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I wish to spend a little time setting out the broad structure and intent of part 6 of the Bill, and then I will not make a habit of leaping up to speak on clause stand part debates unless I have to.
Clause 193 provides an overview of part 6, which repeals and replaces certain provisions regarding the commercial issuance of banknotes in Scotland and Northern Ireland. Before we discuss the details of clauses in part 6, it might help the Committee if I set out the background. The issuance of national banknotes is usually a function undertaken by the central bank, which in the UK is the Bank of England. With the exception of Hong Kong, the UK is highly unusual in allowing a number of commercial banks to issue their own banknotes. The right to issue is set out in the Bank Notes (Scotland) Act 1845, the Bankers (Ireland) Act 1845 and the Bankers (Northern Ireland) Act 1928for ease I shall refer to them in future discussions on part 6 as the current legislation. Although 1845 might not seem all that current, we are in the process of updating it in part 6 of the Bill.
The provisions in part 6 update, modernise and strengthen the current regime for note issue, which dates back, as I just said, more than 160 years. Clearly, the world today is a very different place from when the legislation was first enacted, so I should like to take the opportunity to discuss some of the history of banknote issuance in the UK, to ensure that our future debates are informed of the context.
The Bank Charter Act 1844 prohibited any new banks in England and Wales from issuing banknotes and barred existing note-issuing banks from expanding their issue. The 1845 legislation in Scotland and Ireland made similar provisions in respect of banks in those nations. At the time, 21 banks applied to become certified to continue issuing banknotes in Scotland and Northern Ireland. That number has decreased over time through mergers, insolvency or by banks choosing to stop issuing, so a total of seven issuing banks remain. Those seven banks are currently authorised to issue banknotes and will continue to be authorised to do so with the commencement of part 6, provided that they abide by the requirements placed on them under the provisions of this part.
It was my understanding that banks would continue to be able to issue, but that there would be a higher bar should a new bank emerge and say, I want to issue a banknote, which is highly unlikely. However, a question emerges from that: if the Lloyds TSB-HBOS merger goes ahead, would the Bank of Scotland part of the new organisation continue to be an authorised bank under the new legislation, and therefore entitled to continue to issue notes?
The answer is that the issuing rights are vested in the underlying corporate entity. What happens to the issuing rights depends on the individual circumstances of a takeover. I can assure the hon. Gentleman that in the specific case of Lloyds TSB and HBOS, the Bank of Scotland, which is a subsidiary of the latter, is the issuing bank, and the issuing rights attach to that corporate entity alone. The change in ownershipin this instance, of Bank of Scotlandwould not mean that a bank would be forced to stop issuing banknotes, so it continues under the current proposals to be eligible to issue banknotes. I hope that that reassures him.
I was discussing the history of the matterit might seem odd to do so, but it creates a context for subsequent debate. To reassure the hon. Gentleman even more, the Government are committed to maintaining the long-standing tradition of commercial banknote issuance in Scotland and Northern Ireland and we are not seeking to discourage commercial issuers of banknotes from continuing the practice. However, our priority is to ensure that holders of Scottish and Northern Ireland banknotes have a level of protection similar to the holders of Bank of England notes, so that in the event that an issuing bank fails, they can expect to obtain full face value for their notes. This is an important part of the Governments commitment to protect consumers. There is more detail in part 6 on how that is to be achieved.
With that small history lesson and my reassurance to the hon. Gentleman, I commend the clause to the Committee.
I thank the Minister for her informative introduction to part 6. There are various issues that we want to address, not least the issues of backing assets and the balance between Bank of England notes and other assets. I will address those when we come to the appropriate clauses.
I should be grateful at this stage if the Minister would list the commercial banks that are currently entitled to issue notes. She stated that the Government are keen to continue to allow commercial banks to issue notes. We do not disagree with that. It is an historical curiosity, but there is nothing wrong with historical curiosities. The Minister will not be surprised to hear a Conservative say that. Will she elaborate on why the Government are keen to continue to allow that to happen?
Finally, I thank the Minister for publishing the draft regulations that relate to this matter. They will help our debate as we proceed through the coming clauses.
I was not expecting to speak on this matter. However, as I understand it, the Minister said that if I had a Scottish note issued by the Bank of Scotland and the Bank of Scotland failed, I would not get my money back. I did not think that that was the position.
The Minister says that I got that totally wrong. It would not be the first time.
Was this legislation brought about because of the current crisis, or was it planned before that? If something has worked for close on 200 years, it probably works pretty well and there is no reason to change it for the sake of changing it. Is there any difference between legislation in Northern Ireland and Scotland? How many banks in Northern Ireland issue notes?
I thank the Minister for her helpful reassurance on the Bank of Scotland notes. The bulk of my concerns come under the banking assets debate in clause 203. I put it on the record at this point that after numerous consultations over the past 15 months or so, we finally have something that almost works and that the industry by and large is satisfied with.
The hon. Member for South-West Hertfordshire asked me to list the seven remaining banks that have rights of issuance. In Scotland, they are the Bank of Scotland, which as has been mentioned is a subsidiary of HBOS; the Clydesdale; and the Royal Bank of Scotland. In Northern Ireland, they are the Bank of Ireland, First Trust Bank, the Northern bank and the Ulster bank.
The hon. Member for Wellingborough asked whether the legislation was brought about because of the financial crisis that we are living through. It was not. As the hon. Member for Dundee, East hinted, this is the end of a process that began in 2005 with consultations that have been ongoing since then between the Bank of England, the Treasury, the authorities and the banks that issue to try to bring more reassurance in the backing assets issue.
The hon. Member for Wellingborough asked whether current banknotes were in danger, or were not worth as much as they are meant to represent. Clearly that is not the case, but some aspects of how the notes are backed are old-fashionedthey date to 1845and do not fit in with current approaches, so they need tightening up. That is what part 6 will do. There is nothing wrong with the current legislation that cannot be put right by modernising and refocusing bits of it, and part 6 seeks to do so. I hope that, with those reassurances, the Committee will be able to agree that clause 193 should stand part of the Bill.