asked Her Majesty’s Government:

What proportion of savers’ deposits, as opposed to accounts, will be covered by the proposed increase in the limit of the guarantee scheme to £50,000, and what is their estimate of the value of savings which remain unprotected.

My Lords, the FSA has published estimates of the effect of an increase in the deposit compensation limit to £50,000 in its consultation paper issued last Friday. For banks, the estimates are that a £50,000 compensation limit would cover 98 per cent of accounts and 60 per cent of deposits. The £35,000 compensation limit covered 96 per cent of accounts and 52 per cent of deposits. For building societies, the estimates are that a £50,000 compensation limit would cover 97 per cent of individuals and 77 per cent of balances. The £35,000 compensation limit covered 95 per cent of individuals and 69 per cent of balances.

My Lords, with very substantial sums not covered by the guarantee, is it any wonder that people are moving their money about and adding to the pressure on banks and building societies? Does the Minister not see that what is needed is action this day to guarantee deposits, and to end the uncertainty and the leaks about government discussions with the banks, which is undermining confidence and making a serious situation worse?

My Lords, the noble Lord will appreciate the fact that the FSA has acted in increasing these figures, which is proof of the urgency of the situation and the necessity of a prompt response. The Government have gone to Europe to discuss with the other major economies there the fact that there should be some co-ordination on the degree of support. We are all well aware of the fact that in one or two cases co-ordination has been remarkably absent. We must look towards a European-wide standard for that co-ordination. In the mean time, the Government will do all that they should to safeguard the interests of taxpayers and depositors.

My Lords, while recognising that the noble Lord, Lord Forsyth, could turn almost anything into a party-political point, would my noble friend accept that even under the £35,000 limit it would be perfectly proper for anyone to move their account to a different bank without harming the bank? In any event—taking the point that I made to him yesterday—would it not be better if the Government made it quite clear that there was no likelihood of any depositor losing any money in existing banks or building societies?

My Lords, there is no such likelihood, because our major banks and building societies are entirely secure. However, we have had one or two instances of runs on banks and building societies which did require prompt action, which has been carried out—action which in the case of Northern Rock, as the Chancellor was able to report yesterday, has already produced some significant beneficial effects. The Government always make sure that any support that they give is against longer term securities, which safeguard the interests of the taxpayer in the longer term.

My Lords, could the Minister help to relieve some uncertainty? If a deposit is held off-balance sheet or in a liquidity fund offshore, will that count for an assurance of replacement of up to £50,000?

My Lords, the noble Lord will recognise that the scheme, and the increase in the limit, is there to protect relatively small depositors. Very large tranches of money through institutional investors are not covered by the scheme, but no one in this House would expect them to be.

My Lords—

My Lords—

My Lords, there is time for both noble Lords. Perhaps the noble Lord, Lord Higgins, could go first.

My Lords, the noble Lord did not answer the final part of the Question; namely,

“what is their estimate of the value of savings which remain unprotected”,

and how does that compare, percentage-wise, with those which are?

My Lords, that is an extremely difficult calculation to make. We are not in a position to make it. We are in a position to protect the retail depositor, and that is what we have carried out. The noble Lord will be all too well aware of the fluctuations in resources between banks and countries which reflect the global position which we all confront at present. The authorities’ concern is to reassure depositors with limited resources—not institutional investors—who have the right to see that their deposits are safe, and they are.

My Lords, the Minister knows from our discussions yesterday that there is great concern about the situation of the banks in Iceland. Will he give an assurance that, if Icelandic banks go bust, UK citizens with deposits in those banks will be able to claim the full £50,000 compensation from the UK compensation scheme, with the Government then going to Iceland to get the proportion due, rather than expecting depositors in this country to tramp the streets of Reykjavik looking for redress?

My Lords, the situation with regard to Icelandic banks is a difficult one and changing each hour. My note says quite clearly that the Government are continuing to work closely with Icelandic authorities to understand fully the developments in the Icelandic banking sector. I therefore cannot add a great deal more enlightenment, except to reassure the noble Lord that of course the financial services compensation scheme and the UK authorities will work with the Icelandic authorities to achieve exactly the results that he enjoins on me.

My Lords, I confess to having some concerns still. Maybe it is because I have misunderstood the scheme. What about the small business person or the person on very modest income but not on PAYE who uses their bank deposit to, in effect, save for their tax liability and therefore forfeits some of the safety net for their personal savings which would otherwise be available to them? Surely those people, who may be of very modest means, are placed at some disadvantage?

My Lords, the Financial Services Authority is all too well aware of exactly the category to which my noble friend rightly draws attention; namely, those who have temporary high balances because of the businesses they transact. The FSA is addressing itself to that issue.