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Clause 9

Banking Bill – in a Public Bill Committee on 6th November 2008.

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Specific conditions: temporary public ownership

Question proposed [this day], That the clause stand part of the Bill.

Question again proposed.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

That was the longest intervention that I have ever had to deal with—it has lasted several hours—but the hon. Member for South Derbyshire (Mr. Todd) made a good point earlier. I wrote down what he said. It is the reverse of the point that I was making, but it is none the less a point of principle.

The hon. Gentleman said that there was a market solution for HBOS and Lloyds. The competition laws were originally torn up so that there would be a market solution, but since then we have had nationalisation. That is at the heart of the issue.

The Government say that nationalisation is the last resort. However, we have seen with HBOS and Lloyds that it is not the last resort but the favoured resort. We must return to that question on Report, as the Government’s assurances and statements do not match the Bill’s provisions; nor do they match what is happening in practice.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

I shall make a couple of points in response to the hon. Gentleman’s concern about whether temporary public ownership is a measure of last resort. As I indicated earlier, it is not appropriate to use the term “last resort” in the Bill. However, I believe that the Bill makes it clear that temporary public ownership is a tool of last resort. I shall explain why.

The Bill achieves that purpose by ensuring a higher public interest test for temporary public ownership than for the stabilisation options of transfer to a private sector purchaser or a bridge bank. The hon. Member for Fareham will appreciate that under clause 9 a bank can be taken into temporary public ownership only if there is a serious threat to financial stability or if it is necessary to protect the public interest when financial assistance has been provided to the failing bank to reduce or resolve that threat to financial stability.

Under clause 8, however, a bridge bank or private sector purchase can be exercised if it is necessary to protect financial stability, to protect confidence in the banking systems or to protect depositors—or any combination of the three. Under clause 8, the Bank of  England can exercise a private sector purchaser or bridge bank tool if it believes that it is necessary to protect the failing bank’s depositors, even if it believes that there is no risk to financial stability. That is not allowed for temporary public ownership.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

In effect, clause 9 covers a much narrower set of circumstances, with stricter tests. Clause 8 deals with a much wider range of conditions that could be used to justify bridge bank or private sector solutions, whereas clause 9 deals with a narrow and serious threat to financial stability, or financial assistance, and it is that which could trigger temporary public ownership.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

Bingo! That is exactly the position I was trying to explain. Clause 8 would allow the regime to be exercised on the grounds of needing to protect depositors. We cannot do that under clause 9. We believe that the narrowing demonstrates that temporary public ownership is a last resort. It is clearly not appropriate to put it in the Bill, but that is certainly what is intended.

Question put and agreed to.

Clause 9 ordered to stand part of the Bill.