Friday 1 November 2013
Royal Bank of Scotland
Today I can report to the House that the Government have concluded their review into the case for a Royal Bank of Scotland (RBS) “bad bank” and the new management of RBS is setting out a new direction for the bank.
The new direction for RBS, supported by the management and board of RBS, UK Financial Investments (UKFI), the Government (its biggest shareholder), and the Bank of England (its prudential regulator), will lead RBS to being a boost to the British economy instead of a burden. It is part of the Government’s economic plan for sustaining the economic recovery and creating a banking system that works for Britain. It will enable RBS to focus on its core British business, supporting British families and companies.
The new direction includes:
i) A bad bank to separate and wind-down RBS’s poorly-performing and high-risk assets that are a legacy of what went wrong in its past. This will enable RBS to look to the future and deliver its new strategy. Instead of an “external” bad bank that would require further support from the taxpayer, this will be an “internal” bad bank funded by RBS itself. This will target the wind down or sale of approximately £38 billion of assets within three years;
ii) Fully selling Citizens Financial Group in the United States and continuing to shrink RBS’s investment banking arm, generating more capital that will support more UK lending; and
iii) Creating a smaller bank with reduced costs and a new commitment to become the number one bank for small and medium-sized enterprises—measured by a newly-created independent survey to be run by the Federation of Small Businesses (FSB) and the British Chamber of Commerce (BCC).
This is a key part of rebuilding the banking system and brings us a step closer to returning RBS to the private sector. This is good news for British businesses, for the British taxpayer and for the British economy.
Already as a result of the measures announced today, the Bank of England has confirmed that the taxpayers’ exposure to the banking system can be further reduced by removing the £8 billion contingent capital facility for RBS one year early.
I have always been clear about the Government’s objectives for RBS: to support the British economy, to get the best value for money for the taxpayer, and to set RBS on a path towards return to private ownership. These were the reasons for conducting the bad bank review, which I commissioned in June. The publication of RBS’s new direction and the announcement of an internal bad bank today follows the conclusion of that review.
The review established on the basis of extensive independent advice that the benefits of an external bad bank would be marginal and uncertain. Rothschild advised that the creation of an external bad bank would do more harm than good to RBS as it would not contribute to a capital improvement, would distract management and would produce significant implementation challenges.
In contrast the announcement of this new direction for RBS demonstrates clear benefits: strengthening the firm’s balance sheet, dealing effectively with legacy assets, charting a path to improved profitability and retiring the Dividend Access Share (DAS), which will pave the way for eventual reprivatisation.
This internal bad bank, which will be based on international examples of where similar action has worked, such as the bad bank created by Citigroup in the US will help deliver the Government’s objectives for RBS, but without the extra risks to the taxpayer of an external, taxpayer-funded bad bank.
Rothschild has advised the Government that tackling RBS’s wider issues—the coherence of its strategy and the profitability of its “core” businesses—is as important for meeting the Government’s objectives as tackling its poor-performing legacy assets. It also advised that the new strategy announced by RBS should over time address many of the bank’s challenges and areas of investor concern, which in the longer term should be reflected in an improved valuation and improve the prospects for an earlier return of RBS ownership to the private sector.
When the DAS is retired—on which the Treasury and RBS are now in advanced negotiations with the European Commission—this should also make RBS shares more attractive to external investors and bring forward the day when taxpayers can get their money back.
The Bank of England will play a continuing role in overseeing the implementation of the new direction as part of its ongoing supervision of the firm. The shareholder value implications of this plan have been reviewed by UKFI, who will oversee the development and implementation of RBS’s strategy in line with their mandate to act commercially and in the best interests of the taxpayer as shareholder.
GCSEs Reform (English and Mathematics)
I announced in February my intention to reform GCSEs to ensure they are rigorous and robust and give students access to high-quality qualifications which match expectations in the highest performing jurisdictions.
Today I am publishing the outcome of a consultation on subject content for new GCSEs in English literature, English language and mathematics, which will be taught in schools from September 2015. I have prioritised English and mathematics because they are both fundamental to facilitating learning in other subjects, and yet the programme for international student assessment (PISA) evidence demonstrates that 15-year-olds in nine other countries are, on average, at least half a year ahead of students in England in both reading and mathematics. Reform of these key subjects is, therefore, a matter of pressing urgency.
The new mathematics GCSE will demand deeper and broader mathematical understanding. It will provide all students with greater coverage of key areas such as ratio, proportion and rates of change and require them to apply their knowledge and reasoning to provide clear mathematical arguments. It will focus on ensuring that every student masters the fundamental mathematics that is required for further education and future careers. It will provide greater challenge for the most able students by thoroughly testing their understanding of the mathematical knowledge needed for higher-level study and careers in mathematics, the sciences and computing.
