Question proposed, That the clause stand part of the Bill.

Following the point made by the hon. Member for Foyle, this Clause relates to the administration of the Financial Services Compensation Scheme and is therefore a legitimate subject for the Committee and Parliament. The FSCS exists, as we all know, to provide compensation in the event of a bank’s failure and is an industry-wide collective insurance scheme. Because it can borrow from the Government to fund compensation costs that the industry cannot absorb immediately without damaging financial stability, the scheme is an issue for the Bill Committee.

In 2008, the Treasury had to lend £20.4 billion to the FSCS to fund its provisions for the depositors of Bradford & Bingley, the London Scottish Bank and, later, the Icelandic banks. The failure of even a moderately sized deposit taker can entail a call on public funds, as we saw with the Dunfermline Building Society, to which the hon. Member for Kilmarnock and Loudoun referred. It was not even in the top 20 listed deposit takers in the United Kingdom, but it had deposits of £3 billion when it failed in 2009.

It is appropriate for the FSCS to have regard to the need for efficiency and effectiveness in how it discharges the functions because of that risk to public funds. That is not simply a concern for the industry; the public purse is exposed and the public interest is therefore engaged, so there is a need for the FSCS’s operating principles and management explicitly to minimise public expenditure, which is what the clause will do.

We have moved on to a series of relatively short clauses that make technical changes to the Financial Services Compensation Scheme. I want to ask the Minister a couple of questions about Clause 10 in the hope that he will give us further information. The FSCS, which he described as an “industry-wide collective insurance scheme”, provides compensation to consumers if a provider of financial services fails. It is funded by a levy on the financial services industry.

Crucially, as the explanatory notes clearly outline, the Financial Services Compensation Scheme can borrow from certain accounts administered by the Treasury to pay out quickly—something important that we support—providing that the loan is judged to be in the public interest. We again return to points that we have repeatedly made in relation to the wording of the legislation and the intent of the Government to ensure that such judgments are coherent and sensible and that we and everyone else understand how they are arrived at.

The clause will add a new section to the Financial Services and Markets Act 2000 to require the Financial Services Compensation Scheme manager—in other words, the chief executive—to have regard to efficiency and effectiveness, as the Minister said. It would again be helpful to tease out some of the issues involving both the public interests, and efficiency and effectiveness. Crucially, proposed new subsection (1)(b) mentions

“the need to minimise public expenditure attributable to loans made or other financial assistance given to the scheme manager for the purposes of the scheme.”

The new section is brief, but it will give quite a lot of responsibility to the scheme manager, so it would be helpful if the Minister advised us whether further instructions will be issued to the scheme manager, what sort of guidance will be in place and what expectations there will be.

The new section makes it clear that the scheme manager will have to take into account efficiency and effectiveness as well as the public interest test, but will the Minister say more about the factors that are taken into account by the Treasury in assessing a request for a loan from the Financial Services Compensation Scheme to get payments out quickly, so that we have an idea of that two-way process? In that context, will the Minister give us further detail about the procedure for resolving differences of opinion or even disputes between the  scheme manager and the Treasury, if they interpret the public interest test and the issue of efficiency and effectiveness slightly differently?

As I have said, I do not have a problem with the intention behind the clause. It is of course important that when any financial services provider fails and money needs to go to those affected that that ought to be done as quickly and sensibly as possible. Given that the legislation refers specifically to the scheme and the scheme manager, it is important to probe the Minister’s intentions further and to ask how he will put in place safeguards to deal with any questions that may arise.

The Clause is fairly minimalist, as the hon. Lady implies, but relates to the fact that the exposure of public funds by the FSCS’s actions requires some reflection in primary legislation, which has not been the case to date. Nothing in the clause provides the power for the Treasury to intervene in the day-to-day activities of the FSCS; it is for the accounting officer to do so. We will come on to the appointment of the accounting officer when we debate clause 12. Committee members who have served on the Public Accounts Committee will know that an accounting officer who, as we shall discuss, is the chief executive, is held to account for their implementation of the requirements on them, which is appropriate. We should regard clause 10 as part of a scheme that includes clause 12. In effect, we will have an accounting officer for the first time in the FSCS responsible to Parliament, the National Audit Office and the Public Accounts Committee. To provide a basis for scrutiny, the accounting officer requires typical objectives, as do public bodies, to carry out their activities with “efficiency and effectiveness”. That is what is behind the choice of words.

It is not our intention to use the clause in any way to manage the FSCS; it is principally a scheme of mutual insurance among financial institutions and it is right that they should order it in that way. Given the ultimate exposure of public funds and the public interest in that exposure being minimised, the measures provide a hook for Parliament, through its Committees and bodies such as the NAO, which works on behalf of Parliament, to obtain the scrutiny that it would not otherwise have.

I am listening closely to the Minister and looking ahead to what we will discuss under Clause 12. To ensure that I have understood his argument fully and that it is on the record, will the Minister confirm that he is essentially suggesting that clause 10 must be seen in the context of clause 12, but there would be no circumstances in which the Treasury would intervene at any stage to direct, give guidance or information, or make requests to the scheme manager, and that the responsibility would be with the scheme manager to comply with the efficiency, effectiveness and public interest tests? Is my interpretation correct?

Yes, the hon. Lady is right. No provision in the Clause gives the Treasury, or indeed any other part of Government, the ability operationally to interfere in the running of the scheme, but it is important that  the scheme is accountable to Parliament for the use of public funds when it uses them, and for the exposure of risk that might be entailed to public funds.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.