Treasury to run schemes that can benefit banks' customers, but there must be some connection with banks or financial institutions. It is thus wider, but it cannot support schemes that are purely for non-financial institutions; in that respect, it is limited, but it allows home owners' mortgage support and the working capital scheme. That is the intention behind the provisions.
As I have indicated, there has to be connection with banks or financial institutions, so whether a scrappage scheme falls under amendment 79 would depend on how it was designed. Such a scheme might fall within the powers granted to DBERR under current industry legislation.
Let me move on to amendment 81, about which the hon. Member for Fareham also asked some questions. The purpose—and the effect—of the amendment is to ensure that the financial assistance clause provides statutory cover for drawing money directly from the Consolidated Fund without waiting for estimates to be approved in cases where payments need to be made urgently in order to honour guarantees, indemnities or other commitments given as part of providing financial assistance to financial institutions. We debated that specific issue earlier.
The hon. Gentleman asked about the Government's preference. He recognised the occasional need for Governments to act urgently, and I think the best answer I can give him is that clearly we cannot rely on financial crises happening only at the most convenient point in the estimates timetable or only when Parliament is sitting. That is one reason why clause 81(4) is necessary, but we will not use it unless we have to.
That brings me on to the second area—the general process of financial accountability and reporting to Parliament. First, I want to say that we have some of the best processes for financial reporting, accounting and transparency of any equivalent Parliament in the world. I do not start from the position that what we have now is defective—far from it. I think our system of having money resolutions that provide cover for expenditure, and of having estimates and votes—indeed, the whole supplementary estimates process—is a robust one. Our process of accountability through Select Committees and the reports regularly presented by them to Parliament is similarly an example of where the UK Government leads many others.
I recognise that the exceptional actions taken by the Government in recent months require some additional response, and—given circumstances that are also exceptional—I think it right for Members to issue a challenge by asking what measures Parliament needs to introduce in addition to the normal accountability and reporting arrangements that it has established. That, essentially, is the debate that took place in the House of Lords. It revolved around a recognition that, in view of the strong public interest and the amounts of money involved, greater accountability and transparency were needed in addition to our existing mechanisms. I think it was also recognised that a balance must be struck between the need for that accountability and transparency, and the need to ensure commercial confidentiality and not to damage institutions.
Our amendment in lieu of Lords amendment 83 is intended to explain the Government's reason for striking the balance that did. I explained that in my introductory remarks, but let me now say briefly that we consider a period of six rather than three months more likely to ensure that financial institutions are not identified, given that such identification could cause damaging problems. However, there is no lack of willingness on our part to be accountable for our actions and decisions, and to report them in a timely fashion.
This House would rightly be the first to criticise the Government if they attempted to introduce legislation without sufficient consideration and consultation. We have devoted a significant amount of time to the production of the Bill, we have listened throughout to the comments that have been made, and we have introduced many improvements. I should like to think that the amendments made in the Lords have strengthened the Bill further, which is why we support all of them except Lords amendment 83, on which we beg to differ with the Lords while wishing to retain the spirit of what they had to say.
I acknowledge the sensitivity with which the Minister is trying to approach the issue, and I agree that in normal times semi-annual reporting would probably make sense, but these are extraordinary times. I almost agree with my hon. Friend Mr. Fallon that there should be monthly reporting, but given the fast-moving times and the vast amount of taxpayers' money put at risk, I feel that quarterly reporting represents a fair compromise. Surely it makes sense. Six months is a huge amount of time, given the dynamics of the financial markets today.
I think the hon. Gentleman was in the Chamber to hear my opening remarks, when I outlined the Government's reasons for reaching their view on the six-month period. I have not changed my mind during the course of this short debate—I still think that six months is appropriate—but we have taken on board the spirit of the Lords amendment. We have always sought to adopt a general spirit of bipartisanship and compromise—
—which I am sure the hon. Member for Dundee, East is not intending to rail against.
The hon. Member for Dundee, East is going to repeat the question that he has already asked. The Minister has said three times that the Government wanted to retain the spirit of the Lords amendment. I repeat my last question to him: does that mean that the Government's intention is to report sufficiently to enable us, and the public, to understand the actual and potential liabilities?
I was about to respond to the hon. Gentleman's question, before making a couple of further comments to the right hon. Member for Wokingham. We want to be as open and transparent as possible in reporting Government spending and Government liabilities, and we will seek to be so. We also consider it important for sufficient information to be provided by the Bank of England about its activities.
The right hon. Member for Wokingham asked about the removal of the requirement for the Bank to produce a weekly return. That does not mean that the Bank can provide financial assistance without any reporting. As my noble Friend Lord Myners said in the other place, the Bank will consult on what form of reporting will replace the weekly return. The aim of this provision and others like it in the Bill is to provide for a limited delay for disclosure of assistance to allow enough time for that assistance to be effective. That is similar to what we are saying about Government transparency.
The right hon. Gentleman also described a number of important processes for the Government to undertake when injecting share capital into a bank. We are very familiar with those processes, which we followed to the letter in the recapitalisations of the Royal Bank of Scotland, HBOS and Lloyds TSB. I fundamentally disagree with the right hon. Gentleman if he is suggesting that he did not consider recapitalisation to be necessary at that time.
We welcome the acknowledgement by the hon. Member for Fareham that the Government have been listening both in Committee in the Commons and in the Lords. Transparency is important, and we consider that our amendment strikes the appropriate balance. I hope that the House will support it, and all the Lords amendments except Lords amendment 83.
Lords amendment 83 disagreed to.
Government amendment made in lieu of Lords amendment 83.