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Clause 44

Banking Bill – in a Public Bill Committee at 5:15 pm on 11th November 2008.

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Orders

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

With this it will be convenient to discuss Government amendments Nos. 99 to 101 and 112.

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

Amendments Nos. 98 to 101 make several modifications to provision for compensation scheme orders under subsection (2). The purpose of the amendments is to enable the Treasury, where appropriate, to make provision in a compensation scheme order for a sum of compensation to be paid, rather than to make provision for establishing a scheme for determining whether transferors should be paid compensation.

I will explain why I think that that modification is essential. As I have already stated in debates on earlier clauses, in most circumstances the preferable stabilisation option for the authorities will be to effect a sale to a private sector purchaser. In such circumstances, a price will be agreed between the purchaser and the Bank of England. That price may have been determined in one of a number of ways, including an auction process.

In such circumstances, the price agreed reflects a market rate, and the Government therefore believe that there is no need to appoint an independent valuer to determine the compensation due to the transferors as the basic principle under article 1, protocol 1 of the European convention on human rights is that compensation must normally bear a reasonable relation to the property expropriated. In such circumstances, the Government believe that the process of selling the institution would have determined the fair market value, and that there is therefore no need to appoint an independent valuer. The compensation scheme order should simply state the  level of compensation—the price agreed—rather than providing for a mechanism to determine the compensation payable.

Let me also be clear that there is still a means for transferors and other interested parties to appeal against the provision for compensation made in the order. That would be by way of the appeals process set out in the order, or by way of judicial review. I would also like to point out that compensation scheme orders are subject to the draft affirmative procedure. Therefore, Parliament can scrutinise the order and assess whether the provision for compensation is appropriate.

The Government are committed to ensuring that the fair value of compensation is paid to parties who have suffered a compensatable interference in their property rights as a result of an exercise of the stabilisation powers. While in many cases that will be done through an appointment of an independent valuer, in some circumstances the appropriate level of compensation can be determined through the process of resolution itself, and it is in those circumstances that I believe the Treasury should be able to specify the sum of compensation due in the compensation order. Amendments Nos. 98 to 101 make incidental appropriate technical provision that allows that. Finally, amendment No. 112 makes it clear that a compensation order is a statutory instrument.

I hope that hon. Members will agree to the amendments to clauses 44 and 56.

Amendment agreed to.

Amendments made: No. 99, in clause 44, page 21, line 7, leave out ‘determining’ and insert ‘establishing a scheme for determining’.

No. 100, in clause 44, page 21, line 7, after ‘compensation,’, insert

‘or providing for transferors to be paid compensation,’.

No. 101, in clause 44, page 21, line 8, at beginning insert ‘establishing a scheme for’.—[Ian Pearson.]

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I beg to move amendment No. 145, in clause 44, page 21, line 10, leave out ‘things transferred’ and insert

‘the bridge bank or bank in public ownership, or any property or rights of the bridge bank or bank in public ownership’.

The amendment refers to the wording in subsection (3) about a resolution fund order. As the Minister has set out, there are essentially two stages in a typical transaction—if there is such a thing in these circumstances. The first stage is the transfer of the assets into a bridge bank or temporary public ownership, and the second stage is the transfer of the assets out to a private sector purchaser. It is not clear whether the resolution fund order applies to just the first stage, just the second stage or both. The purpose of the amendment is to probe what the Government seek to achieve.

The subsection states that a resolution fund order is

“an order establishing a scheme under which transferors become entitled to the proceeds of the disposal of things transferred”.

I seek clarity as to what “disposal of things transferred” means. The amendment breaks that down into the two stages, which would provide greater clarity if the Government’s intention was to cover both stages. If the Government’s interpretation of “disposal of things  transferred” is broad, the amendment incorporates that; if it is narrow then it does not. I should be grateful for the Minister’s reply.

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

Clause 44, which the hon. Gentleman seeks to amend, sets out three types of compensation provision that can be made to compensatable persons. The first provision is the “compensation scheme order”, which requires a scheme, involving the appointment of an independent valuer to assess compensation due, to be put in place for the purposes of compensating a bank or its shareholders. Members will recall that a similar compensation order was put in place in respect of powers under the 2008 Act to bring Northern Rock into temporary public ownership. The Government amendments to clause 44 also need to be borne in mind.

Clause 44 also provides for a “resolution fund order”, which creates a scheme whereby transferors—the bank or its shareholders, depending on whether property or share transfer powers have been used—become entitled to the net proceeds of the resolution, subject to the deduction of the costs of the resolution. The scheme will include the method of calculation and distribution. Finally, the clause includes a “third party compensation order”, which provides for compensation to be provided to persons other than the transferors who have their termination rights interfered with by a partial transfer.

The Bill requires all compensation orders to be subject to the affirmative procedure, as set out under clause 56, which is in line with the recommendations of the Delegated Powers and Regulatory Reform Committee in respect of the 2008 Act. The compensation provisions in the Bill will provide suitable mechanisms for determining compensation. I hope that that background explanation was helpful.

I appreciate that the amendment tabled by the hon. Member for South-West Hertfordshire is a probing one. The clause does not refer specifically to the disposal of a whole bank in public ownership, but to the proceeds of disposal of things transferred, so a broad definition is provided for. The clause encompasses the meaning that he desires, as it does not refer to any particular method of disposal. His amendment, therefore, is not necessary. With that clarification, I hope that he will seek leave to withdraw it.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The purpose of my amendment was to seek clarification, and I am grateful to the Minister for providing it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 44, as amended, ordered to stand part of the Bill.

Clauses 45 to 47 ordered to stand part of the Bill.