The new mathematics GCSE will be more demanding and we anticipate that schools will want to increase the time spent teaching mathematics. On average secondary schools in England spend only 116 hours per year teaching mathematics, which international studies show is far less time than that spent on this vital subject by our competitors. Just one extra lesson each week would put England closer to countries like Australia or Singapore who teach 143 and 138 hours a year of mathematics respectively. We announced on 14 October that mathematics, alongside English, will be double weighted in secondary school performance measures from 2016. This will also provide a strong incentive for schools to ensure that they are strengthening their mathematics provision.
My ambition is that the great majority of students should continue to study mathematics, post-16, by 2020. All students without a grade C or above will continue to study mathematics post-16. New high quality “Core maths” qualifications will be introduced from 2015 for students who have passed GCSE, and want to continue to improve the mathematics skills they need for further education and work, but do not wish to take a full AS or A level. The new GCSEs will provide a firm foundation for this further study.
The English language GCSE will provide all students with a robust foundation of reading and good written English, and with the language and literary skills which are required for further study and work. It will ensure that students can read fluently and write effectively, and will have 20% of the marks awarded for accurate spelling, punctuation and grammar. It will also encourage the study of literature for those who do not take the English literature GCSE, with students reading high-quality texts across a range of genres and periods.
The new English literature GCSE will build on this foundation, and encourage students to read, write and think critically. It will involve students studying a range of intellectually challenging and substantial whole texts in detail including Shakespeare, 19th century novels. Romantic poetry and other high-quality fiction and drama.
The new GCSE will also ensure that all students are examined on some “unseen” texts, encouraging students to read widely and rewarding those who can demonstrate the breadth of their understanding.
In September of this year Ofqual and I confirmed that, for the remaining subjects consulted on, new GCSEs will be ready for teaching from 2016. The content for those subjects will be published in spring 2014.
The new GCSEs in English and mathematics set higher expectations; they demand more from all students and provide further challenge for those aiming to achieve top grades. Alongside the GCSE content we are publishing today, Ofqual is announcing its decisions on the key characteristics of reformed GCSEs, including new arrangements for grading and assessment.
The Government’s response to their consultation and the new subject content for GCSEs in English literature, English language and mathematics have been published on their website and I will place copies of these documents in the House Libraries.
Prison Service Pay Review Body
I am pleased to announce that the Prime Minister has appointed Elaine Hartin as a member, and reappointed Peter knight as the chair, to the Prison Service Pay Review Body, all for three years, commencing September 2013 and March 2014 respectively. The appointments have been conducted in accordance with the Commissioner for Public Appointments’ code of practice on appointments to Public Bodies.
Wales (Infrastructure and Finance)
The Chancellor of the Exchequer, the Chief Secretary to the Treasury and I are pleased to set out the Government’s plans to facilitate infrastructure investment in Wales, in order to stimulate economic recovery and build growth in the Welsh economy.
Infrastructure in Wales has suffered from years of under-investment that, since 2010, this Government has worked hard to put right. Wales is benefiting directly and indirectly from almost £2 billion of investment to modernise the rail network, including electrifying the mainline to Swansea and the railways serving the south Wales valleys; £250 million to build a new prison in north Wales; £57 million to bring superfast broadband to Wales; and Hitachi’s investment in new nuclear at Wylfa, which is a great opportunity to create jobs and drive economic growth in north Wales.
We have also been clear about the need to work with the Welsh Government to ensure they are able to invest in infrastructure in those areas in which they take the lead, and in particular on those roads in Wales which form part of the trans-European road network—the M4 in south Wales and the north Wales expressway.
Upgrading the M4 around Newport is an urgent priority for both Governments, and I am committed to working with the Welsh Government to deliver the improvements that are required.
In October 2012 the UK Government agreed in principle that the Welsh Government should be allowed access to capital borrowing powers to invest in infrastructure in Wales, subject to an independent revenue stream being available to it to repay the money it borrows.
That agreement has informed our consideration of the recommendations made last year by the Commission on Devolution in Wales (the Silk Commission), and I can confirm that the Government will implement the key proposals in the Commission’s first report. These are:
We will give the Welsh Ministers borrowing powers, so that they can borrow money to invest in Wales;
We will devolve certain taxes, as the Silk Commission recommended to ensure the Welsh Government have an independent funding stream to pay back the money they borrow;
We will devolve landfill tax and stamp duty land tax in Wales;
And we will provide for a referendum to take place so that people in Wales can decide whether some of their income tax should be devolved, in the same way as it is in Scotland.
These measures will give the Welsh Government the tools to invest in infrastructure in Wales and, in doing so, will make the National Assembly for Wales and the Welsh Government more accountable to the people in Wales who elect them. Since devolution these institutions have been accountable for how they spend taxpayers’ money. As a result of my statement today, they will be more accountable for how they raise it.
We will legislate to implement these changes as soon as parliamentary time allows. As a first step, we will publish a draft Wales Bill in the next few months to allow Parliament to scrutinise the legislation in draft.
We will enable the Welsh Government to use their existing limited borrowing powers before the new tax and borrowing powers come on stream to get the improvements to the M4 under way as soon as possible.
Before the end of the year we will announce the Government’s response to all 33 recommendations made by the Commission in its first report.