asked Her Majesty's Government:

Whether they support the takeover of HBOS by Lloyds TSB.

My Lords, on the advice of the Bank of England and the Financial Services Authority, HM Treasury believes that the merger between Lloyds TSB and HBOS will have benefits for financial stability. The boards of both banks wish to continue with the merger and so the Government have agreed a recapitalisation package with them on that basis. It is now a matter for shareholders whether the merger proceeds.

My Lords, I am grateful to the Minister for his reply. Does he accept the findings of the National Institute of Economic and Social Research that the banks will need an additional £110 billion on top of what they have already been given? Does he agree with his right honourable friend in another place, John McFall, the chairman of the Treasury Select Committee, that, if the banks do not play ball and resume spending, the demand for full-scale nationalisation may well grow? Does he agree with him that civil servants are good at running banks?

My Lords, there were three questions there. First, no money has been given to banks. Shares are being acquired in banks on fair market value terms, terms available to other investors. Funds are being lent to banks through guarantees and insurance on a market-price-related basis. There are many estimates of the likely required capitalisation of banks. I am content to rely on the advice that we received at the Treasury from the Financial Services Authority. The capitalisation that it proposed, and on which we worked on 13 October, is a stressed-condition capitalisation, which ensures that banks will be able to cope with a serious recession while at the same time maintaining their capacity to lend.

Finally, in response to the noble Lord's final question, the banks are not being run by civil servants. They are being run by their own management under their own boards of directors, which in certain instances will be strengthened as a result of actions that we have taken to support the recapitalisation of the banks.

My Lords, have not Her Majesty's Government shown in this case an unusual bias in favour of the merger, first, by specially passing regulations to ensure that financial stability could be an issue overriding the Office of Fair Trading's concern with the maintenance of competition and, secondly, by saying that the bailout or capitalisation of the banks should be conditional on this merger going ahead?

My Lords, the Secretary of State has taken action to ensure that financial stability is a condition under which a merger of this sort can take place—quite rightly so. Preserving financial stability and ensuring that our banks are in a position to support the needs of their customers, businesses and individuals, are essential. The Secretary of State has taken the appropriate action to ensure that that can be done.

My Lords, the Minister will no doubt be aware of the publication from Yorkshire Forward, the regional development agency, called Lloyds TSB/HBOS: The Yorkshire Solution. That document makes clear that 7.2 per cent of all jobs in the greater Halifax area are with HBOS. That, incidentally, compares with 1.9 per cent in Edinburgh. I declare that my son-in-law is one of that 7.2 per cent.

Noble Lords:

Oh!

My Lords, we have to declare interests. On 18 September, 10 weeks ago, we first learnt of the merger. Would it not really be sensible if Sir Victor Blank, the chairman, and Eric Daniels, the chief executive, visited the town of Halifax and assured the employees and the community about their intentions regarding the 6,500 jobs in that town?

My Lords, I am afraid that I cannot account for the movement of Sir Victor Blank and Mr Eric Daniels. What I do know is that I have met Yorkshire MPs and those who speak on behalf of Yorkshire Forward. I am aware of the concern in Yorkshire, particularly in Halifax and Bradford, about the problems experienced by Bradford & Bingley and HBOS. I know the strength, durability and skill of the Yorkshire workforce and I am sure that those skills will be recognised by the management of Lloyds TSB.

My Lords, what is the position with regard to bank notes issued by the Bank of Scotland in the event of a merger?

My Lords, those banknotes will continue to be legal tender and I understand that the Bank of Scotland intends to continue to issue banknotes.

My Lords, does the Minister agree that the financial services industry in our country would be in better shape if the mutual and customer-owned building societies and banks had not been privatised in the first place?

My Lords, the right reverend Prelate asks an interesting question. I have in the past expressed sadness at the decline of mutuals, insurance companies and banks. It is a great shame, but the owners of those mutuals—their members—voted in favour of this happening. To some extent, they have brought some of these problems on themselves. I hope that the remaining mutuals, particularly in the building society movement, will continue to be strong and purposeful and deliver good value for their customers.

My Lords, I first declare an interest as a customer of the Bank of Scotland for nearly 50 years. May I suggest to my noble friend—

Noble Lords:

Ask a question!

My Lords, does my noble friend agree with me and one of the most distinguished Members of this House that "there is no alternative" to the merger of these two banks? Does he also agree that, if we had had the mischance of having an independent Scotland, both the Bank of Scotland and the Royal Bank would now be bankrupt and have disappeared altogether?

My Lords, there were two questions there. The second is hypothetical, which I do not intend to answer. The merger of Lloyds TSB and HBOS is a matter for the shareholders and the courts which will have to define whether the merger process accords with legal requirements. I will leave it to the shareholders and the courts.